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Good morning, everyone, and welcome to the United Rentals Investor conference call. Please be advised that this call is being recorded. Before we begin, please note that the company's press release comments made on today's call and responses to your questions contain forward-looking statements.

The company's business and operations are subject to a variety of risks and uncertainties, many of which are beyond its control. And consequently, actual results may differ materially from those projected. A summary of these uncertainties is included in the safe harbor statement contained in the company's press release. For a more complete description of these and other possible risks, please refer to the company's annual report on Form 10-K for the year ended December 31st, 2025, as well as the subsequent filings with the SEC. You can access these filings on the company's website at www.unitedrentals.com. Please note that United Rentals has no obligation and makes no commitment to update or publicly release any revisions to forward-looking statements in order to reflect new information or subsequent events, circumstances, or changes in expectations.

You should also note that the company's press release and today's call include references to non-GAAP terms such as free cash flow, Adjusted EPS, EBITDA, and Adjusted EBITDA. Please refer to the back of the company's recent investor presentation to see the reconciliation from each non-GAAP financial measure to the most comparable GAAP financial measure. Speaking today for United Rentals is Matt Flannery, President and Chief Executive Officer, and Ted Grace, Chief Financial Officer. I will now turn the call over to Mr. Flannery. Please go ahead, sir.

Thank you operator, and good morning everyone. Thanks for joining our call. Yesterday afternoon, we reported a strong start to 2024, including first quarter records across revenue, EBITDA, and EPS. I was very pleased by the growth, margins, and fleet productivity we reported as the team continues to execute against our North Star of putting the customer first. The momentum we're carrying into our busy season, along with our customers' feedback for their business, supports our expectations that this will be another record year, as further evidenced by our updated guidance. This is all attributed to our 28,000 team members who are laser-focused every day on safely serving the customer and delivering against our goal to be their partner of choice. What exactly does this mean? Well, it means we have a broad and unmatched offering of both gen rent and specialty products.

We invest in industry-leading technology to make both the customer and our own operations more productive and efficient. Most importantly, we have a track record of providing superior service our customers can depend on. This didn't happen by accident. We've developed sustainable competitive advantages through our differentiated value proposition and operational excellence, allowing us to deliver consistent performance and shareholder value. Now, having said all this, today I'll give a quick recap of our first quarter results, followed by what's driving our optimism for the year, and then Ted will go into more details around the numbers before we open up the call for Q&A. Let's start with the quarter's results. Our total revenue grew by 7% year-over-year to nearly $4 billion. Within this, rental revenue grew by almost 9% to $3.4 billion, both first quarter records.

Fleet productivity of 2.3% contributed to OER growth of 6.5%. Adjusted EBITDA came in at $1.8 billion, resulting in a margin of 44.1%, a 60 basis point improvement year-over-year when you exclude the H&E benefit. Finally, adjusted EPS came in at $9.71, up 10% year-over-year and another first quarter record. Now let's turn to customer activity. We continue to see healthy growth across both our gen rent and specialty businesses. Within specialty, which grew 14% year-over-year, we saw growth across all lines of business and opened 17 cold starts. By vertical, our construction end markets saw strong growth led by non-residential construction and infrastructure. On the industrial side, power and mining and minerals were notable standouts, with power continuing to post double-digit growth.

We saw a wide variety of new projects kick off in the quarter, spanning healthcare, infrastructure, power, industrial manufacturing, and of course, data centers. For you soccer fans out there, we expect to be a key partner for the World Cup starting here in the second quarter. Now turning to the used market, we sold $680 million of OEC at a 51% recovery rate. We're on track to sell approximately $2.8 billion of fleet this year, supported by strong demand for used equipment. In conjunction with these sales, we spent $874 million on rental CapEx. This was spread across replacement and growth CapEx with a focus on specialty and bringing in additional gen rent equipment where we see strong demand. Subsequently, we generated free cash flow of $1.1 billion. We're set up for another strong year of cash generation, which is a critical feature of the company.

As a reminder, the combination of our industry-leading profitability, capital efficiency, and the flexibility of our business model enables us to generate meaningful free cash flow throughout the cycle, which can be redeployed in ways that allow us to create long-term shareholder value. Finally, we allocated capital in the quarter consistent with our framework, which starts with a healthy balance sheet. After supporting both organic and inorganic growth, we returned $500 million to shareholders during the quarter through a combination of share buybacks and our dividend. Our leverage of 1.9x remains well within our targeted range, leaving plenty of dry powder to support growth and return excess capital to shareholders. Now let's turn to the rest of 2026. As evidenced by our updated guidance, the year is playing out better than we expected just a few months ago.

Feedback from the field continues to be optimistic, particularly for large projects. We're carrying a strong momentum into our busy season, and we feel confident we're positioned to win in the marketplace. To sum it all up, our unwavering focus on our strategy, which includes our differentiated value proposition, positions us well to compete effectively in the marketplace. Our customers know they can depend on us, and our team is executing with strong capabilities. We see multi-year tailwinds for large projects and believe we're well positioned for these opportunities. We'll continue to monitor and manage our cost structure and operate with capital discipline. I'm confident the combination of our resilient business model, prudent capital allocation, and balance sheet strength will allow us to continue to drive profitable growth, generate strong free cash flow, and deliver compelling returns to our investors.

