United Rentals, Inc.

Good morning 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, 2024, as well as to subsequent filings with the SEC. You can access these filings on the company's website at .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 presentations 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 pleased to report our first quarter results, which reflected a solid start to the year. We saw growth across both our industrial and construction end markets. Demand for used equipment remains healthy, and importantly, our customers continue to feel good about their own outlooks. As you've heard me discuss before, a key element of our strategy is being the partner of choice for our customers. And thanks to the team's steadfast commitment to this, which always includes putting safety first, we delivered first quarter records across revenue and adjusted EBITDA. This is facilitated by our focus on operational excellence and innovation. And as you saw through our reaffirmed guidance, 2025 is on track to be another year of profitable growth, reinforced by the momentum we've carried into our busy season. Today, I'll review our first quarter results, followed by why we feel confident in our 2025 guidance, and finally, I'll discuss how we think about managing the business for the long-term success. And then Ted will discuss financials in detail before we open up the call to Q&A. So with that, let's start with the first quarter results. Our total revenue grew by .7% year over year to $3.7 billion. And within this, rental revenue grew by .4% to $3.1 billion, both first quarter records. Fleet productivity increased to .1% as reported, and .9% pro forma for YAC, which we've now lacked. Adjusted EBITDA increased to a first quarter record of $1.7 billion, translating to a margin of nearly 45%. And finally, adjusted EPS came in at $8.86. Now, let's turn to customer activity. We continue to see growth in both our gen rent and specialty businesses. In fact, specialty rental revenue grew 22% year over year and 15% pro forma for YAC. We opened eight specialty cold starts in the first quarter and expect to open at least 50 this year. By vertical, our construction end market saw solid growth across both infrastructure and non-res construction, while our industrial end market saw particular strength within power and chemical processing. We continue to see new projects kicking off with a few recent examples, including data centers, pharmaceuticals, airports, and industrial manufacturing facilities. Now, turning to the use market, we sold over $740 million of OEC, which was a first quarter record. The demand for used equipment remains healthy, and we're on track to sell an estimated $2.8 billion of fleet this year. We spent over $700 million on rental capex in the quarter in response to solid customer demand. As you'd expect, growth continues to be led by large projects, where all elements of our strategy position us to be the partner of choice. We drove free cash flow of nearly $1.1 billion, setting us up for another year of strong cash generation, which we view as a hallmark of the company. The combination of our industry-leading profitability, capital efficiency, and the flexibility of our business model enables us to generate meaningful free cash flow throughout the cycle and in turn, allocate that capital in ways that allow us to create long-term shareholder value. Finally, capital allocation. Priority number one for us is funding growth while maintaining a healthy balance sheet. After the organic growth we supported in the quarter, we returned nearly $370 million to shareholders through a combination of share buybacks and our dividend. Our leverage of 1.7 times remained towards the lower end of our targeted range, leaving plenty of dry powders to support both inorganic growth and to return excess capital to our shareholders. And to this point, following the completion of our prior share repurchase authorization last month, I'm pleased to share that our board has approved a new $1.5 billion program as Ted will discuss shortly. Now let's turn to the rest of 2025. As evidenced by our reiterated guidance, our expectations for the year are unchanged. The year is off to a start we anticipated while feedback from the field continues to be optimistic, particularly for large projects. The momentum we're carrying into our busy season, along with backlogs and our customer confidence index, are all supportive of our outlook. I'll note we've not seen a change in customer outlooks for the balance of 2025. But with all that said, we understand the recent concerns around the macro uncertainty. And if things change, we feel confident in our ability to react to best support both our customers and our stakeholders. And as we think about the long term, our strategy is built on how we can competitively differentiate ourselves and outpace the market. When we listen to the voice of the customer, we gain additional conviction that our one-stop shop offering is critically important. The power of cross-selling lets us take our long established relationships and accelerate our growth by meeting our customer demands with both our generant and specialty products. And when we layer on our technology offerings, we're able to provide our customers a truly unique experience. And while we've had specialty as part of our business mix for many years, we believe this growth engine has a lot of runway ahead, supported by both geographic white space and additional products and adjacencies that we can add to our portfolio to continue to better serve our customers. To bring this to light, we have a large national account customer with a long-standing relationship, primarily with our generant team. And as we dug into how we could better serve the customer's needs, we learned we had the opportunity to be a better partner. This included not just providing additional products, but also innovating together, such as feeding information directly into their own internal tracking systems. And through our partnership, we learned more about the customer's requirements and added specialty products to fit the bill. Well, to make a long story short, over just two years, we've increased their spend with us by 12 times by becoming an enterprise of solutions. And specialty has increased from 10% of their spend with us to 40%. This example is another strong proof point of our -to-market strategy. In closing, we remain focused on being the best partner to our customers. We're on track for another year of profitable growth, and we believe the longer-term outlook we see, combined with our business model, strategy, capital discipline, and our competitive advantages, will allow us to generate compelling shareholder returns. And with that, I'll hand the call over to Ted, and then we'll take your questions. Ted, over to you.

