United Rentals Aktie

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

No, I think you covered it well.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Right.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

No. No, I think you covered it well.

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

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

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

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

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

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

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

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

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

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

No, you covered it well.

Jamie, did I miss anything in there?

No, I'm good.

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

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

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

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

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

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

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

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

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

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

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

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

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

Operator, please end the call. Thanks.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Lets now to Angel Castillo with Morgan Stanley. .

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

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

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

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

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

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

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

We go next now to Jamie Cook with Truist.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

No, I think that covers it.

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

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

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

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

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

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

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

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

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

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

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

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

No, no, I agree. .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Good morning, and welcome to the United Rentals Investor Conference Call. Please be advised this call is being recorded. Before we begin, please note that the company's press release, comments made on today's call and responses to your questions contain forward-looking statements. The company's business and operations are subject to a variety of risks and uncertainties, many of which are beyond its control. And consequently, actual results may differ materially from those projected. A summary of these uncertainties is included in the safe harbor statement contained in the company's press release. For a more complete description of these and other possible risks, please refer to the company's annual report on Form 10-K for the year ended December 31, 2024, as well as to 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, and EBITDA and adjusted EBITDA. Please refer to the back of the company's recent investor presentation to see the reconciliation from each non-GAAP financial measure to the most comparable GAAP financial measure.

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

Thank you, operator, and good morning, everyone. Thanks for joining our call. Yesterday afternoon, we were pleased to report solid second quarter results, which reflected a continuation of the momentum we reported last quarter. More importantly, our updated guidance speaks to the confidence both we and our customers have in the remainder of the year.

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 one UR culture every day. This includes putting safety at the forefront of everything we do to enable us to deliver a superior value proposition and ultimately, the results our shareholders have come to expect.

In the second quarter specifically, we again saw growth across both our industrial and construction end markets. Healthy demand for used equipment and ongoing optimism from the field, which is reinforced by our Customer Confidence Index.

So having said all this, today, I'll review our second quarter results and touch on our updated 2025 guidance. Then I'll discuss the recent win, which illustrates our strategy in the utility vertical, followed by a look into how our best-in-class telematics is helping our customers improve their own productivity. Afterwards, Ted will review the financials in detail before we open up the call to Q&A. So with that, let's start with the second quarter results.

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 records. Fleet productivity increased by 3.3%, supported by disciplined execution. Adjusted EBITDA increased to a second quarter record of $1.8 billion, translating to a margin of nearly 46%. And finally, adjusted EPS came in at $10.47.

Now let's turn to customer activity. We continue to see growth in both our GenRent and Specialty businesses. Specialty rental revenue grew 14% year-over-year, while opening 21 cold starts in the second quarter. We remain on track to open at least 50 this year. By vertical, our construction end markets saw impressive growth across both infrastructure and nonresidential 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 expectations. The demand for used equipment remains healthy, and we're on track to sell approximately $2.8 billion of fleet this year. 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 expectations. Specialty and large projects continue to fuel growth. And we feel that we are well positioned to serve these based on our go-to-market approach and our one-stop-shop value proposition. Subsequently, year-to-date, we've generated free cash flow of $1.2 billion, with the expectation to now generate between $2.4 billion and $2.6 billion for the full year, which includes the benefit from the recent changes in federal tax policy.

Our ability to generate free cash flow remains a distinguishing feature of the company. As you've heard me say repeatedly, the combination of our industry-leading profitability, capital efficiency and the flexibility of our business model enables us to generate meaningful free cash flow throughout the cycle and in turn, allocate that capital in ways that allow us to create long-term shareholder value.

In regards to capital allocation, our balance sheet is in excellent shape. This quarter, after funding organic growth, we returned $534 million to shareholders through a combination of share buybacks and/or dividend. 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. Our leverage of 1.8x remains towards the lower end of our targeted range, leaving plenty of dry powder to support growth and return excess capital to our shareholders. 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.

Now let's turn to the rest of 2025. As evidenced by our updated guidance, our expectations for the year at the midpoint are total revenue growth of 4% or 5% ex used, with EBITDA margins north of 46%. Our CapEx expectations are unchanged, while we do expect higher free cash flow, as I discussed earlier.

