United Rentals Inc ($URI) Q2 2025 Earnings Call

Thank you, operator, and good morning everyone. Thanks for joining our call. Yesterday afternoon, we were pleased to report solid second quarter results, which reflected a continuation of the momentum we reported last quarter. More importantly, our updated guidance speaks to the confidence both we and our customers have in the remainder of the year. Critical to the success is our team of over 27,000 individuals who focus on being the partner of choice for our customers and live our one culture every day. This includes putting safety at the forefront of everything we do to enable us to deliver a superior value proposition and ultimately the results our shareholders have come to expect. In the second quarter specifically, we again saw growth across both our industrial and construction end markets, healthy demand for used equipment, and ongoing optimism from the field, which is reinforced by our customer confidence index. So, having said all this, today I'll review our second quarter results and touch on our updated 2025 guidance. Then, I'll discuss a recent win which illustrates our strategy in the utility vertical, followed by a look into how our best-in-class telematics is helping our customers improve their own productivity. Afterwards, Ted will review the financials in detail before we open up the call to Q&A. So, with that, let's start with the second quarter results. Our total rental revenue grew by 4.5% year-over-year to $3.9 billion. And within this, rental revenue grew by 6.2% to $3.4 billion, both second quarter records. Fleet productivity increased by 3.3% supported by disciplined execution. Adjusted EBITDA increased to a second quarter record of $1.88 billion, translating to a margin of nearly 46%. And finally, adjusted EPS came in at $10.47. Now, let's turn to customer activity. We continue to see growth in both our Gen Rent and specialty businesses. Specialty rental revenue grew 14% year-over-year while opening 21 cold starts in the second quarter. We remain on track to open at least 50 this year. By vertical, our construction end market saw impressive growth across both infrastructure and non-residential construction, while our industrial end market saw particular strength within power, metals, and minerals, and chemical processing. We continue to see new projects kicking off with a few recent examples including data centers, hospitals, and airports. Now, turning to the used market, we sold $600 million of OEC in line with our expectations. The demand for used equipment remains healthy, and we're on track to sell approximately $2.8 billion of fleet this year. In response to the continued customer demand I discussed earlier, we spent nearly $1.6 billion on rental capex in the quarter, also in line with our expectations. Specialty and large projects continue to fuel growth and we feel that we're well positioned to serve these based on our go-to market approach and our one-stop shop value proposition. Subsequently, year-to-date, we've generated free cash flow of $1.2 billion with the expectation to now generate between $2.4 and $2.6 billion for the full year, which includes the benefit from the recent changes in federal tax policy. Our ability to generate free cash flow remains a distinguishing feature of the company. As you've heard me say repeatedly, the combination of our industry-leading profitability, capital efficiency, and the flexibility of our business model enables us to generate meaningful free cash flow throughout the cycle and in turn allocate that capital in ways that allow us to create long-term shareholder value. In regards to capital allocation, our balance sheet is in excellent shape. This quarter, after funding organic growth, we returned $534 million to shareholders through a combination of share buybacks and our dividend. And for the full year, we now expect to return nearly $2.4 billion to shareholders. And Ted will get into more details in a bit. Our leverage of 1.88 times remains towards the lower end of our targeted range, leaving plenty of dry powder to support growth and return excess capital to our shareholders. And M&A remains a core element of our strategy with the team focused on finding opportunities to put capital to work at attractive returns. Now, let's turn to the rest of 2025. As evidenced by our updated guidance, our expectations for the year at the midpoint are total revenue growth of 4% or 5% ex-US with EBITDA margins north of 46%. Our capex expectations are unchanged while we do expect higher free cash flow as I discussed earlier. Looking beyond 2025, we continue to focus on driving profitable growth. Key to this is partnering with our customers so we're able to meet their demands and improve their own productivity. Through our one-stop shop offering supported by unmatched technological capabilities, we're able to serve our customers and drive repeat business. The rental business is very much based on trust and we're diligent in our approach to building this by delivering on our commitments. Our value proposition to the customer goes beyond just equipment. We have a large and reliable fleet, enabled with technology to further customer productivity. All of which is supported by the best team in the industry. One of the vertical strategies we've focused on since 2016 is utilities. The acquisition of Yak last year was the perfect opportunity to marry this strategy with an additional product. Case in point, the utility vertical is now north of 10% of our revenue versus 4% fewer than 10 years ago. Just recently, a large utility customer awarded us a 5-year agreement because we took the time to work with operators across their business, functioning like we were part of their company. We offered a wide range of solutions the customer needed and through the power of cross-sell now rent them products across every specialty business we have. Furthermore, they're now asking how else can we partner together, which is exactly where you want to be as a value-added service provider. On the technology front, this year we continue to enhance our advanced telematics offering, which helps customers operate even more efficiently. By utilizing the unique functionality of our telematics and Total Control software, customers can realize meaningful savings across all their fleet needs. With complete visibility of their rental fleet and aggregated information across multiple projects, optimizing consumption and productivity becomes a reality. Our capabilities also help customers reduce unauthorized equipment use and subsequent fuel consumption and overage fees. Instances such as these where we help boost productivity and budget efficiency make us a better partner to our customers and enable repeat business. And while these are just a few examples of the things we're doing to be the partners of choice for our customers, I think they provide concrete examples of how our strategy is allowing us to win. In closing, the year continues to play out as expected with our team doing an outstanding job supporting customers to drive profitable growth. Our business model, strategy, competitive advantages, and capital discipline will allow us to generate compelling returns for shareholders in the long term. And with that, I'll hand the call over to Ted and then we'll take your questions. Ted, over to you.