Thanks, Matt. Good morning, everyone. As Matt just shared, 2025 is off to a good start with first quarter records across total revenue, rental revenue, which, combined with the momentum we're carrying into our busy season and encouraging customer sentiment, is enabling us to reaffirm our full-year guidance. So with that said, let's jump into the numbers. First quarter rental revenue was a record at $3.15 billion. That's a -on-year increase of $216 million, or 7.4%, supported again by growth from large projects and key verticals. Within this, OER increased by $118 million, or 4.9%, driven by .3% growth in our average fleet size and fleet productivity of 3.1%, partially offset by assumed fleet inflation of 1.5%. Also within rental, ancillary and re-rent grew by 19% and 15% respectively, adding a combined $98 million of revenue. This outsized growth relative to OER was primarily driven by specialty, where delivery represents a bigger portion of revenue from our matting business, and where our other specialty businesses support customers with value-added services like fueling and installation as part of our -stop-shop strategy. Turning to our use results, as Matt mentioned, we took advantage of strong demand to sell a first quarter record amount of OEC, generating $377 million of proceeds, at an adjusted margin of .2% and a 51% recovery rate. Moving to EBITDA, as I mentioned, adjusting EBITDA was a first quarter record at $1.67 billion, translating to an increase of $84 million, or 5%. Within this, rental gross profit contributed $89 million. This was partially offset by used, where the continuing normalization of the market drove a 13% decline in used gross profit dollars, translating to a $26 million headwind to adjust EBITDA. SG&A increased by $47 million a year over year, including $12 million of &E-related merger costs. Excluding these costs, our growth in SG&A was roughly in line with growth in rental revenue. And finally, the EBITDA contribution from other non-rental lines of businesses increased $68 million, primarily due to the $64 million breakup fee we received from the termination of the H&E deal. Looking at profitability, our first quarter adjusted EBITDA margin was 44.9%, implying 60 basis points of compression. Notably, and as our press release highlighted, this includes a $52 million net benefit related to the breakup fee, which is the $64 million less than $12 million of related SG&A costs. Although it doesn't impact EBITDA, we also absorbed roughly $13 million of bridge financing fees related to the deal that are included in our net interest expense. Taken together, our first quarter results included a net pre-tax benefit of $39 million. Bringing this back to margins, excluding the H&E benefit and the impact of used sales, our EBITDA margin compressed 150 basis points year over year. Similar to last quarter, I thought it would be helpful to talk through a few of the key factors here ahead of Q&A. Now, of course, margins in any given quarter will fluctuate with normal variability, but at a high level, several of the dynamics in Q1 were consistent with what we talked about in January. First, ancillary revenue again significantly outpaced our core rental growth. These are core elements of our service offering, particularly within specialty, that come at a lower margin than our core rental business, but have attractive returns as they don't employ much capital. As importantly, they provide a unique aspect to customer service that both differentiates United Rentals and helps drive deeper customer engagement. So, from this perspective, we view this as good business, but it does have a dilutive impact on margins that we'd estimate at about 50 basis points in Q1, or about a third of the 150 basis point decline. Secondly, first quarter delivery costs were up, driven by a few dynamics, including our growth and matting, and the increased dispersion of growth across our footprint. A byproduct of the latter is the greater need to reposition fleet in support of high-time utilization. Said differently, these are choices we make between costs and capital efficiency with the idea of supporting returns. For the quarter, these additional repositioning costs impacted our margin by about 30 basis points. And finally, given where we sit in the current cycle, our OER growth remains relatively low in a still fairly inflationary environment. At the same time, we continue to make long-term strategic investments in important areas like specialty cold starts and technology, both of which enables us to be the partner of choice to customers and provide attractive returns. The combination of these factors and normal variability in our costs accounted for the balance of the decline, so call it about 70 basis points. Importantly, these are all contemplated within the ranges provided in our guidance. And lastly, on the P&L side of things, our adjusted earnings per share was $8.86, including a 45-cent benefit from H&E. Shifting to CapEx, first quarter gross rental CapEx was $707 million in line with normal seasonality. Moving to returns and free cash flow, our return on invested capital of .6% remained well above our weighted average of $1.7 million. That's across the capital, while free cash flow totalled a robust $1.08 billion. Our balance sheet remains quite strong, with net leverage of 1.7 times at the end of the quarter and total liquidity of over $3.3 billion. All note, this was after returning $368 million to shareholders in the first quarter, including $118 million via dividend and $250 million via repurchases. Looking forward, following the completion of our repurchase program last month, we are pleased to share that our Board approved a new $1.5 billion program, supported by our continued strong free cash flow generation and healthy balance sheet. The new program will begin this quarter and is expected to be completed by the end of the first quarter of 2026. For the year, it is our intent to repurchase a total of $1.5 billion of common stock, including the shares we repurchased in the first quarter. At our current share price, this represents about 4% of our market capitalization. In total, we intend to return roughly $2 billion in cash to shareholders in 2025, equating to over $30 per share or a return of capital yield of better than 5%. So, to wrap up my prepared remarks, overall, another solid quarter that puts us in a position to reaffirm guidance on total revenue, EBITDA, CAPEX, and free cash flow. The balance sheet remains in great shape, providing strong optionality for the business, while our commitment to capital discipline keeps us positioned to support long-term shareholder value. And 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 on your telephone keypad, and you may remove yourself from the queue at any time by pressing star 2. We do ask that you please limit yourselves to one question and one follow-up question. Once again, that's star 1 for questions. We'll go first this morning to David Rasso of Evercore ISI.

