Thank you for standing by. My name is Rebecca, and I will be your conference operator today. At this time, I would like to welcome everyone to the Herc Holdings Incorporated First Quarter 2026 Earnings Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. I will now turn the call over to Leslie Hunziker, head of investor relations. Please go ahead.

Thank you operator and good morning everyone. Today we're reviewing our first quarter 2026 results with comments on operations and our financials, including our view of the industry and our strategic outlook. The prepared remarks will be followed by Q&A. Let me remind you that today's call will include forward-looking statements. These statements are based on the environment as we see it today and are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include but are not limited to, the factors identified in the press release are Form 10-Q and in our most recent annual report on Form 10-K, as well as other filings with the SEC. In addition, we'll be discussing non-GAAP information that we believe is useful in evaluating the company's operating performance. Reconciliations for these non-GAAP measures to the closest GAAP equivalent can be found in the conference call materials. Finally, please mark your calendars to join our second quarter management meetings at the Bank of America Industrials Conference in New York on May 12th, the KeyBank Industrials and Basic Materials Conference in Boston on May 27th, and the Wells Fargo Industrials Conference in Chicago on June 9th. This morning, I'm joined by Larry Silber, Chief Executive Officer, Aaron Birnbaum, President, and Mark Humphrey, Senior Vice President and Chief Financial Officer. I'll now turn the call over to Larry.

Thank you, Leslie, and good morning, everyone. I'm pleased to report that with the completion of our branch optimization program, the integration of H&E equipment services, the largest acquisition in our industry, is now complete. Integration was an enormous undertaking and I could not be prouder of this team. And the strength of our culture is what gives me confidence in what comes next. For the third consecutive year, Kirk Reynolds has earned the Great Place to Work certification based on independent employee survey results. What makes this recognition especially meaningful this year is the context. Large acquisitions are disruptive by nature. We brought approximately 2,500 new employees into the Herc family, people facing new systems, new processes, and a new way of doing things. Based on the survey's feedback, our new colleagues recognized our strong culture through change management support, peer mentoring, and the extensive training and tools they received throughout the integration. And now they recognize the opportunity in front of them. With integration behind us, our focus shifts fully and decisively to leveraging our new scale to drive growth and efficiencies through execution. We have a larger platform, a stronger team, and a broader set of capabilities than at any point in our history. The work ahead is about unlocking the full potential of our platform, winning more business, serving customers better, and delivering stronger returns for our shareholders. Now, turning to slide number five, with a 30% larger branch network, we are optimizing optimizing fleet mixed by market, driving network density, and capturing the operating efficiencies that come with scale. Fleet efficiency, employee productivity, and margin improvement are the goals. Second, we are enhancing our fleet mix, and specialty solutions is a standout area of focus. Double-digit specialty revenue growth in the quarter reflects targeted fleet investments 25 more specialty locations and strong demand for mega projects cross-selling and the continued structural shift from equipment ownership to rental third we are advancing our industry-leading digital capabilities through pro control by herk rentals advanced technology features from fleet utilization insights and equipment location tracking to our patented mobile access controls and remote operations gives customers the tools to run safer, more efficient job sites. And our e-commerce platform continues to gain traction, delivering a seamless omni-channel experience with 24-7 self-service and personalized interactions. E-commerce revenue reached an all-time record high in the first quarter, a clear signal that our customers value the flexibility to do business with us however and whenever it works best for them as always we lead through continuous improvement with our e3 operating systems built on a foundation of standardized processes superior customer experiences and a relentless focus on execution across our expanded network and finally as prudent stewards of capital we invest responsibly. We took on incremental debt to acquire H&E, a deliberate decision to accelerate our scale and long-term earnings power. We expect to return to the top of our targeted two to three times leverage ratio by year-end 2027. Our path to deleveraging is clear. As we capture the full run rate of our synergy target, EBITDA grows, free cash flow builds, and leverage comes down. Now, let me turn it over to Aaron to talk about our operational performance. Aaron?

