United Rentals, Inc. (URI) Q3 2026 Earnings Call Transcript

Good morning, everyone, and welcome to the United Rentals Investor Conference Call. Please be advised that this call is being recorded. Before we begin, please note that the company's press release comments made on today's call and responses to your questions contain forward-looking statements. The company's business and operations are subject to a variety of risks and uncertainties, many of which are beyond its control. And consequently, actual results may differ materially from those projected. A summary of these uncertainties is included in the Safe Harbor Statement contained in the company's press release. For a more complete description of these and other possible risks, please refer to the company's annual report on Form 10-K for the year ended December 31, 2025, as well as the subsequent filings with the SEC. You can access these filings on the company's website at www.unitedrentals.com. Please note that United Rentals has no obligation and makes no commitment to update or publicly release any revisions to forward-looking statements in order to reflect new information or subsequent events, circumstances, or changes in expectations. You should also note that the company's press release and today's call include references to non-GAAP terms such as free cash flow, adjusted EPS, EBITDA, and adjusted EBITDA. Please refer to the back of the company's recent investor presentation to see the reconciliation from each non-GAAP financial measure to the most comparable GAAP financial measure. Speaking today for United Rentals is Matt Flannery, President and Chief Executive Officer, and Ted Grace, Chief Financial Officer. I will now turn the call over to Mr. Flannery. Please go ahead, sir.

Thank you, Operator, and good morning, everyone. Thanks for joining our call. Yesterday afternoon, we were very pleased to report our third quarter results, which are a testament to our strategy, the team's dedication to the customer, and the unmatched breadth and scale of our premier offering. We came into 2026 expecting another year of growth. As evidenced by our results, the business continues to perform better than we expected. Large projects across a variety of end markets are driving our growth, and we expect this momentum will carry for the remainder of this year and into next year. We remain well positioned to outperform the industry with our broad footprint, our unmatched one-stop shop offering, accompanied by exceptional levels of service and leading technology, and of course, our unwavering commitment to safety. these capabilities combined with our customers confidence and backlogs support our revised guidance we came into the year dedicated to being the partner of choice for our customers accompanied by a laser focus on finding cost efficiencies i'm very pleased with the team's efforts and how the year is playing out team united continues to raise the bar providing an unmatched offering for our customers, while also generating strong returns. So let's get into the details of our third quarter results and our updated full year guidance, and then Ted will get into more details around the numbers before we open up the call to Q&A. Starting with the quarter's results, total revenue grew by 16% year over year to $4.9 billion. Within this, rental revenue grew by 18% to $4.3 billion, both quarterly records. Complete productivity of 6.5% contributed to OER growth of 12.9%. I'll note that time and mix all contributed to the quarter's productivity along with rate. Adjusted EBITDA was a record of $2.3 billion, resulting in a margin of 47.6%, and improvement of 160 basis points year-over-year. And finally, adjusted EPS came in at $15.55, up 33% year-over-year and another quarterly record. Now, let's discuss customer activity. The third quarter again saw growth across both our gen rent and specialty business. Specialty was a standout with rental revenue growth of 35% year-over-year, including 12 cold starts, which brings us to 40 cold starts here to date. Notably, each specialty line of business reported strong double-digit growth in the quarter. By vertical, the trends of the first half of the year carried into the third quarter. Construction continues to grow across non-residential and infrastructure, and on the industrial side, power once again posted double-digit growth, as did metals and minerals. Now, as I mentioned earlier, a variety of end markets drive our growth. This diversified exposure is an important and very intentional part of our strategy. With this in mind, we saw projects kick off in the third quarter across numerous end markets, including energy, manufacturing, infrastructure, and data centers. Now, turning to the used market, we sold $677 million of OEC at a 51% recovery rate. The demand for used equipment remains strong, and we still expect to sell approximately $2.8 billion of fleet this year. Given the demand from our customers and our replacement of sold equipment, we spent $1.8 billion on gross rental capex in the quarter. This takes us to $4.7 billion year-to-date. The combination of a strong demand environment and fleet productivity underpins this additional spend as we ensure we support our customers while driving profitable growth. Subsequently, we generated year-to-date free cash flow of $1.4 billion. dollars. Even with higher CapEx needs, we're able to generate meaningful free cash flow due to a combination of our industry-leading profitability, capital efficiency, and the flexibility of our business model. This strong free cash flow is redeployed in ways that allow us to augment shareholder value and is a critical part of our strategy. Finally, our capital allocation in the quarter reflects the disciplined framework we employ. Our balance sheet is very healthy, allowing us to support both organic and inorganic growth, and to also return nearly $500 million to shareholders during the quarter through a combination of share buybacks and our dividend. Our leverage of 1.8 times remains well within our targeted range of one and a half to two and a half times, leaving plenty of dry powder to support growth and to return excess capital to our shareholders. We've long talked about the importance of financial strength to support our strategy and to drive long-term value creation. To this point, we were very pleased to see S&P acknowledge our efforts with their upgrade of our credit rating to investment grade earlier this month. As we enter the last few months of 2026, our focus is unchanged. The demand environment for large projects remains robust, supporting our revised guidance, which reflects over 12% total revenue growth, with EBITDA margins over 46%, all at the midpoint. We increased our CapEx guidance to over $5.3 billion at the midpoint, as we see the opportunity to put even more equipment on rent while generating strong free cash flow and returns. So in conclusion, the United Rentals team's diligent focus on our strategy day in and day out is delivering results we're all very proud of. Over the last nearly 30 years, we built and continue to expand a value proposition which differentiates us in the industry. Our business model is truly unique and goes beyond purely equipment rental. By layering on technology, innovation, and unmatched service across both our specialty and generant businesses, we support our customers' productivity and drive a better partnership. And for our shareholders, this translates to profitable growth, strong free cash flow, and compelling returns. And with that, I'll hand it over to Ted to review our financial results, and then we'll take your questions. Over to you, Ted.