With that, I'll hand the call over to Ted to review our financial results, and then we'll take your questions. Over to you, Ted.

Thanks, Matt, and good morning, everyone. As Matt just shared, we're off to a strong start to the year with first quarter records across total revenue, rental revenue, EBITDA, and EPS. More importantly, we're pleased to be raising our full year guidance based on the momentum we're carrying into our busy season and strong customer sentiment. Before we get into the details of the outlook, let's dive into the first quarter numbers. As you saw in our press release, rental revenue increased $274 million year-over-year, or 8.7%, to a first quarter record of over $3.4 billion, supported primarily by growth from large projects and key verticals. Within this, OER increased by $163 million or 6.5%, driven by 5.7% growth in our average fleet size and fleet productivity of 2.3%, partially offset by some fleet inflation of 1.5%.

Also within rental revenue, ancillary and re-rent grew by nearly 18%, adding a combined $111 million as ancillary growth continues to outpace OER. Pivoting to used, we sold $680 million of OEC in the quarter, generating $350 million of proceeds at an adjusted margin of 47.4% and a 51.5% recovery rate. Solid used results overall. Next, let's turn to EBITDA. Excluding the $52 million net benefit we realized with the termination of the H&E acquisition in the year-ago period, EBITDA increased $140 million to a first quarter record of almost $1.76 billion. This was primarily driven by a $160 million increase in rental gross profit, partially offset by a $12 million decline in used gross profits. Excluding the impact of H&E, SG&A increased $16 million year-over-year, but declined as a percent of revenue, while gross profits from other lines of businesses increased $8 million.

Looking at profitability, our first quarter Adjusted EBITDA margin was 44.1%, reflecting a 60 basis points improvement year-over-year, excluding the impact of H&E. As expected, we continue to see geographically dispersed large projects driving much of our growth while customer demand for ancillary services also remains strong. Nonetheless, as you saw this quarter, with the benefit of strong cost management, we expanded our underlying margins year-over-year. While we'll always have normal quarter-to-quarter variability in costs, it remains our goal to achieve flat margins for the full year. To give you a little more color on the cost controls, I'll note that we recorded $45 million of restructuring charges in the first quarter, which were primarily related to the consolidation of overlapping facilities and headcount reductions. Additionally, we took steps across the organization to control variable costs with a significant focus on labor and outside hauling.

While it's still early in the year, we're pleased with the results of these initiatives. Shifting to CapEx, gross rental CapEx was $874 million, translating to around 19% of our full year spend at midpoint and in line with historical first quarter levels. Moving to returns and free cash flow, our return on invested capital of 11.8% remained comfortably above our weighted average cost of capital, while free cash flow for the quarter exceeded $1.05 billion. Turning to our balance sheet, net leverage remained very comfortable at 1.9x at the end of March, with total liquidity of almost $3.4 billion. On the capital allocation front, we returned $500 million to shareholders in the quarter, including $125 million via dividends and $375 million through repurchases. Now, let's shift to the guidance we shared last night, which reflects our confidence in delivering another year of strong results.

Total revenue is now expected in the range of $16.9-$17.4 billion, an increase of $100 million versus our initial guidance. While used sales are still expected at around $1.45 billion. At midpoint, this implies full year growth ex used of roughly 7%. In turn, we've also raised our Adjusted EBITDA guidance by $50 million to a range of $7.625-$7.875 billion. On the fleet side, we've increased our gross CapEx guidance by $100 million to a range of $4.4-$4.8 billion, reflecting the stronger demand we see. This now implies net CapEx of $2.95-$3.35 billion. Finally, we're guiding to another year of strong free cash flow in the range of $2.15-$2.45 billion, with the increase in CapEx offset by higher cash flow from operations. Shifting to capital allocation, it remains our plan to repurchase $1.5 billion of shares in 2026.

Combined with our dividend, this will return roughly $2 billion to our shareholders this year, equating to approximately $32 per share or a return of capital yield of about 4% based on our current share price. With that, let me turn the call over to the operator for Q&A. Operator, please open the line.

Certainly. Thank you, Mr. Grace. Ladies and gentlemen, at this time, if you do have any questions, please press star one at this time. You can always remove yourself from the queue by pressing star two. Additionally, to get to as many questions as possible, we ask that you please limit yourself to one question and one follow-up. We'll go first this morning to Dave Raso with Evercore ISI. Dave, please go ahead.

Hi. Thank you for the time. I want to focus on margins and the cost-saving initiatives versus maybe some fuel cost concerns. As you mentioned, the margins were up 60 basis points year-over-year. Incrementals were 53%. The amount of savings in the first quarter, be it labor, some of the real estate you spoke of, I'm coming up with something like $10 million. So even without that, margins are up 40 basis points. Incrementals are 49%. The reason I go through those numbers is the rest of the year, and I'm just using midpoints, I appreciate that, but the rest of the year, you're now implying margins down 20 basis points year-over-year. Incrementals only 42.5%. I just want to make sure how much we should be looking at the first quarter as a little bit of an anomaly on savings and the margin.

