EquipmentShare.com Inc (EQPT) Q2 2026 Earnings Call Transcript

Hello, everyone. Thank you for joining us and welcome to the EquipmentShare.com Inc. Q2 Earnings. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Rhett Butler, VP of Investor Relations. Please go ahead.

Good morning, and welcome to Equipment Share's second quarter 2026 Financial Results Conference Call. Joining me today are Javik Schlacks, Founder and Chief Executive Officer, Willie Schlacks, Founder and President, Mark Wapata, Chief Data Officer and Executive Vice President of Finance, and Dave Marquardt, Chief Financial Officer and Chief Accounting Officer. Last night, we issued our earnings press release and posted an earnings presentation to our Investor Relations website. We encourage you to review those materials alongside today's remarks. Please be advised that the call is being recorded. Comments made on today's call and responses to your questions may contain forward-looking statements within the meaning of applicable securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to our earnings press release, presentation, and SEC filings for a discussion of those risks. Equipment Share has no obligation to update or revise forward-looking statements made on this call. We will also reference certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are included in our earnings press release. With that, I'll turn the call over to Javik.

Thank you, Rhett, and good morning, everyone. Equipment Share delivered another exceptional quarter, supported by healthy customer demand, and continued market share gains and disciplined execution across the business. Rental segment revenue increased more than 39% year-over-year, and mature rental locations generated 55% trailing 12-month margins. Mature locations now represent 56% of our rental network. Adjusted core EBITDA grew to $531 million. This is the metric we use to compare our performance with the rest of the rental industry that own and finance equipment entirely on balance sheet. We also expanded our fleet under management to nearly $10 billion of OEC. These results reflect the strength and durability of our growth model. Approximately 91% of rental segment revenue comes from national and regional customers supporting some of the largest and most complex construction projects in the country. As we expand into new markets, approximately 75% of first-year rental segment revenue comes from customers already doing business with EquipmentShare. We believe this reflects the strength of our customer relationships and creates significant embedded earnings power as today's growth locations become tomorrow's mature markets. With our existing footprint, we believe at maturity this is already a $4 billion core EBITDA business. Our capital allocation decisions also reflect the strength of the business and our long-term outlook. On July 9th, our board authorized a 500 million share repurchase program through December 31st, 2028, providing flexibility to act on compelling opportunities or market dislocations while remaining within our leverage and liquidity targets. While we believe that authorization is a prudent tool to have, our priority remains investing in the significant organic growth opportunities ahead and continuing to transform the industry moving to our updated outlook the midpoint of our rental segment revenue guidance implies approximately 33 growth for the full year to put the second half in context our guidance implies approximately 28 rental segment revenue growth in the back half against a second half of 2025 that itself grew approximately 36 percent year over year as large-scale mega projects began ramping across our network. So while the full year guide implies some conservatism in the back half of 2026, it represents very strong growth against an exceptionally strong prior year comparison. There's also some timing to consider. Our 39% growth in the second quarter represented significant outperformance as fleet absorption ran ahead of plan due to accelerated mega project wins and our ability to deploy against that demand. In Q2 alone, we put more than 750 million end of new fleet on rent for the first time, including fleet we had originally expected to deploy in Q3. Importantly, the underlying demand environment remains strong. Our megaproject pipeline continues to expand. We're seeing upward pressure on rental rates, and we have substantial new fleet coming into the business. We're excited about the momentum heading into the second half of the year and believe the investments we have made set the stage for strong performance in 2027. Moving down the P&L, we also continue to expect modest rental segment margin expansion in the second half. As our network matures, fleet absorption improves, and we realize additional operating efficiencies. Taken together, we believe our guidance reflects conservative assumptions for the second half. At the midpoint, we're guiding to approximately 28% growth against a prior year period that grew approximately 36%. Given the demand visibility, deployed fleet and continued strength in our mega project pipeline, we believe the second half of the year is de-rest and we see a meaningful opportunity to outperform. Moving to the story of the quarter, the construction environment remains one of the strongest backdrops I've experienced in over 25 years in construction. Demand across our core non-residential and industrial markets continues to be supported by large multi-year investments in data centers, advanced manufacturing, health care, energy and transportation infrastructure. These large, complex projects require dependable service, coordinated execution, and long-term customer partnerships, areas where equipment share continues to differentiate itself. Against that backdrop, we believe that equipment share continues to grow substantially faster than the broader rental market, while maintaining pricing at or above our rental competitors, demonstrating that our growth is being driven by the value we deliver rather than competing on price. That outperformance is driven by three factors. First, we continue to win with national and regional customers, which represented approximately 91% of our trailing 12-month revenue as of June 30, 2026. These customers increasingly want larger strategic partners that can consistently support projects across multiple markets through one integrated platform. Second, we're expanding our geographic network in response to identifiable customer demand. We've opened 39 full-service rental locations year-to-date and remain on pace to meet our full-year expectations. Importantly, more than 75% of first-year revenue in new locations comes from customers already doing business with equipment share elsewhere in our network. That customer pull is what gives us confidence to enter new markets and provides a strong foundation for those locations to scale. Third, T3 continues to deepen customer relationships by improving equipment visibility, reducing downtime, and helping customers manage increasingly complex job sites. We continue to have strong visibility into customer demand and the project pipeline, reinforcing our confidence in the industry outlook. this is a different rental industry today projects are larger longer duration and more complex giving us greater visibility into demand and confidence to continue investing beyond the opportunity one recent customer relationship illustrates how these advantages come together earlier this quarter i visited one of the largest healthcare construction projects underway in the united states where equipment share was selected as the sole source equipment partner across core fleet industrial tooling, fueling, temporary power, and job site technology. What stood out wasn't just the scale of the project. It was the depth of the partnership. The customer dedicated approximately five acres on the site to an equipment share operations yard, complete with a full service operations and maintenance facility built specifically for our team. Walking the job site, the customer talked about the visibility, service, and coordination we provide, but what impressed me most was that they were already planning to expand our relationship as they develop additional campuses around the country. To me, that reflects a much broader trend. Whether it's healthcare, advanced manufacturing, data centers, energy, or transportation infrastructure, customers increasingly want a partner that can support the entire job site, not just provide equipment. That's exactly where EquipmentShare continues to win, allowing us to support more of our customers' equipment needs while capturing a greater share of their spend. Before turning the call over, I'd also like to briefly provide an update on our corporate governance initiatives and an update regarding our related party transactions wind-down plan. We've enhanced our board with the appointment of Damian and Harley. As independent directors, Damian also joined our audit committee and brings significant public company and audit committee experience, including serving on the audit committee of a NASDAQ-listed public company. Harley brings deep knowledge of equipment share, having previously served on our board during an important period of the company's growth. Historically, equipment share entered into certain related party arrangements involving the founders, primarily through participation in the owned program and property leases. About a year ago, we began substantially reducing those arrangements and we have made meaningful progress. As of the end of the second quarter, less than 1 million of the 5.5 billion owned program fleet remained owned by these related parties our remaining related party arrangements involving the founders primarily relate to certain real estate used in our operations for which we have paid just under 5 million in lease payments year to date we remain committed to substantially reducing these related party arrangements by the end of 2026 with the objective of transitioning off of these related party transaction as we enter 2027. I'll now turn it over to Willie to discuss T3.

