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Greetings. Welcome to the Sunbelt Rentals Fiscal Fourth Quarter 2026 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. You may be placed into question queue at any time by pressing star one on your telephone keypad. We ask that you please ask one question, one follow-up, then return to the queue. As a reminder, this conference is being recorded. If anyone should require operator assistance, please press star zero. It's now my pleasure to turn the call over to Kevin Powers, Senior Vice President, Investor Relations. Kevin, please go ahead.

Great. Thank you, operator. Good morning, everyone. Today, we're reviewing our fourth quarter and year-end results ended April 30th, 2026, with comments on operations and our financials, including our view of the industry and our strategic outlook. The prepared remarks will be followed by an open Q&A. Let me remind you that today's call will include forward-looking statements. These statements are based on the environment as we see it today and are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, the factors identified in the press release, as well as other filings with the S.E.C. Today, we're reporting financial results on a U.S. GAAP basis. In addition, we'll be discussing our non-GAAP information that we believe is useful in evaluating the company's operating performance.

Reconciliations to these non-GAAP measures to the closest GAAP equivalent can be found in the earnings release in the conference call materials. This morning, I'm joined by Brendan Horgan, our Chief Executive Officer, and Alex Pease, our Chief Financial Officer. I'll now turn the call over to Brendan.

Thanks, Kevin. Good morning, everyone. As always, we'll kick off the call with a safety update before we move on to the strategic and operational highlights for the year. Beginning on slide five. Safety remains foundational to our success and is central to our culture at Sunbelt Rentals. For me, one of the more powerful reminders of this is our annual safety week, which we hosted last month. As I visited branches across the business and saw firsthand the deep commitment our teams have to not only protecting one another, but our customers. It's clear to see how our engagement continues to translate into measurable results. World-class safety program and the ownership of Engage for Life by teams throughout the business. These results reflect sustained investment in training, technology-enabled safety monitoring, and a culture of standards and accountability across all of our locations.

World-class safety performance not only protects our people, but also drives operational efficiencies and strengthens customer confidence in our brand. To our Sunbelt team members listening in, thank you for your efforts to date and your ongoing commitment to Engage for Life. Turning now to slide six to highlight key messages for fiscal year 2026. The business delivered record Q4 and full-year revenues of $2.8 billion and $11.2 billion, growing 8.9% and 3.4% respectively over last year, which came in above the top end of our March guidance. This revenue produced $4.7 billion adjusted EBITDA, drove a record free cash flow of $2.1 billion, contributing to record returns to shareholders of $1.9 billion through share repurchases and dividends. Momentum accelerated through the end of the year with 8% fourth quarter rental revenue growth, led by specialty growth of 15% and general tool growth of 4%.

This performance demonstrates the continued strength, resilience, and diversity of our business and end markets. In addition, rental rates remained resilient, reflecting structural progression and disciplined investments. We continued to expand our footprint through 51 greenfield openings and 24 locations via bolt-on. Our top-line momentum built throughout the year with mega-project strengths, both in starts and pipeline, demand for energy solutions, significant live events, and large strategic account activity. In addition, we continue to experience what we call equilibrium between completions and starts in our local non-residential construction markets, meaning in essence that starts and completions are in balance, and importantly, our leading indicators remain positive, perhaps illustrated best by our significant fourth quarter momentum gains. Lastly, we're pleased to have announced a strategic transaction expanding our specialty offering that we believe will aid in the delivery of strong returns to shareholders.

Let's turn to slide seven for some added color on this transaction. I'll spend just a few minutes on the acquisition we announced this morning, which aligns with our capital allocation priorities, advances our Sunbelt 4.0 strategy, and further positions Sunbelt for long-term growth. We're excited to announce the acquisition of Reliant Asset Management, which creates our 13th specialty business line, Sunbelt Rentals Modular Solutions. Reliant, which trades under the Aries brand, serves as a foundational entry point into the attractive modular solutions market. This will be a core part of the Sunbelt formula for driving complementary growth in specialty and general tool while growing our addressable markets. Modular is a highly complementary vertical to our other site services related offerings such as ground protection, temporary structures, temporary walls, and temporary fencing. Which entirely aligns with our Sunbelt 4.0 strategy.

Aries brings a national reach, a strong management team, and a meaningful backlog with a significant cross-selling opportunity through Sunbelt's strategic sales coverage and existing customer relationships. Today, Aries is in just 14 of Sunbelt's top 50 markets, which clearly gives us substantial runway to grow density over time through both greenfield and additional bolt-on M&A. Portable storage is also under-penetrated in the existing fleet, which is another area for further investment, customer, and revenue gains. We look forward to capitalizing on the natural synergies Modular Solutions brings as we continue to integrate its offering into the power of Sunbelt. Let's now take a look at some of the construction industry trends and forecasts on slide eight. This is our usual presentation of Dodge starts, Dodge Momentum Index, the Architecture Billings Index, and the Fed funds rate.

The U.S. Dodge Momentum Index continues to signal strength in construction demand, providing a positive backdrop for our business. This leading indicator tracks commercial projects with projected starts values of less than $500 million as they first enter the planning stage and serves as a predictor therefore of construction starts to come over the next 12-18 months. This best represents an indicator for what we commonly refer to as local non-residential construction. The momentum figures and starts on this slide feed into the put in place figures on slide nine. Providing a broader view of the U.S. construction markets and North American rental market outlook. According to Dodge, total U.S. construction put in place, excluding residential, is expected to reach approximately $1.3 trillion in 2027, with continued growth through the end of the decade.

Our construction markets are highly diversified across local, non-residential, large, and a broad sector range of mega projects and infrastructure. As you saw in our fiscal 2026 results, and you will see in our fiscal 2027 guide, our business growth continues to outpace the North American construction market. This is driven by our scale and market diversity, breadth of solutions, and the continued structural progression of our business and industry. Turning to our full year results in more detail on slide 10. Total revenue and rental revenue both grew 3.4% to a record $11.2 billion and $10.3 billion respectively, with general tool and specialty sequentially strengthening throughout the year. Adjusted EBITDA declined 2% year-over-year, with margins compressing 200 basis points to 41.9%. Margins were impacted by three factors.

First, inconsistent with what we experienced and detailed throughout the year, our growth in the year was largely volume led. Carrying costs such as asset fleet repositioning to drive utilization and unlock pockets of market opportunities and growth. Second, particularly related to the fourth quarter, margins reflected a greater contribution from specialty, which carries, as you know, a lower EBITDA margin than general tool, but delivers extremely attractive returns on investment and runway for growth. Margin mix was also impacted by a higher contribution from ancillary revenues in areas such as E&D, fuel, and re-rent. When these profitable revenues outpace pure rents revenues, they'll impact margins. Third, also specific to Q4, we lapsed the previously communicated reversal of a $28 million receivables provision recognized in the fourth quarter last year related to a customer Chapter 11 filing in the fourth quarter of 2024.

Excluding the reversal benefit recognized in the prior year, adjusted EBITDA margin in the quarter declined 290 basis points. We invested $2.2 billion in CapEx as we maintained discipline in capital deployment, focusing on fleet replacement and targeted growth areas. We generated record free cash flow of $2.1 billion, which was up 23% year-over-year, demonstrating our ability to fund growth while returning significant capital to shareholders, which in fiscal year 2026, we returned nearly $1.9 billion through share buybacks and dividends, demonstrating the resilience of our business and continued ability to invest in growth. Slide 11 illustrates our North America fleet on rent trends, where we are experiencing continued strength and momentum. Large strategic customers and mega-project activity is fueling growth, we continue to see positive leading indicators, importantly, the industry supply and demand dynamics are healthy.

Which when combined with structural progression, continue to support a resilient rate environment. Our diversified business model and deep customer relationships are driving increased cross-selling between North America General Tool and Specialty segments. We also continue to build momentum through the network of 537 locations that have been added during Sunbelt 3.0 and thus far in Sunbelt 4.0, which are maturing and contributing to our growth. As you see here, our fleet on rent growth momentum has continued in May and June. Moving to slide 12, which shows equipment rental revenue growth on a billings per day basis across our segments. North America General Tool delivered consistent low single-digit growth throughout the year, accelerating to 4% in Q4. This was driven by positive volume momentum and resilient rates in end markets, which continued to be mixed.

Local non-residential construction markets, which I've mentioned, remained in this equilibrium state where we believe starts are generally in balance with completions. Therefore, growth is being driven by the ongoing strength of mega project landscape and the broader construction markets. North America Specialty delivered a strong 14% growth in Q4 and 6% for the full year. Growth was driven by broad-based project demand across markets, from mega projects to live events to demand for energy solutions. This performance was broad across multiple specialty lines, including power and HVAC, load banks, scaffolding, temporary fencing, structures, trench safety, and ground protection. When comparing Q4 rental revenue growth to Q1 by segment, General Tool exited the year to pace four times its entry and Specialty nearly three times. This momentum in Q4 gives us confidence in the trajectory for fiscal year 2027.

With that, I'll hand the call over to Alex to review the financials in more detail. Alex?

Thank you, Brendan. Good morning to everyone. Our fourth quarter results for the company are set out on slide 14. Total revenue grew 8.9%, driven by higher sales of used and new rental equipment, alongside 8% rental revenue growth. We ended the year with strong momentum, driven by volume growth and higher utilization across most geographies with stable rates. As Brendan's already explained, our adjusted EBITDA margin cost factors impacting our fourth quarter results were similar to our nine-month results, with Q4 also reflecting the lapping of an approximately $28 million receivables provision reversal recognized in Q4 of fiscal 2025 and a higher mix of ancillary revenues. CapEx increased 76% in the quarter, reflecting funding for ongoing specialty growth, recent mega-project wins, and replacement timing between Q4 of fiscal 2026 and Q1 of fiscal 2027.

Finally, free cash flow was $627 million, reflecting the ramp-up in CapEx in the quarter. This table on slide 15 provides a comprehensive view of our Q4 and full year financial results. Full year total revenue reached a record $11.2 billion, up 3.4%, with equipment rental revenue of $10.3 billion, also growing 3.4%. Adjusted EBITDA was $4.7 billion, with the full-year margin at 41.9%. Absent the U.K. business, North America margins were 43.4%, inclusive of all company overheads. Depreciation for the year was unchanged at $2.2 billion, reflecting disciplined fleet management alongside improved time utilization. After an interest expense of $387 million, full-year adjusted pre-tax profit was $2.1 billion.

Adjusted EPS was $3.72 for the year, while trailing 12-month return on investment was 14%. In the fourth quarter, below adjusted EBITDA, depreciation declined 2.8%, significantly less than revenue growth, while interest expense was broadly in line with the prior year.

Adjusted EPS was $0.74, down year-over-year, primarily reflecting the lapping of the receivables position reversal discussed earlier, as well as a higher effective tax rate. The increase in the tax rate was largely due to the non-recurrence of a favorable state tax adjustment recorded in the prior year period. The combination of these two line items added $0.07 to the fourth quarter of 2025 that did not repeat in 2026. Turning to North America General Tool on slide 16, we delivered full-year total revenue of $6.5 billion, up 1.7%, with rental revenue growth of 2.1%. In Q4, rental revenue growth accelerated to 4.4%, led by volume improvement and stable rates. Strength in mega projects helped mitigate moderated conditions in the local non-residential construction market.

In Q4, the adjusted EBITDA margin performance was the result of volume-led growth driving costs higher, most notably costs to reposition the fleet to growth markets. Additionally, the higher mix of ancillary revenues coinciding with the sharp rise in fuel prices had a negative mix impact on segment margin. We do expect these margin dynamics to improve in fiscal 2027. Lastly, dollar utilization was 47% for the full year. North American Specialty continues to be our strongest growth engine, with full-year total revenue of $3.7 billion, up 6.5%, and rental revenue growth of 5.8%. Q4 was particularly strong, with rental revenue accelerating to 15.1% growth, driven by continued demand in project-related activity and expanded scope of our value-added services. Our power and HVAC business increased by nearly 30%, led by load banks.

Adjusted EBITDA margin of 45% declined compared to last year, mainly due to the one-time lapping of the receivable provision reversal that was booked within our Specialty segment. When you adjust for the prior year benefit, Specialty adjusted EBITDA margins increased 20 basis points and adjusted operating profit margins increased 160 basis points. Dollar utilization improved 75% from 73% in the prior year, reflecting our ability to deploy Specialty assets more productively as the fleet matures and cross-sell opportunities expand. Turning to the U.K. segment on slide 18. Full-year total revenue was $932 million, up 2.8%, with rental revenue growth of 3.1%. The U.K. team has been focused on delivering operational efficiency and improving long-term returns on capital. Restructuring actions were taken during the year to unlock value, drive stronger free cash flow, and better serve our customers. Moving on to CapEx and free cash flow on slide 19.

This slide shows our capital expenditure discipline and strong free cash flow generation. Full-year total CapEx declined 18.5% year-over-year to $2.2 billion, reflecting our focus on fleet replacement and supporting targeted pockets of growth, primarily in specialty. We dynamically allocate capital based on market conditions, ensuring we maintain fleet quality while capturing the best return opportunities. To that end, consistent with our capital allocation priorities to first focus on growth, we invested to open 51 new greenfield, a mix of 31 specialty locations and 20 general tool locations. In addition to that, we spent $238 million on 13 bolt-on acquisitions, adding 24 new Sunbelt locations.

Lastly, free cash flow grew 22.7% to $2.1 billion, a new record for the company. This demonstrates that our cash from operations are fully capable of funding volume growth while returning meaningful capital to shareholders. Next, looking at our balance sheet on slide 20.

Net debt at period end was $7.6 billion, consisting of $1.4 billion of first-lien senior secured bank debt and $6.2 billion in senior notes. Net debt to EBITDA leverage stood at 1.6 times, well within our stated target range of one to two times. This conservative leverage positioning provides significant flexibility to fund both organic growth investments and strategic M&A while maintaining our commitment to returning capital to shareholders through dividends and buybacks. Following the Aries acquisition, we continue to remain comfortably within our targeted range. During the year, we've returned approximately $1.9 billion to shareholders through share buybacks of $1.4 billion and dividends paid for $464 million. For the final dividend of the year, our $0.75 per share will be paid on July 24th, resulting in a full-year dividend of $1.125 per share, which represents 4% growth year-over-year.