Looking beyond 2025, we continue to focus on driving profitable growth. Key to this is partnering with our customers so we're able to meet their demands and improve their own productivity. Through our one-stop-shop offering supported by unmatched technological capabilities, we're able to serve our customers and drive repeat bases. The rental business is very much based on trust, and we're diligent in our approach to building this by delivering on our commitments.

Our value proposition to the customer goes beyond just equipment. We have a large and reliable fleet, 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 utilities. The acquisition of [indiscernible] last year was the perfect opportunity to marry this strategy with an additional product. Case in point, the utility vertical is now north of 10% of our revenue versus 4% fewer than 10 years ago. Just recently, a large utility customer awarded us a 5-year agreement because we took the time to work with operators across 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 then products across every specialty business we have. 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.

On the technology front, this year, we continue to enhance our advanced telematics offering, which helps customers operate even more efficiently. By utilizing the unique functionality of our telematics and total control software, customers can realize meaningful savings across all their fleet needs. With complete visibility to their rental fleet and aggregated information across multiple projects, optimizing consumption and productivity becomes a reality. Our capabilities also help customers reduce unauthorized equipment use and subsequent fuel consumption and overage fees. Instances such as these, where we help boost productivity and budget efficiency, make us a better partner to our customers and enable repeat business. 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 us to win.

In closing, the year continues to play out as expected, with our team doing an outstanding job supporting customers to drive profitable growth. Our business model, strategy, competitive advantages and capital discipline will allow us to generate compelling returns for shareholders in the long term.

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

Thanks, Matt, and good morning, everyone. As Mat Matt shared, 2025 continues to progress as expected, with second quarter records across total revenue, rental revenue and EBITDA. Looking ahead, our updated guidance reflects the demand we see across our end markets supported by our differentiated strategy and strong execution. So with that said, let's jump into the numbers.

Rental revenue increased $200 million 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. 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.

Turning 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. 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. 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 adjusted EBITDA 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 at 70 basis points. 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. 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. The last thing I'll mention on the P&L side of things is our adjusted earnings per share of $10.47.

Shifting to CapEx. Second quarter gross rental CapEx was $1.57 billion, consistent with normal seasonality.

Moving to returns on free cash flow, our return on invested capital of 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 1.8x at the end of June, and total liquidity of $3 billion. I'll note, this was after returning $902 million to shareholders year-to-date, including $235 million via dividends and $667 million through share repurchases.

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, equating to close to $37 per share or a return of capital yield of about 4.7%.

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 midpoint 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.

In terms of specifics, for total revenue, we're increasing the midpoint by $100 million while narrowing the range to $15.8 billion 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 use of about 5%. Importantly, the increase in 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.

On adjusted EBITDA, we increased the midpoint by $50 million while narrowing the range to $7.3 billion to $7.45 billion. Notably, this primarily reflects the net impact of the H&E termination benefit. As was the case of 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 billion to $3.95 billion. And finally, we are raising our free cash flow guidance by $400 million to $2.4 billion 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 taxes. As was the case with both revenue and EBITDA, our core expectations for free cash flow are largely unchanged.

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

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

I mean, it appears that the time utilization year-to-date is probably a little better than you'd say, was feared 6 months ago. But the kind of capturing of inflation, the price cost as well as the ancillary mix as sort of maybe a little disappointing 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, some of the moving equipment between branches? How to maybe minimize those costs and how you think about ancillary growth versus the growth in owned equipment fleet in the second half versus, as you mentioned, right, the first half ancillary has grown a lot faster than the OER fleet? And then I have a quick longer-term question after that.

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 ancillaries, whether that's fuel, whether that's set up and breakdown of engineered solutions, anything from power solutions to job trailers and mobile storage, right? Those all fall in the ancillary bucket. The one that we're pointing to as outsized, for lack for a better word, is a delivery, which is also in its ancillary. And when you think about the first half of the year, one of the big movers there is the [indiscernible] acquisition that we lapped in March. 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 -- that'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 lap the [indiscernible]. And we expect as that becomes less prevalent that won't have that same level of impact and drag of ancillary in the back half of the year. That's in our expectation, and then we'll update you guys how that's come along in October. As far as price cost, I'll let Ted take that.