Thanks, Matt. Good morning, everyone. As Matt just shared, the team delivered strong results that exceeded even our raised expectations from last quarter. Quarterly records for total revenue, rental revenue, EBITDA, and EPS. Beyond that, we raised our full year guidance for revenue and EBITDA to reflect our expectations that this performance will continue through year-end in support of a record 2026. But before we get into the details of the updated guidance, let's review the third quarter's results. As you saw in our press release, rental revenue increased 17.8 percent to over $4.3 billion, supported once again by the team's strong execution across large projects and key verticals. Within this, OER increased by 12.9 percent, driven by a 7.9 percent increase on our average fleet size and fleet productivity of 6.5 percent, partially offset by assumed fleet inflation of 1.5%. And finally, within rental revenue, ancillary and re-rent grew over 37%, again outpacing OER growth by a healthy margin. Pivoting to use, we sold $677 million of OEC in the quarter, generating $348 million of proceeds at an adjusted margin of 46.3% and a 51.4% recovery rate. As Matt mentioned, consistent with our initial guidance, we're on track to sell approximately $2.8 billion of OEC this year at a recovery rate in the low 50s in what remains a healthy used equipment market. Next, let's turn to adjusted EBITDA which increased $385 million to a record of over $2.3 billion. This was driven primarily by a $417 million increase in rental gross profit and an $8 million increase in used gross profits. SG&A increased by $54 million, translating to a 20 basis point improvement as a percentage of revenue, while gross profits from other lines of businesses added $14 million. Looking at profitability, our third quarter adjusted EBITDA margin increased 160 basis points to 47.6%, reflecting another quarter of strong cost discipline. While there will always be some quarter-to-quarter variability, we were very pleased with our team's ability to efficiently leverage our third quarter growth to offset the impacts of both lower-margin ancillary and re-rent revenues and other inflationary pressures. Shifting to CapEx, we've responded to robust customer demand by investing over $4.7 billion in gross rental CapEx year-to-date, which is an increase of almost $1 billion year-over-year. Moving to returns and free cash flow, our return on invested capital increased 30 basis points year-over-year to 12.3%, which remains comfortably above our weighted average cost of capital, while our free cash flow year-to-date has exceeded $1.4 billion. Turning to our balance sheet, net leverage remains very comfortable at 1.8 times at the end of September, with total liquidity of over $2.6 billion. As Matt mentioned, we were very pleased to see S&P's recognition of our commitment to maintaining a strong balance sheet by upgrading our credit rating to investment grade earlier this month. We view this as a testament to our disciplined financial policies around leverage, liquidity, and maturity management, as well as the strength and durability of our free cash flow. Turning to capital allocation, through the third quarter, we returned roughly $1.5 billion to shareholders, including $1.125 billion through repurchases and $371 million via dividends. Now, let's move to the guidance we shared last night, which reflects our confidence in delivering another record year. Total revenue is now expected in the range of $18 to $18.2 billion, an increase of $450 million at midpoint versus our prior guidance, while use sales are still expected at around $1.45 billion. At midpoint, this now implies full-year total revenue growth ex-use of better than 13% versus our initial 2026 guidance of closer to 6%. In turn, we've also raised our adjusted EBITDA guidance by $300 million to a range of $8.3 to $8.4 billion, reflecting our continued expectation to bring the revenue growth to the bottom line and finish the year strong. Notably, at midpoint, excluding the benefit of the H&E termination fee last year and the gain on sale of our scaffolding business this year, this implies a roughly 70 basis point improvement in our full year EBITDA margin compared to the goal we initially shared in January of a flat full-year margin. On the fleet side, driven by strong customer demand, we've increased our gross CapEx guidance by $300 billion to a range of $5.2 to $5.5 billion. This now implies net CapEx of $3.75 to $4.05 billion. And finally, we are reaffirming another year of strong free cash flow in the range of $2.15 to $2.45 billion, which reflects an increase in our cash flow from operations offset by higher capex. I think it's important to call out that we've invested significantly in our fleet this year to drive strong organic growth, positioning the business for attractive returns over the coming years while also generating substantial free cash flow. And finally, on the capital allocation front, we still intend to repurchase $1.5 billion of shares in 2026. Combined with our dividend, this will return roughly $2 billion to our shareholders this year, equating to approximately $32 per share or a return of capital yield of over 3% based on our current share price. So with that, let me turn the call over to the operator for Q&A. Operator, please open the line.

Certainly. Thank you, Mr. Grace. Ladies and gentlemen, at this time, if you would like to ask a question, please press star 1. If you do find your question has been addressed, you may remove yourself from the queue by pressing star 2. Additionally, we ask that you please limit yourself to one question and one follow-up. We'll go first this morning to David Rosso with Evercore ISI.

