EQPT Q3 2026 earnings call transcript, November 10, 2026

Yeah, thanks, Rob. Great question. So power is something we're excited about. As you saw, it fits within our advanced solutions, which is consistent with the specialty with some of the peer sets. And we grew double year over year on that division. The power, as we see, and it's not just, I think everybody talks of AI. It's really not just AI. You have a lot of tailwinds, especially large projects. Having really power sovereignty on job sites is very, very important. It is a very profitable division on a go-forward basis for us. And when you think of clean energy, and natural gas, when you saw the Cummins announcement, that's really an important piece from on a go-forward basis for our industry. Because if you think of diesel from a standpoint, from a cost, from a pollution. We have to move towards more of a clean energy solution. And you'll see some other announcements from us in the long term. What I do think is a difference that we're doing, we are in the short to midterm power. So that's a difference between a lot of competitors and peers that are signing 10, 15, 20 year contracts with large players. You make a lot less money being locked into a long term contract that you cannot change. When you have short term to midterm power, you can take advantage of a really good return on that capital and that is the place we serve our customers that allows us to get a great return on those assets, but.

To your original question, power, incredibly important to our customers across all sectors and it is an important thing as we're building at the scale. And if I may, should we think about the Cummins slash, you know, prime power. There's being a sort of 28, 29 opportunity or you said multi-year in the press release. I just don't know when to, you know, start thinking about putting in the numbers. Yeah, I think it was you probably read in a lot of the planning has to be done years in advance. We saw this. About three years ago that access demand for different power solutions, and you'll hear more announcements from us. It is a multi-year going forward, the relationship with Cummins, and you'll start seeing some of that impact maybe as soon as. The latter part of this quarter, which we're about halfway through, and as we roll into 2027, 28, and 29, and we have the optionality to take that and deploy it with projects that we have. With excess demand currently in projects. And again, the return on that division, especially divisions, specifically power, is higher than you see in the core rental division. Thank you.

We swap that out with our own machines. And then fuel from the macro. It's better from a dollar basis. More money flows through to the bottom line, but it does have a margin impact. And I think that's why it was relevant to call those out as well.

Yeah, it's a great question, Jamie. There's not enough power by any one manufacturer. Cummins is a very, very important relationship with us at EquipmentShare, and we're integrating and growing. Going with them, there is a lot more than one gigawatt of power needed. If you think of the U.S. today, you think of the studies made, even if you take out AI, all the other projects, megaprojects and things being built in the macro. U.S. There is, by 2030 to 2035, almost a doubling of the need of power if you look at the reports. So if you think of that, that is 500 to 600 gigawatts. We were. with multiple partners, and you'll see announcements on a go-forward basis. Again, each one, and specifically as we're talking about Cummins, is very, very important for us.

Yeah, I think it expresses the strength of our model and the power of the structure from a capital allocation. standpoint. Actually, you're exactly right. The own economics on a go forward basis. We dug into that really in Q2. So you saw a lot of the details, the institutional demand, the oversubscription of the own program. That shows from a pricing as well, the 7% cost of capital. You're now seeing that flow through, and you saw that specifically in third quarter, and you'll see that on a go forward basis as well.

Yeah, it's a great question.

For us, if AI went away tomorrow, we see the same growth pattern and the same, uh, actually increase margins as we scale. So it's similar growth patterns we see today. And I think you called it out, uh, specifically when you think of things that didn't really exist four years ago, that there's only effectively four companies in the world that. conserve the US market on projects where you need to employ two to 3000 machines within a relatively short amount of time, uh, healthcare, uh, peptides, GOP one, the healthcare campuses, the scale and scope of these projects. Uh, really didn't exist three to four years ago, huge tailwind, uh, on-shoring, um, same thing. We saw that really in the eighties with a lot of the car manufacturers, uh, the US didn't really do much for 30, 40 plus years. And then the last two or three years, uh, the amount of. 10, 20, 30, 50 billion dollar projects specifically in manufacturing here in the US because it's riskier for manufacturers, uh, to build really anywhere else, even closer partners, a huge tailwind for our industry and specifically the top four, uh, electrification. Even if you take out AI, when you think of electric vehicles, uh, semi. trucks, others, huge, massive pull on the grid. And we think of clean energy. That's a better way to get clean energy directly to where you need it. So from that standpoint, we support the equipment, support the projects to build those and infrastructure. It's about a trillion dollars with the infrastructure bill.