Looking forward, given our new U.S. listing construct, we intend to transition to a quarterly dividend. The timing and amount of our Q1 dividend will be announced in conjunction with our Q1 results. Now turning to slide 21. We're introducing our guidance for fiscal year full year 2027, which reflects the continuation of strong demand alongside a disciplined focus on converting growth into improved returns over time. For fiscal 2027, we expect total revenue growth of between 4.5%-7.5% and rental revenue growth between 5%-8%, led by specialty and supported by steady growth in general tool. We expect mega projects to remain an important driver and assume local non-residential construction markets remain stable as our internal indicators continue to trend positively.

In terms of profitability, we expect adjusted EBITDA between $4.85 billion-$5.05 billion, representing solid year-over-year growth with margins broadly flat, reflecting what we have so thoroughly covered in today's call related to revenue mix, as well as the first year of Aries in our consolidated results. This flattish margin profile in 2027 reflects the continuation of stronger relative specialty growth and higher ancillary revenues. In terms of margin expectations as the year proceeds, we expect to see an improvement in the back half of the year as our operational excellence drivers gain more traction. Of course, if we are also able to gain greater traction and velocity through our dynamic customer pricing initiatives, this could provide some upside for the year as well. Finally, we expect net rental equipment CapEx of between $2.05 billion-$2.45 billion and gross rental CapEx of between $2.45 billion-$2.85 billion.

The increase reflects higher growth investments across both general tool and specialty, as well as the incremental capital required to grow Aries. In addition, we are planning to open 55 greenfield locations, with 15 coming from general tool and 40 coming from specialty. Looking ahead, our focus remains on converting continued volume growth into margin stabilization and improvement over time. With that, I'll turn the call back over to Brendan to close us out.

Thanks, Alex. Before we open up for questions, I'll take just a moment to look ahead at fiscal 2027 and share why we're confident in the momentum we're carrying into the new year. The market backdrop remains constructive, and our strategic positioning has never been stronger. On slide 23, as always, our guidance for this year reflects our clear and disciplined capital allocation priorities. Our first priorities are organic investments. Next, we focus on disciplined bolt-on M&A, and finally, we return capital to shareholders through a progressive dividend and share buybacks while staying within our long-term leverage range of one to two times. Turning to slide 24. We will continue to execute against our well-known Sunbelt 4.0 strategic growth plan as we advance our five actionable components, of which customer growth, performance, sustainability and investment.

Our leadership team gave an in-depth update about our progress across each of these actionable components during our March Investor Day, and we look forward to continuing the momentum in fiscal year 2027. To close on slide 25, I want to reinforce the core investment thesis for Sunbelt Rentals, which were clearly demonstrated in today's results and our guide for fiscal year 2027. We operate in a large, structurally growing rental industry where long-term trends create significant opportunity for well-positioned leaders. Our distinct competitive advantage, scale, network density, specialty breadth, technology-enabled systems, safety platform, and an execution-driven culture compound over time and deliver superior outcomes. We have clear growth paths through share gains, specialty expansion and cluster market strategy, driving sustained revenue growth and durable margins.

Our strong balance sheet and through-the-cycle free cash flow enable flexible capital deployment and our disciplined capital allocation priorities within our stated leverage range provide a foundation for long-term shareholder value creation. With that, operator, I think we're ready to open the call for questions.

Certainly. We'll now be conducting a question and answer session. If you'd like to be placed in the question queue, please press star one on your telephone keypad. If you'd like to remove yourself from the queue, please press star two. A confirmation tone will indicate your line is in the question queue. As a reminder, we ask you, please ask one question, one follow-up, then return to the queue. Our first question today is coming from Rob Wertheimer from Melius Research. Your line is now live.

Thanks, good morning, everybody. You talked about the margin drivers on the call, I heard it, but I wonder if you could just sort of, in a general sense, talk about what it would take to get back to margin growth in the upcoming year. I know you mentioned a couple factors on narrow pricing and so forth. Are you seeing drag from mega projects in margin? What's the biggest kind of hold up to growth there?

Yeah. Good morning, Rob. I'll start with that. To begin with, in terms of mega projects, as we said, across the life cycle of a mega project, margin profile is essentially the same as the business as a whole. There are periods of time when we have more early mega project wins, where we have significant load-ins, et cetera, where there will be a slight or momentary couple of quarters degradation from an overall margin standpoint. I would say that we're in one of those periods now, given the volume of mega project wins that we've experienced, that will carry on through the first half of the year. I think you heard Alex in his prepared remarks talk about this being a back half year opportunity from a margin standpoint.

The other thing, of course, is we've got a bit of rate and pricing momentum, as we gain more of that, of course, we will see margin impact there, not just in Gen Rents, which is probably most pronounced at the moment, across the business overall. Then the other one I just want to point to, Rob, maybe it was a bit in your question, not entirely, is just this mix effect. First things first, just being specialty, right? This is a high margin, particularly operating profit and high ROI business. It's got great opportunity for growth and a great quarter that it posted with 15% growth. If you look at specialty for the quarter as a, for instance, our pure rental revenue, so just what you charge for the rental rate of whatever the assets are, we're up 8% in the quarter.

Where the ancillary revenues, E&D, fuel, re-rental, we're up 32%, 33%, and therefore you're going to have some compression overall on margin.

Yeah, let me just give you one additional color point on the mega projects. I think it's a really good question, and it actually points to the strength in the business and why we're so optimistic about 2027. If you look quarter one, quarter two, quarter three of this year, the valuation of the projects in the funnel was around $10 billion. If you look in quarter four, that valuation jumped to around $25 billion. You've more than two x-ed the valuation of projects in the funnel, which points exactly to the effect that Brendan mentioned. That as we load in those projects before we're invoicing revenue, you will see some margin compression. Boy, it sure speaks to a really healthy pipeline.

That's fantastic. Just for clarity, that's projects. That's not like Dodge data at this point. That's kind of projects you're looking at specifically, right? I'll stop there.

No, that's projects that we have actually won.

That's our pipeline. Those are awards.

Yeah.

That's not the typical slide you're used to seeing that shows the Dodge backlog.

Perfect. Thank you.

Great. Thanks, Rob.

Thank you. Next question is coming from Annelies Vermeulen from Morgan Stanley. Your line is now live.

Hi. Good afternoon. Oh, sorry. Good morning rather, Brendan and Alex. Firstly, on your guidance for rental revenue growth, 5%-8%. Just trying to unpack it a bit here. You've done 8% in Q4. The comp is pretty undemanding through your fiscal 2027. You've done quite a large acquisition as well more recently. Within that guide, could you talk a little bit about how much is already locked in by that acquisition and other deals that you've done, and how much is sort of underlying organic growth? As a follow-up to that on rate, you've talked about rates being stable over the year.

I'd be curious to hear how that trended in Q4 relative to the first nine months of the year, given some of the cost inflation and so on, and given all these internal initiatives you've spoken about, sounds like you're pretty confident on positive rate growth in 2027. Is that right? Thank you.

Yeah. I'll take a stab at it, and Brendan will add some additional color. As it relates to the guide relative to the exit point on Q4, I think it's really important to mention that we have a lot of one-time activity related to non-construction events, particularly around things like FIFA, the World Cup event. That's around a $70 or so million kind of one-time effect. I also think it's important, as we've said, the local non-residential construction markets, which are so critical to our business, remain in equilibrium, so are certainly stable but we're not ready to call an inflection point against that. That's really what's underpinning the guidance for the year. Rest assured, we feel really good about the momentum in the business and are pretty confident in the guidance that we're putting forward as it relates to rental revenue growth.

As it relates to rate, which I think was the second piece of your question, we're now active with our dynamic customer pricing in 15 markets, we're beginning to scale that. It's still early days, which is why we sort of highlighted there's tailwinds as it relates to rates, that's not embedded in the guidance, that would be consistent to how we spoke about it during the Capital Markets Day. Again, rest assured, rates have been stable and we're starting to see some green shoots that are positive trends. Last point you mentioned on cost. There are things that we're doing around cost to sort of mitigate some of the margin headwinds. There's always the inflationary effect on salaries and wages. That's around 3%. That's a big line item on the P&L, obviously rate becomes very important to offset that.

We're taking some initiatives on improving the reimbursement rates that we get for transportation expense. Obviously, as we see more broad-based growth across the footprint, some of that fleet repositioning cost should begin to mitigate as our utilization rates improve. There's a lot of things that we're doing, I think it's really important to emphasize the point that Brendan made in response to the earlier question and in some of the prepared remarks. Mix is such a big driver of what our margin profile looks like. When you see specialty growth at the extremely exciting levels that it's at relative to general tool, you're always going to see a slight level of margin compression, you're also going to see ROI expansion because that segment comes with higher ROI. That's just sort of where the mix lands.

Last point on mix would be the high ancillary growth. In the quarter, ancillaries in specialty grew north of 30% relative to pure rental growing just under 10%. That's things like re-rent. It's fuel surcharges. It's erection and dismantling revenue. All of those are very attractive high ROI revenues, come at 10%-15% margin as opposed to double-digit strong, sort of 50% or so margins in the pure rental side. Hopefully that helps explain some of the dynamics.

Just a point, Annelies, on your question on Aries in terms of contribution. It's about 1% of that guide. Actually, just a touch under 1%. It's also worth mentioning there, year one, that's going to be a drag on margin, even more so than specialty typically would have. Aries actually had quite a large portion of their revenues that stemmed from sales, you'll see over the quarters and years to come, as we significantly expand that business and it generates more and more contribution for us, you'll see that shift to virtually exclusively rental revenues with just a bit of sales. Did we get everything you were looking for there, Annelies?

Yes. I think you covered all of it. Thank you very much, guys.

Thank you.

Thank you. Our next question is coming from Kyle Menges from Citi. Your line is now live.

Thanks for taking the question. Good morning, guys. I was hoping if we could dig into the rental revenue guidance a little bit more, especially in light of the CapEx that you're guiding. It would seem like you're adding roughly 10% to your fleet and then throwing 5%-8% off of that added OEC. I'm just trying to understand the underlying dollar use that's being assumed in the guidance. On the surface, it would seem maybe like dollar use could actually be flat to maybe negative year-over-year in 2027, and just want to make sure that I'm thinking about that the right way.

Sure. Thanks, Kyle. Good morning. Actually, you can't quite tell from the guide what the average is because you don't know the phasing of that. That average fleet growth, in essence, in our plan is just shy of the midpoint of the rental revenue guidance. Therefore, we would anticipate a slight progression from a dollar utilization standpoint. As you would have heard Alex talk about in prepared remarks and some of the questions, of course, there's opportunity there from a pricing standpoint, if we can get a bit more momentum, which actually reminds me to another point of Annelies' question there, and I'll mix this into yours as well, Kyle. We did see a bit of momentum there in rate when we look at Q4 versus Q1 and Q3, and we do have some positive rate embedded in that guide overall.

Therefore, you come out to a bit what you were thinking, but again, it's certainly not the 10% growth that you were doing the quick math on.

Yeah. Makes sense. That's helpful. I would just love to hear more about Reliant and the expansion opportunity you see. You talked about Reliant being in 14 of your top 50 markets. I'm curious how quickly you think you can scale that. What the pace of scaling that into additional markets out of your top 50 could look like.

Yeah, sure. Kyle, this is what as we said, we are remarkably excited about this addition of a specialty line of business. It's been a clear solution for customers that's been lacking out of our lineup for years. Not only from an expansion standpoint. I'll say this gently, but Aries only has 17 locations. It's a nice spread across the country, mostly the eastern seaboard, a bit in the upper Midwest, and then Washington and California. There will be significant greenfield expansion with the team, which the team has in the plans for the year. I think it'll be a bit higher than what we've expressed in terms of overall greenfield as a result of Aries, as we just closed on the deal May 1st. This will range from mega projects where we have so much request and demand. Think back to the Investor Day in March.

You would have heard from Kyle talk about that slide 55 from the deck that talked so much about these specialty verticals that we have and the clear opportunity for adding a few there that we don't quite yet represent. You would have remembered in the very early part of that presentation in March, where we talked about the typical structural drivers of this structural growth engine that we're leading. One of the nuances or newer realities of that structural growth is customers are looking for a solutions provider with increased scale, increased breadth, increased depth, increased expertise in the offerings that we have. Aries is a perfect example of that. We think there are a lot of opportunities in that market to simply leverage our cross-selling platform.

You've kind of worked out now what the revenue is since we said it's about 1% of the guide, that is a business that we have a clear line of sight to double in just a few years' time by way of expansion, as I said. Also, some nice little tuck-ins that will go along with that as our platform acquisition.

Thank you. Our next question today is coming from Tami Zakaria from JPMorgan. Your line is now live.

Hey, good morning. Thank you so much for taking my questions. I wanted to get some color on the rental revenue growth guide of 5%-8% for the year. Could you give us some insights on what that means in terms of specialty versus general rental?

I think as we indicate, we don't guide to the individual segments. As we indicated, really the strong growth that we see in specialty will likely continue, driven by non-construction and mega project activity. GT will continue to grow. There's solid, stable growth in GT. Remember, in terms of the mix of business, GT is really where that exposure to the local non-residential construction piece plays out. GT will continue to face a bit of a mixed market. Its mega project activity will remain strong. Its large national and strategic accounts will remain strong. Its local non-residential construction market, we're anticipating remains stable, but not back into growth mode. You'll see a relative weighting towards specialty, which just to reemphasize the point, that will also impact the margin profile as we start talking about next year.

Understood. That's very helpful. My second question is, I was hoping to get some comments on the first quarter revenue and margin performance. Should we expect first quarter revenue growth and margin to be in the realm of the full year guide, which is 4.5%-7.5% revenue growth and EBITDA margin flattish?

Let me sort of explain how we expect the year to unfold. In terms of top-line growth, I think it's fair to say we continue to expect growth in the quarterly sequence in line with the growth that we experienced, or the growth that we're guiding to with normal seasonality taken into effect. In terms of margin progression, we expect margin progression to advance as we get into the back half of the year. That really is going to be bolstered by some of the cost sort of operating excellence initiatives that we have in place, as well as an anticipation that general tool growth will accelerate as we get into the back half of the year. Some of this mix effect that we've been talking about will likely mitigate. I'll draw your attention to give you some confidence behind the guide.

I'll draw your attention to the slide in the deck.

Slide 11

Which is the fleet on rent slide. You'll see the first couple of months of this year are certainly trending positive, which gives us some level of confidence, again, not only for the year but for the quarter.

Thanks, Tami.