Yes. Thanks, David. So I'd say, overall, we've been pleased with how both price, which is French for rate, has played out, and costs. In line with expectations, we continue to see very good discipline across the market. So that's one of the things that's critical. When you think about kind of how costs have played out, again, in line with expectations, there are a couple of 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 "cost us dollars," right? 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 discretely consistently has been delivery. And I'd say within that, again, it gets to ancillary, 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 time 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 mentioning 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 forgo simply for the sake of chasing some arbitrary margin, 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 costs 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 you want.

Yes, it sounds like the second half of the year, the reason the year-over-year incrementals ex used are going to improve is more that ancillary growth getting more in line with owned fleet, not necessarily a better price cost. Is that a fair comment? I was just fishing if there was any maybe less equipment being moved the second half versus the first half, whatever maybe, I was just curious on that price cost dynamic. It sounds like it's more ancillary back in line is really...

Yes, that's fair. That's fair. That will be the 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 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. We do expect that to continue. And frankly, that was a normal dynamic prior to that kind of really high-growth period where it was so broad-based that we didn't have to kind of move fleet. But just to kind of help with the numbers. If you think about, call it, a roughly $100 million of 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 will give you a sense for how that margin performed ex ancillary, right? And so we've talked about 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 path through is that, I think, mentioned. So at least that will allow people to start playing with sensitivities to understand how 2 half versus 1 half we expect to play out.

Yes, at 17%, 18% of rental revenue, ancillary is large enough. I just wasn't sure if maybe there's a way to start pricing for that better, right? It's a service, I know it's stickiness for the customer. But I was just wondering if you saw it as now core enough to the business, do we try to get paid for it a little bit more? And then that's sort of what I was fishing for on the price cost. But no, I appreciate the growth rates getting closer to each other is going to be a help on the year-over-year drag. And then lastly, 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, truly what do you have in conversations with customers, maybe even things already booked for spring delivery of '26 versus the visibility you had this time last year?

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 the visibility on '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, continue to be tailwinds. And then we'll update as we get through our planning process in the fourth quarter and update you guys on there.

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

Ted, you raised the free cash flow outlook. I understand it's the big beautiful bill act you're targeting now to deliver record free cash flow level of $2.5 billion, 2 to 3 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 do you think the moving pieces that we should think about for free cash flow growth in 2026 when taking a fleet age on CapEx disposal use maybe even shifts within that topic as Specialty continues to grow. Just what are some of the moving pieces there if this is our new baseline free cash flow going forward?

Yes. 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 has gone up on the order of $400 million. The benefit, obviously, is immediately accrues the cash flow from operations. 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 have to think about. What I'd say as it relates to kind of a normalized expectation calling it 2.4, something like that is not unreasonable.

Yes. And I think at right, that would be with similar levels of growth CapEx. The more organic growth you're going to achieve. Obviously, you're going to spend more on CapEx, that will have an impact on on the cash flow, but it certainly would be a good business decision.

Fair enough. And Matt, just with these data centers that we keep seeing the headlines and CapEx on the AI side, that we should be bringing around in the next few years. I believe 40% of your rental budget there is specialty. Just as we see this theme continue to enroll this year, next year, just how does this drive your mix going forward? How does this drive you mix [indiscernible] the business in terms of [indiscernible], 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? Is that better condition for rate? And is that where incremental dollars 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 projects -- and cold starts as well and these major projects, the more complex project the more opportunity we have to cross-sell. So it certainly is 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 one that we feel really good about, both currently and forward-looking. But I wouldn't say there's going to 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 will continue -- we expect to continue to outpace our CapEx.

Outside of that, I wouldn't call out anything specific for data centers.

And we'll take our next question from Angel Castillo with Morgan Stanley.