Thanks, Javik. Turning to T3, we continue to see meaningful progress across all three ways a platform creates value for equipment share, improving our internal operations, deepening customer relationships in rental, and expanding our standalone SaaS business. First, we run our rental business on T3. Over the last several quarters, we've rolled out new capabilities across dispatch, hauling, fuel, and logistics. We use these tools every day, and they're improving route planning, increasing recovery rates, and helping offset some of the fuel and logistics pressures that we're seeing across the broader market. More broadly, T3 and the AI tools we're developing and deploying into the field are helping us operate more efficiently. As we scale, SG&A has continued to decline as a percentage of rental revenue. That reflects a business that is getting more done with less through technology-enabled execution. Second, T3 is an important driver of rental growth. Large regional and national customers increasingly expect real-time access, fleet visibility, and control across their job sites. We provide T3 with every rental, and customers who engage with the platform spend approximately six times more with us than customers who do not. That customer value proposition combined with our fleet, branch network, and service model continues to deepen relationships and drive demand, which shows up in our growth in rental margins. And the last thing I'd highlight on T3 is that we're starting to see the platform mature beyond the rental experience. Increasingly, larger customers are looking at T3 as a platform to manage more of their business, their mixed fleet service logistics, field operations, and over time, broader ERP workflows. The scope of those conversations and the size of commitments are changing. As an example, my team has worked closely with customer spending over $1 million in annual recurring SaaS revenue on T3. The most important thing for that customer was seeing T3 as a platform they can run their business on and not simply a technology layer around equipment share rental. And with that, I will turn it over to Mark to discuss the OWN program.