Hi, thank you for the time. The margins were impressive, and the sustainability of that improvement is sort of the spirit of the question. The pricing opportunity you see coming up as some larger projects roll off to new ones, maybe some flexibility in pricing in current multi-year projects. Just give us a sense of how you're thinking about the chance to maybe, you know, improve the pricing on those, any change there. And the same idea of structurally there are probably some ceilings how high time utilization could go. And, I mean, at least versus history, it feels like we're maybe getting a bit close to that ceiling. If that's the case, should we think of how we address that high ceiling as expect strong capex next year, but also maybe an increased focus on rental rate? Thank you.

Thanks, David. I mean, what you're touching on, right, you see, we're doing all three components very strongly here in the quarter with the productivity of 6.5 that you saw. With all that being said, rates have been climbing and been a good guy for us for quite some time. And that's necessary because of the inflation that we're all experiencing in the industry. So we expect that to continue next year. Certainly, the demand environment and the high-time utilization, to your point, assist that. So we feel really good about that opportunity. And as far as the CapEx, we'll get to that when we get to January guidance. but it's a fair point that maybe running at this level of time utilization isn't the most prudent thing to do. We're doing it as a necessity right now, right? But we could temper that a little bit next year, which would require a little more CapEx, but not a lot. I think we'll get to that in January once we get through our planning process here throughout the fourth quarter and let you guys know in January.

Any thoughts you maybe could provide on the rate opportunity, thinking about larger projects still as a base case driving the business next year? And obviously, any other color between rate growth for gen rent versus specialty? Thank you.

Yeah, we're seeing positive fleet productivity throughout all business units and throughout all project types and all customer sets. So this isn't just unique to projects or local market or industrial. This is a cross-the-board concerted effort for all of us to make sure we recapture the cost that we're absorbing.

All right. Thank you for the time. Appreciate it.

Thank you. We go next now to Rob Wertheimer with Milius Research.

Thank you. You know, one of the concerns people had heading into the year, if we go back a few quarters, is just the fleet movement costs in a market that was bifurcated, soft on one side, strong on another. And it seems like you've alleviated that. I'm sure some of that is internal management. I wonder how much of that is the overall market has tightened up, and I wonder if you could just sort of comment on that dynamic and if it remains a risk or a focus.

A lot of internal management and process change more than anything. The reality is a tighter market could require more movement. So I think the team's done a great job. We obviously put more process changes and eyeballs into it. And it wasn't that the team was doing anything wrong last year. We just need to see how we can do it better. We have a team that's very responsive to customer demand. And if we could bundle some of those responses together and put a little more elbow grease into making sure cost was a big variable in these decisions, that's the result that you saw.

Perfect. Thank you. And then just kind of more generally, and I guess maybe David just touched on this, but as you roll through the megaproject era, you guys add a ton of value with fleet diversity, technology, service, uptime, all these different things you guys do well. Are conversations around the value you deliver to megaprojects more constructive now than they were in the past? Do people kind of realize how much you can save through delivering all those factors?

Yeah, I certainly think that surety of supply and the one-stop shop value proposition have definitely taken more prominence really in the last year plus. When you run a big site, not having a bunch of vendors running around is very helpful for the folks that have to control the security and the safety of that site. And I think probably all the large companies are playing favorable there, but we certainly think our unique value prop advantages us there.

Thank you. We go next now to Jerry Revich with Wells Fargo.

Good morning, everyone. I just wanted to ask on the cost performance, what really stood out is really strong labor and R&M productivity across both general and specialty rentals. And earlier this year, you folks have implemented a number of rationalization plans. Can you just update on where we stand on that? And is there more runway for further efficiency gains from here? or are we at the run rate from those efforts?

Sure. Thanks for the question, Jerry. Yeah, to your point, this is something we've been talking about publicly since January, something we, you know, challenged a team to do early in the year, and they've delivered incredibly well. Certainly, we've gotten very good labor absorption, and you can see that in both sides of the businesses, and you mentioned R&M. But, you know, almost back to Rob's question, I think the team's also done an extraordinary job on the delivery side. And so we said that all three of those would be critical to producing, you know, kind of better margins year on year. In terms of, you know, the restructuring, that's really played out in line with expectations. So the benefits have been consistent, and they really are not a big part of what's driven the year on year improvement. So they've been helpful for sure, and we were prepared to take those actions. But at the end of the day, it's really been the team's focus on leveraging growth efficiently. So you think about growth. I mean, growth itself has been very strong, stronger than we expected. That composition of growth has been very strong. You can see that in the fleet productivity. And then to your point, you know, the team has just done a really good job driving efficiency across those big three buckets. And, you know, that's something we've long talked about. It's a challenge we've got to meet every year. We feel like the team's done a great job, you know, prior to 26, to be honest, and we talked about that publicly. And going forward, you know, almost coming back to something David asked about, the sustainability, this is just how we run the business. And so, you know, there's always going to be an ebb and flow to all these dynamics, but certainly our expectation is we'll continue to deliver. Our goal is to deliver margin expansion, you know, always, and we feel like, you know, we've got a good recipe to continue driving strong results.