I just wanted to ask just on the conversation of the Big Beautiful Bill. Curious understand what the implications are for your cash flow. But are you hearing as you have your kind of customer confidence index and conversations, are you seeing any step change or 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 [indiscernible] reform?

I'll take that one. I guess what I'd say is we always caution people from confusing correlation and causation. But certainly, we've seen our customer confidence feedback stay high levels and probably get fractionally better versus where we would have been in April. And that certainly -- that trend has continued since early July. So we feel really good about it. Our customers obviously feel very good about their own prospects. And in terms of what that translates to, time will tell. But all else equal, you would say that some of these tax policies, obviously should be advantageous to project economics.

Understood. And then maybe a little bit of a bigger or a longer time frame type a question. In your slides, you have the rent versus buy kind of benefits to your customers and you show how kind of rental market has kind of stated exceeded the nonresi market, essentially kind of gaining share here of the customer's wallet. But some of the data, I guess, on the slides only go through 2022. So just given a lot of the kind of big changes we've seen due to inflation or the varying challenges around macro, geopolitics and that project space today as well as the benefits we just talked about with [indiscernible] or even your telematics kind of benefits that you now provide to customer, can you talk about what you're seeing on the ground today in terms of rental equivalent penetration of the market in equipment? And just kind of any anecdotal or data evidence as to how is that trending? Is it accelerating in terms of the customers' appetite to buy versus rent, particularly thinking about the specialty and the heavier kind of construction equipment outside of area? Just anything you can share there?

Yes. I'll start and then Matt can kind of jump in after. But -- so just to speak specifically to that chart, the American Rental Association restated the market. 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, 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 continue to be a better partner. And I think that's going to continue to drive that secular penetration and the outgrowth.

And Angel, I would just add that 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 noncompliant -- self-performance or noncompliance like we do in our transsafety business is another opportunity. So I think awareness, increased and improved product offerings will continue to drive penetration to Ted's point.

We'll take our next question from Jerry Revich with Goldman Sachs.

This is Clay on for Jerry. A quick one for me. 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 some of the slowing non-res construction indicators over the quarter?

Sure, Clay. So we feel really good about the fleet productivity to your point. We had committed at 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. 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 cost. But that's a smart capital decision. We continue to do that.

And then the rest of it was mix, 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, so to name a few. And to absorb any extra inflation over and above the 1.5 peg that we put out there. So we feel really good about that output, and we expect to drive positive productivity for the full year.

Maybe on the second part, just tying it to those nonres indicators, look, we pay attention to them. 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 then kind of looking at the mosaic of data points?

Got it. And then a quick follow-up for me on the -- just how you guys are viewing the M&A pipeline currently and how that evolved over the year?

Sure. Yes, we continue to work a pretty robust pipeline. As we proved with this -- in the first quarter, we're still very disciplined. So you have 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 3 of those hurdles on our 3-legged stool and find the right dance partner. So we continue to work the pipeline. We -- 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.

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

I guess 2 questions for me. Ted, sorry, getting back to the ancillary business. Just thinking about it from a long-term perspective, this and re-rent is 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, it's 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 profit story anymore. Just trying to think how you're thinking about that longer term. I guess, so [indiscernible] and then I'll ask my second question.

Yes. And it's something you have talked about a bunch, Jamie. I mean, I do think, at the end of the day, EBITDA generation is critical to us. How you get their matters upon. Obviously, we need to be efficient in every regard, but the mix dynamic that you're getting at is something that we need to make sure people do understand. So our goal 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 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 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, but ultimately, you're driving underlying margin improvement. And we do think that the team has 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 that will support kind of driving margin expansion.

And then I guess my second question, understanding you again, don't want to talk too much about 2026, but one of your peers put out a CapEx guide, understanding it's not calendar year, but implied CapEx for next year 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? And do you still think the environment is robust enough that CapEx, as we look to 2026, could be, I guess, healthier than what your peers are talking about?