Thanks, Willie. the OWN program is a managed asset program that allows us to scale our fleet to meet our customer demand at a cost of capital competitive with our on-balance sheet financing. As a reminder, OWN is just one component of our diversified funding strategy. Alongside asset-backed financing options and access to high-yield markets, we have ample sources of capital to fund the fleet growth and meet customer demand. Through the first half of the year, we are ahead of our OWN program execution plan due to continued excess demand across the platform. Turning to slide six on our investor presentation, this page shows how the capital supporting the OWN program has evolved over the past two and a half years. In 2023, OWN represented approximately one-third of our fleet under management, and participants were primarily high net worth individuals and family offices. Beginning in 2024, we expanded into institutional capital while continuing to develop our footprint across all three channels. Since then, approximately 45% of the net OEC growth within the program has been funded through institutional buyers. That includes the four ABS transactions completed with large institutional investors. We introduced this as a new product to the ABS market, and as the program has scaled, it has generated significant investor interest and gained meaningful credibility in the market. Across all channels, when we evaluate diversification and counterparty exposure within OWN, we focus on the owners of the equipment. Whether the participants access the program directly, through an institutional structure, or through a buying group, the underlying equipment owners are who provide the capital and hold title to the equipment. Each of the OWN channels remains multiple times oversubscribed. That competitive demand has allowed us to continue improving the economics of the program, which we will show more directly in the following slide. On the right side of the page, we provide a reminder of how OWN works and the contractual protections built into the program. There are no minimum lease payments and no utilization guarantees. If the equipment does not generate rental revenue, no lease payment is owed. At the end of the lease term, which is generally six to seven years, Equipment Share has no obligation to repurchase the equipment. There is no put right to Equipment Share and no guaranteed residual value. These are long-duration agreements. If an owned participant wants to remove equipment before the end of the agreement, significant early removal penalties of up to 50% of the equipment's OEC or purchase price apply. Those provisions align the party's economic interests. Given the magnitude of the penalties and the underlying economics, we view voluntary early removal as a remote outcome. Were it to occur, the contractual payment would provide meaningful economic protection to equipment share. At the end of certain agreements, Equipment Share may also serve as the remarketing agent. Our scale, equipment expertise, and relationships with OEMs and end-buyers can help maximize the disposition value of those assets. That can benefit the equipment owner while also helping protect the brand value of Equipment Share and our OEM partners. In most agreements, we also have the right of first offer and right of first refusal at the market value of the equipment, typically supported by a third-party appraisal. That gives us the option to purchase equipment and bring it onto our balance sheet when doing so makes economic sense. But it is an option, not an obligation, and remains entirely at our discretion. So to reiterate, OWN has no minimum lease payments, no utilization guarantees, no residual value guarantees, and no obligation for equipment share to repurchase the equipment. Now turning to the cost of funding for OWN on slide seven. For transactions completed during the first half of 2026, the expected economics imply a balance sheet equivalent cost of capital of approximately 7%, making OWN a competitive and attractive source of long duration fleet capital. To be clear, OWN does not create a fixed payment obligation or financing liability. OWN is structured as a sale leaseback with variable payments, enabling us to calculate an equivalent implied cost of capital based on the expected cash flows over the life of the agreement. To walk through the math, during the first half of the year, we received approximately $728 million of gross sale proceeds from equipment sold into the OWN program. Using historical utilization assumptions, we expect to make approximately $649 million of net payments over the seven-year term. Those payments are net of the fees that we retain in the insurance and tax costs that are borne by the equipment owners rather than equipment share. Using standard industry depreciation curves, we estimate that the equipment will have a residual value of approximately $338 million at the end of the term. Calculating the implicit interest rate based on the upfront proceeds, expected monthly payments, and estimated terminal value produces an equivalent cost of capital of approximately 7%. Equipment share has no obligation to repurchase the equipment at the end of the agreement. The estimated residual value is included solely to calculate the implied economics of the transaction, not because it represents a future obligation. Taken together, we believe OWN provides an efficient, scalable source of long-duration fleet capital, which is why we continue to target a balanced mix between OWN-funded and company-owned fleet. Finally, turning to the earnings contribution from the OWN program on slide 8 with additional supporting data in the appendix on slide 56. Along with being a balance sheet-like source of fleet capital, OWN is also a meaningful contributor to the earnings of our rental business. As I just mentioned in the previous slide, the all-in cash flows from the OWN program are substantially similar to our on-balance sheet equipment. Importantly, the analysis on slide 8 excludes the gain recognized when equipment is initially sold into the OWN program, as well as any future remarketing fees we may earn at the end of the agreements. Those amounts are reported separately within our equipment sales segment. As earlier OWN program vintages mature and newer transactions with improved economics become a larger portion of the portfolio, we believe the profitability and cash flow profile from the own-funded equipment can expand even further. The broader takeaway is straightforward. Own not only provides balance sheet flexibility, but it also generates meaningful recurring earnings and cash flow similar to balance sheet-funded equipment while supporting continued organic growth. I'll now hand the call over to Dave.

Thank you, Mark. The operating trends we've discussed so far are clearly reflected in our financial performance. Strong customer demand, continued geographic expansion, and the increasing earnings power of our mature rental locations drove another quarter of exceptional growth, while reinforcing the scalability of our business model. For the second quarter, total revenue was $1.4 billion, an increase of 26% year-over-year. Rental segment revenue was $908 million, an increase of more than 39% as compared to the prior year. Rental segment adjusted EBITDA was $449 million for the quarter, including approximately $60 million of new market startup costs. Our mature rental locations produce 55% trailing 12-month rental segment EBITDA margins. Margins for the rental segment overall were up year over year, driven primarily by our maturing market footprint and customer relationships, despite an approximately 50 basis point headwind due to increased fuel costs. We were able to preserve margins through our ability to pass price on to customers and through efficiency and cost savings initiatives. We accomplished this while producing industry-leading growth and substantially expanding our customer reach. Equipment sales revenue for the second quarter was $483 million, including $428 million of equipment sales into the OWN program. Equipment sales segment adjusted EBITDA was $82 million, reflecting disciplined and selective sales into the OWN program, which, as Mark discussed, continues to be oversubscribed across each funding channel. Adjusted-core EBITDA for the second quarter was $531 million, increasing 34% year-over-year. That growth rate is driven by the margin mix between rental and sales segments. You can also see the mixed difference implied in the full-year guidance. Adjusted-core EBITDA is intended to reflect our underlying operating performance by excluding items unique to our organic growth and fleet sourcing strategy, Most notably, own program payouts and new market startup costs. Turning now to our capital allocation strategy, we remain focused on supporting customer demand while maintaining substantial liquidity and financial flexibility. At the end of the quarter, total available liquidity was $2.8 billion, consisting of $443 million of cash on hand, $980 million of availability under our ABL facility, and, on a pro forma basis, the $1.35 billion bond offering that closed on July 1. The notes carry a 7.8% coupon and mature in 2034, providing us with attractive long-term financing while further extending the maturity profile of our capital structure. We use the net proceeds primarily to repay outstanding borrowings under our ABL facility and for general corporate purposes, increasing our available liquidity and financial flexibility. Prior to the bond offering, Fitch assigned Equipment Share its first issuer credit rating of BB- with a stable outlook. We believe this rating reflects the strength of our balance sheet, the quality of our rental fleet, and our enhanced financial flexibility. At the end of the quarter, net leverage was 3.0 turns as compared to 3.4 turns a year ago. that rental capital expenditures during the quarter were $321 million after gross purchases of $689 million. With that, I'll turn the call back over to Javik.