Thanks, Larry, and good morning, everyone. With the integration behind us and our foundation set, this is a moment our team has been working toward. Investments we've made in people, fleet, systems, and culture are now fully in place. What you'll see from our operations team in 2026 is a relentless focus on putting all of it to work we are executing with a larger network a stronger bench and a sharper sense of where the opportunities are the work ahead is straightforward win business serve customers exceptionally well and drive the performance this platform is built to deliver and everything we do every efficiency we drive every customer we serve every dollar of performance we deliver starts with one non-negotiable the safety of our people and our customers. From the job site training we provide to the safe, well-maintained equipment we put in their hands, safety is how we show up every day. So let me start there. On slide seven, our major internal safety program focuses on perfect days. We strive for 100% perfect days throughout the organization. In the first order, on our branch-by-branch measurement, all of our operations achieved over 96 percent of days as perfect also notable our total recordable incident rate remains better than the industry's benchmark of 1.0 reflecting our high standards and commitment to the safety of our people and our customers our safety foundation is what makes everything else possible on slide eight you can see that what we're building on that foundation starts with one of our most important assets our fleet at 9.4 billion dollars in original equipment costs fleet is both our largest investment and our primary revenue growth engine we entered 2026 with pro forma fleet down nearly two percent by design the integration priority was alignment the right equipment in the right markets with the right mix and we achieved that by the end of the first quarter average oec was down approximately one percent on our pro forma basis versus last year consistent with our focus on utilization improvement. While fleet expenditures were up 78% on a pro-forma basis, this reflects a return to normal seasonal buying levels after deliberately reduced purchases in early 2025 when we were preparing to bring in the acquired H&E fleet in the second quarter. Our Q1 26 investments of 183 million dollars are directed toward growth opportunities and supporting our new specialty locations as they ramp up and begin contributing to revenue synergies. Fleet disposals at OEC were 20% higher year-over-year, reflecting lifecycle rotation and ongoing mix adjustments. Of the $281 million of disposals in the first quarter, realized proceeds were 49% of OEC, up from 45% in Q1-2025, reflecting a healthy used equipment market across almost every category, as well as our focused selling into the higher return wholesale and retail channels as you know the first quarter is our seasonally slowest demand period having strong fleet alignment right now before the seasonal ramp is critical discipline fleet management and our sales teams executing with increasing effectiveness across the combined network drove sequential monthly improvement in time and dollar utilization and employee productivity throughout the quarter as utilization tightens into the peak season, we expect that discipline to translate directly into revenue growth and further improvement in fleet efficiency in the second half of the year. Turning to slide nine, we will gain better visibility into seasonal trends over the next month or so, but today the bifurcated markets remain relatively consistent with what we have seen over the past year. In the local market, conditions remain stable overall. Government, infrastructure, MRO, and institutional construction demand are offsetting the still moderate commercial sector consistent with what we expected coming into the year on the national account side large-scale project funding remains strong mega project activity is centered around manufacturing lng renewables and the continued surge in data center development we are winning our targeted 10 to 15 percent share of these opportunities with new projects coming online and current projects still in ramp up phase mega project activity was notably strong in the first quarter with project ramp ups accelerating earlier than is typical for our seasonally slowest period activity that was built into the full year guidance we provided just two months ago in the first quarter local accounts represented 47 percent of rental revenue prepared with 53 percent for national accounts as we have said our long-term target is 60 percent local and 40 percent national can mix and provides for both growth and resiliency. The national wing we are seeing today reflects the strength of our national accounts and mega project activity and we expect the local mix to improve as the seasonal ramp builds and eventually as local demand recovers. Turning to slide 10, diversification is an important strategy for fostering sustainable growth and navigating economic cycles. As HERC has diversified into new in-markets, geographies, and products and services over the last decade, we have reduced our reliance on any single industry or customer. We have become more resilient to downturns and more adaptable to emerging opportunities, from mega-project development and the continued surge in data centers, to technology advancements that support customer productivity, and the secular shift from equipment ownership to rental. With our expanded scale, we are better positioned than at any point in our history to capitalize on this breadth of opportunity and to find growth even as individual markets ebb and flow. And the opportunity across in-markets isn't just broad, it's deep. Turning to slide 11, let's look at what the data tells us about the forward pipeline driving demand across our customer base. Here you can see that despite the uncertainty in the broader market, whether around interest rate trade policy or general economic sentiment the fundamental drivers of our business remain intact industrial spinning and non-residential construction starts continue to show meaningful opportunity for growth built on a foundation of mega project development and infrastructure investment of course there is some overlap across these four data sets but no matter how you look at it for companies with the safety record scale product breadth technologies and capabilities to serve customers to the local, regional, and national level, the opportunity for growth remains significant, and we believe HIRT is well positioned to capture it. Turning to slide 12, this is where we are in our near-term journey, and I want to be clear against our 2026 plan, we are exactly where we expect it to be. The integration work is behind us. What we have now is a 30% larger business, more fleet, more locations, more specialty capabilities, and a larger maturing sales force. that's the foundation and the first half of 2026 is about converting that foundation into performance tightening utilization as we move into the seasonal peak and sharpening sales effectiveness across the combined network and we have seen that start to play out first fleet efficiency after working through the integration and fleet optimization process we saw sequential improvement of her supply and demand alignment through the quarter something we have been building towards since last summer's acquisition that's not a small thing. And while mega project demand provided a tail wing, even in our seasonally slowest first quarter, we are still early in the ramp of our specialty locations and sales force maturation, which is why Q1 played out right in line with our plan. It tells us that we move into the seasonally stronger second quarter, we have the right fleet and the right markets ready to work. And continuing on that improvement plan in Q2 is what gives this confidence in the utilization trajectory in the back half. Second, our specialty locations. The branch optimization program added 25% more specialty locations opening in Q4 2025 and Q1 2026. These locations are now staffed, pleaded, and gaining momentum. New locations take time to mature, and that maturation curve is playing out as we modeled. By Q3 and Q4, those locations will more meaningfully contribute to revenue and margin growth if we get the first half right then the second half follows revenue growth accelerates our fixed cost base works in our favor and margin improvement becomes increasingly visible that's the progression we have mapped out first half builds the foundation second half delivers the growth it's also the flywheel into 2027 higher revenue, expanding margins, and increasingly apparent leveraging as synergy capture compounds. That's the path, and we're on it. Now, Mark will walk you through the details. Mark?