Hi. Thank you for the time. I'll let others sort of dig into the margin questions. I was curious about two things, the implied revenue growth the rest of the year and how tariffs are impacting conversations with your customers. So first on the revenue growth, if you pull out the used equipment sales, the rest of the year, the sales guide's implying up about 3%. When you look at the capex and the used sales and the OEC you're looking to sell, it seems like the average fleet size growth is going to be 3%. So that almost implies no meaningful help at all from fleet productivity. Is that conservatism or something else you're trying to signal, especially you noted in the first quarter, the time it was still fairly healthy that you were moving equipment around. So just curious how that dovetails into the fleet productivity guide. And then to follow up on the tariff, how does the potential inflation from tariffs on new equipment sales, meaning for an OEM raising price, does your customer then look at rental as a better alternative right now or particularly does it give you any umbrella to maybe raise rates and get that conversations leaning that way versus maybe some negative of the inflation impacting the level of construction activity, be it lumber or whatever it may be impacting construction project decisions. Thank you.

Sure, David. This is Matt. I'll take the tariff part first and then both Ted and I can discuss the revenue, back half revenue growth or back two-thirds. When we think about the tariffs, first of all, our 2025 capex is fully negotiated and well over 80% of it already has POs and will not be impacted by tariffs in any way. In the future, to your point about what would happen if our partners did have to, got significant tariffs and did have to make some changes in the future, well, a couple of points to your comment. We probably have to pass it on like happened post-COVID when we all had to enjoy some pretty healthy increases. And then secondly, there'd be some decisions to make. We've got a couple of vendors in every category of equipment we buy and there's not a product category that I could think of that doesn't have a non-tariff impacted partner. There'd be a way for us to manage through it and whatever we did have to absorb would be something the whole industry absorbed and to your point could be an umbrella coverage for maybe some increased productivity. Not our preference, but certainly something we have the ability to do. From the growth perspective, Ted, you want to take?

Yeah, the one thing I might add on tariffs, and certainly any time there's uncertainty, that tends to favor rental over ownership and we never advocate for uncertainty, but we are in a period of time where there obviously is a couple of things that the macro is trying to struggle with. So I'd say at the margin, that's also going to benefit rental even more than we think some of the other advantages we have over ownership. On the implied revenue side, I guess the one piece you didn't really weave into that question, David, was the impact of inflation. And so when we think about that OEC growth, that's phenomenal terms. And so I think when you do the math, you'd see that adjusting for that, we'd want to make sure that we are contemplating the effect of inflation, which obviously ties back to fleet productivity. And in terms of just the growth rate, kind of what you saw in the first quarter versus what would be implied in the back three quarters, obviously we've now lapped YAC. So as people think about those relative growth rates, they just want to be mindful of that shift as well. Can we get to you again if you want to touch on any part of that?

Well, at the end of the day, when you look at the size of the average OEC growth implied from a fairly normal cadence of what you're going to sell, the OEC being sold and of course the gross landed fleet per quarter, just to level set a little bit, it sounds like the fleet productivity, which was one nine in the first quarter, X YAC, right, pro forma, let's call it, the rest of the year, those fleet productivity numbers implied or least level set, they're lower than the one nine. Is that fair? Like the first quarter? Not really. I'd say they're pretty,

I'd say it'd be pretty steady, David, because we're not in the game of forecasting them because there's a big portion of it, there's just an output of what our revenue construct looks like, specifically in MIX. But generally what's embedded in the guide, especially if you're using the midpoint, is a continuation of that type of positive fleet productivity. And that's what our expectation is and that's what is embedded in the guidance. That's very helpful.

Thank you so much.

Thanks, David. Thank you. We'll go next now to Rob Wertheimer at Milius.

Hi, thank you. I'd like to dig into a couple of the margin drivers that you guys called out, which was helpful, and basically trying to figure out how temporary they are. Fleet repositioning, I wonder if you could kind of expand on what the dynamics were that led to that. I think you said maybe broadening out of growth. Is that repositioning done and thus that kind of headwind fades? And maybe the same question just on MIX, maybe that's really in specialty, whether that reverts or whether you see continuation of that MIX profitable ROC, but lower margin drag. Thanks.

Rob, I'll talk about the repositioning a little bit and Ted can touch on the MIX. So just think about the past couple of years before 24 when we had such broad base growth, we really didn't pull any equipment from any markets. Everybody had the opportunity to put the fleet they had to work in, in some instances even more. So when we think about now where major projects are really driving a big part of our growth and the local markets are varied depending on where you are, now instead of just sending new equipment to manage these new projects, which was a much more cost effective way because it's coming right from the manufacturer, we're relocating equipment. So we're staging equipment. We're bringing it in from other places to serve these large projects. So I think that fleet balancing is what we're referring to. It's driving a little bit of extra cost when you think about what we were able to do historically and then Ted on the MIX.