Yes. I don't -- 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've talked about how we believe some of the tailwinds we've been pointing to for a couple of years are going to continue. And the local markets, may be not growing, but we don't think it's retreating. So that narrative kind of tells you where we are with it. We don't have to make that decision today. But that would be -- I would be surprised if we were to cut forward-looking because, to your point, we -- 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 used sales, as you see in our results. So there's nothing that tells me that we would lean in that direction. We'll -- stay tuned, we'll tell you in January.

We'll take our next question from Kyle Menges with Citigroup.

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 what's driving some of the maybe tightness in supply versus demand sequentially?

Yes, 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. 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 part of the supply demand dynamic.

The other part of the recovery is 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. 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 that it has stabilized, and 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 [indiscernible].

Got it. 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 was that you guys got that in Q1. So I guess just why was that not included in the guide in Q1 and not until this quarter? Just trying to understand that dynamic.

Yes. 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. As we get to the second quarter in July, we start tightening those ranges. And so it was really -- we thought more appropriate to call it out in the context of that updated range, which is just tighter. But I think that explains it.

Yes. And if I remember correctly, on the April call, we did tell everybody wasn't in there and that we would be updating it. So obviously, we live up to the commitment that we made.

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

Just thinking about the unchanged CapEx guidance for the year, does that include any higher costs or 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. 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. We've -- 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. 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 relying -- 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 reliability.

Okay. That's helpful. 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? Does it have to be from the more -- you need to see the more interest rate sensitive kind of 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 sort of the visibility that you have, what do you see as the most likely path to reacceleration?

I think all of 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 spend 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, 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 pipeline. 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 we -- I think there's multiple paths to growth, and we'll -- once we do our planning process, which will be mostly organic driven, we'll update everybody in January.

Steve, the thing I might add to that, I think we've talked about those tailwinds. But 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 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 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 at least from a top-down perspective, we think, should continue to benefit our end markets and our opportunity.

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

So for my first question, I know it's a smaller piece of your customer mix, but I'm curious if you could just talk about the smaller local accounts, what those have done sequentially from the first quarter to second quarter, was that stable sequentially? Are you seeing any initial signs of modest improvement there? And also if you have an updated thought on when those local accounts start to reaccelerate?

Well, certainly, it's improved just because of seasonality from Q1 -- sequentially from Q1 to Q2, but probably you're probably more interested in is has it looked like on a year-over-year basis. And I would just say it's stabilized. We're not seeing growth in those areas in aggregate. Some markets they are, in 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 than 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 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.

So interest rates certainly would help, and it would help the sentiment. But I think more about stability of the macro will 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 in aggregate around the U.S. and Canada, that local market stabilize.

Yes. That's very helpful. Maybe for my follow-up here, I do want to go back to the tax bill implications. I said I think you mentioned some fractional improvements in the customer confidence index. There's a thought out there that the accelerated phaseout for renewable tax credits could drive some pull forward on the construction time lines for the power projects. I know it's been around 10% of your rental revenue. Do you have any specific color on power project time lines as it relates to that -- those conversations you're having with your customers?

So I guess what I'd say is power on the whole is, 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 truthfully, I don't personally have any great insight into 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, I don't have any great insight. And I don't know if you've seen any...

I mean where we have that solar farms and projects, we've done very well. So -- but as far as future -- I mean, we'll be responsive to the customers' requesting. We're not reliant upon that either happening or not happening. I wouldn't think it's changed our forward-looking plans as much.

Yes. And I think that's a really important point because, I mean, there is -- 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. It's a function of electrification, onshoring, investment, et cetera. And we're going to serve that customer however they 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 indifferent to what that generation source is. It's making sure we are there to be the best partner to that customer. I think that's a story about that utility customer is a great illustration of the value we offer customers in this vertical and many others.

We'll take our next question from Steven Ramsey with Thompson Research Group.

GenRent had a better year-over-year comp than the prior 4 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 Specialty?

Well, if you just take the -- to your ancillary question, if you just take the conversation we had about [indiscernible] the matting business so heavily, delivery burden, you'd say, yes, right, just from that factor alone. But it's still part of our GenRent delivery system. I would say that we in-source almost all, if not all, of our GenRent, which makes that a little more consistent, but we also have to move around GenRent equipment. So there's costs that may not be delivery-related, but repositioning related. But overall, I think the construct of your question is accurate, just from the [indiscernible] acquisition alone.