Why would we then, if it's not an anomaly, the margins would be down the rest of the year-over-year. Thank you.

Yeah. Matt, I'll start there and then we can go from there. Thanks for the question, Dave. I'd say, as always, we caution people against anchoring to the midpoint. Goes without saying, we're very pleased with the start to the year we've had. Certainly the underlying improvement, excluding whatever the benefit was from restructuring, and you're probably in a reasonable ZIP code, assuming around $10 million of benefit in the first quarter. There's still a lot of game to be played. We feel very good about the trajectory we're on. Excellent execution in the first quarter, but we've got to sustain that through the busy season, which is to say, the second and third quarter. If you look at the results, it was really kind of all three big areas of cost that provided leverage, labor, delivery, and R&M.

We feel like there's broad-based kind of contribution to the improvement. Again, we've got to sustain that through the busy season. The area that is probably going to be the most important to focus on will be delivery through the busy season. We feel really good about the start to the year. The team is incredibly focused. After taking care of customers, focusing on cost is job number two. Matt, I don't know if you'd add anything.

No, I think you covered it. Don't anchor on the midpoint and more importantly, the efforts we put in place that we talked about to help mitigate some of the cost challenges that came with the repositioning and some of the other challenges. The team's doing a good job, and we'll continue to run that play.

To follow up on that, then I'll hop off. Can you give us any sense of how you're thinking about fleet productivity after the 2.3% in the first quarter? Cadence full year.

Yeah.

Whatever you want to provide us would be great. Thank you.

Sure, Dave. Yeah, we feel like the supply-demand dynamics in the market are conducive to driving positive fleet productivity. As you know, our goal is always to overcome that 1.5% inflation bogey that we put out there, and I'm glad to see the team did that in Q1. Frankly, that's our expectation in our guidance when we start every year. On track, feel good about it. When I think about it qualitatively, we continue to get positive rate. We feel good. Rate's still a good guy. The time utilization, which we've been talking about running at a high level for a few years now, and maybe even thought that would be a headwind this year, I'm pleased to say, the team are continuing to achieve high levels of time utilization.

Then the biggest change, when we think about Q4, which got a lot of explaining and a lot of focus, was really an anomaly, and that's why we talked so much about some of the challenges in mix. We didn't face those mix headwinds like we did in Q4. We don't expect to have those headwinds again. Once again, we'll continue to update you guys as we go along.

Thank you. We'll go next now to Rob Wertheimer at Melius Research. Rob, please go ahead.

Thank you. I'm most curious about some of your customer commentary. I'm curious about what the timeline is, especially on some of those larger projects when you go from having conversations about how they feel to pre-orders or planning for specific projects. Some of that started to happen. Has that caused some of your turn? Then I'll just ask my follow-up at the same time. Dirt equipment started moving upwards a quarter or two ago. There's a lot of mixed signals in the industry, but some saw that as leading indicator. I don't know if you think that's a tangible sign that we start at the bottom and working our way up, and that's some of the strengthening demand you're seeing. Thank you.

Yeah, Rob. As far as the planning aspects, as you could imagine, the larger the project, the more time in advance the customers need to communicate with their suppliers and certainly equipment suppliers about what they're going to need. We'll continue to do that. It's a continuous pipeline of projects, as you can imagine, a continuous pipeline of those conversations. We have more visibility on those large projects, and we feel good about not only our positioning, but the overall demand in the large project area. We feel really good about that. As far as dirt, certainly it makes logical sense about dirt being a leading indicator. We're seeing strength across our portfolio, quite frankly. You saw a 6% general rentals number, and that couldn't happen if it was just driven by dirt.

Whether that's a leading indicator for even more acceleration, I would agree that the pipeline's strong. I wouldn't really extrapolate those numbers to us because we're not seeing a separation. Maybe the dealership network is impacting that number as well, which is good. Overall, we feel good about the demand cycle, and we feel good about where we are with major projects.

Thank you.

Thank you. We'll go next now to Mike Feniger with Bank of America. Mike, please go ahead.

Hey, everyone. Thanks for taking my question. I was just hoping, Ted, if we could just talk about ancillary costs, repositioning costs, just if we think about the bridge. I know this gets a lot of attention. Is that pressure intensifying in 2026 versus 2025, how we mark to market with what we're seeing potentially on the fuel side? Clearly, we're seeing the cost savings come through, and that should build. Does that kind of offset maybe any increases that you're seeing there, if we look at it kind of a bridge on the margins for 2026 versus 2025?

Yeah. There's a lot to unpack there, Mike, but thanks for the question. Ancillary growth, the relative growth to OER kind of held constant with what we saw last year. Obviously a big part of what we focus on strategically is taking care of our customers, and the team's doing a great job there. I would say from the standpoint of thinking about the contribution margin from ancillary, probably very much in line with that 20% we've talked about. No appreciable change in the first quarter, and I don't think we'd be looking for any appreciable change at this point for the year. On the repositioning side, the team did a great job managing across those big three cost areas I talked about, and that does very much include delivery.