Yeah, Rob, in terms of thinking about specialty in the quarter itself, the MIX certainly the ancillary grew there at a healthy pace relative to OER, still had very healthy OER growth, but we had an uptick in delivery and for a couple different reasons. Part of that would have been YAC and part of it would have been the reposition of the fleet just given the nature of projects ending and starting and just the greater dispersion and growth we've talked about all year. So that would have been about 150 basis points of the 600 basis point decline in gross margins. That will really depend on how the year itself plays out. Elsewhere within that margin construct, we probably had about 50 basis points of impact from higher subcontract labor. Those are value added services we're providing to customers to really help them with their projects and alleviate pain points in their business processes. So that again is really driven by serving our customers. And there's another 30 basis points related to fuel services. Again, one of those ancillary services we do at the request of customers. So when you add that up, you'd be looking at the better part of 230 basis points or so I think related to that MIX. The appreciation just to dimensionalize that because that was another important part of that revenue bridge. That was about 330 basis points of the 600 basis points in specialty gross margins. Really all of which related to YAC.

Okay, that makes perfect sense. And then just as a minor follow up, I know repositioning will continue as the market continues to shift. But would you say it's lumpy, the work you did in one queue is the bulk of it or is that continuing on through the year? And I'll stop. Thanks.

The honest answer is we're on top of it, but we're not sure. We certainly did a deep dive when we saw the drag on the margins and looked at and we're pretty comfortable with the decisions the team made. But I would say, you know, this is really an output of where the demand shows up and where we have to put the fleet. We are on top of it. We've got a pretty good system to make sure where we're making the right decisions and bidding out to third party haulers in an effective manner. And, you know, if there is an anomaly, we'll report it out to you guys as it comes

along. Thank you. Thank you. We go next now to Angel Castillo at Morgan Stanley.

Hi, good morning. Thanks for taking my question. Maybe just to kind of continue on that, I was wondering if you could expand just on the kind of uncertainty of whether some of these headwinds maybe persist or not. What does that kind of imply in terms of, you know, your ability to kind of deliver either on the low end or the high end of the guide? Just kind of any implications there would be helpful.

Yeah, and I'm going to jump in here, Angel, just to be clear so that no one misconstrues my answer to Rob's last question. You know, we're not implying that all these costs are going to persist or not. When you think about the ancillary, that's really an output of what the customer's needs are. It's a good decision. It's going to bring us more EBITDA dollars. It's just if the revenue construct gets higher than the midpoint, the EBITDA might not move along with it at the same pace as our OER rental. But it's still the right decision. Not doing it isn't an option. We're putting money in the till, so to speak, and taking care of our customer. What I was speaking to Rob about was that whatever it is, $10-15 million of repositioning. We don't really know how much of that will repeat because it's going to be responsive to where the equipment needs are. Ted, please. I think that answered the question. Perfect. That's very helpful. And to the last part of your question, contemplated, this isn't a big enough number to move us anywhere within the budget. And I think that's what we're seeing in the guide. We feel very comfortable about reiterating

the guidance. Got it. That's helpful. Thank you. Could you expand a little bit more on just the underlying demand trends? It sounds like your customers remain pretty optimistic here. Just curious, how did you see utilization or general kind of overall demand shift or change between January and February versus maybe March and more recently April and what you're seeing there?

Yeah, we don't really talk about monthly sequential in any way, shape or form, but the year is playing out as expected. And we talked about it being very similar to 24 when we came out with the guidance in January, and that's what we're seeing. We really, we don't talk about whether we were big enough now and diverse enough that we don't have those type of issues to have to call out. And I would say that the year is playing out in a standard seasonal growth pattern and gives us a lot of confidence that there will be the demand to meet our goals here, and that's why we reiterated our guidance.

Understood. Thank you. Thanks. Thank

you. We go next now to Jamie Cook with Tourist Securities.

Hi, good morning. I guess two questions. One, Ted, just for you, understanding the puts and takes of the margins in the quarter and the incremental margins in the quarter. I'm just wondering, you know, your confidence in the 50 to 60% through cycle, you know, incremental margin for United Rentals. Just given where the incrementals have been, it seems, you know, aggressive, like the top line just had to grow to double digit rate for you to achieve that. But just your confidence there, maybe we should start thinking about EBITDA growth versus incremental. So that's my first question. And then my second question, obviously the cash flow is strong, the increased authorization is a positive, but just what you're seeing on the M&A front with the H&ED deal falling through, I'm just wondering, given the uncertainty in the market, is there opportunities for you guys to sort of be, you know, more opportunistic in your preference for specialty versus general rent?

Thanks. Yeah, Jamie, I'll take that first one. I think Matt will probably take the second, but nothing has changed in our view of our ability to drive margin expansion over the course of the cycle. One of the things we've talked about, you know, over really 2024, now 2025, is the fact that we're in a relatively slower growth phase of the cycle, that's still relatively inflationary. It's not our expectation that these kinds of conditions will last for, you know, a multi-year period. Our expectation is that the economy and our markets do obviously accelerate as you get more accommodative Fed and better interest rate policies that support overall economic growth. And as we get there, that obviously gives us the ability to leverage fixed costs more efficiently. And so nothing has changed from that perspective. But the other thing that's just something we highlighted today was obviously this revenue construct and the impact we've had from providing more ancillary, which we view is a good thing. It has, you know, that the effect on margins and flow through we've talked about, but it's very good business that supports customers and adds, you know, even dollars, just not the same margin we would in our core business. So we can, you know, if there's any follow up on that side, let me know. Otherwise, I'll hand it over to Matt.