Thank you. Our next question today is coming from Katie Fleischer from KeyBanc Capital Markets. Your line is now live.

Hey, good morning, guys. I heard you mention, it sounds like you're assuming pretty stable growth in the local accounts within the 2027 outlook. We've talked about this at length on other earnings calls, but now that we're in an environment where rates are likely coming up rather than coming down, what do you think it will take to finally see an inflection with those customers?

Yeah, Katie, first of all, I think in your question, you may have said that we're expecting growth in that or some moderate growth in that throughout the year. Let's be clear. We're expecting it really to remain benign. Therefore, it's in this sort of stable but flat environment for the year. If there were a surprise, that would be great. It's not reflected in our rental revenue guide. You're right. It's why we put the Fed funds rate on the leading indicator slide. We do see interest rates higher for longer is what it feels, at least at the moment. At the same time, we are seeing really encouraging demand by way of these projects entering planning. Our experience has been over time, there is a very high correlation between the momentum index and what ultimately translates into starts.

What you'll see, of course, in the starts forecast and the put in place forecast from Dodge, they're not quite flipping that over into those put in place figures, but it's something that we'll be watching very closely. I will add, and Alex just talked about, the strength really and the resilience of the general tool business that is most reliant on that end market. What that tells us is the business, the team, they're just winning more. They're winning more in sort of a flattish local non-res environment. I also pointed out during the prepared remarks of what our view is of a very stable, a healthy supply and demand mix, which is also contributing. Another thing, just pointing out in terms of where some of that growth is coming from, because even when you look at local non-res, it's not all created equal.

If you look at, for instance, we have for a long time always tracked our top 200 customers. Our top 200 customers these days make up about 25% of our rental revenue, and our top 200 customers are growing in the 13%-14% range year-over-year in 2026 as compared to obviously the overall growth that we saw in the business and also in general tools. Look, we will be the first to let you know if we see any sort of inflection point in that local non-res. For the time being in our guide, it is status quo.

Okay. Thanks for the color there. Turning to M&A, can you just talk about some of the other areas for growth in the business that you could potentially target? I know power and HVAC has been really strong. Some of the other specialty solutions that you showed off at your Investor Day. Just give us a sense of what you're looking towards as you think about more growth through acquisitions.

Well, sure. I'll refer you back to that slide 55 from the Investor Day. If you look at all of those lines of business, virtually every single one of those, we look for additional bolt-on to add to that overall geographic solutions that we're providing for our customers, density, and in some cases, a nuanced line that they have. If you take, for instance, some of the live events that Alex referred to, we did this great deal last year called ARX Perimeters, that has been a significant add-on to some of these live events that we've talked about and even into the mega project space. That is a great contributor to what ultimately folds into one of those other specialty lines. I don't want to give away too much here.

I think you can use your imagination know that there is still a segment or two out there that we don't have as part of our overall portfolio that ourselves and business development team are always exploring what those opportunities are. Rest assured, there is a robust pipeline that remains in terms of M&A landscape, our people are actively seeking additions that fold into one of our now lines of business or creates a complementary new line of business.

Thank you. Our next question today is coming from David Raso from Evercore ISI. Your line is now live.

Hi, thank you for the time. Trying to think about the margin structurally, really in the whole industry, but U.S. in particular as well, with the ancillary revenue growth. Trying to think about, I know the return on capital, the return on investment on those services it is high. I appreciate that. The ability to push price or raise the margins on those revenues, because the more specialty is going to outgrow gen rent, gen tools, and I'm generalizing, but specialty also brings with it probably more ancillary revenues. It's hard to see when we're going to not have a negative headwind with that when it comes to the margin. Trying to understand the ability to raise price on those ancillary revenues to improve the margin.

Is it just the return on capital is just so strong, the industry is just accepting that's all we can charge for ancillary revenues because everybody wants the higher return on capital? Trying to understand, because it just feels like it's a trend that would just take a really strong local construction market recovery to not continue to have this negative mix unless we raise prices on the ancillary. Thanks.

Let me open it up and then Brendan will add some color if I miss anything. First, I want to underscore, we mentioned it at least half a dozen times in the call, but I think it's important. There is a significant reversal of a provision from the balance sheet. That number is around $28 million. That explains around a third of the margin compression. I think as you're thinking about it, you need to take that out of the equation. About another third of the margin compression was driven by this activity volume related cost, which again, as we get into higher growth and higher utilization, some of those volume related costs should mitigate as well. Really, the mix effect, you're talking to keep it simple, you're talking about a third of the overall compression. Let's just calibrate on that point first.

Second of all, the ancillary piece, let's break that down a little bit. The largest portion of that is erection and dismantling revenue. That will always be kind of lumpy. If you get a really big refinery overhaul, as an example, where you have a lot of scaffolding, that's going to carry with it a lot of E&D revenue. When we had a lot of these live events with big power and HVAC contracts, and you're pulling a lot of cable and you're moving a lot of stuff in, that's going to have a lot of E&D revenue. That's really attractive. There's no capital associated with that at all. It's great ROI business, but it is a lower margin, call it 10%-15% or so. Next big bucket is going to be re-rental expense.

Re-rental, the easiest way to think about this is again, in the power and HVAC example, would be switchgear, where we don't actually own that. We have a third party that we have a relationship with, and we obviously can't charge the same margins that we would if we own the equipment. Now that's really attractive stuff because to the prior question on M&A, where do you think one of our big fishing pools is as we think about businesses we'd like to own? It's businesses where we have a high level of re-rental expense. That is sort of one of the ways we feed the funnel. That is the next bucket. Really the last big bucket is around fuel surcharges.

As you would expect when you have very elevated fuel expense, as we've seen the last six months since the war in Iran has sort of unfolded in the Strait of Hormuz. You would anticipate you have a lot higher revenue because you're passing on that fuel expense, but you're again, not able to charge quite as much. It doesn't degrade margins. It's just a narrower margin because of the high fuel expense. All of that to say, there's nothing structural that's going on, no structural degradation in the margin profile. Some of it's a function of growth coming more from specialty than GT. That's a good thing. That's a high ROI business. It's a high solution-oriented business. It's a business that we can pass on rates. Some of it's some of these other factors that I pointed to.

Okay. No, I appreciate it.

David.

Yeah, go ahead.

I'll just add. I would encourage you to, let's pay attention as we go through the year of the segments themselves in terms of the margins. As we improve upon the compression we experienced in this current year, the year just gone by, and I'll remind you that in the year prior, we actually progressed margins. We progressed margins, give or take 140 basis points in Fiscal Year 2025. We gave up 210 basis points in the current year. Let's watch those segments as they move, because that's probably the more important part. When we win one of these projects that Alex was referring to, we celebrate that win. It's good, profitable growth. However, to your point, our ability to be able to, which is actually part of this dynamic customer pricing program that we now have in 15 of our markets. It's not just the rental rate.

It is also some of those ancillary lines such as transport, et cetera. The more momentum we gain around that, certainly that will be accretive to margin. Of course, the operational excellence initiatives that you would have seen in New York.

I appreciate the conversation. Thank you so much.

Thanks, David.

Thank you. Our next question today is coming from Neil Tyler from Rothschild & Co. Redburn. Your line is now live.

Good morning, guys. Thank you. Perhaps first question to pick up on your comments just then, Brendan, specifically within General Tool over the next 12 months, I appreciate that you don't guide at either revenue or margin by segment, but should we assume the same sort of margin dynamics as you're describing for the group within General Tool, and namely, by the end of the year that margins should be sort of flat to up compared to this year? I guess are we therefore sort of through the trough when it comes to the year-over-year margin dynamics? That's the first question, please. In General Tool specifically.

Neil, I think we would expect an inflection point as we progress through the year up for margins with General Tool as well. Yes.

Great. Thank you. Just coming back to your comment on the funnel and the fact that sort of increased by 2.5 times in the space of a quarter. Can you just go back to perhaps how much the timing difference between those sort of large projects and what sort of level of costs you're booking in Q4 compared to sort of quarterly run rate that you were booking previously? What typically would be the delay between those costs and the revenues coming through?

Right. Just to be clear, as we load in, there are the costs you would expect associated with that. The real dynamic is this. We will load in, let's just pick a mega project as a, for instance, sort of a mid-sized mega project where we may be targeting $45 million to $50 million of fleet cost on that project, and let's just say we're doing that with those seven or eight team members, mostly field service technicians and equipment rental specialists that go along with those projects. Early on, you will begin putting some of those assets on rent, and you'll drive some billing revenue with that. However, it will be at a lower utilization appreciably than you will be in about month three, month four as you start to reach the crest of that project after our load-in.

You'll go from, say, 30%-40% time utilization early on to 70%-80% time utilization as you reach that crest. That crest is going to last you two to three years, depending on the project. You're still going to have the same seven or eight people or so on that site, so you really start to get some leverage from that. You will have some early on compression there, and we would have seen that in Q4. As we've just spoken to in terms of the way we think the margin dynamic plays through the year, we'll see that improve as we get later in the year.

I think it's also worth mentioning, to impart with your first question, remember these initiatives around market logistics that you got so much color on during our Investor Day and our market field services and market service operations. We have the ability to actually deliver for every 1% improvement, we have a $100 million opportunity to unlock from a revenue standpoint at really attractive margins. That incremental that we unlock comes at even better margins. Those are initiatives where we're playing the long game and improving our processes, improving the service that we're bringing to our customers, and ultimately make that turn from a margin standpoint.

Thank you. Our final question today is coming from Allen Wells from Jefferies. Your line is now live.

Hey, good morning, Brendan. Good morning, Alex. Most of my question's been answered, so just two quick clarification ones for me. Can I just check in on the event revenue? I think you called out $70 million. Can you confirm that was all in Q4 and largely kind of deemed as exceptional in nature? Given, I think you called out things like the World Cup, I'm assuming that there'll be some impact in Q1 as well, if you potentially could quantify what you know there. That's my first question. Secondly, just on the acquisition side, the comments you made on Reliant. You said it'd be about 1% impact on the revenue number in 2027, so call it about $100+ million of revenue.

If you've paid $650 million for that 6.5x sales, is that the normal type of valuation for this type of business? Maybe just talk a little bit about how you think about valuation in these types of assets. Thank you.

Yeah. Let me take your second first. I quoted you total rental revenue, not total revenue. It's a much higher total revenue number as I would explained, it's not the sort of rental revenue multiple that you alluded to. Just for sake of a follow-on question there, as you know, we don't quote individual deal multiples instead. Every few years when we do an Investor Day, we unpack a few years' worth of M&A and give the average multiple because all specialties and all businesses are not created equally, and therefore we value them differently from one to the next.

I think that Alex is a bit thinking I shouldn't have said the $70 million number if for no other reason than he was not talking about Q4 to be clear, more anticipated revenue from a series of FIFAs, UFC fights, and other things that we are very active in in Q1.

Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over for any further closing comments.

Great. Thank you, operator, and thank you all for joining this morning. We look forward to speaking with you and giving you an update after our Q1 results. We will look forward to speaking with you in September.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.

Greetings, and welcome to the Sunbelt Rentals Fiscal Third Quarter 2026 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. You may be placed in the question queue at any time by pressing star one on your telephone keypad. We ask you please limit yourselves to one question and one follow-up, then return to the queue. As a reminder, this conference is being recorded. If anyone should require operator assistance, please press star zero. It's now my pleasure to turn the call over to Kevin Powers, Senior Vice President, Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. Today, we're reviewing our third quarter results ended January 31st, 2026, with comments on operations and our financials, including our view of the industry and strategic outlook. The prepared remarks will be followed by an open Q&A. Let me remind you that today's call will include forward-looking statements. These statements are based on the environment as we see it today and are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, the factors identified in the press release and our Form 10-K, as well as other filings with the SEC. Today, we're reporting financial results on a GAAP basis. In addition, we'll be reviewing or we'll be discussing non-GAAP financial information that we believe is useful in evaluating the company's operating performance.

Reconciliations to these non-GAAP measures to the closest GAAP equivalent can be found in the earnings release and the conference call materials. This morning, I'm joined by Brendan Horgan, our CEO, and Alex Pease, our CFO. I'll now turn the call over to Brendan.

Thanks, Kevin, and good morning, everyone. This is a landmark set of results for the company in the sense that this is the first under the name Sunbelt Rentals and our first since we've successfully moved our primary listing to the New York Stock Exchange on March 2nd. This milestone was achieved with a monumental amount of work, and as such, I'd like to use this as an opportunity to thank our leadership and team members across our finance, tax, legal, IR, and HR functions for their diligent, thorough, and quality work. It's an exciting time for the business, so let's get into it, beginning as usual with safety on slide five. Safety of our people, our customers, and the members of the communities we serve. Safety is a core operating priority for Sunbelt and a key indicator of execution discipline.

As you can see, both our Total Recordable Incident Rate and Lost Time Incident Rate continue to trend lower, even as we support higher activity levels and a larger footprint. That progress reflects consistent focus on training, standardized processes, leadership priorities, and accountability across this organization. Importantly, these improvements are structural. They are not one-off. Our industry-leading safety performance supports higher productivity, better customer outcomes, a more engaged workforce, and is foundational to our success. To the team, thank you for your ongoing dedication to the perpetual improvement to our Engage for Life culture. Turning now to slide six, and to cover the key messages you will hear from Alex and me today.

First, this is a solid set of results in line with our expectations, with group rental revenue growth at 2.6% for the quarter, despite the ongoing impact of a quieter hurricane season compared to an active period in the second and third quarters of last year. On an underlying basis, growth in the third quarter was 4%, a sequential improvement from the first two quarters. Second, the strength of free cash flow after CapEx investment in fleet and business expansion demonstrates the through the cycle free cash flow power of this business at our present scale and margin. Generated record free cash flow of $1.4 billion year to date, which is an 83% improvement on last year.

Third, while our key construction end markets remain mixed, we continue to be reassured that the local non-residential market is now in equilibrium in terms of completions no longer outpacing starts. Additionally, we continue to see positive momentum in many of our internal and external leading indicators. Megaproject activity continues to be strong across data centers, healthcare, infrastructure, energy, and manufacturing, and we are winning share across our regional and national strategic customers. Fourth, our strong free cash flow generation has enabled us to return nearly $1.4 billion to shareholders year to date through dividend payments and share buybacks. We commenced our new share buyback program of up to $1.5 billion at the beginning of March to coincide with the relisting on the New York Stock Exchange.