If you look at our rental results, the rental gross margin was up 50 basis points year-on-year. Again, all three of those contributed. Delivery, which is the area where we see kind of the most focus on execution, improved about 10 or 15 basis points as a percent of revenue year-on-year. A great job given the fact that we did see almost 9% rental revenue growth. When you dig into the details, the biggest portion of repositioning will be and has been in specialty. You saw that in the numbers. They were still probably about 30 basis points behind the curve, but that's a huge improvement versus what we saw last year. If you think about the drag on margins last year within specialty, it averaged about 150 or 200 basis points year-on-year per quarter.

Now we're talking about a number that's probably on the order of 30 basis points. So they're doing an incredible job managing that because there is a healthy amount of repositioning this year. We've talked about kind of the demand drivers, and we've talked about the focus on capital efficiency. Capital efficiency, fleet efficiency, and that'll continue to be the case. On fuel, something we're obviously monitoring and managing very closely. The majority of our exposures, you know, Mike, is a pass-through. That gets managed a couple different ways, but the delivery calculator is the most obvious one, and that's something that we update regularly to help pass through kind of the higher costs we could incur based on higher diesel prices. Then on the internally consumed diesel, we manage that through an active hedging program. A lot of focus there. Team's doing a great job.

We feel like we should be able to manage through any reasonable situation there. Matt, anything you'd add?

No, I think you covered it well.

Great. Matt, just from a follow-up, I know we talked about rate. There's been a discussion around competitive dynamics, particularly on the general rentals side and competition there. You mentioned fleet productivity and rate being a good guide. Are you seeing anything on the ground on maybe intensifying competition on general rentals? Or is this the one-stop shop model that you guys have been building kind of separates you a little bit from maybe some of that competitive intensity? Just curious if you can kind of comment on that. Thanks, everyone.

Yeah. I've been doing this for 35 years, and there's always somebody that wants what you have, right? What you need to do is differentiate yourself. To the end of your point there, we've spent a lot of time building a competitive moat around our offering and making sure that we're targeting our customers' needs, but also targeting the customers that value that. We feel really good about where we're positioned. We think the major project pipeline plays into our opportunity to solve, give more solutions to our customers. We feel good about our positioning and where we are. The supply-demand dynamics, as I said earlier to Dave's question, we feel good about the supply demand, that demand dynamics in the industry, and that should continue to drive positive fleet productivity. Thanks, Mike.

Thank you. We'll go next now to Steven Fisher of UBS. Steven, please go ahead.

Thanks. Good morning, and congratulations on the quarter. Just a follow-up on the rest of the year. You mentioned, Ted, that delivery is really going to be one of the key focus areas. Can you just talk about what are the keys to making sure that that works out favorably in the way you want it to? And then in terms of just any other additional inflation for the rest of the year, to what extent do you have an expectation that'll be addressed by rate, or will that remaining $15 million or so of planned cost reductions cover that extra inflation?

Yeah, Steve, I'll take the first part of the delivery because I think it's important just to understand we're not going to eliminate the challenges of repositioning and delivery. The point is to mitigate it. The good news is we put some new processes in place, and those have worked in Q1. I think Ted was referring to the challenge in Q2 or Q3 is to continue to do that when the system gets even busier, and we have a lot of focus there. There still will be repositioning costs. The other cost actions we've taken are really to also help mitigate that, because we still want to drive capital efficiency. We still want to move fleet versus just buy more fleet when you land new deals.

That'll continue to be a focus for us. It'll be two-pronged. It'll be the execution of doing moving fleet more efficiently, as well as making sure any other cost opportunities there to help mitigate supporting that demand are there, so we can continue to run the business and support our customers in an efficient manner. Then Ted, you could talk to other inflationary items.

Yeah, Steve. I'd say, outside of fuel, really, the year's played out as expected from an inflation standpoint. The areas that we've talked the most about, obviously you've got the labor piece, and we've been able to manage that really effectively. You can see that in our first quarter results. If you look at the numbers across the business, we got the better part of about 50 basis points of labor absorption. We talked in January about the importance of that. We're off to a good start, so very pleased there. That even in the face of ongoing inflation on the labor front, we're getting that kind of pull-through. The other areas that continue to be inflationary, we've talked about real estate, we've talked about insurance being two of the other big ones. Those, again, were built into the plan. They're playing out as expected.

I don't think there's anything to point to there. In terms of the $15 million of cost reductions you mentioned, I'm guessing you're talking about the incremental restructuring expense that we would have called out. I just want to clarify that.

Yes.

Okay, perfect. Obviously you would have seen the $45 million of charges we took in the first quarter. For the full year, we're expecting $55million-$65million. At the midpoint, you'd say $60million. There's another $15 million to go. When you look at the first $45million, about two-thirds of that would have been real estate related. That's the closure of overlapping facilities that we did in the first quarter. The balance, the other third, was headcount related. Probably those are the two big buckets that we'd be looking at across the rest of the year, although it's more likely to be real estate probably than headcount. We're in a good position. We'll have updates there periodically. All that was built into our expectations.

For the year, I think Dave had a pretty good estimate of what the first quarter benefit was, around $10million. For the full year, we've estimated that the full year benefit would be on the order of $45million-$50 million. That was built into the initial expectations. We're on track. You'll see that kind of come in a linear fashion across the balance of the year.