Thanks, Dave. Wrapping up today's call, our second quarter result reinforced the strength of the equipment share model. As customer products become larger and more complex, we're continuing to take share by combining equipment, technology, and service through one integrated platform. that is driving durable rental segment growth today and we believe it will create embedded earnings power and attractive returns on invested capital for years to come we're pleased with our performance in the first half remain confident in our outlook and continue to see a significant long-term opportunity ahead for equipment chair operator we're now ready to take your questions thank you we will now begin the question and answer session Please limit yourself to one question and one follow-up.

If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question is from the line of Rob Wertheimer with Mellius Research. Rob, your line is open. Please go ahead.

Thank you. Hi, Javik. You mentioned a couple interesting things on the demand environment in your comments. I think you characterized it as one of the strongest you've seen in decades, and also with improving rate. And so my question is going to be around rate and megaprojects and where rate is improving, Because there's been this perception that megaprojects might not be as profitable, and yet you just kind of went through a lot of the value add that you can uniquely, and maybe some of the other leaders, but certainly you uniquely can add. And so, where is rate trending? Is it stronger on megaprojects? And just in general, could you talk to that topic?

Yeah, absolutely. Thank you, Rob. I think if you look at the 91% mix of the regional and national customers, that exposure of equipment share is to larger projects, these complex projects. So when you see the rate pressure that we're seeing going up, that is really 91% due to the complex projects and large projects we talked about, the healthcare, the sports stadiums, the data centers, the power. So that's really where we're seeing it. We do see some, again, if you think of the 9%, smaller customers, localized customers, we still do see some there as well. And that's more of a pull through when you have a limited environment of actual fleet. When you have a massive demand in that fleet, it's all ships rise with the tide. So we see that. But our real visibility is within that 91%.

And then where are your customers at in the mega projects in kind of seeing the value of this? So, you know, rental maybe 10, 20 years ago was you order up a piece of equipment and get it. And now you're providing a more holistic service with breadth of fleet, but also just the analytics, the manageability. I think you kind of talked about the presentation. Are people sort of seeing that value and you have a pathway to sort of continue improving margins as you somehow charge for that systematic value? And I'll stop there.

Yeah, I think on the bigger customers, the projects are more complex today than they've ever been. I know we repeated that a bunch of times, but it definitely bears notice when you're managing projects that are $10 billion, $20 billion in nature. And if you talk to any of the customers that we deal with, if you had five, seven years ago, a $2, $3 billion project, that was a really significant project for a huge amount of customers, a lot of us in the world. So now you hear every day, $5, $10, $20, $30 billion, and we're on a huge portion of this project, and many times we are the sole source provider, that first source they go for with equipment. And exactly what you're saying, billing, when you have technology, when you think of everything else that a customer of ours deals with every day, that might seem just like, okay, bills should be correct. when you think of construction and when you have you're managing three four thousand machines six to ten thousand people getting that right every single day getting that accuracy is incredibly important and that is driven by having a platform having an operating system stuff that we talk over and over that you've heard us talk about and you you've seen that in action so that is really important but the output of what we're solving for is incredibly important to understand at the end of the day, you do make more money. You do get a better return on capital. We see that with ours with that 16.5% as well.

Thank you.

Your next question comes from the line of Jamie Cook with Truist. Jamie, your line is now open. Please go ahead.

Hi. Congratulations on a nice quarter. I guess just my first question, obviously the market seemed fairly robust and while you raised your guidance when you pre-announced, you kept it the same, you know, today, but at the same time, like on your slides and you're saying you expect, you know, it sounds like there's a lot of opportunity for upside. So can you just walk me through if there's upside, you know, where you see the biggest opportunities, you know, and would it be more third quarter related or fourth quarter related? And then I guess my second question, it also sounds like you expect, you know, the rental segment margins to improve in the back half of the year, if you could just provide a little more color around that. Thank you.

Yeah, I'll take the birth part of that. We do see significant opportunity on the upside of that guide. As a company, we want to always be conservative, and we do think, as we discussed, that has really de-risked the guide.

And Mark, I'll pass the view to Gavis a little more color on that.