Thanks, Aaron, and good morning, everyone. I'm starting on slide 14 with a summary of our key financial metrics. For the first quarter on a gap basis, equipment rental revenue was up approximately 33% year over year, driven by the acquisition of H&E. On a pro forma basis, this rental revenue declined three percent, representing a meaningful sequential improvement from the fourth quarter. To put that into context, the acquired business was experiencing revenue pressure prior to close, a trend we've been actively working to reverse through fleet optimization, sales force training, and network alignment. And while mega project tailwinds and and specialty execution benefited us in Q1. The inflection of the combined platform into revenue growth is a second half event consistent with our plan. Adjusted EBITDA increased 33% compared with last year's first quarter, benefiting from the higher equipment rental revenue as well as 31% more used equipment sales. Adjusted EBITDA on a pro forma basis was down approximately 5%. The increase in used equipment sales, which have a lower margin than the rental business, impacted the adjusted EBITDA margin. Also affecting margin was the static demand in the local market and the impact from the lower margin acquired business. EBITDA, which excludes used equipment sales, was up 30% during the first quarter. EBITDA margin was 40% impacted year over year by the lower margin acquired business. The path to margin improvement is clear. Rental revenue synergy contributions in the second half, a shift toward a higher margin product mix, full realization of cost synergies, and improved variable cost management at scale. We expect margins to continue to improve from here, especially as those drivers take hold in Q3 and Q4. Our net loss in the first quarter included $5 million of transaction costs, primarily related to the H&E acquisition. On an adjusted basis, net income was $7 million. On slide 15, you can see we generated $94 million of free cash flow for the first quarter. Our current pro forma leverage ratio is 3.96 times, which is in line with our expectations as H&E's stronger 2025 quarters roll out of the trailing 12-month calculation. The ratio will remain relatively consistently consistent through the year before improving meaningfully at year-end when revenue synergies drive EBITDA growth in Q3 and Q4 and capital expenditures, which ramp in Q2 and Q3 to support the seasonal peak and new specialty locations, begin to provide greater EBITDA contribution. Leverage improvement is a year-end story, and we're managing to it deliberately. We still expect to return to the top of our target range of two to three times by year-end 2027 as revenue and cost synergies drive higher EBITDA flow through. Turning to slide 16, we are affirming our full year 2026 guidance across all metrics. Q1 came in as expected. Rental revenue growth of 33% on an actual basis reflects the contribution of the combined platform, adjusted EBITDA margin held at 39.3%, consistent with last year despite the integration work that was still underway. The operational proof points Erin walked you through, sequential monthly improvement in fleet efficiency and dollar utilization, specialty location maturation, sales force momentum, are the leading indicators that give us confidence in the back half acceleration embedded in our guide. On synergies, cost synergies are running ahead of expectations and we remain on track to secure an incremental $90 million this year to fully realize the $125 million target by year end. Revenue synergies are back half-weighted and the $100 to $120 million incremental target for 2026 is intact. The guide assumes the business performs, as Erin described. First half sets the foundation, second half delivers the growth. Q1 is consistent with that plan. Now, let's open it up for questions. Operator?