That's perfect. Just maybe a bigger picture question about these facility closures. I'm curious about the trade-offs here. I assume these are branches closing. Clearly, you get lower costs, but I guess to what extent have you found ways to mitigate the lost revenues or other benefits from having less branch density? If you have found ways to mitigate that, is there a broader applicability to your whole footprint, or even the whole industry? Is this a situation where it's a trade-off, we just needed to lower costs?

Yeah. The good news is there wasn't too much of a trade-off here, other than maybe some shop space, because we didn't exit any markets. No revenue attrition that we're worried about here. 95% plus of our equipment's delivered. That consolidation didn't have a revenue impact. We really were specific and surgical in doing it in markets where through acquisitions, we may have held on to some extra real estate. As we looked at it, we just didn't need it. We still have some headroom, even after the consolidation, for growth, because we do expect to continue to grow. We're talking about in a business of 1,700 plus branches, or let's just keep it to North America. A little less than that. We closed a couple dozen branches.

Not a big deal, but it's a good question because that was one of our points. Let's not hurt the business. If we have excess that we don't need to utilize, let's not hold onto it. That's the way we looked at it.

Thanks very much.

Thanks, Steve.

We go next now to Jerry Revich of Wells Fargo Securities. Jerry, please go ahead.

Yes. Hi, good morning, everyone.

Good morning.

Matt, Ted. Hi. Matt, Ted, I wonder if we could just unpack the outstanding performance in dollar utilization in the quarter. That accelerated by about a point versus normalcy. First quarter tends to be a pretty tough quarter to get rate overall. Can you just unpack the cadence of demand over the course of the quarter? It sounds like the quarter played out better than what you thought when we worked together at the end of January for last quarter's call. Can you just unpack what were the positive demand or pricing variances that you saw over the course of the quarter, across gen rent and specialty, if you don't mind?

Yeah. We won't get into that last part of the question numerically, but even though we don't give the components of fleet productivity, let's be clear, we still focus on it relentlessly at the branch level. Capital efficiency to drive high time utilization, and as well as we have a very unique offering. Let's make sure we get paid for it. We still focus on rate and time at the branch level. We just don't call it out that way. As I said earlier, this not only continues to be a strong focus for us, but the demand that's out there is another part of this. The supply-demand dynamics are good, and we're going to make sure that we utilize that opportunity. As far as the dollar utilization, it's really an output of that. Ted, I don't know if there's anything you want to cover specifically on dollar utilization.

Yeah. I guess you're doing the imputed version of this, Jerry, but obviously it comes back to a lot of things Matt talked about. But we're very pleased to build a fleet on rent in the quarter. You can see the rental revenue growth was strong at 8.7%, and we have strong fleet productivity. It came together, obviously, to support what was a nice improvement in dollar utilization, and another way to express that is the fleet productivity.

Right. Cool. Thank you. Then in terms of just to circle back on the discussion on fleet productivity over the course of a year, and we can look at dollar yield, as you said, Ted, as a proxy for that. The comps get pretty easy as we head into the back half of 2026 for the industry. Now that based on the range of industry data, supply, demand, having improved normal pricing on a monthly basis and an upturn does suggest there's potential for fleet productivity to accelerate significantly over the course of the year.

I know it's early on and things have to fall in place, but I just want to circle back to the earlier comments about north of 1.5% fleet productivity targets. It feels like our exit rate in the first quarter really points to a sharp acceleration as we head through the year. Again, if normalcy, seasonality in an upcycle plays out.

Yeah, embedded in our guidance and frankly, our goal every year as we plan with the team is to make sure we overcome that inflation. In the simplest way, we want to grow rent revenue faster than we grow fleet. Right. It's not any more complicated than that. We'll continue to manage that, but the other components of fleet productivity, then rate, there's a lot of focus on rate. We've been running time at a high level. I'm very pleased to say it's not a headwind for us. But if we get to a point like we did in 2022, where it's a negative trade-off, then we'll manage that appropriately. We got to make sure we're responsive to our customers' needs, but we think we can do that. We've been doing it for years. Mix is the wild card, and that's why we don't try to predict this.

We had no expectation of having 0.5 in Q4. That was all mix related. Outside of that, we feel good about the dynamics to drive positive fleet productivity. As we get the results, we'll explain to you guys if it come out different than we expected, positive or negatively with the mix dynamic. That's really the part that's very hard for us to predict. We do feel good, as embedded in our updated guidance about the opportunity to outpace inflation.

Thank you.

Thanks, Jerry.

We'll go next now to Ken Newman of KeyBanc Capital Markets. Ken, please go ahead.

Hey, thanks. Morning, guys.

Morning, Ken.

Morning. Maybe going back to the inflation piece here. I know there's been some broader market worries around some of these new Section 232 methodologies. I'm assuming you're already protected from any potential surcharges from suppliers, just given that you locked in those prices at the end of last year. Just when I think about the fact that you are seeing a little bit stronger growth to start the year out, can you maybe just talk a little bit about your ability to maybe accelerate fleet growth if needed, and if you can still be price-cost positive if inflation starts to ramp further from here?