Yeah, thanks, Jamie. Like Gavis said, we view the guide is conservative. And we mentioned in the call that we had a lot of fleet absorption in Q2, you know, over $750 million of new equipment that had never been rented before, rented in Q2. That flows through, obviously, into the back half. And then we saw a lot of volume in Q2 and some pricing upward pressure. We see even more upward pricing pressure from rental in the back half and beyond. And then all the guide math, as Javik mentioned, the rental segment implied back app is about 28%, with the rental segment even actually growing about 29%. And so, what we see there is even growing at a faster rate than revenue already implied in the guide, but with additional tailwinds in terms of volume, customer divisibility, and also upward pricing pressure in the second half so all of those are really where you would see uh if there's if there's opportunity to outperform those are the main areas where we see it thank you your next question comes from the line of mig dobre with baird mig your line is now open please go ahead thank you and good

morning gentlemen um uh maybe the first thing i really appreciate or all the additional disclosure surrounding the OWN program. And, you know, your comment here on how the OWN program has evolved and, you know, the increased participation from institutional investors, I guess one of the things that we've heard from investors was speculation that as you're accessing this institutional channel, the cost of capital is going up. You've provided an example of what the cost of capital has been year to date. And I think I've heard Mark talk about the fact that as these vintages in terms of who's involved in the OWN program evolve, the economics actually get better. So I guess my question is, can you comment at all as to how this shifting mix towards institutional is impacting the cost of capital, whether that concern that you're going operate with higher cost of capital is valid or not, and, you know, in general, how we should think about own going forward.

Yeah, thanks, Meg. Mark, do you want to go ahead? Yeah, thanks, Meg, for the question.

As you mentioned, first half deals, which we saw that kind of $720 million in gross proceeds, equivalent cost of capital is approximately 7%, if you do the math, as we showed on the slide. That's a mix of institutional payment office and high net worth channels. And then as we mentioned in the prepared remarks, some of the older vintages that were more focused, and even before 2024, entirely focused on the high net worth and family office channels carried a higher equivalent cost of capital. So as those roll off, we expect those to improve. When we think about the competitive and oversubscribed nature of the OWN program today, when we're selecting deals, we see relatively equivalent cost of capital between different channels that we have. And so we are cost of capital optimizers. And so when we decide to mix between an institutional family office or high net worth channel, they're going to have relatively similar cost of capitals around that 7%, which is why you've seen that continue to compress in our favor as we've gotten a higher institutional mix and as the other channels have also matured.

That's great. Then I guess my follow-up, going to Javik's comments on governance, I appreciate the wind down of the interest in the OWN program as well as the real estate component. Can you comment on what the policies of the companies are currently on a go-forward basis in terms of how related transactions are being reviewed and evaluated, what the thresholds are, really the mechanisms that the board currently has put in place?

Yeah, I think there's a helpful governance doc, which is consistent with how we and any other company that's public does governance. On our website, it absolutely points to that. But that is a consistent governance policy that we have. Even before going public, that governance policy was consistent. So through the private transition to a public company. But absolutely, that will be on our website. And I can give you to Dave, and Dave can get a little more color on that as well.

Yeah, so our policy is that all related party transactions go through an approval process where we evaluate the contractual terms, the economics of the transaction, and the accounting treatment. All related party transactions are also approved by our audit committee. So, again, as Javik mentioned, there's more discussion about our governance practices and policies on the investor website. I would point you to there for more information.

Appreciate it.

Your next question is from the line of Jerry Revich with Wells Fargo. Jerry, your line is now open. Please go ahead.

Yes. Hi. Good morning, everyone. Javik, I'm wondering if you just talk about the dollar utilization acceleration that you folks saw 2q versus 1q how broad base what was that was there any difference in performance of mature sites versus growing sites and if you could just comment on the magnitude of rate pickup that you're seeing in an upcycle normally we see half a point to a point of sequential rate pickup per month are we at a point where we're seeing that type of pickup in the market. Thanks.

Yeah, thank you, Jerry, for the question. I'll talk to the first part in the past. So, we do see, as I said, in the prepared marks and what we see today, really a significant demand environment, which is causing across all cohorts. And the cohorts specifically for us are the 1 through 12, and then the 13 through 24, and then the mature stores. So, So on all cohorts, we're seeing significant increase in demand and upward pricing pressure. So that's a huge thing across, and we talked to that quite a bit in prepared remarks. I'll give you to Mark for additional color on the other question.

And then on the revenue side, for the quarter, it was driven by both volume and pricing pressure upward, mostly volume in the second quarter. As we saw the higher fleet absorption, there was just so much fleet going on, right, that that's what's going to drive a lot of the values there. a little bit of pricing pressure upward. We think that the price, the upward pricing pressure, you'll, if the trends continue, we would see more in the back half of this year and in the later periods. But the mix is a lot of volume with more room to go on the pricing side.

Super clear. And then just to shift gears in terms of the margin cadence, gross margins, excluding DD&A and own program, we're down a touch. Even though, obviously, the profitability growth was really strong, can you just talk about how much of that is diesel pass-through versus site mix? And should we be thinking about a sequential improvement in percent margins like we typically do seasonally for you folks?