At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Rob Werthimer with Mellis Research. Your line is open.

Hi, thanks. Good morning, everybody. Your slide 11 puts together a bunch of the different kind of ways to look at the end market, and you mentioned, and there's others that are, you know, conflicting, let's say. But if you look at the top right, that mega project chart is is a lot of money kind of flowing down the pike and what i'd like to ask is whether you know that step up in 25 whether you you saw that in you know customer conversations etc whether you see it today because you know an extra 300 billion starts or whatever and a 900 billion dollar market is a lot so i i want to ground truth you know the the data that are sometimes ambiguous yeah rob it's aaron i'll take that one so it's really both um you know when you build relationships with uh large general contractors or national accounts they guide you to what's coming down the pipeline and often you know you bid on a project and they let you know that you've been awarded and it's

it's going to start or they've they've negotiated a contract and they want to bring you in as their trusted supplier so that's one mechanism but there's a lot of data around it dodge provides a a lot of preview into what's coming. Now, the pipeline of a plan project is pretty deep. I think we've mentioned it's in the trillions of dollars, but it's really when the starts, when they change from planning to starts is when that data starts hitting a slide that we showed you there. And if you just look at 2026, April, May, June, July, August, September, you can see a lot more starts happening all across the board. So infrastructure, you know, wastewater or bridges, roads, but also these big mega projects that you see coming out. A lot of renewables. You see, obviously, a lot of data center activity and other projects. So you have to get it from both ways. So you can use both data sets to kind of guide your fleet planning and where your year is going to go. and to you that feels like uh better times ahead in in the back half as these things ramp i mean that's that time yeah feels right as you can as you can see there's more starts happening now these they don't always start when they say they're going to start right sometimes you've heard a talk that sometimes they start six months late um but uh it is building and uh once these projects do start these last for two or three years as you know so um they're already in our plan for the as we go through q1 into q2 um and then the balance of the year so um you like where it is right now

but it's exactly the way we kind of planned out our year thank you your next question come to the line of mig dobre with bard your line is open yeah uh thank you uh good morning thanks for taking my question.

Good morning. Where I would like to start is with maybe a bit of a spotlight on your dollar utilization. At least to me, it's looking like this metric came in a little bit better than what we normally see sequentially from a seasonal standpoint. So I'm wondering if you can comment on that. Is it an indication of sort of activity itself and, you know, better fleet utilization or just, you know, the fact that maybe in Q4 we had a relatively easy comparison. And related to all of this, how would you advise us to think about the remainder of the year? How do we think about the seasonal ramp into Q2 and Q3 from here on out?

Yeah, great, great question. And I think, quite honestly, Mig, I would take the revenue conversation, the dollar yield conversation and the margin conversation all in the same direction. You know, as Aaron mentioned, right, we saw fleet efficiency gains in the first quarter, which then sort of built through the dollar utilization. It improved sequentially as we walked our way through the quarter. You know, we spent the last 10 months, you know, optimizing our fleet and optimizing branches, putting new specialty locations in. And so, you know, I would tell you that first quarter sort of played the way that we thought it was going to play. But as you roll that forward, there's an inflection point inside of Q2.