Sure, Ken. Well, as you accurately mentioned, right, we do lock in our prices for the year. Better than that, we talk to our key suppliers. Most of our vendors, we want the ability to flex up, and we certainly have contracts with the ability to flex down, although that certainly doesn't seem to be in the immediate future. That flexibility and our vendors' ability to respond to those flexes is a real important part of the relationship we have with our vendors. We do think if the end market plays out that way and demand continues to outpace our expectation like it did here in Q1, we certainly have the opportunity to flex up.

Just to clarify on this last question, again, I know it's early in terms of people trying to look through this, but are any of your suppliers coming to you or pushing for surcharges at this point, or is this just still too early?

Well, we don't talk about our negotiations with our partners, but we are very disciplined about sticking to our original deal. We're not worried about that.

Makes sense. Okay, for the follow-up here, maybe just talk a little bit about the M&A pipeline. The free cash flow profile still seems pretty strong here. How active is the pipeline versus when we last talked to you a quarter ago? I'm curious if the macro environment today makes it harder or easier to do deals.

The pipeline hasn't changed really over the last couple of years. With the exception of COVID, the deal pipelines remain pretty consistent. The real challenge for us isn't how many deals to look at. It's expectations and how much we get out of what we expect to do a deal and the returns we expect on a deal, and to get that willing dance partner. There's no lack of opportunities to look at, and we continue to work the pipeline. We've got a great M&A team and business development team. As you can imagine, we'd lean towards specialty, specifically adding in new products. We'll do tuck-ins as well in the General Rental business if it fills a need and gives us capacity in a growing market. Stay tuned. To your point, we have plenty of dry powder, and we'll continue to work the pipeline.

Perfect. Thanks.

Thanks, Ken.

Thank you. We'll go next now to Kyle Menges of Citigroup. Kyle, please go ahead.

Great. Thanks for taking the question. Maybe first off, could you talk a little bit about just if you're seeing anything, particularly in local markets? Any early impacts from the geopolitical uncertainty and a fading rate cut theme impacting those markets? I think you had embedded roughly flat local market growth in your previous guidance. Any change there?

No, we think the local markets continues to be stable. That's a positive thing, right? Whereas maybe earlier last year, the year before, you were seeing some markets that were still being impacted negatively. Overall, I'd say the local markets stabilized, and that was our expectation. The project pipeline on the major projects, as well as our specialty growth, are some of the growth drivers that we've been not only executing on, but that we expected for this year. We feel good about the end market.

Great. That's helpful. Certainly a theme that's had a bit of a resurgence recently is just OEM dealers pushing more into rental, expanding their rental fleets. Just how do you see that impacting competitive dynamics in the industry? I'm also curious roughly what you think your product overlap is with the typical OEM dealer rental fleet. Thank you.

Yeah, really not much overlap there. It's something that we're aware of, and there's a handful of them around the country that do a good job locally and regionally. But it's not something that, in our competitive dynamics or if we were doing a competitive analysis, it really doesn't fall high on our radar unless maybe in a specific local markets competitive analysis. Nothing there really to talk about from our perspective.

Great. Thank you.

Thanks, Kyle.

We'll go next now to Angel Castillo with Morgan Stanley. Angel, please go ahead.

Thanks, and good morning, and congrats on a strong quarter here. Just hoping to go back to the M&A question, but maybe a little bit backward-looking. Could you just talk a little bit about, I think, the roughly $700 million in acquisitions you've done over the last two quarters? Just any color on what those assets are, how much they may be contributing to sales, and just any details you can share on those. I guess, in particular, I'm trying to understand as you think about kind of general rentals and specialty organic versus inorganic split this quarter and kind of the expectation for how much maybe was already baked into the guide versus maybe how much might be partly driving that revenue increase. Just trying to understand the bits and pieces there and any impact to that or your business on dollar utilization would also be helpful. Thank you.

Yeah. Sure, Angel. On the M&A piece, as you saw, we spent about $400 million in the first quarter, slightly less than that. Those were four small deals, the majority of which, the two of them, the two larger ones, were done in the first week of January. Those were already embedded in our guidance. You're talking about a small amount of impact on the rest of the year for those other two. Then when you think about deals over the course of all of last year and this year, we're talking about 1% of revenue growth. Not a huge number. Still, strategically, things that we decided to do. To answer the latter part of that question, a contributor in some way, but not the reason for our beat or for our updated guidance. Ted, anything to add to that?

The last piece on the impact on dollar yield, I think very de minimis. I mean, to Matt's point, it was a handful of small acquisitions, none of which obviously even collectively are going to move the needle in any appreciable manner.

Very helpful. Then I wanted to go back to the demand question. You talked about seeing, I guess, in the mega projects area, continuing to see, I guess, strength and things coming in maybe a little bit better than you had expected, as well as strength in some of the end markets. Could you just give us a little bit more color on kind of the various key end markets, how you're seeing that play out? Any particular pockets where you saw a little bit more strength than you had anticipated given the seasonality? Whether that was projects moving faster, weather allowing it or just perhaps URI execution, win rates coming in better than you had anticipated. Just trying to understand, I guess the underlying demand side versus maybe some more idiosyncratic, again, URI execution, win rate type of things.