Yes, I get everything Matt said, Stephen, just to be clear, were you asking kind of about that acceleration in growth, 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 the market really holding in well and customers feeling good. And so the GenRent 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.

Okay. That's helpful. 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 leads between wallet share and customer addition?

Yes, it's across -- it's both. But obviously, the cross-selling to our existing customers has really been the initial take off here. They were already the leader in that space, and they didn't have access to the network that we had. So broadening their capabilities to our network has really driven a lot of growth. 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. And that's one of the reasons we felt comfortable making the acquisition is we have 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, gave us confidence to add a real quality team to the fold here.

We'll take our next question from Neil Tyler with Rothschild, Redburn.

A couple of follow-ups really, please, Guy. Firstly, on the comments, Matt, you made about the shift away from ownership. I guess we've had a little bit more water under the bridge since since the tariff announcements. Have you -- do you have any sort of anecdotes or specific thoughts in the last 3 or 4 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, and on the expansion of your previous comments, you mentioned rate discipline and CapEx discipline across the market. Could you talk a little bit more about whether that's broad-based and whether there are exceptions to that in any verticals or regions?

Yes, I'll take the latter part first because that's really 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 has had to absorb on the fleet, it's -- I think that gives you the answer there, so to speak. And I wouldn't talk about any gaps in any specific industries or sectors or end markets.

And then to 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 of what the industry has 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 lead from the front, but I think the industry has become more reliable to customers, which gives them that confidence. And then the widening of our offerings, right, and the depth of our offerings. Just alone, we're offering that. We just talked about matting for a minute. That's a 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 a big part of the pull for us to be a better option than for people to self-perform and deal with all the soft costs and the hard cost of owning their own equipment. We can take that burden form. And once they trust the supply chain from rental, the math is always going to work that rental is a better decision [indiscernible].

Yes, maybe I'll just tack on there, and I don't know if this is woven into your question, Neil. But if you rewind to 2017, there was kind of this question with full expensing, would that change the relative economics that 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 when we think about basically the reintroduction of full expensing, 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 we would not expect to see any shift there, frankly.

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

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 [indiscernible] for the right deal. We have an active pipeline and you guys addressed this excess says, hey, let's use it for repurchases, how [indiscernible] are you to the repurchases? I'm just -- is this very beneficial for your propensity to enact M&A?

So let me just touch on the M&A piece. I mean it's -- we are going to evaluate every deal on its own merits and do them when they make sense. I'd almost 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 we only start with the balance sheet, right? Are we confident we've got the balance sheet where we want it? And if you look at where it is today, current leverage, obviously, kind of certainly in the lower half of the range we've talked about, we feel really good about that. We look at where it's the liquidity, we look at maturities and all these 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, again, check that box this year. M&A that when it comes along and it kind of checks all 3 boxes, then yes, 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 buybacks. So when you think about 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, the -- you can see what we're doing with the buyback, and that will be kind of how we think about allocating excess free cash flow going forward, is that residual piece. But if and as we can find opportunities to invest capital at 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.

Appreciate that. And just as a follow-up, I think, Ted, you specifically had a study or part spoke about value-added service is the important role. And you all press released the introduction of Workplace Ready Solutions at the end of the quarter. Maybe I just wanted to elaborate on to 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, for example, about how can we be a better partner for them. And it doesn't all have to be, as we talked about, with the ancillaries. It doesn't all have to be a high-margin business, and it all doesn't have to be capital 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 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.

If we're helping them achieve that, we're not going to have to live in a world of free [indiscernible]. And that's not the world we want to live in. We want to live in. We're a partner with our customers 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 manner.

And this does conclude the Q&A session. I'll turn the program back to Matt Flannery for any additional or closing remarks.

Thank you, operator, and thanks to everyone on the 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. Operator, you can now end the call.

Absolutely. This does conclude the United Rentals Second Quarter 2025 Earnings Call. Thank you for your participation, and you may now disconnect.