And once we hit that inflection point inside of Q2, then I think you'll see dollar youth, revenue, and margin expansion as we work our way through the back half of the year and and um maybe my follow-up on this and i i appreciate the sort of directional commentary but if i'm if i'm thinking about normal seasonality here right is there a reason to think based on everything that you have that you're going on operationally that the improvement in dollar utilization can actually exceed that normal seasonality. And, you know, maybe you can put a finer point on how you think about, you know, the time utilization component of it, right? You know, efficiency in your asset base relative to what's happening with maybe pricing or rates more broadly in the market.

Yeah, I think that, you know, sort of normal isn't really this year. You know, the reality is, is that we had a hole to climb out of, you know, entering this year, sort of down nine as we exited 4Q. And so there's a big efficiency play that we needed to see collectively as a business before investing growth capex into the business in the may june july time frame and so i would tell you it's playing out the way that we thought it would now granted it's early um you know may and june will be a much larger tell to sort of how the rest and the balance of the year plays out but but i think we're not um you know we're not necessarily looking at this as normal or abnormal we just know where we have to go to get the fleet back to a healthy and efficient level.

Your next question comes to the line of Jerry Rivick with Wells Fargo Securities. Your line is open. Good morning, everyone.

Morning, Jerry. Morning. I'm wondering if we just talk about overall pricing that you're seeing in the market. So we've had oversupply of aerials in particular. Pricing is pretty tough. Can we just talk about, are we optimistic that pricing can outpace inflation this year? And I was positively surprised by the realization and use values for you folks this quarter. It sounds like supply demand is improving. Can we just unpack that, please?

Yeah, I mean, I'll unpack it to the level that I can. You know, we don't comment specifically on price, but I would say that we are encouraged by the fundamentals that we're seeing in the industry. The fleet in and fleet on dynamics are good, you know, particularly as we sort of exit Q1. And I think that the market is being both rational and constructive. And so we look forward to taking advantage of such marketplace.

Super. I appreciate it. And then just to shift gears a little bit here, in terms of the performance of legacy H&E branches versus Herc, Obviously, the legacy HIRC pricing and time you based on historical stats has been significantly higher. Has that gap closed at all? Where are we in the process of driving the H&E branch performance towards legacy HIRC performance today versus 12 months ago versus where we see it 12 to 18 months out?

Yeah, I mean, I think, thankfully, Jerry, I can't really answer that question for you. And that was part of, you know, this integration was to integrate this business in such that there is no longer an H&E or Herc, right? And so, you know, I think if I could still answer that question, then I would say we probably haven't done our job. And so, you know, I think collectively, Q1 sort of played out the way that we planned Q1 to play out. And that's probably about as deep as I can go in terms of insights between H&E and Herc.

Super. And lastly, I know you said in your prepared remarks that the quarter dollar was in line with your expectations. It was better than I think a lot of us had modeled. When we saw the industry data, it looked like pricing accelerated in March, and it looks like time you've inflected as well. I know you don't want to provide a ton of color, but can you just comment on demand cadence over the course of the quarter and any other color you're willing to share on that point?

Yeah, I think, you know, from our vantage point, right, I mean, we are anticipating, Jerry, an inflection point, you know, sometime inside of Q2. and then I think from that point forward you should see growth slash improvement depending upon which line item you're looking at dollar utilization improvement revenue growth and and margin expansion as you sort of inflect out of q2 and into the back half of the year thank you your next question comes from the line of Kyle Nix with Citigroup your line is open um great thank you um you had mentioned that pro forma fleet is is down a little bit um and by design would love to hear you unpack that a little bit and then just how you're thinking about pro forma fleet growth for the full year and maybe bifurcating between gen rent and specialty yeah i mean um you know we walked into we walked into the year um as aaron said almost two points down um fleet on a pro forma basis i think as you exit um q1 you're still down a point uh give or take and so you know that again was part of the plan um and so i think as you start um then taking sort of the guided uh capex from a gross perspective and the and the guided sort of dispositions you can sort of play that through i would tell you that you know the expectation is is we'll probably load 65 of that gross capex number um into the business in the in between the back half of of q2 um and q3 so that you know that should give you sort of the the meaningful date data points that you need to model i would add to mark that um as capex goes through the year, they'll be over-indexed to our specialty fleet to feed our branch optimization, our shift

to grow the specialty site, get it back closer to what it was pre-acquisition.