That happens over time, going from the federal government to the state to local to municipalities. Those tailwinds, we're seeing a lot more drivers and again, very large projects that only a few players in the world can support this U.S. market.

Understood.

Thanks so much.

Yeah, I think, and I'll turn to Dave here so we can jump in. But yeah, the 40... 39% growth really reflects the strength of the model that we've built. And that's built on a tech stack that serves customers differently. So when you deploy 32% OECs, that's a clear number. 49% growth. And then on top of that, 52% from Corey, a bit of standpoint. Really, it's a couple vectors happening there. So it's one pricing. We're in a good, if you kind of think of economics. We're in an environment where there is more demand and less supply, which pricing does go up. So that is absolutely a tailwind for us. And we're also increasing the productivity for our customers. So the question is, why do customers choose you? And don't choose your competitors. When you're able to increase your productivity, utilizing a better tech stack in a demand environment when there's not enough equipment available, you do have that from a fleet productivity. They're able to get done more with. And I'm able to charge more, which you see flowing through through the margins. So it's a good macro and specifically where we fit in is super helpful. Dave, you want to? Yeah, just to add to that, you know, of course, our rental revenue is supported. by the 32% growth and our fleet always see strong fleet absorption, high utilization and positive pricing. And we're seeing that demand across mature and newer locations, but particularly on mega project sites where we are.

are providing a broader range of services to help serve our customer needs and expand those relationships. Also, I wanted to just recall again that we placed approximately 900 million of equipment on. rent for the first time during the third quarter. And that compares to about 550 million placed on rent for the first time a year ago. So really strong absorption based on customer demand this quarter.

That's very helpful. Thank you. And just as we sit here, you know, it's sort of mid-November. Have you had any initial thoughts about CapEx in 2027? Do you expect the OWN program to serve? Or to stay as the same percentage of the overall fleet? Yeah, I think we give, we try to make sure we have a long-term vision of where the company is on the 20th. And we do see that at 50-50 with the data we have today on a go-forward basis. CapEx, I think we're looking at currently, and Dave talked about that a little bit, on Q4 as a standalone. Quarter, we have a CapEx reduction. And what's interesting, and I think this shows the strength of our capital structure, Q4 in a standalone, if I look forward, we expect about $400 million of free cash flow. As we look at the markets, at any moment in time, if the macro and the data shows it, we can enter into harvest mode. And on a go forward basis, run rate, produce about a billion dollars of free cash flow while opening zero. more locations. So that is good from a reflection standpoint on the flexibility of our capital structure.

That's very helpful. Jabrik, just to that one point, how long do you need to cancel orders? Like what is your visibility? You know, let's say the market turned pretty dramatically. How much visibility do you require to sort of alleviate the cap expert in that? Yeah, I think what's fascinating is we have more visibility. At the edge, which is the fancy way of saying at the equipment, Willie talked about the devices we have and the data. And data is incredibly powerful, even more so in the age of AI. We're able to see that. We saw that in 2020 and we were able to move. dramatically quicker than really any of the peer set within our industry. So we do not see a reason to at this point. We've talked a lot about POs being options, not obligations. That is how we structure it. But from a data and a go forward, we have really good visibility in 27 and as we move into 28. And that. is really the strength of the mega projects across the different types of projects that we actually see today.

Thank you very much.

I think watching out for just starting with the last question. We're always looking at the macro. We can control the controllables. If something happens in the macro that we need to go from growth mode to harvest mode, we will do that immediately. And you'll see that again from a... Counter-cyclical nature and from a cash flow production, that's very meaningful from a cash flow. The upside from the guidance, we are very conservative. I think you've seen that over the last three quarters. We're a newer public company. We don't want to get over our skis on guidance. It is a strong business, and we do see meaningful upside when you're thinking of margins on a go-forward basis. But again, we want to be conservative as we discuss with you or share.