Well, I think the large project pipeline's been talked about pretty broadly, and everybody certainly data centers have been a big part of that, and everybody focuses on that. As I said in my opening remarks, it's a lot broader than just data centers. Non-res construction overall, even ex data centers, is still really strong. The growth in non-res is pretty broad. When I think about the other end markets that have added to growth, I talked a little bit in my opening remarks about infrastructure. Power continues to grow at double digits. Power has been a really strong end market that we've been focused on for a while now. Those are really what the drivers are. When you think about it, this is without petrochem really picking up yet. That's still a bit of a drag on a year-over-year basis.

We think the project pipeline and the opportunity in petrochem to pick up will continue to give us growth for the foreseeable future.

Very helpful. Thank you.

Thanks, Angel.

We'll go next now to Tami Zakaria of JPMorgan. Tami, please go ahead.

Hey, good morning. Thank you so much and congrats on the great results. I'm curious about the World Cup that you mentioned. Should we model a sizable, maybe one-time tailwind from that in the second quarter? Related to that, do you expect the event to drive demand for both specialty and gen rent or one or the other?

Sure, Tami. In the scale of our company, I wouldn't model anything extra for the World Cup. It's already been embedded in our guidance. As you can imagine, for large events like that, we knew before the year started that what we were going to need to support those folks with. In the scale of our business, there's not any one project or event that's going to make a meaningful difference. That's the great part of having such a broad portfolio. I hope that answers your question.

It does. Thank you. A quick one, the $100 million increase in gross CapEx, is that driven by general rental or specialty?

Across the portfolio. Now, specialty is growing at a faster clip, and we did 17 cold starts, so it's always going to have a little bit more of our outweighed growth CapEx to support those cold starts and the growth. But we're also going to spend some money on some general rental products that are tight, specifically for some major project support. It'll be spread across the portfolio with a little more heavyweight specialty.

Understood. Thank you.

Thank you.

We'll go next now to Tim Thein of Raymond James. Tim, please go ahead.

Great. Thank you. Good morning. The first question, just to follow up on the delivery cost recovery. I'm just curious, Matt, if you can maybe speak to how the company is positioned today versus if we look back at historical periods when diesel and flatbed trucking rates really spiked, just how the company has evolved in terms of. It's been some years, we've talked about some of the tools that you guys had built out. Maybe just, is there a way to kind of handicap just in terms of how you, again, positioned today versus how maybe it would've been different in years past when we look at those periods of higher cost inflation?

Yeah, Tim, I can start there, and then Matt can definitely fill in some more blanks. Obviously, we've long focused on costs and certainly making sure that we're managing delivery effectively. I think if you were to look at analogous periods, 2022 would probably be the first one that comes to mind in terms of year where you saw a meaningful increase in diesel prices, and you could say, what happened in that episode. On-highway diesel prices increased over 50% in 2022 year-over-year. If you were to look at the impact that had on our fuel line, it would've been probably like a 15 basis point increase as a revenue. You can see it's something that was highly managed at that point. Delivery costs on the whole moved in a similar amount.

I think if you were to look at our margins in 2022 Qs, they increased considerably. Not that you can draw parallels between every period, but certainly I think it serves as a good example of our ability to manage through these kinds of environments pretty effectively. Matt, anything you'd add there?

No. I think you covered it well.

Okay. Thanks, Ted. Just on the specialty segment. The revenue's up, I think, call it 14% year-over-year. If I look at the ending asset base, which I'm maybe wrongfully using as a proxy for OEC, but it was up like 16%. My assumption has been that specialty tends to generate higher levels of asset efficiency, which I'm sure you would endorse. I'm just kind of struggling with why that I would've thought that relationship would've been a bit different. Is there something within that that maybe you would call out? Or just trying to think through why you wouldn't see higher level of revenue relative to the investment in that business. Hopefully that makes sense.

Yeah. Well, I'd say intuitively, your assumption is correct, that you do tend to get stronger dollar in those assets. You can see that productivity historically. Truthfully, I'll need to come back to you on that. I'm guessing it's probably a function of timing, but I can't think of anything on an underlying basis that would've turned that relationship upside down. If it's okay, Tim, I'll come back to you on that.

Yeah. Fine. Thank you.

Thanks, Tim.

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

Hi, good morning, and congrats on a nice quarter. I guess first question, Ted, it was the first quarter in a while I think we've seen the general rentals margins improve year-over-year. How should we think about the general rentals margins as we progress throughout the year? Is there any reason why the first quarter was an anomaly? Then I guess my second question, obviously, the first quarter came in better than expected. I know there was that pipeline job that had a softer start in the fourth quarter.

I'm just wondering how that job is going, whether the first quarter outperformance is because that job restarted and potentially there's a catch-up in whatever we saw in the first quarter then for that reason isn't sustainable, too, because it's like you raised your guidance, but you raised it by the beat or sort of less than the beat. Just trying to work through that. Thank you.

Sure. I'll start off, and Matt, please jump in. In terms of the rest of your gen rent margin, we don't provide kind of segment margins, as you know. We talked about the focus the team had starting in January on both sides of the business. You asked about gen rent, and they really delivered, right? If you look at that gen rent gross, rental gross margin being up 150 basis points, it was roughly equal contribution from labor, delivery, and leveraging depreciation. Within that, still R&M was a positive. The team really did a great job. That'll continue to be the focus is, as I think we talked about earlier. The key will be sustaining a lot of this through the second quarter and delivery being kind of the one that will take probably the most focus.

