United Rentals, Inc.

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. 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%, an 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 today. 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. 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. 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 1.5 to 2.5 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 general 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% 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%, driven by a 7.9% increase in our average fleet size and fleet productivity of 6.5%, 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 used, 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 is 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 are 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 are 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 used sales are still expected at around $1.45 billion. At midpoint, this now implies full-year total revenue growth ex-used 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.