Finally, based on recent performance and trends, we've narrowed and increased the midpoint of our full-year rental revenue growth guidance. Moving on to the financial highlights of the first half on slide seven. Notably, these Q3 results are the first to be presented under U.S. GAAP. This impacts some of the key income statement lines, particularly EBITDA, which is lower principally due to differences in the accounting for leases under U.S. GAAP, with most of the costs going into operating expenses and compensating reductions to non-rental depreciation and interest further down the income statement. Alex will cover this in more detail shortly. Total rents revenues were up 2.6% in the quarter, strengthening sequentially and consistent with the full year guidance we gave in December.

Leading indicators, both internal and external that we track, have continued to trend positively, and therefore we remain cautiously optimistic that these trends in our business will continue and are early but positive signs for the local non-residential construction portion of our end markets. As when they do recover, we expect our growth momentum to further accelerate and our results to strengthen. In the third quarter, total company Adjusted EBITDA, reflecting the impact of U.S. GAAP accounting, was $1.1 billion at a 41% margin. Noteworthy, our North American year-to-date Adjusted EBITDA margins were 45%. I'll further note, this includes all central costs across the group. As we explained in the results for the first two quarters, these margins reflect disproportionately higher Specialty growth rates at lower EBITDA margin, but higher return on investment.

They also reflect the mixed effect of higher ancillary revenues, the proactive reposition of our fleet to drive utilization and unlock pockets of growth and increased repair costs as a larger portion of the fleet comes out of warranty coverage. From a capital allocation standpoint and in line with our Sunbelt 4.0 priorities, we've invested $1.8 billion in CapEx year to date, focused on a mix of replacement and growth. Free cash flows we've said year to date was $1.4 billion, which is a record demonstrating the resilience of our business while we continue to deliver and invest in growth. This strong cash flow generation is supporting our share buyback activity. We completed the previous $1.5 billion program at the end of February before commencing the new $1.5 billion program last week.

Slide eight shows fleet on rent for North America over the last four years. You can clearly see that our efforts to drive growth with existing fleets has resulted in improved time utilization. This supports a more constructive rate environment and contributes to strengthening ROI. It also demonstrates our disciplined and flexible capital allocation approach. Turning to slide nine. Rental revenue on a billings per day basis for General Tool grew 2% in the quarter, reflecting positive volume momentum and resilient rates in the end markets, which continue to be mixed. As expected, we continued to experience a moderated local non-res construction market, offset in part by the ongoing strength of the mega project landscape and the broader non-construction markets.

Specialty delivered growth of 5% in the quarter, and this strength continues to be broad-based across multiple lines like flooring, temporary fencing, structures and walls, trench safety, and of course, power and HVAC. On a constant currency basis, U.K. rents revenue was down 2% in the quarter, reflecting the ongoing challenges in the U.K. markets. We are making good progress, however, with the restructuring actions that we announced in December. On slide 10, we've set out the main leading indicators for the construction sector, namely Dodge Starts, Dodge Momentum Index, the Architecture Billings Index and Federal Funds Rate. The outlook for construction growth continues to be underpinned by mega projects and infrastructure work, which remains strong and in many cases, gaining further momentum.

We've made great progress in mega project wins year to date with a growing funnel of future projects and advancing market share with our strategic customers, both regionally and nationally. The breadth and depth of our product offering across Specialty and General Tool lines, our ability to deploy integrated solutions at scale, and our leading fleet quality place Sunbelt at a significant advantage to our competitors. Very few in the industry can even compete in this rapidly evolving space. Combine this with a technology suite that is second to none, and it creates a platform that can deliver world-class customer experience, efficiencies, and value across a wide range of complex applications. As it relates to our local non-res end market, we remain in moderate environment.

However, as I flagged with the Q2 results, both our internal leading indicators, such as quotations, reservations, and continuing contract count activity and key external indicators are encouraging. The Dodge Momentum Index, in particular, remains near record highs. Just to remind you, this index represents non-residential projects, excluding manufacturing that are below 500 million and entering the planning phase for the first time, and is therefore representative of the future velocity in what we refer to as that local non-residential construction market. This clearly indicates ongoing strong planning activity across our non-residential construction end markets, which will lead to an increase in starts likely within a period of 12-24 months. While clearly a positive leading indicator, it may take some time for this planning to translate into project starts, and when it does, we are poised to benefit.

Before I hand it over to Alex, I'll just touch on our Sunbelt 4.0 strategic plan on slide 11. We're gonna give you an updated, a detailed progress report on Sunbelt 4.0 at the Investor Day, so I won't go into any further detail now. As I previously mentioned, our team has been laser-focused on advancing each of the five actionable components, which you know as customer, growth, performance, sustainability, and investment. Our clarity and mission throughout the organization is certain and our momentum is building. I look forward with the team to highlighting the number of exciting developments while we're together in New York. With that, I will hand it over to Alex.

Great. Thank you, Brendan, and good morning to everyone on the call. Our third quarter results for the total company under U.S. GAAP are set out on slide 13. Total revenue and rental revenue both increased 3% in the quarter, reflecting a sequential improvement despite the ongoing impact of the quieter hurricane season. Adjusting for the impact of this rental revenue growth in the quarter was around 4%. The adjusted EBITDA margin and adjusted operating margin continued to be strong at 41% and 20% respectively in the quarter. In line with first half performance, the margin performance primarily reflects the fact that top line growth is being driven disproportionately in the Specialty business with lower margin but higher ROI, as Brendan mentioned. Additionally, we're incurring higher internal repair costs and also higher delivery costs due to the planned repositioning of fleet to drive growth and utilization.

Depreciation at $543 million was flat, reflecting the tight fleet discipline we have maintained this year as we have delivered improved time utilization. After an interest expense of $98 million, reflecting lower average debt levels, adjusted pretax profit was $441 million. Adjusted earnings per share were $0.78, reflecting lower adjusted net income, but was partially offset by the benefits of the ongoing share buyback program. ROI on a trailing twelve-month basis remains strong at 14%. Turning to slide 14. Our year-to-date results are set out on this slide. Notably, rental revenue increased 2%. Adjusted EBITDA margins were a strong 43%, and Adjusted EPS of $2.97 was consistent with prior year. Notably, as Brendan mentioned earlier, North America Adjusted EBITDA margin was a healthy 45% inclusive of total company central costs.

On slide 15, we're highlighting how Adjusted EBITDA, profit before tax, earnings per share, and free cash flow would have looked under IFRS. The difference for Adjusted EBITDA is primarily driven by the accounting for leases as an operating expense under U.S. GAAP compared with IFRS. This results in a higher SG&A expense with offsetting benefits in the form of lower depreciation and interest charges. The difference in adjusted profit before tax is primarily from stock-based compensation charges being excluded from adjusted measures under GAAP. Adjusted EPS is impacted by the aforementioned adjustments, but is offset by the tax effect of these adjustments and resulting in a higher adjusted net earnings. Free cash flow is a non-GAAP measure, but is also primarily affected by the classification of the operating lease payment impacting operating cash flow.

Under our updated reporting under U.S. GAAP, we've also removed the exclusion of non-recurring costs to better reflect the cash generative nature of the business. Slide 16 shows the performance for North American General Tool in the quarter. Rental revenue grew by 2% to $1.4 billion, driven by improved volume, time utilization, and stable rates. As I explained previously, margins were impacted in the quarter, primarily by growth being driven by higher activity levels. Adjusted EBITDA was $767 million at a margin of 50.3%, and adjusted operating profit was $414 million at a margin of 27%. Turning now to North America Specialty on slide 17.

Rental revenue was 4% higher than the third quarter last year at $851 million as the non-construction market continues to be strong across multiple business lines, as Brendan mentioned earlier. On an underlying basis, adjusting for hurricanes, rental revenues were up around 7% in the quarter. Adjusted EBITDA was $407 million at a margin of 45.4%, and adjusted operating profit was $271 million at a margin of 30%. Turning now to the U.K. on slide 18. U.K. rental revenue was 2% higher than a year ago at $182 million, benefiting from favorable FX movements. The U.K. business delivered Adjusted EBITDA of $49 million at a margin of 23% and operating profit of $7 million at a margin of 3%.

As mentioned with the second quarter results, we're restructuring the U.K. business to better position it for the future and aiming to deliver improved margins and returns at a sustainable level while positively impacting our customers' experience. This involves aligning the network of locations to current business needs, rightsizing the staff, and disposing of non-core fleet and business lines. Slide 19 again illustrates the flexibility, resilience, and agility of our capital allocation model. When markets are experiencing the transitory headwinds we have experienced over the last few quarters, we remain extremely disciplined in our deployment of capital to support strong utilization and rate discipline. When markets are growing more rapidly, we accelerate capital spending to capture opportunities in market share. In all cases, we generate significant free cash flow in excess of our investments, which we return to shareholders in the form of dividends, debt repayment, and share buybacks.

We have started the year strongly with over $1.4 billion generated year-to-date. This is a record and significantly ahead of the comparable period last year. We're on track to deliver record free cash flow generation in the full year. Slide 20 updates our debt and leverage position at the end of January. This again clearly demonstrates the strong cash generative nature of the business as we have lowered net borrowings by over $200 million in the last year to $7.6 billion. This is despite the fact that year-to-date, we've returned approximately $1.4 billion to shareholders through the share buybacks and dividends. We've invested $1.7 billion in cash CapEx, and we've invested $162 million on 10 bolt-on acquisitions.

In addition to that, we've opened 30 greenfields in North America, of which 14 were General Tool and 16 were Specialty. As a result, leverage was 1.6x net debt-to-EBITDA, well within our stated range of between 1 to 2x net debt-to-EBITDA. On the M&A front, we have a robust pipeline which we continue to develop and pursue opportunistically as long as it is accretive to growth and generates margins and returns in line with our capital allocation expectations. Turning now to slide 21 and our updated guidance for revenue, capital expenditures, and free cash flow for fiscal year 2026. Based on our performance year-to-date and strengthening trends, we have narrowed and increased the midpoint of our range for rental revenue growth to 2%-3%.

With growing confidence in our end markets for fiscal year 2027, we're modestly increasing gross CapEx guidance to $2.2 billion-$2.3 billion. This is driven by funding ongoing Specialty segment growth and recent major project wins. Further, replacement timing between Q4 and Q1 of next year. Updated CapEx guidance for fiscal 2027 will follow in our June full-year results. Lastly, because of these planned investments, we're now expecting free cash flow of approximately $2 billion. Importantly, this free cash flow outlook is now provided in accordance with U.S. GAAP rather than IFRS. With that, I'll hand the call back to Brendan.

Great. Thanks, Alex. Turning to slide 22, Alex and I have covered all of these capital allocation elements as part of our remarks this morning, so I won't cover them again. However, the slide serves as a consolidated reference and all consistent with our long-held policy, which we will continue to allocate capital on this basis throughout Sunbelt 4.0. To conclude, let's turn to slide 23. In summary, I'll leave you with a few takeaways one should gather from our update today. One, the performance year-to-date resulted in exactly what we expected in revenue growth, improving time utilization, free cash flow, and advancing our 4.0 plan.

Two, we're continuing to see positive leading indicators in our business activity levels and in our pipeline, coupled with an encouraging indication of market demand statistics and building momentum, all of which is reflected in our updated full-year guidance for our revenue growth and the CapEx that Alex has just referred to. Three, when you piece this all together, you should clearly see the continued secular progression in our business and indeed industry. This demonstrates ever so clearly that even during this modest growth environment, we continue to maintain discipline in pricing, investment, and strategic focus, all while delivering record free cash flow, which we have used across all of our allocation priorities. This business and balance sheet is stronger than ever and puts us in an incredibly powerful position, giving us great flexibility and optionality as opportunities unfold.

Finally, we're looking forward to seeing many of you in person in just a couple of weeks at our March 26th Investor Day in New York City, where we'll give you an update on our 4.0 progress and showcase our growing capabilities. With that, we'll be happy to take questions. Operator, over to you.

Thank you. We'll now be conducting a question-and-answer session. If you'd like to be placed into question queue, please press star one on your telephone keypad. As a reminder, we ask that you please ask one question and one follow-up, then return to the queue. You may press star two if you'd like to remove yourself from the queue. One moment please while we pull for questions. Once again, that's star one, and please limit yourselves to one question and one follow-up. Our first question is coming from Annelies Vermeulen from Morgan Stanley. Your line is now live.

Hi. Good morning, Brendan. Morning, Alex. I have two questions, please. Firstly, on the upgrade to the CapEx guidance, you've talked about a bit of a pull forward of spend, in effect, taking some of the full year 2027 CapEx budget into 2026 ahead of those landings. Could you talk a bit, little bit about the split of that versus how much of it is indicative of perhaps an improving demand outlook? You also mentioned some recent mega project wins. Just wondering how we think about that and especially heading into full year 2027. Secondly, I just wanted to ask about rates. I think one of the last times we spoke, you mentioned a dynamic pricing pilot. Are you seeing some good traction there?

Is there a plan to roll that out more broadly? Are you confident in positive rate growth as we move through calendar 2026? Thank you.

Great. Thanks, Annelies, and good morning. First of all, on CapEx, I would answer it this way. It's 50/50. As we've talked about in Q1 and Q2, half of that modest increase will continue to fuel a growth CapEx in certain of our Specialty segments, which as you'll see in the quarter-by-quarter, we see ongoing momentum there, and we're seeing that as recent as February. The other half of that is really. It's literally replacement timing between April and May. It's something that we do, we call internally advanced replacement. I'll give you a for instance. Pick any town, North America, Atlanta, Georgia, because it comes to mind.

If there were 10 telehandlers to be replaced in Atlanta in the first half, or let's just say first quarter, we will land between April and May-June timeframe, 10 telehandlers. We may dispose of nine, and therefore, in that market, we now have 11. As we test the waters and compare it to what our time utilization and pricing expectations are, if that sticks, we may order another for the 11th and therefore contribute to growth. At this moment, just so we're clear, that's not growth CapEx. That is indeed replacement CapEx. We took advantage of some OEMs having some green gear available to ship. We see this moving activity. Fifty percent fueling growth in Specialty and mega project, recent big project wins, and 50% of that at that advanced replacement.

I'm sure we'll talk about that in June and full year in terms of how that's working. You asked a question about rate and specifically about a pilot that we've shared to some extent, which we call intelligent customer pricing. That pilot's progressing really well. We have that going in three test markets, and we have three control markets that correspond with that. I wouldn't be answering so fully simply right now if I didn't anticipate the team talking about that two weeks from today at our Investor Day. I would answer at least by saying that's very positive early signs. We're testing and making sure that not only do we deliver our targeted rate improvement, but it also doesn't have a degrading effect on our time utilization.