Great question. So, yeah, as Dave mentioned in the prepared remarks, we did the approximately 50 basis point headwind on the fuel side. We also pass through a lot of those increases on the pricing side, plus there's a mix of ancillary services and other services that we're providing on these mega sites that produce strong gross gross dollars and ROIC, but the margin mix is a little bit different as well. That being said, as you mentioned, from an SG&A leverage perspective and our ability to operate the business efficiently, we've seen total margin expansion over time. And then, as you mentioned in the past, too, that the sequentals in the Q3 are typically strong, and we wouldn't expect anything different from a course market perspective.

Your next question is from the line of Joe Ritchie with Goldman Sachs. Joe, your line is now open. Please go ahead.

Hey, guys. So you referenced upward pricing pressure a few times on this call already. And I guess what I'm trying to understand into the second half of the year, like how much of that is, you know, contractually committed? Are you expecting a mixed benefit on the equipment that's going to be utilized, given that you are working on all these complex projects and have line of sight?

Yeah, I think it's both. If you think of mixed is a really important thing in our industry. We have about 3,000 classes, and there's a different dollar utilization or financialization on each class. And depending on the project, you will have excess demand and limited availability nationwide for certain products, which means you have an associated pricing pressure upward. So I really think it's both. So we have long-term contracts, and those contracts are driven by the need of our customers. And when there's less supply and more demand, pricing within some of those classes of equipment absolutely have upward pressure.

And then just to follow on to that a little bit, Javik mentioned how the back half of the year is de-risked. If you think about the long-term nature of these projects as we're winning these projects, we have good visibility on kind of where price will be for a good amount of our projects in the back half of the year and beyond, which also gives us confidence in the trends in the industry.

Got it. That's helpful. And then just a quick question on capital allocation. You mentioned the buyback authorization earlier.

You know, clearly number one priority is organic growth but i'm curious like under what conditions would you maybe get more aggressive um and uh with with the buyback and potentially increase authorizations going forward yeah as we talked about a pair of remarks we want to be opportunistic if there is a severe dislocation on something none of us control which is stock price so we want to be absolutely opportunistic governance is important to us so we wanted to make sure uh this went through the proper processes as a board and governance, and that's where the $500 million was authorized. If and when that does happen, a dislocation, that the company can act upon that in an efficient way. And again, that's through 2028 for that $500 million. So Dave can talk a little bit more about some of the details.

Yeah, I would just add that our intention is to operate the buyback authorization in an opportunistic way, but with in mind of our net leverage and liquidity goals that we'll continue to maintain as we go forward.

Thank you. Makes sense. Thank you.

Your next question is from the line of Sean Wondrack with Deutsche Bank. Sean, your line is now open. Please go ahead.

Hey, good morning. Really great quarter. I was curious if you could talk about some of the pockets of growth you're seeing in different areas of the country, maybe where you're seeing construction pick up more than others.

Yeah, thank you. Great question. I think this is pretty clear. We're seeing it universally, and we are a growth company. We're growing almost 40% year over year, so that's in every segment. Areas that we started earlier were earlier in that growth curve. You're going to see from a percentage basis in much faster growth areas that were more mature, which would be more the Midwest and the Texas area. Still incredible growth, but just on a pure dollar percentage, that's going to be a little bit growth curve. But we're really seeing it across the U.S.

All right. That's it for me. Thank you.

Your next question is from the line of Ken Newman with KeyBank Capital Markets. Ken, your line is open. Please go ahead.

Hey, good morning, guys. Thanks for taking the question. um maybe for my first one you know i think um some of your other public peers this quarter have cited a tighter supply chain at the oems making it maybe slightly more challenging to further ramp fleet growth uh you know obviously it doesn't seem like it just given the oec growth that you're you're guiding to but just curious if you have any colors on what you're hearing from the oems and uh you know your ability to kind of ramp fleet even further uh if you wanted to yeah we're confident in our guides on our capex and really that confidence is driven by years years of working with our customers and working with their supply partners and those supply partners uh we're

planning years in advance we talked about really this significant growth curve that we were saying this is three years ago and when we do that we have incredible visibility become the tech stack the visibility on the job site uh so yeah we're confident in our guide with that said this is more reminiscent of 21 and 22. we've all kind of lived through that less so 23 24 25 there is a severe demand which again we talk about pricing pressure that's a good thing there's upward pressure on rental rates so we see that improving not only for us but again with the industry as a Got it.

No, that makes sense. And then, you know, for my follow-up, you know, I'm a little surprised that the appraised value on the OWN fleet seems sequentially flat versus the last quarter, even though the OWN OEC is up 10% quarter over quarter. Is that driven by the mix of equipment? And maybe, you know, just to follow on to that, is there a way to help us think about the right way to model the appraised value as percent of OEC as we exit the year? I'd imagine it just comes up just given the fact that, you know, you're saying that there's going to be upward pressure on rental rates. It seems like the fleet is not over-fleeted. There's still some tightness in the chain. How do you think about that as we think about modeling out the end of this year?

Great question. Mark, you want to take that.

Thanks for the question, Ken.