Yeah. So from the M&A front, you know, we had a pretty robust pipeline before the H&E deal and that pipeline remains. So to the focus areas that we really like to hone in on, certainly it's adding any new products and services to our customer base. We've done very well with that when you think about YAC and general finance before that. So that's our primary focus. But adding more capacity within specialty where we still have white space and penetration opportunities to support this double digit growth trend that we're on would be another area of focus. And there's still a pretty good pipeline that the team's working through. We have plenty of dry powder, as we talked about earlier, at 1.7 times leverage and a strong balance sheet. And we have the capability. So we certainly are still in the M&A game. We just have to find the right dance partner and make sure it meets our very high bar.

Thank you very much.

Thanks. Thank you. We're next now to Michael Sinegar

of Bank of America.

Yeah. Hey guys, thanks for taking my question. Just on the specialty growth, you know, even XM&A up 15, just I know you touched on it earlier. Is there anything you can flesh out in terms of what's driving that in terms of end markets, product lines? Is it gaining more customer share? Is it the cold start? Just your confidence on that kind of double digit growth rate that we've kind of seen from specialty, you know, so far for the rest of this year?

Well, I think it's all of the above, right? So and when you think about the example I gave in the opening remarks about even with long standing relationships, we could as we continue to add more products and services to our portfolio, even with long standing relationships, we find we have opportunities and also they have to have the demand. So the kind of projects that specifically are larger customers tend to have are more complex and need more support. And we're there to meet that support. I think that's driving a lot of specialty growth. But then also, as we add these new products to our platform and the ability to scale them up is another big opportunity and we still have white space there. And that would be dismissive of what's happened in one of our most established ones, which is power. Our power HV&AC team still grow double digits and one of our strongest growers in the company as they not only get more penetration, but add more products to their portfolio. So it's really across the board, which is why you hear the confidence in our voice, a double digit growth for especially for the foreseeable future.

Great. Matt, just to follow up, just like Jen rent is still positive, but clearly in a slow growth phase right now, just in terms of the cycle, how to think about it. Do you have to go negative first before we see a re acceleration? Based on the conversations in the field, what would be that catalyst for re acceleration? Is it more de-escalation of tariffs? Is it Fed rate cuts? Is it deregulation? I mean, if you look back in 2009, obviously that was a very severe recession. There was just a very long lag for non-res to recover. Do you think that is the case this go around when we're kind of talking about maybe a re acceleration in some areas like the local markets or some areas that have been soft? Thank you.

Yeah, so we certainly don't think it needs to go negative. We feel like we're in the slow part of the cycle and we're not going negative. But to your point about the local market, we're much more highly penetrated in the local market with Jen rent and that's a bigger needle mover for them. But they still have some of the opportunities that we have in large projects to help offset that. I think although most of our growth is coming from specialty, I think our Jen rent team is well positioned to as the market picks back up as a local market repairs, whether that's driven by interest rates, just overall stronger economy, whatever, we're very well positioned. We've kept our capacity. We didn't overreact to the slower growth, which although maybe it's drags on margins a little bit, it's the right long-term decision. So we feel really good about where we're positioned. We don't think we have to turn negative for an acceleration.

And Mike, I might just add from a vertical perspective, the two areas that have been most challenging there have been residential and residential related and kind of call it the oil patch. So I think those are verticals that people understand have had kind of unique challenges. But to the degree you saw those inflect, that would be a positive for the Jen

rent growth. Thank

you. Thank you. We go next now to Tim Fine of Raymond James.

Oh, great. Thanks. Just wanted to circle back as a follow up on the earlier question on tariffs. And Ted, you covered it with respect to the CapEx impact from new equipment. But I'm just curious from an OPEX perspective, to the extent we were to see parts pricing change or be impacted by tariffs, is there protection there? How would we think about that? I guess hypothetical at this point, but maybe just update us on that point.

Yeah, it's a fair point, Tim, but still all negotiated for 25. So we're locked in for 25. But it's no different than the fleet costs. We negotiate our parts and our fleet costs with our partners annually. And in 26, if there's some stuff there, we're going to have to make sure we're aligned with the folks that can either bypass having to push them on or avoid them. So we're going to have to do that all together. And that'll be part of our 26 negotiation, but nothing that we see in 25.

Okay. Okay. And then Matt, just you highlighted it as several others, the strength of the larger national account business and how we've been dealing with this softness in the local account business, which is a market for some time, which seems to be continuing. But I'm just curious if that is that creating any sort of a mixed headwind for United? And I guess if so, it would could it be more pronounced in what is a seasonally softer quarter? Just normally lower activity in the first quarter. Is that more pronounced or or none of the above? I'm just just curious from a mix impact. Is there any sort of headwind there?