Thus far, we can report positive results from that and very importantly, great buy-ins. We have a really high efficacy rate of taking precisely that prescribed rate. This is nothing new when it comes to dynamic pricing overall. It's a new layer of our dynamic pricing system.

That's great. Thank you very much.

Thank you. Next question is coming from David Raso from Evercore ISI. Your line is now live.

Hi. Thank you for the time. You mentioned rates were roughly flat. Curious if you can give us a little color, local market rates versus large projects and some of the at least hints of optimism maybe around local. At what level of confidence are you in the sense of when do you start to think about that when it comes to your CapEx budget or changes in rates in local markets? Just curious. I'm just trying to gauge you a little bit on that level of optimism and also how the rates are trending between those two at the moment, rather distinct markets.

Yeah, David, great question. You're right in terms of, you say flat, we say resilience. I think your question around how is pricing and the integrity of pricing and the discipline of pricing in the markets in that local non-res. The short answer is it's very strong. That's very strong especially when we know that we've had a significant decline in that local non-res construction market, which speaks to this output of this structural progression, that we've talked to and documented so many times. Just for clarification, our testing of the next level of our dynamic pricing system is tuned really just to that.

Sure, it impacts in some way, shape, or form some of our national and regional strategic customers, but largely that is tuned right into that local non-res. I think we sit here today with optimism that our ability to balance both fleet investment and pricing is positive. I think, frankly, when we are 12 months, 18 months removed from this last 18 or 24 month period that we're in, this is gonna be a real case in point as to how significantly the industry and all of our systems and our discipline have progressed to deliver that sort of result. I would in summary answer, we are cautiously optimistic and positive about our ability to progress pricing as we move forward.

I appreciate it. Thank you.

Thanks, David.

Thank you. Next question is coming from Lush Mahendrarajah from J.P. Morgan. Your line is now live.

Hi, guys. Thanks for taking my questions. I've got two, please. The first is just on margins in Q3. I sort of appreciate all the headwinds you've walked us through, sort of similar through the year. I think the year-on-year step-down in Q3 was a bit higher than the first half of the year. Is there anything particular in the quarter that sort of drove that? I guess how should we think about that through the year? The second question is just on local. I think it's two or three quarters now where I guess you've been talking about leading indicators improving.

What do you think the timeline is on when you start to see that coming through in your numbers, please?

I'll hit the margin point, then I'll let Brendan talk about the local market. I will point out we've talked about the strength in the DMI for quite some time, and that is about a 12-24 month lag because that's projects entering planning. That planning cycle is about 12-24 months. Brendan will talk at length about the internal leading indicators which we track, all of which are trending quite positively relative to where we were a year ago. Back on your margin point, you know, really the headline message here is mix. It's mix from a couple things. I mentioned in my prepared remarks the mix of specialty growth outpacing General Tool growth.

It's important to remember Specialty has lower EBITDA margin, but higher ROIC because it has higher cap factors and it's less capital intensive. That's actually a good thing. The other area that grew significantly year-over-year was ancillaries. An example of this, we just completed the Super Bowl, and there is a huge amount of installation of cable to power that entire event. Another example would be every time we support a data center, we have to have step up and step down transformers, which we re-rent from third parties. By the way, those re-rentals eventually will become additional CapEx and additional specialty service lines, but we haven't gotten there yet. That re-rent is up about 42% year-over-year.

If I look at the cost items on the income statement, the things that I mentioned in my prepared remarks around internal rental repairs driven by the equipment coming off of warranty, the outside hauler expense as equipment is moved around to unlock utilization and capture these pockets of growth. Really, those are actually internal repairs are down sequentially, so we're making progress on the internal repair line item of the P&L. On outside hauler, that's sort of flattish as we continue to run the business, and we continue to unlock these pockets of growth with existing fleet. As you think through, you know, expectations for the balance of the year, again, it's largely going to come down to mix.

I would expect it to look and feel pretty similar to what we've seen for the balance of the year. I guess that gives you a lot of color on margin, and I'll turn it over to Brendan to talk more about our leading indicators on the local market.

I think, Lush, Alex answered half of it already. I would say it, and I'm trying not to be tongue in cheek here, it's three months closer than it was when we last talked. The important thing is the DMI continues to be positive. If you look at February's print, which just came out on Thursday, 23 more projects entered at $100 million or more. There was a nice range in those. We had convention center, we had some schools, some dormitories, and a handful of the smaller, as we call them, data centers, 'cause they're in that $200, $300, $400 million range. Also, I would refer to something else that's given us this.

Some of the questions, as for instance, that David would ask about pricing in that local non-res arena. Look at GT, how GT trends. I appreciate it's slight with the 2% print that we saw in the quarter on volume. Those are positive signs. Of course, General Tool, light Specialty participates in megas. But we're just seeing some of that activity pick up, which gives you the sense that for sure now, starts are not being outpaced by completions. You might be making that turn just a bit. I would refer to slide eight, I believe it is, in today's deck, which just shows the fleet on rent year-over-year.

If you look at that momentum and that delta as that's progressed through the year, you'll see the notable impact of the hurricane piece. Look, it continues to be a positive in terms of what we're hearing from customers. You know, our sales force is quite enthusiastic as they enter the spring. As I've said before, we're gonna be balancing all this in terms of our level of investment and our conviction around being able to progress price at the same time.

Cool. Thank you, guys. Appreciate it.

Thank you.

Next question today is coming from Paddy Bogart from Melius Research. Your line is now live.

Hi, thanks for taking my question. It's been great to see the strength in the mega projects. I'm just curious, can you talk about the full lifecycle profitability for you on mega projects versus other projects?

I think you said, full lifecycle utilization. Was that the question?

Profitability, sorry.

Oh, profitability, I'm sorry. In short, when we look at the full lifecycle of a mega project compared to that of the rest of the business, there's parity. You'll have some projects that'll be a touch higher, you'll have some projects that'll be a touch lower. The important thing to understand, and as part of what Alex has spoken to in terms of those fleet loadings for those mega projects, you have to picture it about, you know, with a relatively slow buildup. A very long crest, and then also a relatively slow build down. On both ends of that, you're gonna have a bit lower than you would normally because you load in, let's just say, $30 million worth of fleet and eight people.

Early on, you know, it may take you six, eight months to get to time utilization levels that we would expect there, which would be higher than the rest of the business. You've got all of your costs from the beginning in that in terms of a skilled trade. Then when you get to that crest, which oftentimes lasts two-plus years, two, even three years, you still have the same number of people that you began with. Your fleet grows over time, and your time utilization gets far higher. During that crest, it's actually accretive to overall margins. Then when you're coming down, it's about the same. All in all, we consider it a wash, but that's just the life cycle of that mega project.

That's helpful. Thank you.

Thank you.

Thank you. Our next question today is coming from Katie Fleischer from KeyBanc Capital Markets. Your line is now live.

Hey, good morning, guys. Alex, I appreciated all the color you gave around, you know, the ancillary dynamics, and it's I think it's pretty clear what's going on there. I'm just curious how you're thinking about that going forward. You know, it seems like it's becoming a bigger part of the business, both for you and some of your peers as well. How do you think about maybe offsetting some of those margin impacts and continuing to drive stronger EBITDA margins when we do see some more volume improvement?

Yeah. This is actually kind of a great news part of the story because as you know, as we grow Specialty, we're basically displacing re-rent. Some of these re-rental categories, we're actually getting to understand that market. We're understanding how it interacts with the rest of the portfolio. It builds relationships with the suppliers that we're working with. And ultimately, I think you'll see, some of the re-rental equipment turn green, over time. That's kind of the longer term. I think the other thing to think about, re-rent as, again, a positive part of the story is it really points to the solution selling capability of that Specialty business and the interaction between Specialty and General Tool.

As we develop more and more fulsome solutions, think about a complex data center project where you've got a General Tool doing a lot of the construction work. You've got the power and HVAC segment. You've got, as I mentioned in my remarks, the step-down transformers. You think about the complexity of that solution, it really speaks well to the, you know, underlying growth algorithm for the overall solutions that we're providing to the market. You didn't ask the question, but I'll answer it around some of the cost items in the P&L and how we're addressing that. I don't wanna front run what we're gonna talk about in the Investor Day, but you will hear, if you come to the Investor Day, you'll hear about the progress we're making in the market logistics operation centers.

You'll hear about how they're taking out significant usage of outside haulers. They're optimizing the use of the fleet, so really limiting our transportation costs. You'll hear about the Market Service Operations, where we're improving the productivity of our internal labor and our internal repair labor. So a lot of the work when we talk about the performance kind of vertical of Sunbelt 4.0 is well in flight, and you'll hear a lot about it when you come to the Investor Day on the 26th. You know, the other thing that I'd point out is let's not lose sight of the fact that the North America market, which is our core market, continues to have extremely strong margins at 45%. That's inclusive of all of the central company costs.

You know, I think that's just an important thing to underscore as we think about the underlying profitability of the business.

Okay. That's helpful. I know U.K. is small, but just wanted to ask about margins within that business. It feels like they've been challenged for a while now. There's been a few different rounds of actions there to improve those. What gives you confidence that these new restructuring activities should help drive stronger margins in that business over the long term?

Yeah, Katie, we are running the playbook that we covered at the half. That team has gone through this restructuring with areas like reducing G&A expense, consolidating to a degree the footprint, disposing of non-core assets, all in a way to deliver a leaner overall operation that is more in tune with what we're experiencing in the markets there. That business is remarkably well-positioned even in the current infrastructure and construction and maintenance environment that it has. So, you know, we have a strong confidence that you will see that progress. That doesn't happen overnight. That happens over time. That's what we're doing. We're running the playbook.

Okay, thanks.

Thank you. Next question today is coming from Neil Tyler from Rothschild & Co Redburn. Your line is now live.

Yeah, good morning. Thank you. Two questions, please. Firstly, your release mentions market share gains with strategic accounts, which I presumably, you know, you've mentioned deliberately. I wonder if you can share any insight into either way you think this share is accruing, whether it's General Tool, Specialty construction versus non-construction or any particular region versus another. You know, if there's anything specific you want to put that down to at this point. Actually a follow-up to Annelies's question on CapEx. Just want to make sure that the increase, which I'm pretty sure it is all volume rather than value, and whether there's anything in your mind pulling forward that CapEx, sort of looking forward to OEM inflation for next year. Thank you.

Thanks, Neil. I'll take the market share piece, and but I will do it in a manner not to steal the thunder that you will hear from Janelle two weeks from today. I will remind you of the decile slide that we cover, where we break out the customers that make up our top 10%, next 10%, et cetera. You will see in black and white the significant growth in those tranches of customers to the tune of 50% in deciles in some cases, when you look at average or median spend compared to the last time you've seen that print. With every certainty, we are gaining share with those national and regional strategic customers. Importantly, it is in the construction and the non-construction space, 'cause you'll also see how diverse that is.

I wouldn't chalk it up to any one geography in particular. Certainly when we see, you know, some of the mega projects and infrastructure, they are quite broad, not only in makeup, but also in geography. It is, quite frankly, across the board. When you see also, I will mention, you know, we just got the update from Dodge for construction put in place, the slide that you're so used to seeing in the deck, and you'll see it today. It points now more clearly than ever in terms of that local non-residential degradation that we have experienced over the last two years. Again, you'll see that in black and white, how much that was.

Therefore, you'll see there is no other answer that as we've continued to grow through that period of weakness, it's coming from market share gains.

Yeah, I'll try to hit the CapEx question. You know, just to draw you back to Brendan's comments on the prior question regarding CapEx. About 50% of the incremental increase is driven by growth. That growth is coming from mega projects. It's coming from some of the Specialty segments, particularly in load banks, coming from some of the earthmoving equipment that's again used in the mega project space. All of that is really you know, oriented toward capturing the growth and really contributing to the increased revenue guidance that we provided. Then the other 50% is literally simply a question of when it landed, the time of year it landed. You might ask, "Well, why didn't we just wait?" The reason is because we're pretty optimistic as we look forward to next year.

As the market begins to recover and all these leading indicators begin to materialize into activity, we wanna make sure we have the fleet on the ground to take advantage of that as we get into the spring season. As it relates to your specific question, you know, volume versus value. Look, we are kind of coming off the period of really significant inflationary effects. Inflation has mitigated largely. It's really mostly volume related, not inflation related. You know, that being said, don't forget that when you roll off equipment that's seven years old and you put in brand-new equipment, you do typically have around 20% lifecycle inflation. That's what we would've said consistently over the years.

Yeah, just to add that on that last point, so we're clear. Yes, there's still the life cycle. We are expecting zero virtually sequential inflation for our assets.

Perfect. That's very clear. Thanks very much.

Thanks, Neil.

Thank you. Next question today is coming from Rory Mckenzie from UBS. Your line is now live.

Oh, good morning, everyone. It's Rory here. I just wanted to follow up on the point around profitability pressure in Q3. Your group return on investment was down 1 percentage point, I guess despite the fact you're flagging higher specialty mix, which as you explained, is lower margin, but a higher return. Also, I guess despite the fact you had a relatively low quarter for fleet CapEx, so utilization has been up. Looking at the ROI lens, can you talk about the pressures on the business today? Is this the mix of projects you were speaking about? Is it just those cost pressures that you're past? And then also related to that, how do you think about, you know, allocating CapEx and investments when you've been seeing that ROI come down for a longer period? Thank you.

Yeah. It's a great question, and I guess I'd start by pointing out the depreciation number on the income statement, where depreciation for rental fleet was actually flat year-over-year versus a growth of rental of, call it 2.6%, 2.5%. You know, that points to the fact that the fleet is getting more highly utilized, which we've spoken about. It speaks to the capital discipline. If you were to look several quarters previously, you'd actually see depreciation outpacing rental revenue growth. I think that should give you some confidence that, you know, utilization of our capital is actually getting optimized. As it relates to the compression in ROI, it's really just math. As you live through this life cycle cost inflation, your asset base increases.

In a world where EBITDA is slightly softer or EBIT, which is what we use for the ROI calculation, is slightly softer. Sequentially, you would expect a bit of compression. As we begin to see the impact of the market logistics operation centers, the market repair centers, a lot of the intelligent customer pricing and rate improve. Not uncommon to see in periods where the market is a bit frothier. You'll get ROI in the range of 18%-19%.