Thanks. And Matt, can I ask just to expand in your prepared remarks you spoke about delivering to manufacturing as well as power. So what we're seeing in the semi-fab plans is for plans to double CapEx, 27 versus 26. Is that the magnitude of startup deliveries that you folks are alluding to when you mentioned the prepared remarks in manufacturing? And can you expand on just the magnitude of growth in power? Because in addition to utility CapEx growth, obviously, behind the meter is set to more than double as well. Are you seeing that level of growth in those verticals?

So we don't get too specific in verticals, but certainly we feel like we're very well positioned to be that partner of choice for the kinds of contractors that build the kind of facilities you're alluding to. You know, the very high-spec, you know, demanding customers. So we feel very good there. Not sure we'd kind of quantify what that translates to too specifically, but we're doing very well there. And on the power side, you know, we saw double-digit growth. It's been a trend we've been talking about publicly for a while. And so certainly, you know, that's actually not going to be the behind-the-meter piece as much as it is working with investor-owned utilities across generation, transmission, distribution, all of which have been key elements to our power vertical strategy really for over a decade since we introduced it in 16, Matt.

Yeah, and I think the broader point is our end markets are very diverse. We cover a broad range of end markets, both in construction and in industrial as well as infrastructure and all with the same fungible assets. I think that's really the story there. For example, even in power, We're not doing a bunch of specialty power assets, right, or large scale to power some of these projects. We're really staying in our lane, and I think it's playing out really well for us. It gives us a lot of flexibility.

Thank you.

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

Thanks, and good morning, everyone. Could we just talk about price cost a little bit? As you start to do your 2027 planning, I know we're still a little bit early, But can you just talk about what kind of levels of inflation you're seeing across, you know, the major buckets of cost of goods sold? Again, you've done a great job so far here in 2026 covering that. So it would be helpful to understand, you know, how you're seeing that progression or the implications of cost inflation next year. And, you know, as it relates to the questions earlier on rental rate, how much of that has maybe already been kind of secured through recent renewals or projects or just kind of increases and will just kind of roll through into next year? versus how much do you still need to kind of go out there and get as you do renewals of contracts?

So touching on the first piece, Angel, look, inflation is very real. It's certainly not benign. It's certainly not deflationary. I think it depends on the bucket. You know, on the one hand, you look at that labor absorption we talked about. I mean, frankly, that's why we're absorbing above-trend merit increase. And we think that's important. We want to take care of our people. I think we pride ourselves on being, you know, the employer of choice. and that certainly means taking care of your people in a lot of ways. And so I can tell you we proudly think about the way that we reward our team for the great job they deliver, but honestly the underlying increase is above trend, and yet you're still seeing the team offset that through productivity gains. Within R&M, you can imagine that's another area where our suppliers are focused on their pricing on parts, and yet we've been able to manage that very effectively. And within delivery, what is incredible, I think people see what's happening with diesel. They can see what's happening with freight rates. And yet, here again, we've been able to offset that. So it's not at all to suggest that we're in some kind of deflationary beneficial cost environment. Going forward, we'll see how next year shapes up a lot of dynamics to consider as we get into planning internally and then what that translates to from a forecasting perspective. But, you know, I'd come back to our goal is to be as efficient as possible and, you know, consistently deliver strong margin performance across the business.

And as far as the rate component to the second part of your question about fleet productivity, first of all, we manage rate and time rigorously. It's the mix of the two that matters, which is why we talk about fleet productivity. But to be clear, we manage rate throughout the year. There's no magic date or point where we're doing renewals. We work with our customers throughout the year, making sure there's a balance of getting paid for our value and making sure they can do what they need to do on the job, both physically and economically. And we think we've found a really good balance, and we don't expect that to stop anytime soon.

That's very helpful. Thank you. And then maybe could we touch on capital allocation? You now have investment grade with one credit agency, And, you know, when I look at your balance sheet, you still have quite a bit of kind of firepower. So maybe a couple of things. Maybe you touch on what the implications to perhaps your borrowing cost or cost of capital is from the shift to IG. And then as we think about, you know, your current leverage or net leverage versus your target of kind of 2.5 at the high end, is there anything preventing, I guess, you from being able to deploy more of that, whether it's to buybacks or for M&A? I know you did, I think, talk about the puts and takes there for capital deployment and perhaps time.

So, and I think we talked a little bit about this last quarter, but, you know, when you think about our capital allocation philosophy, it always starts with the balance sheet and where we position. And certainly, you know, over the years, we've seen us evolve that strategy, get to the point where we've got a very strong balance sheet that will allow us to do pretty much anything we think makes the most sense for the company and the shareholders. As a result of that, you know, we changed our internal financial policy such that we felt comfortable moving the investment grade. And the concern we'd previously had was the potential constraints that could put on inorganic growth. But as the company has grown and the scale has gotten bigger and bigger and what that's done for our financial capacity, we realized that, frankly, we had the ability to do anything we wanted with the existing constraints. And as a result, we've changed that internal financial policy and communicated that externally. And that's really what's precipitated at least one of the upgrades. So it doesn't change much. It really doesn't change anything internally. So there's no quote unquote cost. The benefit is obviously those tighter spreads that we'll get, you know, within the IG issuer, IG issuer versus high yield. I wouldn't want to speak for the market, but certainly people can look at kind of triple B minus credits to get a sense. for kind of what their yields would look like relative to ours. And we think it'll be a very appreciable benefit that will, over time, as we refinance debt or issued debt for whatever reason, accrue benefit to the shareholders. But it doesn't change that strategy of starting with a strong balance sheet, investing in organic growth, funding smart M&A, and then returning the excess capital to our shareholders. It's really going to be that kind of framework, I think, certainly for 2027 to be a reasonable assumption that that's the framework we use to figure out that capital allocation strategy. Does that answer all the questions, or was there one at the end that you also wanted us to address?