Yeah, I don't think there'll be any further headwind to your point about Q1 being a slower part of the year and not the part of the year we bring in the more capex that could have some impact on that repositioning costs that we talked about from an ancillary perspective. It's really mostly driven by the very high level of growth in specialty and the extra products and services we provide with with that offering. So nothing that I think is going to change seasonally. It'll it'll depend. I think we'll continue to see the demand and therefore where we put our fleet to play out similar to 24. I guess the one difference would be as we continue to grow the act is we continue to grow the specialty footprint through cold starts. I think that's driving some of the ancillary for all for good reasons really for good good cross-cell growth.

Okay, all right. We'll leave it there. Thank you for the time.

Thank you. Next now to Jerry Revich of Goldman Sachs.

Yes. Hi. Good morning, everyone. I'm wondering if we could just pull on the M&A thread. You know, one of the hallmarks of where you folks with added value of the years has been just M&A and the ability to improve those operations. And so as you sit here today, given the size of the company, can you just talk about how active the runway is on a multi-year basis on the M&A pipeline? There's some concern that the magnitude of acquisitions that you folks have been able to deliver in the past that opportunities that might be slowing. So if you just talk about what that looks like on a multi-year basis, as you sit here today.

We don't really forecast to that or plan like any kind of budgetary goals for for M&A. We think that leads to bad behavior. But as far as we think about what the pipeline looks like, I mean, we we don't have the expectation. That we don't have enough runway on M&A, whether it may be more like a string of pearls or even big pearls. And we think about where can we fit out some of the specialty offerings. But I don't think we sat here a couple of years ago and said, wow, Matting would be a great thing to add. So we're continually investigating new opportunities. But there's some there's still some chunky deals out there, certainly not as much on the general rent space as as what the other opportunities are. But we still think there's plenty of M&A runway. We don't really put a target on it, Jerry, because that's not the way we think about it. We're just constantly working a pipeline and see what meets our threshold and what could be a good use of capital and strategically beneficial.

Appreciate the color, Matt. And, you know, separately, obviously, you folks pulled cost levers really well in in recessions as we think about a potential recession scenario. Can you just talk about the levers that you could pull in this coming cycle? So we spoke about ancillary revenues, subcontractor costs, etc. To what extent, if we were to see a negative economic outlook, could we see greater margin opportunities for you folks, you know, similar to what you folks were able to deliver most recently in 2020?

Yeah, I'll take that one in that jump. And if there's anything you want to add at the end of the day, I think both from an op ex and a capex standpoint, we've got a lot of flexibility. I feel like your question is more oriented towards margins. And so when you think about the nature of our cost structure and really our our, you know, the core operating costs, something on the order of about 50 percent is going to be highly correlated to volume. So it's going to be things like pickup and delivery and repair and maintenance, you know, discretionary items like teeny or overtime. Those we can flex very readily and they move with with demand. So that part of it, we feel very good about modulating in the downturn. You certainly saw that during covid as an example. There's a relatively small part of our cost structure that we would be with fixed. It's probably on the order of the very low double digits in between. It's really a function of labor and benefits. And that is as flexible as you're willing to make tough decisions on teammates. And that's something we want to protect at all costs when we're able to. So, you know, it's really going to be the interplay of how does volume perform versus how do we manage those costs? You know, certainly we feel very good about what we demonstrated in 2020. We've only gotten better managing the cost structure. But a lot of this would obviously depend on the nature of a downturn.

Yeah, I would just add to Ted's point how deep and how long would make the decisions in that middle 30 percent? Let's call it for lack of a better better term of our costs. And just to remind people outside of 08 09, when we had to do significant layoffs, you know, during covid, we made the opposite and holding on to that capacity really paid off coming out of that. So that would be what our future outlook would be in a downturn. And we're certainly not trying to speak that into our future would would would depend on on how aggressively we

got. Appreciate it. Thank you. Thanks.

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

Thank you. Good morning. I just wanted to come back to I just want to come back to the ancillary pickup. And I know you gave us some good color on the fact that it was the YAC inclusion and some of the fueling services. I guess I'm just kind of curious if there's any other sort of broader reason why now why this is all happening. Obviously, you know, YAC is new, so that would make sense. But are you implementing specifically new initiatives to target the fueling operations? Are there any other particular services that you kind of, you know, trying to bring forth to to clients at your customers attention that they can kind of roll this out?

Yeah, I so to your latter part of your question, the answer is yes. We're continuing to look at ways where we can solve more problems for our customers. Right. And in an effective and profitable way. So YAC certainly was a big driver for it. But even when you think about as we're growing our mobile storage and modular business, the set up for that falls into this category. So fueling, whether it be not just for generators, but for equipment overall is another pain point for the customers that if we can continue to increase that touch point, we'll do that. So it's a little bit of both. It's the growth of the platforms like like matting and modular and mobile storage that's driving a lot of it, but also some additional services that we're

offering. OK, that's helpful. And then just to come back to the margins for a second, just so I'm totally clear on this, obviously that the incrementals are implied to be higher for Q2 to Q4. So you just remind me kind of what the reason is that what's going to drive that improvement in the second part of the year? What's going to be different relative to the first quarter? Thank you.