In periods like this, you'll see, you know, ROI in the 14%-15% range, just a function of the activity level and where we are in the cycle. By the way, that's still significantly above our cost of capital and generating significant economic profit for our shareholders.

All right. Thank you.

Thanks, Rory.

Thank you. Our next question is coming from Karl Green from RBC. Your line is now live.

Yes. Thank you very much. Good morning. Just a couple of questions. Firstly, just going back to the point about the importance of ancillary revenues. Can you indicate how rental-only revenues trended in General Tool throughout the year to date? That would be super helpful and any kind of sense as to how that's tracking on a sort of like-for-like same store basis. Then the second question, completely unrelated, could probably work it out as I dig into some of the notes, but how has the gains on sale of used equipment impacted the margins in this quarter, please? Thank you.

Yeah. I'll take the gain on sale. I would say we are in a period where, you know, the used asset pricing, you know, has been softer than what we would have seen coming out of COVID. It's been, you know, at a pretty low point relative to where it's been historically. That being said, unlike prior quarters, this quarter we did see an actual gain on sale of around $2 million. It was small and not what we would have seen in some prior years, but it did turn positive. In terms of pure rental revenue growth for GT, it was about 150 basis points.

For Specialty, it was around 3.5 basis points, which is consistent with the remarks. Sorry, 350 basis points, so 3.5 percentage points. It's consistent with the remarks that we've kind of been saying of Specialty growth kind of outpacing GT. By the way, entirely consistent with the remarks we've made on non-residential, the local non-res construction, which is predominantly impacting the GT business and the non-construction portion of the business, predominantly impacting the specialty piece of the business. Hopefully that helps.

Just to add an exclamation point to that, the sort of specialty in that sort of three pure rental, double that in total rental. Ancillaries are growing at two times the pace of pure rental revenue and hence that mix. As a reminder, that is profitable revenue.

The margin impact on the quarter at 250 basis points versus the year at 140 basis points is purely revenue geography and the cost associated with that revenue. It's no longer the underlying that we've documented so much around the internal rental repairs and the repositioning fleet, et cetera. That's steady as it goes. Frankly, it's tailing off a bit more positively now as some of the operational imperatives that Alex spoke to are gaining even further traction, which you'll see much more clearly two weeks from today in New York City.

That, that's great. Just to clarify on General Tool rental only, 'cause I guess greenfields haven't been that pronounced. You're still in positive territory on a like-for-like basis for rental only. Is that-

It would be, yes.

Yeah.

Yes.

Great. Thanks, guys. Appreciate that.

Thanks, Karl.

Thank you. Next question is coming from Allen Wells from Jefferies. Your line is now live.

Hey, good morning, gentlemen. Apologies, my line dropped earlier. But I just wanna double-check. Clearly some optimism on the mega project theme still there, but could you talk a little bit about the competitive dynamics in that mega project market and to what extent maybe these have been unhelpful in the margin pressure story, particularly when I think about 3Q versus 2Q? I know some of your peers have talked about some of the challenges there. And secondly, just following up, I think a little bit on Karl's question. You historically have disclosed the kind of M&A contribution in the quarter versus the organic growth split. Definitely, I think in general in 2Q. Is it possible you can provide the organic versus M&A split for 3Q as well?

I can answer the second one very easily. It's almost all organic. You can see the total investment in M&A throughout the whole year was a sum total of $162 million in purchase price. That's gonna have no effect. This is all organic growth that we're delivering today. I'll emphasize what Alex said. His prepared remarks. Make no mistake, there is a robust, very active pipeline from an M&A standpoint, which we are quite excited about. I didn't fully understand your question around M&A's. Were you speaking competitive landscape around M&A's or something different?

No, sorry. Only just to be clear. The impression that it comes across from some of your peers and then more broadly in the market is that, you know, there's just a lot more competition, a lot more of your peers are trying to be more active in those mega project market that's driving potentially some pressure on the pricing and margins that you can deliver against those projects or the industry can. I just wondered if that's something that you're seeing and particularly if you've seen anything sequentially step up in Q3 versus Q2 that may also explain some of that margin pressure.

The margin pressure would not be attributed to other than what Alex covered in detail of some of the ancillaries that go along with a mega project, which is construction. Let's also think about, you know, large scale events like he would have referenced in the Super Bowl, and there are many others of those. Nothing has changed between Q1, Q2, and Q3 when it comes to the competitive set. What is a.

What is a newer and increasing feature are our customers, in particular, the larger they get and the more complex the challenge or the problem is, they're looking for solutions providers with greater breadth, greater expertise. They're looking for one throat to choke, in a very inelegant manner to answer that question. We're seeing that trend more and more. Of course, any rental company who's out there would love to participate on a mega project and deliver 100 telehandlers. The problem is the customer wants 100 telehandlers, plus they want load bank solutions, fencing solutions, ground protection solutions, power plants, and all the transformers that you heard Alex talk about. That's the direction of travel. It's not just the big getting bigger structurally. It's the big getting bigger and big growing breadth.

There's a very big difference when you really dissect the larger rental solutions providers in this industry and those that are really gen rents companies with a bit of scale.

Thank you.

Thanks, Allen.

Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over for any further closing comments.

Great. Thank you, operator, and thank you all for joining. It's a bit different that we will be seeing you in person for an Investor Day in literally two weeks time. Speaking on behalf of the team who you will see there, they are extraordinarily excited about sharing with you a comprehensive update on Sunbelt 4.0 and actually taking you through a real-life experience of our Connect 360 at every touch point with our customers and every touch point with our team members. We look forward to seeing you in New York City. Until then, have a great day.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

Hello, and welcome to the Ashtead Group plc Q2 Results Analyst Call. I will shortly be handing you over to Brendan Horgan and Alex Pease, who will take you through today's presentation. [Operator Instructions] For now, over to Brendan Horgan at Ashtead Group plc.

Thank you, operator, and good morning. Thank you for joining, everyone, and welcome to the Ashtead Group Half 1 and Q2 Results Presentation. I'm joined this morning by Alex Pease and Kevin Powers, with Will Shaw on the line from London. Let's get into it, beginning as usual with safety on Slide 4. I'll begin by addressing our Sunbelt team members to specifically recognize their leadership in the health and safety of our people, our customers and the members of the communities we serve. Our total recordable incident rate and lost time rates that you see here continue to be best-in-class. However, despite these results and momentum behind our Engage for Life program, there are incidents that remind us there is never a finish line in safety, rather improvement milestones, nor is there room for complacency. With this said, I'll share with our team members that in 2026, we'll be taking on a significant effort to conduct Engage for Life culture and compliance assessments at every one of our branches. These third-party reviews will address local health and safety compliance, leadership engagement, along with a deep dive into the systems and programs our locations have in place to manage tasks that could potentially lead to a serious event, if not controlled properly. The safety of our team will always be the top priority at Sunbelt, and this will be one of the most important initiatives that we have in calendar year '26. So thank you for your dedication and engagement thus far and, in advance, for welcoming these assessments in the months to come as we continue to pursue perpetual improvement in our safety culture. Turning now to Slide 5. The key messages you'll hear from Alex and me today are the following: First, this is a solid set of results, in line with our expectations with group rental revenue growth at 2% for the first half and 1% in the second quarter despite a nonexistent hurricane season compared to an active period in the second quarter last year. On an underlying basis, growth in the second quarter was 3%, a sequential improvement from the first quarter. Second, the strength of free cash flow after CapEx investment in fleet and business expansion demonstrates the through-the-cycle free cash flow power of this business at our scale and margin, generating $1.1 billion of free cash flow, which is a 164% growth on last year. Third, while our key construction end markets remain mixed, we're seeing signs that the local nonresidential market is now an equilibrium in terms of completions and starts as well as continued positive momentum in many of our internal and external leading indicators. Mega project activity continues to be strong, and we're winning share across our regional and national strategic customers. Fourth, our strong free cash flow generation has enabled us to return over $1 billion to shareholders in the half through dividend payments and share buybacks. And we've announced today a new share buyback program of up to $1.5 billion that we intend to commence on March 2, which will follow on from the completion of the existing program and will coincide with our expected relisting date on the New York Stock Exchange. And finally, we are confident in reaffirming full year guidance for rental revenue growth, CapEx and free cash flow. Moving on to the financial highlights of the first half on Slide 6. Despite the quiet hurricane season, group rental revenues were up 2% in the first half, consistent with the 0% to 4% guidance we gave in September. The leading indicators, both internal and external that we track, have continued to trend positively. And therefore, we remain cautiously optimistic that these trends in our business will continue and are early signs of the local nonresidential portion of our end markets recovering. As when they do, we will experience accelerated momentum and improved results. Group adjusted EBITDA was $2.7 billion at a 46% margin. As we explained in the Q1 results, these margins reflect the mix effect of higher ancillary revenue, the proactive repositioning of our fleet to drive utilization, and unlock pockets of growth and increased repair costs as a larger portion of the fleet comes out of warranty coverage. From a capital allocation standpoint and in line with our Sunbelt 4.0 priorities, we invested $1.3 billion in CapEx focused on a mix of replacement and growth. Free cash flow in the 6 months was just over $1.1 billion, which is a record, demonstrating the resilience of our business while we continue to invest in growth. The strong free cash flow is supporting the current $1.5 billion buyback program, which we are on track to complete by the end of February '26, before commencing the new $1.5 billion program that I've just referred to. Moving on to our segmental performance on Slide 7. As I've already mentioned, performance in the second quarter was impacted by a very quiet hurricane season compared to Q2 last year, when we reported that hurricanes had contributed $55 million to $60 million in incremental revenue. Rental revenue on a billings per day basis for General Tool grew 2% in the second quarter and 1% in the first half, reflecting positive volume momentum and resilient rates in end markets, which continue to be mixed. As expected, we continue to be in a moderated local nonres construction market through the first half, offset in part by the ongoing strength of the mega project landscape and the broader nonconstruction markets. Specialty growth is more impacted by lower hurricane activity with growth in the quarter flat. Adjusting for the hurricane impact, underlying growth in Specialty was 5%. The strength in Specialty segments was broad-based, led by Power & HVAC, Temporary Fencing, Structures & Walls, and Trench Safety, all delivering strong growth in the half. On a constant currency basis, U.K. rental revenue was down 2% in the quarter, reflecting the ongoing challenges in the U.K. end markets. As a response to this and consistent with our 4.0 strategy, we're undertaking a series of onetime restructuring actions, including location consolidation, people transitions, exiting noncore lines, and G&A reductions. These actions will enable better service to our customers, unlock value, deliver sustainable double-digit return on investment, and produce consistent free cash flow, while continuing to lead as the premier rental platform in the U.K. Alex will cover the financial implications of these actions shortly. Slide 8 shows fleet on rent for North America over the last 4 years. You can clearly see that our efforts to drive growth with existing fleet has resulted in improved time utilization. This supports a more constructive rate environment and contributes to our strong ROI. It also demonstrates our disciplined and flexible capital allocation approach. Over the next couple of slides, we'll cover the activities and outlook for the North American construction end market. On Slide 9, we set out the main leading indicators for the construction sector, namely Dodge Starts, Dodge Momentum Index, the Architectural Billings Index and Fed Funds Rate. The outlook for construction growth continues to be underpinned by mega projects and infrastructure work, which remains strong, and in many cases, gaining further momentum. We made great progress in mega project wins in the first half with a growing funnel of future projects and advancing market share with our strategic customers, both regionally and nationally. Exercising the cross-selling power across the Specialty and General Tool businesses as well as the advantage of Sunbelt's significant breadth and depth of products, solutions and expertise is a strategic differentiator. Combine this with a technology suite that is second to none, creates a platform that can deliver world-class customer experience, efficiencies and value across a wide range of complex applications. As it relates to our local nonresidential end market, we remain in a moderated environment. However, as I flagged with the Q1 results, both our internal leading indicators such as quotations, reservations and continuing contract activity and key external indicators are encouraging. The Dodge Momentum Index, in particular, remains near record highs. Just to remind you, this index represents nonresidential projects, excluding manufacturing, that are below $500 million and entering the planning phase for the first time and is therefore representative of future velocity in what we refer to as the local nonresidential construction market. This clearly indicates ongoing strong planning activity across our nonres construction markets will lead to an increase in starts, likely within a period of 12 to 24 months. So while clearly positive leading indicators, it may take some time for this planning to translate into project starts. When it does, as we've said, we are poised to benefit. On Slide 10, you can see how these starts forecasts translate into the latest Dodge put in place forecast and the S&P forecast for the North American rental market. As we expected, Dodge's September report lowered their forecast for construction, excluding residential, by 2% for '25 and 3% for '26. Although we've not updated the mega project slide, which you can find in today's slides, Appendix #37, I can confirm that the outlook for ongoing growth in the mega project space is strong as new project plans are entering the funnel often. Further, the makeup of projects is broad in sector and geography. And finally, the team has done a great job year-to-date, winning more than our fair share and are very active in current RFPs. More details to come in this mega project landscape in March. Before I hand it over to Alex, I'll just touch on our Sunbelt 4.0 strategic plan on Slide 11. We're now 6 quarters into a 20-quarter plan. As I previously mentioned, our team has been laser-focused on advancing each of the 5 actionable components, which are customer, growth, performance, sustainability and investment. While I'm not going to give you a further detailed progress report today, I will say that our clarity and mission throughout the organization is certain and our momentum is building. We'll share more details as we progress through the year and, in particular, during our upcoming Investor Day this coming March. With that, I'll hand it over to Alex to cover the financials in more detail. Alex?