Yeah, just more, I guess, in terms of the potential for timing of, you know, either buybacks or M&A should kind of be leaning one way or another, kind of think about that.

Well, if there was any impact on our ability to do M&A, frankly we wouldn't be doing so we we don't see any impact there and and as far as the buybacks you know stay tuned i think we've been uh pretty consistent there yeah you know we've got to go through that planning process to see you know what that growth opportunity is what the investment looks like organically get a sense you know for for what that that part of the use of cash would be and then obviously we'll assess kind of the m&a opportunity and then what's left over you know consistent with history, I think you can expect us to return that excess capital to our shareholders. So I wouldn't anticipate any change there, to Matt's point.

Very helpful. Thank you.

Thank you. We go next now to Seth Weber with BNP Pariba.

Hey, guys. Good morning. Thanks for taking the question. Appreciate all the comments about the strength in the mega projects and stuff. I just wanted to get your sense a little bit on the local markets. Are they, would you characterize them as still being kind of stable and just, you know, how, how much of a lag do you think we should expect? You know, how long will it take for those markets to accelerate once interest rates start to come down in your, in your experience?

Sure, Seth. So we would continue to call it stable. Now, to be a little more information there for you, it probably gave us a couple of points of growth here in this quarter. But the big driver here is still the mega projects, the large projects, and our large customers driving this growth. So we like the fact that there was a little bit of growth there. As far as is that a pivot point, we don't know. And for the second part of your question, we'll stick in our lane, as I said earlier. We have no idea how to forecast what that lag would be. What we do have is the ability to get, especially as we go through our budget process, to have boots on the ground feedback. and that's what we'll learn and we'll count more on that than any kind of thoughts about what a lag would be. But we have heard for a while now sentiment has been more positive. We have seen a little bit of growth in a lot of these local markets. So we are feeling good about the direction of it.

Thanks, Matt. And I guess just on the specialty business, I think you're talking 40 north of 40 cold starts this year. Do you think that would accelerate next year and have you started to see any change in the competitive landscape in the specialty categories?

Yeah, so we're slightly ahead of target this year. This is kind of a continuum of markets that our teams in each business unit have on their docket of where they want to grow into. We haven't done that work yet. That's part of the budget process. So I don't want to try to predict what we're going to come out with. But we still have white space geographically in some of these markets and really the ability to grow some density in markets where we already exist in some product lines as we've been outgrowing the existing facilities so i think there'll be more opportunity and we'll update you guys in january as far as the competitive set uh there's always competitors that want to that want to get into what we're doing right somebody always covets thy neighbor's revenue so to speak what i will say is um the barrier to entry and the value crop that we've built is really strong. So I think we've got a pretty good competitive moat there as far as what we offer to the customer.

Great. Thanks, guys.

Talk to you soon. Thanks. We'll go next now to Kyle Minguez with Citi.

Thank you, guys.

Maybe following up on Seth's first question on the local markets, I'd just love to hear a little bit more of what you think is driving some of the positive sentiment in those local markets in spite of still a choppy macro backdrop and elevated interest rate environment really have any additional color in aggregate we're giving you a number in aggregate what the puts and takes in all these different markets right the 1800 branches that were in almost in uh in the u.s and canada it'd be really hard to homogenize that for you um as far as what's driving it but but we are seeing local markets that that do have some growth and and we'll update you guys what we think that's going to turn into in 2027, but I don't really have any additional call for you.

Got it. And then ancillary, again, outgrew OER pretty significantly this quarter. How should we think about that gap between the ancillary and OER growth potentially narrowing over time and maybe into 2027? And how much of it is just a matter of mega projects maturing into maybe year two, year three, year four versus a lot more of them in year one and getting ramped up and maybe there's more ancillary revenue as those projects ramp up?

Yeah, we view ancillary as responsive to customers' needs and their requests and not really something we'll predict. I'm certain that specialty growth is one driver of it. I'm certain that projects do tend to need more of it. but as we continue to add more offerings and customers are aware of what we have to offer them you know it'll be interesting to see if that how that spreads i think more importantly is we're just being a better provider our customers so for us we don't we don't have a target for it to grow it or to not grow it is to make sure we're in position to respond when the customer asks us to do something for them that's related to our products and our services so really no ability to predict there because it is a responsive, non-CAPEX-driven type of volume.

Understandable. Thank you, guys.

Thanks, Kyle.

Thank you. We'll go next now to Chad Dillard with Bernstein.

Hey, good morning, guys. My question for you is on the CAPEX raise in the quarter and what drove it. Is it the demand that you're seeing right now, or are you preparing for what you're seeing ahead? And if you could, you know, just like what in markets are getting better to drive that? And then maybe just secondly, what was the breakdown between what drove it, gen rent or specialty?