To remind you how the process works, this is a third-party appraised value of the fleet. And what we're seeing in the actual kind of appraisal numbers is lagging the total market dynamics that we're seeing as well. So there's just normal depreciation in there first, which was a little bit higher than regular, but it wasn't really out of control. And then what we do expect is, given the supply chain constraints, given the demand environment, that you'll start seeing the appraiser, the fleet, go the opposite direction as the market dynamics change. And so, but yeah, there's just normal depreciation built in there, plus a little bit of ads, obviously, in the new old program. And there's a lagging – we see right now that the equipment fleet valuations are a lagging indicator compared to what we're seeing in the market. But from a full-year perspective, we expect there to be some offsetting trends in terms of their appraisals picking up with the market dynamics over time.

Understood. Very helpful. Thanks.

Your next question comes from the line of Seth Weber with BNP Paribas. Seth, your line is open. Please go ahead.

Hi, you guys. Good morning. Thanks for taking the question. I guess the CapEx raise that you announced last month, can you just talk to – is that all – you know, is that kind of consistent with your rental fleet mix, or are you starting to ramp up and add more specialty equipment as you're, you know, catering to these bigger projects? I mean, I saw specialty ticked up just a little bit as a percentage of mix, but do you think that specialty will get a larger portion of your CapEx going forward? Thank you.

Yeah, I think it's consistent with the cohorts. We're seeing significant demand across our core fleets, our advanced solution, which we call our specialty, our site solution. So we're seeing very, very good growth across all those segments. We have one of the fastest growing specialty business in the world, but that is paired up very closely with one of the fastest growing core business in the world in the rental space. So we do see that being somewhat consistent because the demand is very consistent as far as a high demand environment. And then again, we talk about that increase in pricing on the fleet, and that is consistent across core and specialty as well. So, absolutely, you will see some growth, especially, but it will be relatively consistent across the board.

Got it. Okay, thanks. And then I just wanted to go back to your comments about the mega projects, you know, and asking about your comments around share gains. I mean, can you just sort of frame that? like do you feel like um you're taking share on the mega projects from other national operators or is it more you know just the local regional operators that are seeding share here to the to all of the bigger national players thanks on these big mega projects you know great question uh what we're doing now and this was not true a decade ago when we started but these customers that have been with us for years and years and years are awarding us at the outset.

So it's not that we're taking it from somebody else. And just to put it in context, there's really only four companies in the world that can deploy in the United States markets 3,000 to 4,000 machines in a six-day week period. That's it. So that 91% or the vast majority of what we're doing, it's a very limited cohort of actual companies that provide it. So we're winning an outsized share of these projects on national and regional. And it's because of everything we talked about. I know we haven't talked about it as much in this call, but it's going to the core of what these customers need. It's that transparency. It's that technology. It's the basics, like getting billing right, doing the right thing, giving visibility on who's using the machine, what they're doing. And that translates, you've heard us talk about a lot, to us winning more jobs. It's not necessarily taking from somebody else. It's winning day one. I talked about one of the projects, which is one of many projects that we have. This is not necessarily we talk about data centers. We talk about power, but this is health care. This is our sports stadium. They need the same transparency, and we're winning on those projects as well. And, again, that's 91% is that regional and national cohort.

Got it. Thank you, guys. Appreciate the color.

Your next question comes from the line of Scott Schneeberger with Oppenheimer. Scott, your line is now open. Please go ahead.

Thanks very much, and good morning, everyone. I wanted to ask around mature location, adjusted EBITDA margins, 55% in the first half of 26, and that's up from the end of last year. Long-term guide, greater than 50, are we seeing the potential to hit new levels given this demand? How long sustained do we need to see this demand? to maybe think about a new level there being achieved. Yeah, Mark, do you want to dig in on this one?

Yeah, Scott, thanks for the question. Yeah, so like you mentioned, trailing 12 months at 630, 55% mature site rental segment, EBITDA margins, which we're happy to see. We think that there is obviously a strong environment. Some of the things we mentioned today give us an opportunity to outperform against that. And as you mentioned, our long-term goal is that 50%. I would pair that with our over 20% RLIC target. The reality is that we put 50% on there because if we decide to go into these sort of ancillary and other services mixes that might have a little bit of a margin mix based on the nature of the services, the high RLIC, that gives us the ability to continue to manage in that over 50% zone, but doing so would be on a higher revenue, higher bottom line contribution and a higher RLIC basis. And so that's kind of how we think about being a full service provider, especially with the site solutions and advanced solutions business that we have as well. But on the basis that you're talking about for the 55, we see that it's a sustainable opportunity to outperform, and we think that'll be stable over these next couple years.

Thanks, Mark. And for a follow-up, it's smaller but rapidly growing, six building material locations in the start of the year. um and and other revenue growing rapidly just curious how is that how is that being rolled out and scaled is that just attachment to mega projects that you're working on or is that strategic locations um and uh i'm just curious where that uh you know updated thoughts on where that might go over the next few years thank you yeah thanks questions on that side really when you're starting a new division you're starting in the middle market and then you go both up

mega projects and down to smaller customers so when you see that the verticals that we're starting that are very supportive of our customers we're starting very strategically within that middle market and then growing from there you see that in the building materials uh the difference there is probably the other divisions when you think of t3 and the technology that's really the core of what the largest companies in the world utilize. And then it gives them that transparency, the things we've talked about, the details that they actually need. So that would be a little bit of a diversion. The other verticals that you see as we add on throughout that wheel, those are going to start within the middle market.

Okay, thanks.