Great, thanks. And then, just curious, when Dave was mentioning re-rent, and I think it was over 100 basis points, margin impact, could you just speak a little bit about what are the primary asset classes where you're re-renting? Is it, I assume, maybe a lot in specialty? And it sounds like you're looking to... Internalize that, which would be logical. Is that something that would occur maybe via acquisition? Or is that more of an organic play? Thanks. Yeah, I think it's a broad. We have about 3,000 categories that we supply equipment to our customers. When you have that breadth of offerings and a customer only wants to use you, EquipmentShare, because of the tech stack, because of the service. That enables. That's where we want to say yes to customers. So it's pretty broadly distributed. We did support almost a billion dollars. Dave talked about that deployed in one quarter. So it is that access demand, which. Happens the next quarter too, and that's where the margin, slight margin drag is transitory. You'll see that replaced by unbalance sheet. But to answer the question, it is pretty broadly based across those categories.

Great. Thanks.

Yes, we're able to get the fleet we need and a lot of that is the strength of the partnerships with OEMs built over the last decade. There is less fleet available with a high demand environment. Those partnerships is where those are meaningful to us and allows us to serve our customers, which may not be with other rental companies. You talked about manufacturing strength in your prepared remarks.

Roughly double in 2027. As we get closer to that, what have you delivered so far and what does the delivery schedule look like over the next few quarters?

Yeah, maybe a little bit of clarification on the question. The 2030 goal, we feel confident. We've had a little bit faster fleet absorption. We talked about it in Q2. We're talking about it now. We expect to exceed that and actually happen faster. Maybe there's some more details that'd be helpful there. Talking about the semi-fab capex as we think about it expecting to double into... 2027, have you seen any kind of preloading of the fleet and whatnot? Just want to see what you're seeing on the ground.

On the ground, we see, I know there's a lot we hear from the macro. We see no slowdown. I think just to make it simple, across every single cohort, what's also interesting is the type of customers. When you think of residential, commercial, when you think of the local customers, the regional and the national, we have some information in the presentation on those. I think it's a little bit of a rising tide with some of these customers and some of these projects because there is not enough fleet. We see very, very good demand across all cohorts. And that may be more us than other companies, but that's what we're seeing today in the market. Okay, great. Thank you.

Yeah, I think time utilization, what's an interesting thing, you can see the cohort analysis. And I would kind of talked about, but the governance and business update gives even more detail on that transition from the less than 12 months to 24 months, the over 48 months. And even as the stores are in longer and that increase in. margin, which does show both time and financial utilization as those margins increase. So I think that's probably the most helpful way to look at it. We're always, we do have high growth. Look at current cash flow and future cash flow, because that's a metric we judge ourselves on. But we do it in a very, very disciplined manner. So making sure as we scale the stores, that we are getting margin increase across all coworkers. And as they're in longer, they do become more mature. You have clustering, you have similar customers, and we've seen that margin expansion over time. And you'll see that. We think that's going to be consistent on a go-forward basis. Got it. Okay. And then for my follow-on, I guess I was a little surprised that the third quarter EBITDA flow-through margin in the rental segment was only modestly higher in the second quarter, despite... Sales being 10 points higher year-over-year versus last quarter. I'm guessing that's mostly being driven by some of the ancillary headwinds that you guys pointed to earlier in the call. But, you know, I know you don't want to guide to 27 yet, but just from a higher level...

How do you think about the trends for rental segment flow through or, you know, through an upcycle if demand remains this strong? Obviously, you get the benefits of the mix from mature branches kind of becoming a larger proportion, but... Can you get closer to, like, the high 40s, low 50s on EBITDA flow through for that segment? You know, call it 12 months from now.

Dave, you want to start with that, Becky? Yeah, I mean, we believe that there's, you know, continued support for SG&A leverage as we move forward, and that will be offset by higher costs to serve customers. In particular, on the mix of services that we provide to some of the large national customers on mega project sites that will still be positive to EBITDA margin, but it may have a different margin profile. And so you'll see that, um, in our margin mix going forward.