Sure, Chad. I'd say yes to both. So it is the work that we see right in front of us right now. We had talked about how we're driving historically high time utilization. So this isn't a pull forward of stuff we're going to need next year. But certainly the fact that we think 2027 is going to be a growth year gives us the confidence to support these growth needs that we have late in the year here in Q4. So it's really a little bit of both. And as far as, I forgot the second part of your question.

Oh yeah, just general versus specialty.

Oh yeah, thank you. So you see the growth of specialty. So really for quite a few years now, specialty gets an over-weighted amount of the growth capex to support the fold starts and the growth that they're having. Outside of that, then once you get beyond specialty, within our GenRent portfolio, we're really utilizing our full portfolio on these major projects because you think about it's pretty evenly spent throughout those categories that we carry in our GenRent stores.

Gotcha.

And maybe just double-clicking on specialty, it's also pretty sizable growth, you know, plus 30% in the quarter. can you break down how much is from you know cross sell or scope increase versus just like a dedicated specialty sale you know if you can't do it quantitatively you know you can just give some some quality of color yeah it's hard to break down uh too specifically but certainly you know when you think about the value proposition of being a one-stop shop i mean that that is a good example of cross selling and so certainly as we've been you know providing more and more products and services on these large projects that lend themselves very well to it, it certainly benefits, you know, I guess what you would call cross-sell. To us, it's solving problems for customers and making their lives as easy as possible. And that all kind of comes back to the strategy we've been talking about, being that partner of choice. But it's hard to peel it apart, Chad.

Okay, thank you.

We'll go next now to Meg Dobra with Baird.

Yeah, thanks for taking the question. If we can go back to the discussion around ancillary and maybe double-click specifically on the re-rent revenue, I mean, we'll see how Q4 shakes out, but it looks to me like this line lineup is going to be up quite significantly, maybe 40 to 50 percent on a year-over-year this year. And I'm curious what the right way to interpret this or think about this is. Is this a function of um you guys just re-renting equipment in categories that maybe maybe you're not participating or is this more of a um kind of like a capex signal um in terms of where demand is materializing and part of reason why you're raising capex simply not having enough enough equipment and having to source it from third party

yeah i would say it's the latter mick i mean this goes hand in hand with the demand environment and the time utilization that we're driving and part of the reason why you see a CapEx raise here.

So it is the latter. And sometimes it's, I would say most of it, I won't say all because there's always something that we're getting to support a customer's need that we don't necessarily have in that market. Sometimes it's the more efficient play, especially for a short-term need or for something that, you know, we don't have access to handily at that moment of need.

But overall, it is indicative of the combination of demand and high-time utilization that we're running. okay that's helpful and as you're raising capex and i'm sure you'll give us an update on on 27 it sounds like you're probably going to spend a little bit more is is it fair to expect this line item rerun to maybe like flip to more toward towards oer and does that kind of have a bit of a margin benefit that we need to to contemplate if that's the case um it's a good question i would say ultimately, certainly, as we pivot some of the stuff into CapEx and we internalize those cash flows, it's going to benefit your OER line.

But one of the things, again, is solving problems for customers. And so I think you've long seen kind of rerun as part of our business for a lot of different reasons, whether it's sourcing additional capacity or providing those things as a one-stop shop service provider that for one reason or another, we don't own or don't want to own. So I'm hesitant to get too specific, but I think your logic makes sense. As we do convert some of that rerun into OER via CapEx, that's going to benefit our core results.

Not that big a number in the overall scheme of things and not something that we planned for. So it's hard even for us to model what that would be. So I don't know how to guide you to how you would, frankly.

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

Hi, good morning, and congrats on a nice quarter. I guess just two questions. You know, my first question, just with regards to conversations that you're having with OEs as you think about CapEx for 2027, any concerns on capacity constraints in the market or are we having conversations earlier just because of concerns on, you know, OEM availability and just sort of the pricing setup for 2027? And then I guess my second question, just the competitive dynamics, which I'm sure there's always new ones each cycle, but obviously you have a large OE who's trying to get more aggressive and compact and trying to focus more on mega. You know, we have new players in the market, you know, trying to double their OE. I guess just, Ted, given what you're seeing in the market, do you think the, you know, the improvement that we've seen in rental rates, do you think that could continue into 2027? And I guess, to what degree are you concerned, you know, that some of these peers could be potentially, you know, putting too much fleet into the market and that becomes an issue, you know, to me potentially, you know, at some point next year? Do you just see this as sort of normal new entrants trying to do things and ultimately, you know, not making big waves in the market? Thank you.

So I believe what we heard at the tail end was that Jamie asking a question, if you'd like to repeat it.

Well, I'm going to repeat both questions. I guess the first question was just on, you know, talking to OEMs about 2027 concerns basically on any, you know, constraints in terms of you being able to get equipment and pricing. And then my second question, it was just the competitive dynamics this cycle with a major OE trying to get more into compact and mega, obviously other public players trying to double OEC. see to what degree are you concerned, you know, potentially we could be flooding the market and this becomes, you know, equipment could be flooding the market and this becomes an issue? Or do you think the appropriate level of equipment that's going into the market sort of like meets demand? So I guess that was the spirit of the question and whether competitive dynamics are any different or more concerning versus what you've seen in other cycles. Thanks.