Sure, David. This is Matt. I'll take the latter part of that question, right? And talk about the ancillary. So when you think about everything that's in ancillaries, whether that's fuel, whether that's setup and breakdown of engineered solutions, anything from power solutions to job trailers and mobile storage, right? Those would all fall in the ancillary bucket. The one that we're pointing to as outsized for lack of a better word is delivery, which is also an ancillary. And when you think about the first half of the year, one of the big movers there is the ACT acquisition that we did in March. That business comes with a lot of ancillary and specifically a lot of delivery costs and that's really a pass through. So when we think about that impact not just on the topline revenue but also why you don't get a lot of margin for it, it's because it's not intended for that. So, it's something we're going to do for our customers and we continue to do. But you saw a deceleration of that from Q1 to Q2 as we lap Yak and we expect as that becomes less prevalent that we won't have that same level of impact and drag of ancillary in the back half of the year. That's in our expectation. And then we'll update you guys how that's come along in October. As far as price costs, I'll let Ted take that.

Sure, David. I would just say outside of large projects, right, the bigger the project, the more planning takes place. Outside of those large projects, we don't have any comments on visibility 26. But that being said, we do expect the tailwinds that we've been talking about, whether that's the mega projects, whether that's power, whether that's infrastructure to continue to be tailwinds. And then, we'll update as we get through our planning process in the fourth quarter and update you guys on that. Thanks.

Yeah and I think that captured it right that that would be with similar levels of growth capex. The more organic growth you're going to achieve, obviously you're going to spend more on capex. That'll have some impact on the cash flow, but it certainly would be a good business decision.

So as we've talked to you guys about for a while, we continue to invest in specialty at a faster pace of growth capex in the overall business for a couple reasons. They have white space and then specifically in these major projects and cold starts as well and in these major projects, the more complex the project the more opportunity we have to cross-sell. So there certainly is a bigger opportunity than in the general market on these major projects and with these major customers. That's why it's a big part of our go-to market strategy. Outside of that, I wouldn't call out any uniqueness to the data centers versus other projects. It is a big chunk of work right now and one that we feel really good about both currently and forward looking. But I wouldn't say there's going to be any change and as far as for the capex and any change of the spend because we do believe we have white space and strong growth opportunity for specialty both existing and maybe getting to find new products as well. We will continue, we expect to continue to outpace our capex. Outside of that, I wouldn't call out anything specific for data centers.

Yeah I'll take that one. I guess what I'd say is we always caution people from confusing correlation and causation, but certainly we've seen our customer confidence feedback state high levels and probably get fractionally better versus where we would have been in April. And that certainly, that trend has continued since early July. So, we feel really good about it. Our customers obviously feel very good about their own prospects. In terms of what that translates to, time will tell. But all equally you would say that some of these tax policies obviously should be advantageous to project economics.

It's just so much more appealing at so many levels for the vast majority of customers to rent over own. And as we just do more and more for them and consolidate kind of that one-stop shopping value proposition and deliver for them every day, we're just going to continue to be a better partner.

partner. And I think that's going to continue to drive that secular penetration and the outgrowth.