If you look at that in the first quarter in Gen Rent, that was about 50 basis points of leverage. Team did a great job. We've got to sustain that through the busy part of the season as we get deeper in the year. What I would say on the whole, as we've talked about, the goal is flat margins for the full year, excluding the H&E benefit from last year. That's on an EBITDA basis, so it's across the business. Certainly, our goal across both segments would be to perform very well. That was the first part. On the second part, the matting project that we talked about in January that affected the fourth quarter from a timing perspective, we've been delivering assets to that project. It is not entirely kicked off yet, but we've been mobilized.

With that said, as we talked about in the fourth quarter, matting was down year-on-year in the fourth quarter. It was up in the first quarter. That obviously was a big factor in the swing of fleet productivity that Matt talked about, that headwind we absorbed in the fourth quarter, just as a function of the timing of that start that we thought would have been in 4Q ended up it'll be 2Q. As it relates to, I think, the follow-through of the quarter, hard for us to speak to anybody's external expectations. If you think about the $100 million revision to revenue and the $50 million to EBITDA, part of that was by the first quarter being a little stronger. You can see that we raised CapEx, so obviously that's going to contribute after the first quarter.

We're off to a great start. We feel really good about where we're heading, and those are the two big components within that revision. Matt, anything I missed or?

No.

You'd add?

Covered it well.

Thank you. Jamie, did I miss anything in there?

No, I'm good. Thank you very much.

Okay. Thanks so much.

We'll go next now to Steve Ramsey of Thompson Research Group. Steve, please go ahead.

For sure. On time utilization holding or being a positive, would you say that's mega project driven solely, or would you say that's local market stabilizing, kind of any breakout on time utilization drivers?

I mean, it's everything, right? Because it's about having the right fleet in the right places for where demand's showing up. It's good planning. It's good discipline about only bringing in equipment when you need it from the Branch Managers and the District Managers out there. I'd say it's across the whole portfolio. We couldn't drive this level of time utilization from just one or the other end market sector. It's across the board, Steve.

Okay. That does it for me. Thanks.

Great. Thanks, Steve.

Thank you. We'll go next now to Scott Schneeberger of Oppenheimer. Scott, please go ahead.

Thanks very much. Couple of questions. One on just following up on the branches and Matt, some of the things you were saying earlier. Just to get a little more clear, was it more gen rent, more specialty? I inferred specialty from the commentary, but just a little bit more clarity. I think you said you're going to do fewer cold starts this year than last year. Following up on Steven Fisher's question of your answer there, what is kind of the strategy? Can you do more with less, or will we see in kind of out years a re-acceleration of the cold starts? Thanks.

Sure, Scott. On the first part about the branch closures, it actually wasn't more specialty. If you think about that, it was split pretty much across the portfolio. As you think about the acquisitions we did, we just held on to some of those Ahern facilities maybe longer than we needed to as we were going through that integration. I would think about things like that. Then some of the smaller deals that maybe you guys don't get a visibility to. You want to work your way through it. We don't buy companies for cost-cutting measures. We buy them to help support growth. Sometimes we hold on to that real estate and find out in the long term, we don't need it all. It's a couple of dozen branches and again, some huge portfolios.

Not to make too much about it, but it was very surgically viewed and no risk of revenue there. We wouldn't have closed one if there was risk of revenue. As far as on the cold starts, we did 17 in the quarter. I think we had in January said we were targeting around 40. There's a continual pipeline of that. If the team gets ahead of schedule and ahead of that pipeline, we'll raise the number as we go.

I wouldn't say that there's any change in how we're viewing the opportunities. It's just a matter of the execution of finding the real estate, finding the people. There's a pipeline for each one of the specialty businesses about where there are opportunities to grow and where the other markets they'd like to get into. We just work through that in a very methodical manner.

Great. Thanks. Appreciate that incremental clarification. My follow-up is just on the smaller projects, smaller customers, a lot of talk on this call about a lot of demand activity with the large. Curious what you're seeing and hearing from the smaller customers on their environment? Thanks.

Yeah, I think they feel good about the end markets. It's just in general, I would say it's about where our expectations were that as an aggregate, the local market business has stabilized. We don't see many markets where there's negative growth or we need to pull fleet out of because their local market's not going to be able to absorb it, and they don't have a lot of projects. We feel good about that across the board. I would continue to call that stable, which is consistent with what our expectations were for the year.

Sounds good. Thanks.

Thanks, Scott.

Gentlemen, it appears we have no further questions this morning. Mr. Flannery, I'll turn things back to you, sir, for any closing comments.

Thank you, operator. Thanks to everyone on the call. We appreciate your time today, and I'm glad you could join us. Our Q1 investor deck has the latest updates, and as always, Elizabeth's available to answer your questions. Look forward to speaking to you all in July, and until then, please stay safe. Operator, please end the call. Thanks.

Thank you, Mr. Flannery. Thank you, Mr. Grace. Again, ladies and gentlemen, this brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.