Yeah, sure. So to the flooding supply, I mean, the industry's shown really good discipline on supply and demand, including the OEM. So we feel good about that backdrop. More importantly, we feel really good about the demand going forward. So we're not overly concerned about that. And as far as our ability to access, you see this year with the raised CapEx throughout the year, we've got real good relationships and flexibility with our partners where we do feel we're able to react quickly and respond quickly to opportunities. But there's a lot of planning in that and a lot of forward-looking information that we're sharing with our partners to make sure we can do that effectively. So we do feel good about supply and demand and our ability to participate appropriately in that.

Thank you. Thanks, Jim.

Thank you. We'll go next now to Stephen Fisher with UBS.

Great. Thanks. Good morning. And my call dropped a little earlier, so I apologize if these have been addressed. But last year in the fourth quarter, you had a couple of things that were specifically weighing on the margins in that quarter. And so the comps, I think, should be easier. and I guess I'm just curious how you approached setting the expectations for Q4 incremental margins or implied incremental margins in light of sort of easier comps on that from last year versus this year. I would think they should be better than what you saw in Q3, but it seems like there might be something else you're factoring in.

Yeah, I mean, certainly, you know, I won't re-ask the dynamics we talked about a year ago. But, you know, but I'd say that the biggest thing we did call out was that repositioning a year ago and the team's done a good job. To some of my earlier points, you know, Steve, I'm getting the gist of your question is if you're trying to see what's implied at the midpoint of guidance on the fourth quarter. And, you know, we've long cautioned people against anchoring at the midpoint of our guidance. I mean, on the one hand, it's inevitable and anchors these conversations because it's an easy point to point to, but it's not without risk. So we've got a range. We feel very good about the momentum we're carrying, you know, throughout the year into the fourth quarter, fundamental performance we would not expect to deviate. And I just remind people the sensitivity of that calculation, right? I mean, if you think about a 1% variance in the EBITDA where you hold everything else constant, that equates to about a 50 basis point swing in the implied margin year on year. Um, and so, um, you know, without obviously decomposing all the factors, you know, that, that influence a quarter, cause it varies quarter to quarter, you know, I'll just say we feel really good about the, you know, the year dated execution, we feel really good about, you know, our expectations for the fourth quarter, where we end up, time will But, um, if you're inferring that something's changed or anything along those lines, we, you know, there's nothing has.

That's helpful. And then in terms of cold starts, I think if not all of your cold starts have been in specialty, certainly it seems like the vast majority of them. I'm just curious, as we think about an increasing mix of large projects going forward, just curious geographically where those large projects are setting up. Is there an opportunity for you to do more gen-rent branches, or are they in places where you've got adequate coverage already within your existing footprint?

Typically, we have adequate coverage where they are, but if there happens to be a large project in a really remote area, more times than not, we're able to get an onsite to service it that way. If we think it's a market that's going to continue to grow outside of the major project, then we certainly have no hesitation putting a cold start in there. But our coverage is pretty good, especially here in the U.S. and in Canada. So we feel we rarely need to add a store in rent just for a major project.

Okay, fair enough.

Thanks, Steve. Thank you. We'll go next now to Sabahat Khan with RBC Capital Markets.

Great. Thanks, and good morning. I think last quarter you shared some comments on sort of underlying margins, like some of the moving pieces, and I guess with higher-end salary and re-rent mix. Maybe if you could just share some thoughts on how underlying margins trended this quarter as well.

Yeah, thanks for the question. The dynamics we had to manage through in the third quarter were not dissimilar to what we managed through in the second quarter, whether it's that impact from the outgrowth of a slayer and re-rent. I would say the headwind, which obviously saw its offset, was similar. And even within fuel, right? We talked about the headwind we absorbed in fuel last quarter. It was pretty similar third quarter over second quarter. So not a lot of change there. Shouldn't surprise people. But, you know, obviously what you saw was, you know, our ability to, again, leverage that growth, the composition of growth, and just very good cost execution across the company.

Great. And then, you know, just think about 27, you know, some of the costs or operational cost reductions you'll be making, those likely help into next year. And I guess when you outlined some of the technology initiatives earlier this year, whether it's on the AI front and some of the other programs, do those become a material contributor to margins as we head into next year? Or are some of these technology programs that you're undertaking more longer term contributors and maybe a bit less material? or should we start to think about them getting more material as we head into 27? Thanks.

So as we get through the budget process, we'll probably get a little deeper into that.

I think most of them are longer term, but there's certainly some productivity improvements in there.

Some of them are less easily to input into a margin conversation, but just productivity of some of our human capital, I certainly think longer term, We should get productivity in the shops from some of the technology we're using and certainly free up some time for our managers to use more of their time to drive the business. So I think there's a range of opportunities, probably more towards the long term, but we'll update, you know, appropriately as we learn.

And this isn't all to take away from the opportunity, but just as a reminder, I mean, we've long embraced continual improvement. And so while, you know, a lot of the AI tools, you know, have a lot of potential and we're really excited, we view it as a continuation of what we've been driving internally to drive productivity for, you know, for several decades.

Thanks very much. Thank you.

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

Good morning, guys. Hey, it's Daniel.