Helpful. Thank you. And I know you've expanded the specialty locations quite a bit and working on cross-selling, which understandably the cross-sell is expected to be a bit back half-weighted. So it'd just be helpful to hear about what the learning curve has been as you roll out specialty and more SKUs across the H&E network and just the visibility you feel like you have to actually hitting the revenue synergy targets as you get into the second half.

Yeah, I would say that our revenue synergy for 2026, we're on the plan where we need to be as we exit Q1 and as we look towards the rest of the year where we expect it to be for all of our revenue synergies as it relates to you know cross-selling. It's cross-selling with especially business is really a two-front exercise. You got a bigger sales force, you got to make them comfortable with asking those types of questions with their customers. They don't have to be experts at the specialty products. We have experts on the sales side that support them and that's where the cross-selling goes hand in hand. But when you uh have a large customer base and we did a large acquisition and those customers weren't used to specialty products to the extent that you know herk rentals had so that's where the cross-selling goes on those tens of thousands of customers introducing especially solutions to them with the sales force that we onboarded from the hd acquisition so it's really two parts but uh a lot of relationship building internally um and uh you know we've been doing it for nine months and we like where we are right now and we feel real comfortable about what we're going to get done in this arena q2 three and four great thank you thank you thanks kyle your next question

comes from the line of ken newman with key bank capital markets your line is open hey good morning guys good morning morning um morning mark maybe sorry if i missed this but um you know just going Going back to the cost synergies, I think you said that it was running ahead of schedule. Can you just maybe help us quantify how much you were able to capture this quarter and just help us think about the revenue synergy capture progress for the rest of the year?

Yeah, the intent of that comment was that the $125 million or the incremental $90 million will lay into 2026, which was ahead of the originally scheduled sort of synergy lay. um that was supposed to come in over a couple of years so that was the intent there and i appreciate you asking that question um it's relatively ratable um i would say it's slightly slightly back half loaded um but it's coming in reasonably rattably rattably um over the the four quarters ken understood okay that's helpful um and then for the follow-up you know i think we've been

hearing some rumblings on improving oil and gas markets here in the States. I know H&E used to play a much larger role in those end markets. Curious if you could just maybe help us understand what the exposure to oil and gas is today with the H&E fleet and how you think about that opportunity and whether you're seeing that kind of pop up as potential start opportunities in the next, you know, call it 12 to 24 months?

Yeah, a few points on that, Ken. First, our oil and gas mix of our business is less than 10%, all right, before the acquisition and after. When you got $90 barrel oil, you're going to have some surge in the upstream and some surge in the downstream. The downstream guys actually produce and make more margin. And H&E had relationships with, since they had a big footprint along the Gulf, they had a lot of relationships with contractors that were industrial contractors. They might have worked in all facets of the industrial complex, not just oil and gas, but might have been the chemical complex. They didn't really have on-site downstream contracts, so there weren't long-term contracts that we picked up with the acquisition. So our part of our business is still below 10%. However, we made relationships with a lot of healthy H&E contractors that work in that space, as I mentioned. So with $90 oil, you know, there's probably going to be, you know, increased activity in the Permian Basin and Texas and down the ship channel. So, you know, we're well positioned for that. So our position in oil and gas didn't increase because of the acquisition. We like to keep everything diversified, so we like where we're at.

Got it.

Thank you.

Your next question comes from the line of Tammy Zekera with J.P. Morgan. Your line is open.

Good morning. Thank you so much, and congrats on the wonderful results. First question on fuel costs that have been rising nationwide. Could you just remind us how you manage that risk in terms of your own costs and how you pass it on to customers and whether there's any lag? And also, was the hedging different for legacy HARC versus H&E? So any color would be helpful.

Yeah, the price of oil rising nearly 100 bucks, that's something that the business has to really focus on. We take the input of the price of fuel three different ways. one into our internal vehicles uh service vehicles that we use to conduct our business um second way is refueling of rental equipment and then third way is um the logistics of our delivery apparatus to deliver equipment and pickup equipment all day long so you know the the first wave just our own assigned vehicles there's not a much much we could do except buy better right buy the gasoline at a favorable price point um the second piece is we do charge a uh a fee to our customers if we have to refill the equipment when they rent it so we give them the option hey you know bring it back full you know no charge bring it back less than full there is a charge so we have a fee for that and then um the uh the logistics piece is the more complicated one because you have a lot of transactions happening every day across the entire network. And we recover that by the delivery fee we charge for picking up and delivering. And also there's a surcharge that's indexed that allows us to move with the price of oil per barrel as it moves through all cycles and all times and events macro geopolitically.