Yeah, I think to answer, um, the 2027, uh, as we get more. Mature stores, uh, those mature stores, as we've talked about, have a much higher margin profile. When you start, you deploy a billion dollars for the fleet. Half of that fleet went to mature stores. Half that went to new stores. New stores started. Zero. So I think that's always understand the strength of our model is organic. That gives us some huge advantages. Stores do start at zero. So when you're starting, getting location, you're bringing in fleet, the deployment of that almost billion dollars worth of fleet for the. First time there are some short term costs there, which is why you see that margin improvement dramatically as it goes from year one to two to three to four. So yes, you will see that margin improvement overall with the company. as we go into 2017. Very helpful. Thanks.

Yeah, I think we talked about that on the repair remarks. I think it helps repeating, but we have about 10%. exposure to data centers. We don't think AI is going away. We see no indication. I think any of us who utilize AI, which is probably 99% of Americans, this is something that is changing.

And what we're actually doing with the difference in America. What makes America great is we do have political parties and we can have changes at the state level. I think it reemphasizes the question. I think Rob was asking about the power generation. We are absolutely mobile power. We can deploy. That anywhere in the U.S. in 48 hours. What s interesting about AI, which is different than a lot of these other large trends if you go back the last couple hundred years of electricity with railroads, with fiber, it doesn t really care where it is. Latency is less specific. So whether you re in North Dakota, whether you re in Texas, whether you re in Nevada, that s less important because latency is less of an issue. You need space, you need power, and having the ability to deploy that power, to deploy that coin. Which we haven t talked about as much, but is a huge tailwind for us, and we re one of the best in the industry from a support standpoint. It is definitely a net benefit to us as a company, as we support our customers.

Yeah, I think I would say again, we don't want to get ahead of our skis. I know we're conservative as a younger public company, even though we've been around for over a decade as a company solving in this industry. Really, I think margin expansion, we talk about that a lot. I think there is significant opportunity as we close the year out for margin expansion.

Okay, great. Thank you.

Yeah, I think the context around the question is, thanks, Seth, for the question. Local markets... ...are interesting. They're more, if you think of local customers who serve local markets, something like an interest rate change or inflationary can have a much bigger, faster impact on a local market, whether it's housing, whether it's... ...commercial, than you would with a project which is $10 to $20 billion supported by the largest, most profitable companies in the world. So you'll see that with us. We think local customers are extremely important. And the tech that you can help to manage... 30,000 machines on a job site is fundamental and changes labor productivity. It's actually even more fundamental when you have one or two machines because understanding who's using it, how they're using it, what they're doing, when you have... How the job going, change your productivity, that really helps in the local markets. But I think as we talked about on the call, it's kind of a rising tide environment. As you have less equipment, more demand, it's putting pressure... on the local markets. You do have some local markets players supporting some outside projects that would be considered infrastructure or mega projects. So it is a little bit of a mix right now on some crossover when you think of the different cohorts or the customers that we're serving today. That's helpful. Thanks. And then maybe just for Dave, I appreciate the net leverage commentary. Can you just give us any sense of timing for hitting that low two turns target that you guys have talked to? I know it's obviously dependent.

On CapEx and the macro, but just how you're thinking about the two turns right now.

Thank you, guys.

Appreciate it.

Yeah, I think I really appreciate the question. I think what's really interesting is, as you're pointing out, the 49% growth. This really hasn't been done in history from a billion dollar base. And it really speaks to the strength of our model. And then the quality of growth, I think, is really important. We only put in 32% increase in OEC. And I'm saying only, but that's fantastical from an organic growth standpoint. On that 32%, we grew 40%. 9% revenue. That rolls off the tongue. That has not happened in history. And it causes you to look, why is it different? That's the strength of our model. That's the data. That is the technology we provide our customers. And on top of that, we grew. 52% core EBITDA. That is a growth model and a growth engine that produces more dollars. So, and then when you look at that enablement for the flexibility of our capital structure, that enables a fourth quarter. On a standalone basis for 400 million of free cash flow. And if we move into harvest mode, a billion dollars on a run rate and a forward run rate. That is a powerful, powerful engine and model. So I think it's helpful. And we do see significant upside to kind of answer the original question within Q4. We think it is very, very good opportunity for upside.

Thank you very much.