Could you please address the sustainability of the used sales margin expansion you've seen recently? thank you all right the which margin expansion you sales oh use um yeah look we've been very pleased i'd say overall that that market has performed as expected you know we flat you rewind a year ago when we talked about we felt like 2025 was kind of a the bottom innings of of that normalization process and we saw that progressively if you think about the first half of 25 played out versus the second half. And obviously, we've progressed through 26 pretty well. So it feels like the market's normalized. Certainly, it's a very deep market, plenty of demand. You can see that in our results. In terms of the margins, you know, I think we're back to kind of what we would say are normalized margins. And so I would not encourage people to think there's going to be a huge amount of variability there. The likelihood is we're kind of, again, back in this normalized market. But the good news is things have played out as we kind of expected them to.

Got it. Thank you. And just to round off on EBITDA flow-through, I mean, you've done a great job with the efficiency this year. How do you think about EBITDA flow-through longer term? Any color there would be helpful. Thank you.

Yeah, so we've really tried to pivot this discussion away from flow-through because I think it almost most um simplified things and really our goal is to drive margin expansion across the cycle um and we feel like that's what we've done certainly as we've talked about in some periods of time it's easier to do and easier to show and other times it's it's more difficult or it gets clouded by dynamics whether that's used to kind of your earlier point uh daniel or whether it's um you obviously this outgrowth of ancillary and rerun. I would just say going forward, our focus is on driving profitable growth and then being as efficient as possible. And that obviously implies driving core margin expansion. And, you know, similar to what we talked about in 23 and 24 and 25, we're going to help people see what the underlying results look like as best as possible. But as we go forward, certainly our goal, again, is going to be to drive, you know, So strong margins and ultimately margin expansion is the goal.

Got it. Thanks, guys.

Thank you. We'll go next now to Neil Tyler with Rothschild & Company.

Good morning. Thank you. Just one more for me, please. Coming back to the topic of inflation more broadly, I guess you've talked about the various aspects in which that appears across your industry. Are there specific areas or verticals that you might want to call out where you're seeing customers come to you to solve their inflation problems in ways that your model might be better able to absorb it? If you could just talk a little bit about that as a theme.

We usually think about capital cost avoidance when we're thinking about rental versus owning. But to your point, those come at a cost. So I think the most important part is how can we help our customers drive efficiency? We believe fleet, right, technology and part of that, And Fleet is a great way for them to do that. So we make sure we provide that. And we do think Rentals is a better way. You could own Fleet and get some productivity out of the usage. But we feel strongly that Rentals has proven to be the better way for them to do that. So I think it's a big part of our value proposition to continue to help customers drive efficiency, to improve their margins and competitiveness in their markets.

Great. Thank you. And then the second question would be, obviously, you've talked, you know, confidently about your, you know, how you feel good about demand and into 27 as well. Obviously, there are, you know, discussions ongoing as to sort of longevity of some of the, you know, some of the cycles and end markets that you serve. Can you sort of talk a little bit more sort of longer term? It feels like the market's broadening out, the demand environment's broadening out. But how you would characterize your visibility compared to, say, 6, 12 months ago across the sort of indicators that you look at?

Yeah, I would say we feel better than we did 6 to 12 months ago, certainly. You see that not only in the race guidance, but in the activity that's going around in the industry. And the end markets we serve are very, very broad, even within non-res. And I know there's been a lot of talk underlying in that commentary. There are people worrying how long the data center is going to continue. Well, that sits in our non-res business. And even if you take data centers out, we've got strong double-digit growth within non-res. And then we think about infrastructure, power, LNG, even upstream oil and gas is doing well right now, but growing. So those opportunities remain. And that's with a couple of end markets not being strong, like industrial manufacturing, we think is a potential future opportunity for us. And residential, which then will drive more non-res work, right, is still down, and downstream oil and gas. Petrochem overall on the downstream side, which is an area where we have a lot of run and maintain work, a lot of turnaround work, that's just not getting done right now because those folks are busy as heck right now, as you can imagine. So we feel really good about the long-term view here and certainly more bullish than we did six to 12 months ago.

And the one thing I might add, Neil, is I think people know we survey our customers regularly, and they continue to feel very good about their own prospects. So, you know, this is something that Matt and Elizabeth and I have gotten a lot of questions on in the last, let's just say, six-plus months, given what's happened with energy pricing and inflation and what the market's discounting on rates and understandable concerns around, you know, whether it's the short end of the curve or the long end of the curve. So throughout all that volatility that markets have wrestled with, I would tell you our customers have felt consistently positive, and that's certainly, you know, as of the most recent reading. So that also helps underpin our confidence in kind of what that outlook looks like.

Great.

That's super helpful. Thank you. Thank you. And ladies and gentlemen, that is all the time we have for questions this morning.

Mr. Flannery, I'd like to turn things back to you, sir, for any closing comments.

great thanks operator and once again folks we apologize for the tech disruption um but to everyone on the call we appreciate your time i'm glad you could join us and our q3 investor deck has the latest updates and as always elizabeth's available to answer your questions so until we speak to you again in january have safe and happy holiday season and have a great end of your year operator you can now end the call

thank you mr flannery thank you mr grace Again, ladies and gentlemen, this does conclude United Rentals' third quarter earnings conference call.

We'd like to thank you all so much for joining us today and wish you all a great afternoon.