Well, I think this is where it's important to decompose kind of what happened in the first quarter. Right. And so you can look at it. You said flow through, we look at margins, but being down nominally 150 basis points, XH and E termination fee and X used. But when you cut through kind of the ancillary and dynamics, we talked around repositioning down 70. And that's really how we think about that core performance. So certainly as we progress through the year, you get into the busier season and you lap, you know, some of these costs, some of which were transient. You know, we would expect the business to perform as expected. Now, the degree to where we land is going to depend on how that revenue

ends

up working out from the standpoint of

ancillary, probably as much as anything. Okay. Thank you very much. Thanks, Steve. Thank you. We go next now to Kyle Mingus of Citi.

Thank you. Could you guys just touch on just level of confidence in the backlog for the rest of the year? And I understand visibility might normally be about six months out. Could you just talk about maybe level of visibility and is there more visibility in the backlog now, just given more mega projects in the pipeline? And do you have any sort of sense on what percentage of of your backlog is mega projects at this point versus maybe last year or kind of, I guess, in a more normal year?

Yes, sure, Kyle. So I think as far as the profile of the demand from major projects to the rest of the business is pretty similar to what it was last year, maybe kicked up towards major projects, maybe a hair. But but but pretty similar, I think, as far as the forward looking visibility, certainly higher than the six months on the projects, because we got a plan with our with our partners. So we have more visibility there. And I think the backlog data is supporting six months plus of backlog. But more importantly, our customer confidence index continues to give us confidence about the balance of the year. Our leadership team and sales teams that are connecting with our customer on a daily basis out in the field is continuing to give us solid feedback and then our metrics, our actual execution of what we're doing with fleet on rent and utilization rates. We we we have confidence that for the balance 2025, we we see the runway ahead and we and that's why we reiterated our guidance.

Got it makes sense. And then just another tariff question more related to the value of your used fleet. Just how should we be thinking about maybe the value of the use fleet and the overall used market? Just given maybe some tariffs on new equipment. And are you seeing any early signs of that just in the used market related to to tariffs?

No, it's way too soon. I mean, I don't even know if people have finalized what their costs are going to be for most of these vendors. But theoretically, to what you're talking about, like it did post covid, if the new equipment pricing were to increase out of the ordinary, that would act as an umbrella and use pricing values. We certainly have seen that in the past and we would expect that to happen. We don't feel at all that's what happened yet or is what driven the volume that we experienced in demand we've experienced in Q1. It's it's similar to what what we had planned for and what we expected. I think it's more about the demand out there in the end market. And to your first question you asked earlier, it's another area of confidence of the outlook for the rest of 25. We sold a record level of OEC and I don't think people are buying equipment to park it in yards. So there's still there's still a good amount of work going on out there.

Oh, well, thank you. Thanks, Val.

We'll go next now to Tammy Zakaria at JP Morgan.

Hey, good morning. Thanks for all the comments so far. I have only one question. I think I heard you mention that local markets are more indexed to your gen rent offering right now. I'm curious, is there a structural barrier or reason why specialty maybe could not become a bigger part in local markets, meaning is there not a scalable market for specialty at the local level or could over time specialty could become as big at the local level as it could be for the national accounts?

Yeah, I think as our specialty businesses mature, they'll get more penetration locally. But I think the one big part of our one stop shop strategy is cross selling. So we prioritize overall as a company, our larger half of our customer set, which tend to be more on project and with bigger customers. So when we get new offerings, we really focus on that part of the cross sell because they tend to do more complex projects. So this is a decision for us. It doesn't mean that people that there's not local trench work, that there's not local temporary power work. It's just our profile and the way we go to market. The maturity of Gen rent is so much further down the road and also through a lot of acquisitions that they're just the reality is they're just more penetrated. We do have that opportunity in the future for specialty to continue to get more penetrated locally.

Great. Thank you.

Thank you. We'll go next now to Ken Newman of KeyBank Capital Markets.

Hey, good morning, guys. Thanks for squeezing me in. You know, I know it's a smaller part of your mix, but I was curious, can you talk about what you're seeing in the smaller local accounts and just the expectation for that through the rest of the year? I'm just trying to get a sense of how much padding there is in the guide if that does get incrementally softer as the year progresses.

It's really the area that we have the least visibility to. But when you take the aggregate of whether you're looking at a branch, a district or region of the activity in there where the field is very close to the local market and then they do their forecast, we feel confident that we have enough visibility through that ground up mechanism to stay within the ranges of our guidance. And certainly you hear the confidence in our voice of reiterating. So we don't expect that. With that being said, you know, it is still a smaller part of our business. So therefore, the impact of that variability would be a little bit less than if something happened in a macro that impacted our national accounts. And remember, you know, for people that remember years ago, when we moved to larger customers, national accounts, it wasn't because of megaprojects. We didn't know this was going to be a thing or these tailwinds that we talked about. It was because when work does slow down, we do feel that larger contractors sell deeper into the pipeline and we needed to be aligned with those. And we learned that through the 08-09 recession. And I think that that would also be a buffer to any kind of change. I think we're better positioned with those customers.