Sure, Clay. So, we feel really good about the fleet productivity to your point. We had committed to the beginning of the year that we expected to drive positive fleet productivity this year, which in its basic form means we're going to have rent revenue growth greater than fleet growth and that's happening. I would say qualitatively the industry continues to get positive rate. That's necessary because we still have to overcome the inflation that we've absorbed and the cost of fleet over the last couple of years and the supply demand dynamics are allowing that to happen. We specifically have been continuing to drive very high levels of time utilization for a couple years now. So, we're really pleased with that and that's taken a lot of focus and admittedly some costs as Ted pointed to on the delivery on the outside hauling costs, but that's a smart capital decision. We've continued to do that. And then the rest of it was mixed, fell in our favor this quarter. That's a variable that frankly is a result of a lot of different decisions customers make where they rent, what they rent, how long they rent. So to name a few and to absorb any extra inflation over and above the one and a half peg that we put out there. So we feel really good about that output and we expect to drive positive productivity for the full year. So thank you. Maybe on the second part, just tying it to those non-res indicators. Like we pay attention to them. You know there's an eb and flow. Certainly we see a lot of things that are quite positive. You can look at our results probably first and foremost. You can look at our customer confidence. So those are the things that really are going to be to us more important and more indicative than you know kind of looking at a mosaic of data points.

Sure, Clay. Yeah, we continue to work a pretty robust pipeline. As we've proved with this in the first quarter, we're still very disciplined. So it has to get to that last hurdle of financial after we find the strategic partners and the ones that we think will fit in the organization well. So, this is not a lack of opportunity. It's just making sure that, you know, we cross all three of those hurdles on our three-legged stool and find the right dance partners. So, we continue to work the pipeline. This is a capability we've built and one that we expect to utilize. It's just we're not going to force it. We're going to make sure we've got we get a lot of credit for being smart integrators. I think it starts on the front end where we're smart buyers. So, we'll continue to work the pipeline.

Yeah, I'm not going to get into forecasting '26, but I will say that we feel good about the environment that we're in right now. I talked about how we believe some of the tailwinds we've been pointing to for a couple years are going to continue and you know the local markets maybe not growing but we don't think it's retreating. So that narrative kind of tells you where we are with it. We don't have to make that decision today. But I would be surprised if we were to cut forward-looking because to your point the biggest spend is replacing fleet and we're very very diligent about that so we can keep the fleet refreshed and give a good value prop to our customers and the end markets are good for used sales as you see in our results. So there's nothing that tells me that we would lean that direction. We'll stay tuned. We'll tell you in January.

Yeah, Kyle, I would say that well, I think Jamie just pointed to as far as the supply demand, some other folks had extra capacity coming into this year that they were going to utilize and that's great. We think that shows the discipline of the industry. You'd rather see people absorb the capacity they have versus add to that pile and therefore have unnatural actions to put it into the market. So that's great news and that's part of the supply demand dynamic. The other part of the recovery is you know we've built an engine where we do a lot of retail that's also a sign that the end markets are good because customers don't buy equipment to sit on it and I would say that after the adjustments post-COVID and if you want to take Q1 to Q2 sequential improvement in recovery I think went from 51 to 53 we are seeing it stabilize where that ends up I think our full-year guide is somewhere in the middle of what we kind of inferred where we'd be on that. I would say we feel it has stabilized and you know we'll continue mix will have some impact on that how much you do in retail in a quarter but for the full year we think we've targeted the right area in the right ballpark.

Yeah. And if I remember correctly on the April call, we did tell everybody it wasn't in there and that we would be updating it. So obviously we'll live up to the commitment that we made.

The short answer is yes. We do have the same number of units. We don't expect any price increases. All of our partners know where we stand on our 2025 negotiations being a full year negotiation and that's where we're ending up. So we feel good about that. And you know we'll move forward with '26 once things settle down. But we feel we're in a really good position. And our partners have done a great job replacing their supply chain and we feel like we're in as good a place as we are with our partners as we've been since pre-COVID where they're able to respond and we've been able to be a nice constant for them in spend and in reliability.