Thanks, Brendan, and good morning to everybody. Starting with the second quarter results for the group on Slide 13. Group total revenue and rental revenue both increased 1% in the quarter, reflecting the impact of the quiet hurricane season that Brendan has already mentioned. Adjusting for the impact of the hurricane, underlying rental revenue growth in the quarter was around 3%. The EBITDA margin and EBITA margin continued to be strong at 47% and 27%, respectively. In line with the Q1 performance, the slight drop in margins primarily reflects the fact that top line growth is being driven by higher activity levels in both the mega project space and large strategic accounts as opposed to the more transactional business as well as a planned repositioning of fleet to drive both growth and utilization. Margins have also been impacted by a higher level of ancillary revenue associated with the growth in the nonconstruction markets, an increased level of internal repair costs with a greater portion of our fleet out of warranty coverage just as we expected, and lower gains on disposals of used equipment. Adjusted for depreciation at $592 million was up 1%, matching rental revenue growth as the challenges associated with the slight over-fleeting of the industry has abated. After interest expense of $133 million, reflecting lower average debt levels, adjusted pretax profit was 4% lower than last year at $656 million. As explained previously, we are adjusting for nonrecurring items associated with the move of the group's primary listing to the U.S. These costs amounted to $19 million in the quarter and $32 million in the first half. In addition, we've taken a onetime exceptional charge of $37 million in the quarter relating to the restructuring of the U.K. business that Brendan has already mentioned. The bulk of this charge is noncash in nature and the full scope of the actions taken in the year are expected to be cash accretive. Adjusted earnings per share were up at $1.168, reflecting the benefits of the ongoing share buyback program, and ROI on a trailing 12-month basis was a strong 14%. Slide 14 shows the first half results in a similar format. Rental revenue growth in the half was up 2%, and up 3% on an underlying basis, adjusting for the lack of hurricanes. The EBITDA margin and EBITA margin remained strong at 46% and 26%, respectively. Adjusted PBT was down 4% and adjusted EPS down 1% for the half. Slide 15 illustrates group revenue and EBITDA progression over the last 5 years and in the first half, highlighting significant track record of growth and margin strength over a range of economic conditions. Turning now to the individual segments. Slide 16 shows the performance for North American General Tool. Rental revenue for the first half grew by 1% to $3.2 billion, driven by improved volume, time utilization and stable rates. Excluding the hurricane-related impacts, rental revenue increased about 3% in the first half. As I explained previously, margins were impacted in the half, primarily by growth being driven by higher activity levels. EBITDA was $1.8 billion at a strong 54% margin. Operating margins were 33% and ROI was 20%. Turning now to North American Specialty on Slide 17. Rental revenue was 2% higher than the first half of last year at $1.8 billion as the nonconstruction market continues to be strong, particularly in Power & HVAC, Climate Control and Flooring Solutions. On an underlying basis, adjusting for hurricanes, rental revenues were up around 5% in the half. Margins in Specialty were broadly flat with EBITDA margin of 48% and an operating margin of 33%. ROI was 31%, again, clearly illustrating the higher returns achievable in the Specialty businesses. Turning now to the U.K. on Slide 18, and please note, all of these numbers are in U.S. dollars. U.K. rental revenue was 3% higher than a year ago at $422 million, benefiting from favorable FX movements. The U.K. business delivered an EBITDA margin of 26% and generated an operating profit of $35 million at a 7% margin. ROI was 5%. As Brendan has already mentioned, during the quarter, we commenced a restructuring of the U.K. business, better positioning it for the future and aimed at delivering improved margins and returns at a sustainable level, while positively impacting the customer experience. This involves aligning the network of locations to current business needs, rightsizing the staff and disposing of noncore fleet and business lines, including the sale of the U.K. hoist business in October for $16 million. Slide 19 illustrates the flexibility, resilience and agility of our capital allocation model. When markets are experiencing transitory headwinds we have experienced over the last few quarters, we remain disciplined in our deployment of capital to support strong utilization and rate discipline. When markets are growing more rapidly, we accelerate capital spending to capture opportunities and market share. In all cases, we generate significant free cash flow in excess of our investments, which we return to shareholders in the form of dividends, debt repayment and share buybacks. You see this clearly in the fiscal years 2021 and 2025, and we have started this year strongly with $1.1 billion generated in the first half, a record and significantly ahead of the comparable period of last year. We are well on track to deliver record free cash flow generation for the full year. Slide 20 updates our debt and leverage position at the end of October. This again clearly demonstrates the strong cash-generative characteristic of the business as we have lowered net borrowings by over $500 million in the last year to $7.6 million (sic) [ billion ]. This is despite the fact that we returned over $1 billion to shareholders in the half through share buybacks and dividends, invested $1.3 billion in CapEx, and invested $143 million on 7 bolt-on acquisitions. In addition to that, we opened 22 greenfields in North America, of which 12 were in General Tool and 10 were in Specialty, with a clear line of sight to achieving around 60 greenfields in the full year. As a result, excluding lease liabilities, leverage was 1.6x net debt-to-EBITDA, well within our stated range of between 1x to 2x net debt-to-EBITDA. We expect to be in the 1.5x to 1.6x range at the end of April, including the impact from the share buyback activity, but not including any potential impact of additional M&A activity. On the M&A front, we have a robust pipeline, which we continue to develop and pursue opportunistically as long as it is accretive to growth and generates margins and returns in line with our capital allocation expectations. Turning now to Slide 21 and our latest guidance for revenue, capital expenditure and free cash flow for fiscal year 2026. We're pleased to reaffirm the guidance that we gave in September. Our guidance for group rental revenue growth is between flat and plus 4%. The plan for growth capital expenditure is in the range of $1.8 billion to $2.2 billion. And finally, we expect free cash flow to be between $2.2 billion and $2.5 billion. And with that, I'll turn it back to Brendan to close this out.

Thanks, Alex. Turning to Slide 22. I think you'll agree, Alex and I have covered all of these capital allocation elements as part of the presentation this morning. All of this is consistent with our long-held policy, and we will continue to allocate capital on this basis throughout 4.0. To conclude, let's turn to Slide 23. In summary, I'll leave you with a few takeaways one should gather from our update today. One, recognizing the impact of hurricanes, the half resulted in exactly what we expected in revenue growth, improving utilization, free cash flow and advancing our 4.0 strategic plan, leading us to reiterate our guidance for revenue, CapEx and free cash flow. Two, we're continuing to see positive leading indicators in our business activity levels and in our pipeline, coupled with an encouraging indication of market demand statistics. And three, when you piece this all together, you should clearly see the secular progression in our business and in our industry. This demonstrates ever so clearly, in particular, during this modest growth environment, we continue to maintain discipline in pricing, investment and strategic focus, all while delivering record free cash flows, which we've used across all our allocation priorities. This business and balance sheet is stronger than ever and puts us in an incredibly powerful position, giving us great flexibility and optionality as opportunities unfold. And finally, just a comment, you should have received a save the date for our March 26 Investor Day in New York City, where we'll update you not only on our 4.0 progress, but showcases our ever-growing capabilities, and we certainly hope to see all of you there. And with that, operator, we will turn the call over to Q&A.

[Operator Instructions] Our first question is from Lush Mahendrarajah from JPMorgan.

I've got 2. The first is just on rental rates and how we think about the combination of that and margins as we go through the second half. Clearly, some of those things are mix related, et cetera, and repositioning related. I mean, is that something that you want to start to offset and push rental rates a bit more? Or are you sort of happy with the status quo and sort of those things will sort of iron themselves out over time? So that's the first question. And the second is just on local and you've indicated, I think, there on the document sort of the 12- to 24-month lead time, but also interesting to hear, I think you said quotations and reservations for yourselves is trending upwards. I mean is it typical to see a lead time of 12, 24 months for those as well? I'd imagine those are short, just to get an idea of exactly what you're seeing there and what that actually means labeling into revenue?

Sure. Thanks, Lush. Rental rates, as we've said, so much so, in particular during this moderated level of growth that we've talked about, the resilience of. Our rates are strong, make no mistake. Your question specifically talks about what is our anticipation of where rates go in the second half. I can probably obviously always say to you that we prefer rates to be a bit higher as we move. I feel good about. We feel good about the momentum that we have. We have a number of initiatives underway to further progress the mechanized progress, if you will, of pricing. So we'll certainly be talking about that a bit in the Investor Day. I think the key thing is this when it comes to pricing. We believe at this stage that we've reached a good fleet balance in the industry. It's well known that for a period of time, the industry was a bit over-fleeted. We think that, that has largely corrected itself. And therefore, that leads to even more momentum and really expectation around pricing. But there are also a number of moving parts between some of that local nonres we've talked about and also our national and strategic customers that we're growing so significantly. But overall, our expectations on rates are positive, and we do expect rate progression to be a feature of our growth for the years to come. Second question around the momentum that we're seeing, particularly in the internal indicators and, of course, in areas like that Dodge Momentum Index. Yes, internally, what we're seeing really now as compared to what we would have seen a year ago, we're seeing more normal rhythms in the business. And by that, I mean rhythms as it relates to seasonality where we had actually seen a decoupling of that at prior points. And in that, that's supportive of what we would have said in our prepared remarks. We feel as though both in terms of the actual data and then just a feel on the ground that when you look at completions versus starts, we've reached equilibrium. And if you think about that local nonres market, really for about 2 years' time, completions, in essence, were outpacing starts. We feel as though we've reached neutrality in that, and that gives us even more confidence in what we're seeing in some of these forecasts. That being said, and you sort of answered it in your question, Lush, that lead time from planning to actually progressing to start is 12 to 24 months, depending on what it may be. Some of your smaller retail might be 12 months, offices and lodging might be 18 months, larger projects beneath that $500 million may be more like the 24 months. So when that comes? Time will tell. We're seeing positive signs for that. And as we've said so many times, we are positioned well to take advantage of that when not if that returns.

The next question is from Annelies Vermeulen from Morgan Stanley.

Two questions, please. So just on the U.K. restructuring charges. So you've mentioned closing branches and some headcount. So do you expect that, that business will be materially smaller going forward? And if you could talk a little bit about what has prompted that? And as part of that, you mentioned double-digit returns on those investments. So over what kind of time frame could we see that come through? And then secondly, just coming back to some of those green shoots on leading indicators. Is there anything incrementally different relative to the last time we spoke in September with regards to the type of customers or projects that you're seeing that across, or any particular drivers you're hearing in your conversations with customers such as rates, et cetera? Any color there?

Great. Thanks for question, Annelies. I'll take the first part, and then I'll turn it over to Brendan to talk a little bit more about the green shoots that you mentioned. So the U.K. structuring, this is activity that we're undertaking to really sort of improve the performance of that business. We mentioned $37 million of nonrecurring charges. That's a onetime charge, mostly noncash in the quarter. Important to say that all of that will be cash accretive in the year. We pointed to the sale of the Hoist business for about $16 million. There's a little bit of severance in there, but it will all be cash accretive for the year. And largely, those actions are already behind us. So there's really not a whole lot more to be done. In terms of your question, will that be a materially smaller business? No. This is really about sort of optimizing the footprint, divesting some of the businesses where we weren't really competitively advantaged, closing locations where we didn't have scale. So it's really, I would say, just basic hygiene about how we drive improved performance in that business. In terms of what's our trajectory to more sustainable returns, obviously, it's a bit of a tricky question to answer, because it depends on how top line performance evolves as the market recovers. But we would expect all of these actions, like I say, to be accretive in the year and to be delivering positive returns as we look out into the next fiscal year. And so with that, I'll turn it over to Brendan to talk more about the green shoots that we're seeing in the marketplace.

Great. Thanks, Alex. And Annelies, your question really was, is there anything different really from Q1 when we first talked about what we're seeing internally and some of the forecast externally. And I think the biggest is, we've had 3 prints now of DMI that have maintained really high levels. And the key to that is, it is indicating the demand in the marketplace. And as we see that maintain that quite wholesome level, we have increased confidence that we will see those progress to starts. And that actually, that question, brings up a good point I think I'll make to perhaps reiterate our conviction there. When you study over time, the correlation between DMI and starts, it is a remarkably strong correlation, about as strong as you can get, which one would expect. You have someone who has literally entered the planning phase and the correlation from entering planning to, therefore, actually becoming a start is remarkably high. So that gives us extra confidence. And again, what we're seeing there is it's just the demand. And that demand, just to emphasize, remember, that is specifically DMI pointed to projects that are below $500 million, nonmanufacturing. So it really gets to the core of that local nonres.

Our next question is from Neil Tyler from Rothschild & Co Redburn.

Two for me, please. You've increased the amount of M&A slightly. You mentioned a robust pipeline. Does this reflect a more attractive M&A landscape more broadly? Is that maybe tying into your comments about some of the industry being a little bit over-fleeted? Are there assets available that have got increased headroom to improve sort of utilization compared to, say, a year or 2 back? That's the first question. And then a similar topic, but on your own fleet utilization, how are you thinking about utilization rates as you shape up for the 2026 season? How much growth headroom in terms of utilization rates do you think exists in your current fleet before CapEx will need to kind of raise to move the fleet in sort of lockstep with demand growth? Does that make sense?

Yes. Sure, Neil. The first in terms of M&A, well, look, we did 2 in Q1, we did 5 in Q2, nice little bolt-ons mix between Specialty and General Tool. So really, it's a combination of density and a bit of expansion into some markets where we didn't have quite the presence that we would have wanted, all part and parcel of our 4.0 expansion plan. Nice little specialty businesses in the first half that we added, one around perimeters that really supports our events business, everyday events, and then, of course, magnify with events like LA28. From a pipeline standpoint, it's remarkably strong, and it's remarkably strong, particularly in the specialty space. So there are a handful of opportunities that are out there that both complement existing lines that we offer today, but also some nice adjacent lines. Your question about do we see this ability to extract, in essence, higher utilization because of the industry's fleet levels? I think, frankly, it's not so much that. We get that in almost every circumstance. So we buy a business in any town, North America, for instance, and they may be running at a utilization level of 60, let's just say, for conversation's sake. And as we fold that into our overall system, our overall apparatus, we can comfortably run that business at a higher level of time utilization, if for no other reason, then we have a deeper offering of whatever products we tend to bring in. So certainly, that's one of our overall hallmarks of this bolt-on M&A strategy that we have. And we take those customers that we acquire by way of the acquisition, and we offer them a far broader set of solutions. So it's really no different than what it has been. As we've said in all of our updates, the pipeline has remained robust. We're just in a really good position right now. And frankly, we would expect the momentum in terms of our allocating capital investment in this regard to strengthen over the course of the quarters to come. In terms of our own time utilization, to your second question, and what sort of headroom, I mentioned that similar to the end market from a local nonres standpoint, I think we're kind of at equilibrium now. When you look at our business today, as you've seen and you would have heard from Alex's remarks, Specialty is becoming a larger part of our overall business. So time utilization isn't quite what it was before. Take, for instance, as we grow our climate business or we grow our load banks business to the degree in which we are, you have different seasonality as it relates to time utilization. So really, the answer to your question is the devil is in the details. We have certain product categories that we do have a bit of headroom, but we also have, and I would put it this way, equally have product categories that are at quite high levels of time utilization and, therefore, that's where you'll see our growth CapEx invested not only in the second half, but as we complete our planning from a CapEx standpoint for next year, which we're right in the middle or right in the throes of our growth plans for next fiscal year. I hope that answers your questions, Neil.