Your next question comes from the line of Stephen Fisher with UBS. Stephen, your line is now open. Please go ahead.

Thanks. Good morning. Just wanted to follow up on Seth's question before, in terms of the market share on these megaprojects, how do you see your role on these large projects involving? We understand that on these really big megaprojects, there's often a primary and then a secondary rental provider, sometimes more. Just curious, how many primary assignments have you gotten recently? Are you seeing that pick up and kind of where are you best positioned for those primary assignments?

Yeah, the vast majority that we talk about, we are the primary. We're the primary. And I think, as you know, in the industry, when you have 3,000 classes, it's rare they're going to provide 100% of every single class of equipment. So when we discuss primary, you're usually ranging from 85% to 95% of every single machine in that project. And on the vast majority, very close to all, but the vast majority of the project, we are.

Okay, that's helpful. And then on the OWN program, I think the activity tends to be higher in Q2 and Q4. You can correct me on that if that's not right. This quarter, the gains on sales to the OWN program contributed about 20% of your gross profit for the quarter. And it sounds like demand was maybe more than you expected. So, I would think generally you'd see a bit of a reduction in that activity and contribution in Q3. But given that it remains – demand remains pretty strong and elevated, how should we frame the expectations for those contributions from the own program in Q3? Thank you.

Excellent. Mark, a question. You're right about that. So in Q2 and Q4 is when we typically concentrate the sales. We had a lot of strong demands for our institutional statement on the high network channel. Q3, we would expect, especially given prior years, this year as well, less contribution margin in Q3 and then a step up in Q4 because we like to concentrate those sales in Q2 and Q4 to create kind of the competition that drives down the price and gives us good allocation. And then on the actual own program pacing, we are slightly ahead of the total program contribution for the year. We've raised the guide by about $11 million since the beginning of the year. So we call ourselves slightly ahead, but kind of right on schedule from the Q2 and Q4 perspective.

Thank you very much.

Your next question comes from the line of Aaron Kimson with Citizens LLC. Aaron, your line is open. Please go ahead.

I consistently get investor questions on how equipment share would manage in a potential downturn. I think slide 50 in the deck does a good job showing how two peers cut capex in its lower demand to produce more cash in the great financial crisis before reinvesting into the recovery. But where a lot of investors get hung up is on the own program, given its novelty in the industry. So to build on Mark's prepared remarks, can you walk us through whether you think the own program will be a net positive or negative relative to peers in a macro downturn? and who ultimately has recourse on the own equipment if home program participants default and you may have to try and collect the early remote full fee.

Hey, Mark, do we get to call it? Yeah, thanks, Aaron, for the question. So on a broader perspective, we have all the levers that traditional rental companies have, plus a few that are specific to us. So because we're an organic grower, we stop our site opening in a downturn. We reduce our growth capex. Our equipment age is significantly younger than the rest of the industry. and our target. And so, we have more time to age the fleet, which is obviously cashflow positive, which are all positive. And also, we can still sell our on-balance sheet fleet to generate cashflow. And so, we, you know, in our models at a downturn, we generate significant free cashflow quite quickly within, you know, within a couple months if we stop our growth. On the own program dynamics specifically, we are not at recourse in any macro environment for the equipment. And so what happens, these are variable payments. And so if there's less revenue to share, there's less payments to make. And then for the actual participants themselves, they are the at-risk capital owners of the equipment. They have UCC filings, it's their title, and we are the managers of the equipment. I also mentioned in the prepared remarks that the actual voluntary removal penalties are so high that we consider those possibilities remote, and even if they did, it would be an economic advantage for equipment sure, so we're all aligning from that perspective. But we see the OWN program as giving up additional protections and a downside, while also giving, we also have the traditional levers to produce free cash flow and a downturn at the other rental companies would have as well.

That's really helpful. And then as a follow-up, it seems like at least once a week, there's a headline on potential data center moratoriums or restrictions at the state or local level. The governor here in New York just signed an executive order last month putting moratorium on new data center builds for hyperscalers. I know equipment shares under indexed in the Northeast and has a diversified pipeline beyond data centers. But given that you specialize in mega projects and data centers constitute a lot of those projects right now, how closely do you consider potential state and local data center attitudes when prioritizing branch expansion locations today, if at all?

Yeah, that's a great question. So the one thing I'd like to point out is we talk a lot about data centers. But this is really a very, very diverse environment from a tailwind perspective. You've got stadiums, healthcare, things we talk about, power infrastructure. Even without data centers, there's a huge, huge demand for a company like Equipment Share in our sector. With that said, the comment on data centers, I think it's really important to understand the permitting process around this. Many of these are four- or five-year permitting process and have already been in place. And you're not pulling a permit that has already been issued. It's already been approved. So the projects that were being awarded, these sole source projects that we're seeing all over the country, those are not going away anytime soon. And as we know, regulatory environments change. We have visibility years and years and years in the future because that permitting is already done.

Got it. Thank you.

There are no further questions at this time. I will now turn the call back to Javik Schlacks for closing remarks.

Yeah, thank you, everyone. Really appreciate spending time with us today. I'm looking forward to talking again next quarter. Have a great day.

This concludes today's call. Thank you for attending. You may now disconnect.