I think all the above are on the table, right? The only ones I'd point to is what we said earlier is that we do feel the tailwinds we've discussed for the last couple of years will continue on. We spent a lot of time in infrastructure power. I talked a little bit about utilities and areas that we understand the need is there so that regardless of the macro there's just going to be work in these areas and that's why we focused on them strategically. So we also continue to look at M&A whether we end up we don't budget or plan for M&A because we don't want any unnatural decisions but we do work the pipeline. So I find it unlikely that over the next year we won't do any deals. And it's just a matter of finding the right partner but we I think there's multiple paths to growth and we'll once we do our planning process which will be mostly organic driven we'll update everybody in January.

Well, certainly it's improved just because of seasonality from Q1 sequentially from Q1 to Q2. But probably you're more interested in is how's it look like in a year-over-year basis. And I would just say it's stabilized. We're not seeing growth in those areas in aggregate. Some markets they are and some markets they aren't. But I think in aggregate it's kind of stabilized. As far as what's going to spur further growth in that, we talk a lot about interest rates. We talk about that but at the end of the day I do think sentiment matters and I do think people's believing in the consistency of the opportunity so they can make smart business decisions. So I would argue and I'm not sure how long it would take but even absent cuts at some point people have to decide how they're going to play in the new normal. So interest rates certainly would help and it would help the sentiment but I think more about stability of the macro would help people invest more locally. And you know, we think that's a future opportunity. When and where that shows up, you know, we'll continue to talk to our customers and talk to our people on the ground. But I would say as in aggregate around the US and Canada that local market stabilized.

No, I mean where we have had solar farms and projects, we've done very well. So, but as far as future, I mean, we'll be responsive to the customer's requests and we're not reliant upon that either happening or not happening. And I wouldn't think it changed our forward-looking plans much.

Well, if you just take the to your ancillary question, if you just take the conversation we had about Yak and the Matting business so heavily delivery burdens, you'd say yes, right? Just from that factor alone. But it's still part of our Gen Rent delivery system. I would say that we insource almost all if not all of our Gen Rent, which makes that a little more consistent. But we also have to move around Gen Rent equipment. So there's costs that may not be delivery related but repositioning related but overall I think the construct of your question is accurate just from the Yakmat acquisition alone.

Yeah, it's both. But obviously the cross-selling to our existing customers is really been the initial takeoff here. They were already the leader in that space and they didn't have access to the network that we had. So broadening their capabilities to our network, it's really driven a lot of growth. But there's opportunity the other way where they've had great relationships and we've been able to cross-sell. I would say the first is probably more of it because of the size and scale of our network and that's one of the reasons we felt comfortable making the acquisition because we had been testing this ourselves by doing some matting on our own and then once we saw that we had a right of way to supply the customer with that gave us confidence to add a real quality team to the fold here.

Thanks.

Yeah I'll take the latter part first because that's real easy. We don't talk about our rate, so I'm certainly not going to talk about our competitor's rate, but I think the proof is in the pudding, right? When you look at the supply demand dynamics and you look at how people are managing their business and you look at the inflation that we've all had that the industry's had to absorb on the fleet, you know, it's I think that gives you the answer there, so to speak. And I wouldn't talk about any gaps in any specific industries or sectors or markets. And then to the first part of your question, the shift from ownership, it doesn't move in that manner. There's no recent examples, but I think this is a steady drum beat to what the industry's been doing for secular penetration for years. And it starts with, as I said earlier, number one, being more reliable. The industry, not just us. I mean I think we've kind of led from the front but I think the industry has become more reliable to customers which gives them that confidence and then the widening of our offerings right and the depth of our offerings. Just alone you know we're offering Matt we just talked about matting for a minute that's a product that we didn't offer a lot of our customers before that helps penetration but even the information and technology that now with telematics is embedded in the fleet can help drive more productivity for the customer and I talked about that in my opening comments and that's a big part of the pull for us to be a better option than for people to self-perform and to deal with all the soft costs and the hard cost of owning their own equipment. You know, we can take that burden for them and once they trust the supply chain from rental, the math is always going to work that rental is a better decision for them.

I think that was a great summation of how we think about capital allocation. Perfect.

Thank you, operator, and thanks to everyone on the call. We appreciate your time and I'm glad you could join us today. As always, our Q2 investor deck has the latest updates and Elizabeth is available to answer any of your questions. So, until we talk again in October, stay safe and have a great rest of your summer. Take care, operator. You can now end the call.