Understood. That's very helpful. A similar question regarding freight rates, which have also been rising. Again, could you remind us if that is a risk you had if you have long-term contracts with third-party haulers or more real-time rates that you pay?

Yeah, we have a robust long-haul process when we have to broker third-party freight. So we have a robust process there, and we built that over the last three years. And we know that we get a favorable price point compared to the market any day of the week. So whether the price of oil is at $60 or $100 per barrel, we're getting a favorable price point. As the price per barrel goes up, you just can't avoid those costs. You try to pass on as much as you possibly can and try to anticipate how long it'll last for.

Understood. Thank you.

Thank you.

Your next question comes to the line of Stephen Ramsey with Thompson Research Group. Your line is open.

Good morning, everyone. Good morning, Steven. From a high level, I was wondering if you could parse the specialty performance a bit. Clearly, it was strong.

But maybe if you could talk about specialty excluding mega projects and if it's outpacing the local markets and maybe specialty on a same-store basis when you exclude the new branches. just different ways of uh the strength of specialty in the quarter and as you look forward yeah steven um you know we don't break it out in that kind of detail nor would we we just you know because it's uh then you get into sort of segmentation and we don't do that but generally the specialty business has been performing well we've we saw a double digit growth uh in the quarter we expect to continue to see that as it services all facets of our business the mega project business our national account and big industrial contracts as well as the local market activity uh where we're penetrating on a greater basis as a result of our increased location count into that so specialty will continue to grow we're excited about it but we can't and won't break out individual areas.

Okay, understood, but helpful. And then on disposals, going through retail and wholesale, clearly a good story there. Can you talk about maybe on an innings basis or however it makes sense, where you expect to be in 26 versus the prior year and where you, do you hit maturity on that this year or is that something beyond?

Maturity related to what, Stephen? Just in terms of where the fleet sits as we exit the year?

More the fleet disposals that go through the higher margin channels.

Oh, I got you. I got you. Yeah, I mean, this has been a couple-year journey, right? Like, we've been, you know, trying to flex, you know, these retail wholesale muscles. and Q1 was a really good example of that. It was approaching sort of 70% into the retail wholesale channel. You know, that's the sweet spot for us. That's where we'd like to be. And, you know, I think, you know, Q1, Q4 will be your heavy disposal quarters. Q2 and Q3 will be a little more moderated. So I would anticipate that, you know, that's in our control and we'll probably sort of remain in or around there as we sort of walk through the year.

All righty. Thank you.

Thank you.

Your final question comes in line of Neal Tyler with Rothschild & Company Redburn. Your line is open.

Yeah, good morning. Thank you. Just wanted to ask you guys about the sort of different sort of flow-through dynamics in the second half associated with things like, you know, the ramp-up in mega projects, which might potentially i guess hold margins back a bit and the specialty growth because that seems those two in combination seem to be contributing um a larger proportion of if you're anticipated to the demand upside in in the back half so you know can you can you sort of maybe help me think about how you're uh thinking about those those factors playing through on you know margin overall and flow through you know uh and and you know underlying that you know what's happening

thank you yeah sure sure neil i think you know as i said earlier right um we are anticipating um margin expansion um inside of q3 and q4 and so if you sort of look back to um you know where margin was last year q3 and q4 you know it was in this 45 46 sort of range from a rental ebitda perspective And so, you know, therefore, if I'm anticipating margin expansion, then that incremental margin will certainly be greater than last year's 45 or 46. And so, can't get too terribly pointed there, but we are anticipating margin expansion as sort of all of these initiatives come together and fuel revenue growth in the back half.

That's great. Thanks a lot.

I will now turn the call back over to Leslie Hunziker for closing remarks.

Thank you for joining us on the call today. We look forward to updating you on our progress in the quarters to come. Of course, if you have any questions, please don't hesitate to reach out to us. Have a great day.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.