Right. Okay, that makes sense. And then just quickly for my follow up, I just have a clarification question on YAC. I know there's already been a lot of talk about inflation and tariffs. I know you depreciate those assets at YAC to zero, I think over a two or three year period. Obviously, lumber is much higher on a -over-year basis. Can you remind us how margins in that business could or maybe it doesn't fluctuate with spot lumber prices?

I don't think we've experienced much of that ourselves in the kind of woods we're buying. But certainly we feel comfortable that they can maintain their margins. I'll

just

leave

it at that. Double, thanks. Thanks, Kevin. We'll go next now to Scott Schneeberger

of Oppenheimer.

Thanks, guys. Good morning. Just on specialty rental, curious, it's come up a few times, but this year confidence in continued double-digit growth, very impressive. Just curious, could you delve in, you have seven product categories. Is everything growing? Is there disparity or some carrying the weight and others not keeping up? Just kind of discussing across all seven platforms and is it cold starts that's really driving it? Are you getting market share gains, pricing? Just curious to go in a level or two deeper on how you think you are differentiating in those markets. Thanks.

Yeah, no, it's pretty broad. We've talked about that in the past, how even some of our more mature specialty businesses were growing double digits. Each quarter it may be a little more choppy, but you'd have to think about the newer platforms with more white space and more cold starts are going to grow faster. But power being, I think, one of our most mature continues to be one of the leaders in the pack on growth. So it's across the board. It's partly driven by penetration and a big part of it driven by our go-to market. So between the white space and our go-to market, it continuing to sell into our targeted customers. We're probably taking share as they maybe were using a myriad of smaller type providers. And I think the fact that we can bundle it's a big advantage for us and why we're seeing that growth and have confidence in that future growth.

Thanks. And just one more specialty and ancillary kind of following up a bunch of questions there too. But it seems like you all maybe have more to say there. It sounds like you're digging in perhaps acquisitions can help in that space or maybe some internalization delivery or setup of maybe less outsourcing. And maybe we hear from this from you all in the future. But I got the sense on earlier questions. There's more you could and would be open to saying. So that's why I'm asking it now.

Yeah, I mean, certainly we're always looking at ways that we can be more efficient and insourcing is one of the ways that we'll do that. And we'll always balance what we think we are a better provider at versus what we can do. And, you know, even within the fueling, we'll use some outside parties to help that certainly depending on the need. So it is going to be a mix. We do look at in some of our businesses, how can we be a better provider of these ancillary services? But I wouldn't point to any specific targets right now for a couple of reasons. But it's a good thought that you're having and consistent with our continuous improvement mindset of how can we how can we do better from a service and margin perspective?

Thanks, Matt. Appreciate it. Thanks. And we'll go next now to Stephen Ramsey of Thompson Research Group.

Hi, good morning. Wanted to think about cross selling. You've done well going from gen rent to specialty. I'm curious if there's any color on cross selling within specialty with these more mature categories and then being able to add on some of the less mature groups within within that segment.

Yeah, it's a great point. It's something that we focused on with our teams and something that we're working on actively. Some of these acts naturally go together. Right. And when you think about how we've organized our .O.S. business, right, which was our restroom trailers and portage on along with our modular business, you would think setups on job sites. So that's a that's one of the areas where we've really focused on putting those together. When we think about what we did with our pump business when we bought Baker and make a full fluid solutions, now we've made it a whole separate region of fluid solutions right to treat transferring and contain. So there's there's many examples of us doing that. And we continue to try to find as many opportunities we can can to make it seamless for the customer. And that's really what the bundling is all about. If we make it easier for them to streamline their vendors and to have one solution provider, it's it's it's a win win situation.

OK, that's helpful. And then one other thing on the ancillary re rent cop getting relatively tough for the last four quarters, two to three percent benefit on top of into rental revenue. Do you expect that same level of benefit in the rest of the year?

It's a great question, Stephen. And that's something we're trying to figure out at the end of the day. It is being responsive to what customers are asking of us. And if we just look at that relative rate in the first quarter, we grew 19 percent ancillary versus five percent. So we are so called it four times relative rate. Part of that was, of course, YAC. But last year, you know, we grew it about, I want to say, two times the rate overall. So we've seen an acceleration thus far, but it's hard to predict exactly how this will play out. It is part of our strategy. You heard Matt talk about that. This is, you know, being that partner of choice to our customers and making their lives as easy as possible. So time will tell. And we'll have an update in July, obviously, about how this progressed in the second quarter.

That's excellent. Thanks. Thanks,

Stephen. Thank you, and, Jill, that's all the questions we have this morning. Mr. Flannery, I'll turn things back to you, sir, for any closing comments.

Thank you, operator, and to everyone on the call. We appreciate your time. I'm glad you could join us today. As always, our Q1 Investor Deck has the latest updates, and Elizabeth is available to answer your questions. So please stay safe, and we look forward to speaking to you all in July. Operator, you can now end the call.

Thank you very much, Mr. Flannery. Again, ladies and gentlemen, that will conclude today's United Rentals earnings conference call. Again, thanks so much for joining us, everyone, and we wish you all a great day. Goodbye.