Yes, that you did. That's very helpful.

Our next question is from Arnaud Lehmann from Bank of America.

Two questions from my side. Firstly, on margin trends, you highlighted, again, a little bit of margin erosion year-on-year, highlighting the repairs and repositioning of the rental fleet. Do you expect that to continue into the second half of the fiscal year, or the repositioning is largely done? Maybe something remains on the repair side. My second question is just a few follow-ups on the U.S. relisting. When are you expecting to transition to U.S. GAAP? Are you going to move to a December year-end for reporting? And what sort of incremental U.S. relisting costs should we expect into Q3 and Q4, please?

Okay. So I'll take both of these. On the margin point, a couple of points that I think are really important to understand. First of all, this is largely driven by mix. And the mix is coming from a couple of things. First, we have a disproportionate growth in Specialty relative to General Tool. And remember, Specialty is a little bit narrower margin, although it's higher return, because it's less capital intense. So that should be somewhat intuitive from the numbers. Secondly, the growth, as Brendan would have mentioned in his results, the growth broadly is coming from mega projects and the large strategic accounts as opposed to that local nonres more transactional business. And so again, I think it should be intuitive that, that type of business mix would carry with it a bit more of a lower margin profile. And then lastly, we're really optimizing the fleet positioning to unlock these pockets of growth. And that higher level of activity, comes with it higher cost. So as Brendan says frequently, we're really just running the business as you would want. There's nothing sort of structurally changing in the underlying economics. In terms of as it looks towards the second half, I think we would continue to expect Specialty to have relatively stronger growth than General Tool. I think the other issue that we pointed to was the higher internal repair costs as a portion of the fleet comes off warranty. You would expect that to continue through the balance of the year. So I think largely, you should expect the second half to look and feel similar to what the first half looked like. As it relates to the U.S. relisting, we're on track for that to be delivered March 2. We've submitted the first round of comments to the SEC -- or first round of response to the SEC's comments. We expect to get a second round back here in the course of the next week or so. And so everything is going exactly as we would have hoped despite the government closure throwing a bit of a speed bump in it. In terms of your question as it relates to the December year-end, we will likely make that decision at some point in the future. That is not something that we would undertake sort of imminently as we need to get through this process first, but we would likely take that decision at some point in the future. And we will continue to see some incremental cost as we get through the balance. I think we're kind of targeting a total budget of around $90 million or so by the time this is all said and done, the majority of which will happen as we get into sort of the second half of the year, but there will be some residual cost as we get into next year, which will all be adjusted out of the adjusted GAAP numbers. And then obviously, once we start reporting on the SEC regime, we'll be reporting U.S. GAAP numbers, and we'll bridge that very clearly for you in the Investor Day.

Our next question is from Rob Wertheimer from Melius.

A question on just profitability and ROIC on the mega projects versus the rest. We've seen the fleet positioning cost. I wonder -- I'm not sure if I understood the last answer to indicate that the repositioning is a kind of phase or, I don't know, whether it continues with each mega project as they sort of bounce around the country, whether that's just a new cost of doing business. But does the profitability kind of curve up to average? Or is it lower given competition? And -- well, anyway, I'll stop there for now.

Rob, thanks for that. You heard Alex allude to that margin impact. And I just want to clarify that, and I think this will answer your question. That's in the early phases of those wins and of those build-ups. So as we've said many times in the past, not only does history tell us, but our expectations are, as you reach that sort of crest, which is quite long on these mega projects, we would say, at a minimum, those are parity to the margins for the overall business. And the same thing goes really with our national strategics. I mean when you think about these not just mega projects, but these national contractors, and you put all that together, these are more experienced operators. The conditions on these sites are better governed. The products themselves, in so many instances, move in many ways a bit less than they do on other projects, and the repair and maintenance, when it comes to upkeeping with those, you have this great opportunity to have field service technicians deployed that are on site and they spend most every single day on those projects, maintaining this equipment. So over time, we would expect for that to be at a minimum parity to the rest of the business.

Perfect. That does answer. And then just out of curiosity, I guess, just as you slowed expansion appropriately with the industry, then the repair cost comes up as more of the fleets off warranty, I get that. Is that a 1-year effect and you kind of rebase, or if you didn't expand faster again, would that continue to be a margin headwind over the next year? I'll stop there.

Yes. I mean, it's really -- if you look at the fleet profile slide that we have in the appendix, you'll see 2 extraordinary years of growth where we extracted significant share gains and expanded our business. So it's really those 2 rather large tranches. So unless we were to go to those levels of CapEx, say, next year, I think we have another year of that sort of headwind and then we balance out as we ordinarily would. And then, of course, look, there'll be these periods where you have significantly low replacement CapEx for tranches 7, 8 years ago that were lower. But I would expect that same sort of headwind for another 6 quarters or so.

Our next question is from Suhasini Varanasi from Goldman Sachs.

Just one final follow-up from me, please. The U.K. restructuring program of $37 million, you mentioned it was cash positive, but can you maybe give us some color on what's the benefit on annualized SG&A costs for that region and, therefore, the benefit to margins on an annualized basis?

Sure. So the bulk -- as I would have mentioned, the bulk of the restructuring would have been in sort of fixed assets, sale of underperforming businesses, consolidation of locations and those sorts of actions. So really where it hit -- and it's noncash, by the way, so where it typically would hit is more on the ROIC and the depreciation line than the sort of SG&A side. I don't have the exact number in front of me. I think it would be reasonable to expect 150 to 200 basis points of SG&A improvement on leverage. But again, the bulk of it is really focused on the asset footprint, if that helps.

We'll now take our next question from Allen Wells from Jefferies.

A couple for me, please. Firstly, just on the margins. Sequentially, slightly worse, I think, down 140 bps versus 120 bps in Q1. The incremental decline there, is that all related to hurricane activity? Or were any of the other headwinds stronger in the quarter? And then maybe linked to that, I think kind of follows on from Rob's question on the repair costs. We should expect that obviously to be a continued headwind over the next few quarters. But when you look at that CapEx profile, the step-up between '22 and 2024, should we be thinking that the headwind from higher repair costs actually steps up over the next few quarters as well? So that's just those on the margin? And then secondly, just on the rate environment following on from a question earlier. Beyond the broader market conditions being slightly muted, are there any other factors that you would call out that are impacting rates? I'm particularly thinking about are there any particular smaller or midsized competitors being a bit more aggressive than you would typically expect on pricing or anything like that? Or is it just a broader market issue?

Yes, I'll let Brendan take the rate question, but I'll hit the margin question quickly. So you sort of answered your own question. Yes, the hurricane activity -- the lack of hurricane activity, I should say, did have a dilutive impact on margins. You're also lapping a very strong period of margin expansion. So you sort of have a tougher comp that you're comparing against. So those are really the issues. As it relates to the higher repair costs, I think Brendan answered that. We do expect that to continue for the next, call it, 6 quarters as we're lapping those really 2 high CapEx years. So I think that would be more of a sustained headwind. And I'll let Brendan comment on the rate environment.

Yes. Allen, from a pricing standpoint, look, there will always be some competitor in some market somewhere who leads with price. That has been the realities of the business forever. The key to understanding pricing is, pricing in any business is dynamic. And the big takeaway would be, think about the structural change, the structural progression of this business and the secular outputs of that, and we're seeing those so clearly today. Secular outputs, particularly highlighted during this end market that we are working through today, that create larger TAMs, that create more resilience overall in the business, that deliver discipline when it comes to pricing. And largely speaking, that's exactly where we are. It's not different than most anywhere else. Pricing does have a momentum element. And at this particular juncture, it has proven to be remarkably resilient, and as we've said, pricing is still very much strong, and we look to take further advantage, if you will, of this structural output to progress pricing, as I've said, that we expect to be a feature of our growth for years to come.

And sorry, just a quick clarification, Alex. I appreciate you kind of confirmed that there'd be a sustained headwind in the higher repair cost. But I guess my question was, when I look at the CapEx profile, '23 was more CapEx than '22, '24 was more than '23. So is there any reason why that headwind shouldn't actually increase given that CapEx profile?

Yes. I guess when we return to fueling larger growth capital investments, you would see that impact mitigate, because you'd be putting more capital on the balance sheet that's under warranty cost and the age of your fleet would come down slightly. So really, the higher warranty cost is entirely connected with the aging profile of the fleet. And Brendan is pulling up the slide in the appendix, which really shows the nature of how we've invested in the last couple of years. So you would expect that trend to continue as we lap those 2 years of $3 billion to $4 billion of investment. As those levels of CapEx get retired, you would expect it to come down to something a little bit more normal.

Yes. I think, Allen, to just add, let us not over-index on. I appreciate we may have put ourselves in that position because we call out the impact of higher repair costs as assets come out of warranty. Think about Sunbelt 4.0 and the actionable component of performance. Make no mistake, we have opportunities which are being actioned to drive margin improvement in this business just as we set out to do with 4.0. So whether it be the over '25 market logistics operations that we have employed year-over-year, growing from last year's 10 or 12 to today's over 25, which is more than 500 of our locations. We'll have more than 30 of these rolled out by April of our top 50 markets. Part and parcel of that MLO is a consolidated market field service approach. Furthermore, as you will see in full color on March 26 during our Investor Day is the new service platform that we've implemented throughout the business. So all of these improvements not only deliver exceptional customer experience, but they also will deliver, over time, improved operational processes and therefore, improved margins. So this is just a moment in time when we're going through those 2 years of extraordinary growth investment, which we all look forward to returning to. But make no mistake, the business is actioning significantly an improvement in the way that we operate, and that will translate into margins. I'll just talk to MLOs a bit more. We have reduced days to pick up for our assets. That creates opportunity for higher time utilization of an existing fleet. We have circa 15% better truck utilization in these markets. We reduced outside hauler spend in many cases, by 50% or more. And this whole measure we've looked at for so long, delivery cost recovery improves by 4% or 5%. So it's not all about just the warranty of the fleet, it's about how we continue to get better at our operations, and you've met the Brad Laws and [ Chais ] of our business. And that's what they're focused on every single day, and we have great momentum behind that.

Our next question is from Karl Green from RBC.

Just 2 questions. The first one, Brendan, given that we're seeing double-digit auction inventory builds in major equipment categories, I just wondered what gives you the confidence in the statement that the over-fleeting in the industry is being largely corrected? And then the second question, Alex, perhaps for you, just on depreciation. It looks like sequentially, adjusted depreciation went down between Q1 and Q2. So I just wanted to understand the moving parts of that. Was that partly due to accelerated write-offs in the U.K.? Or is there anything else going on there in terms of fleet mix that we should be aware of? And then just a final follow-up on that would be what would your expectation be for full year depreciation, please?

Sure, Karl. On the first, look, I think when you look at 2 things really, your question is about how we feel comfortable that we're reaching this sort of balance from a fleet versus demand standpoint in the industry? You're right, we do see some, and I want to say that very clearly, some product categories that are creating a bit of a backlog in that auction environment. As you know, there's some activities going on in the industry where some are taking the decision to rebalance fleet in some way, shape or form, more so when it comes to composition than when it comes to absolute levels. And you'll see that from time to time. I think you'll see that work through quite quickly. And you can see that also when it comes to secondhand values, which it's important to understand when you think about this business over the years rather than just quarter-by-quarter, you'll see oscillation when it comes to secondhand values. If we sort of collar what we get assets at least through the auction channel, you'll see peaks in the 42% to 45% of original equipment cost range down to extraordinary times like '08, '09, where you saw 25% or so relative to OEC. And today, we're in the kind of 32%, 33% range. So that also indicates a relative level of health in that space. But I think when we look at -- look, many of our OEMs are publicly traded, and you can understand what their volumes look like year-on-year or really over the last 18 months. So all of those line up to and indeed, our own time utilization, giving us this confidence that we are in a pretty good position overall from a fleet makeup in the industry.

Yes. So a couple of points on depreciation. It would be the case that the majority of the decline would be tied to the U.K. Remember, that $37 million charge that I mentioned is largely accelerated depreciation. So that would be the case. If I look at rental depreciation in the quarter, it was for the first quarter that we had really in the last probably 6, rental depreciation was a good guide. So we've got back to a world where rental growth and depreciation are more in balance. You do have some other effects of depreciation going on with things like lease amortization, some of the greenfield investments before they come to scale, obviously, those would be headwinds to depreciation. But I think the headline number is the fact that this rental depreciation was more in line with rental growth, which is a good thing in the quarter. Does that help?

That's helpful. Thank you.

Our next question is from Neil Tyler from Rothschild.

Just wanted to follow up actually on the answer to the previous question about the used equipment recovery rates. You said for some time that you have been trying to optimize the channels that you use. Can you give us any sort of update on that, thoughts on the current split and how far through that sort of optimization process you are?

Yes, Neil, I'm glad you asked that question because shame on me for not addressing that when I had the opportunity. Yes, I mean, we have, as you know, over the years of such significant growth and such organic investment in the business, we've relied primarily on 2 channels, one being trades to OEM, because when you're buying 3, 4 and even 5 to every 1 you're selling, it's a pretty optimal path. An asset lives a perfect life after its last day of rental. Once we deem it to be an asset to be replaced, it's sold nearly immediately, not taking any time away from the business or distraction to the business. And then secondarily was the path through auction. We have been working on standing up a strong retail and wholesale platform, which I would call 3 quarters through its build. And you will see in significance, beginning next year, more and more of our secondhand sales going into that retail and wholesale market. And of course, we think that overall will lead to better proceeds for our sales of used equipment.

It appears there are currently no further questions at this time. With this, I'd like to hand the call back over to Brendan for closing remarks. Thank you.

Great. Thank you, operator, and indeed, everyone, for joining this morning. I think we have gotten across -- or hope certainly clearly that over the half and indeed year-over-year, we have invested in growth in this business. We have been working vigilantly to improve our craft, to improve the service throughout our actionable components of 4.0. We have generated significant free cash flow, which we have returned in record levels to our shareholders. We paid down debt, and we've done all of this within our leverage range presently at 1.6x. And I'll just reiterate what I would have said in my prepared remarks, which is this business is in a remarkably strong position, and we are poised to benefit as we see things recover and this great industry continues to grow. So with that, we look forward to seeing all of you on the 26th of March.

Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect.