Hello, everyone. Thank you for joining us, and welcome to the EquipmentShare Q3 earnings call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Rhett Butler, VP of Investor Relations. Please go ahead.
Good morning, and welcome to EquipmentShare's third quarter 2026 financial results conference call. Joining me today are Jabbok Schlacks, founder and Chief Executive Officer, Willy Schlacks, founder and President, and David Marquardt, Chief Financial Officer and Chief Accounting Officer. Not with us today is Mark Wopata, Chief Data Officer and EVP of Finance, who was recently promoted to the title of father. We wish him well and look forward to his return next quarter. We have issued our earnings press release and posted an earnings presentation to our investor relations website. We encourage you to review those materials alongside today's remarks. Please be advised that the call is being recorded. Comments made on today's call and responses to your questions may contain forward-looking statements within the meaning of applicable securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially.
Please refer to our earnings press release, presentation, and SEC filings for a discussion of those risks. EquipmentShare has no obligation to update or revise forward-looking statements made on this call. We will also reference certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are included in our earnings press release and presentation. Non-GAAP measures should be considered in addition to, and not as a substitute for, GAAP measures. With that, I'll turn the call over to Jabbok.
Thank you, Rhett, and good morning, everyone. We delivered another strong quarter with 32% year-over-year growth in OEC, producing 49% growth in rental segment revenue and 52% growth in rental segment Adjusted Core EBITDA. Strong customer demand and our ability to deploy fleet efficiently across our network drove that performance, with rental segment margins expanding approximately 70 basis points year-over-year and 130 basis points sequentially. That 49% year-over-year rental revenue growth compares with 36% year-over-year growth in the prior year quarter. We are accelerating growth while continuing to expand rental margins. Strong customer demand and disciplined execution during the quarter gave us the confidence to raise our full-year outlook again. Since the start of the year, we have increased our rental segment revenue outlook by more than $450 million and our Adjusted Core EBITDA outlook by more than $310 million.
We consider this guide for the rest of the year conservative, as we expect continued margin expansion and an opportunity to exceed the guide given our visibility on demand and the positive rental pricing environment. Large complex projects across manufacturing, energy, digital, and physical infrastructure continue to support strong demand. AI-related construction is part of that opportunity, with a little over 10% of revenue tied to data centers. Our demand extends across these other end markets as well. These projects take years to build, and customers need a partner that can coordinate equipment, service, logistics, and power to keep the entire job site moving. Given the multi-year nature of these projects and the projects we are winning for 2027, in addition to the continued maturity of our sites, we see a supportive backdrop into next year and expect our growth and margin expansion to continue.
Our ability to deliver across those needs is helping us expand relationships with existing customers and win new projects. With 448 operational locations, including 408 full-service rental locations, 31 building materials locations, and nine dealerships, and $10.7 billion of fleet under management at quarter end, we have the scale and reach to support them. As we discussed in Q2, more than 75% of first-year revenue at new locations came from customers already doing business with us elsewhere in the network. With national and regional customers representing 63% and 29% of our customer mix respectively, we evaluate customer commitments, project schedules, and our ability to redeploy equipment when deciding where to add fleet and locations. Our mature rental locations generated 54% rental segment Adjusted Core EBITDA margins on a trailing 12-month basis while continuing to scale.
We put nearly $900 million of equipment on rent for the first time this quarter, with more than half going to locations over 24 months old. Our locations typically reach margin maturity after approximately 24 months, with rental margins above 50%. Margin maturity is only one milestone in a location's growth. We continue adding fleet as customer demand grows. Our organic approach is what makes that possible. We choose each property for its location, size, and layout so we can fully integrate our technology, deploy fleet efficiently, and expand as demand grows. Our organic model supports approximately $35 million of OEC per yard by year four, an estimated 2-3x the OEC per site of our rental industry peers. It allows us to continue growing revenue and EBITDA per yard while maintaining rental margins above 50%.
Slide seven shows the earning potential of our existing locations at maturity. Based on the performance of our locations open more than four years, our mature state model calls for approximately $15.2 million in annual rental segment revenue and $9.8 million in annual core EBITDA per location. That includes $8.7 million of rental segment Adjusted Core EBITDA and $1.1 million of sales segment Adjusted Core EBITDA. Across the 408 full-service rental locations included in this analysis, those mature state economics translate to approximately $4 billion in annual core EBITDA. From that $4 billion of core EBITDA, we deduct approximately $2.75 billion for OWN Program payouts, fleet replacement, cash interest, and cash taxes, leaving approximately $1.25 billion of annual free cash flow. This assumes no additional locations or improvement in OWN Program economics or mature site returns, and excludes capital for location growth.
Slide seven also shows what our fleet and capital structure could look like at maturity. We estimate approximately $14.7 billion of total rental fleet OEC, split evenly between our balance sheet and the OWN Program. Against that, we estimate approximately $4.3 billion of net debt and approximately $4.65 billion of appraised value in the OWN Program fleet. The main assumption behind these figures are appropriate depreciation on the fleet, which is why the appraised value is lower relative to cost than it is today, and continued debt paydown. At a long-term target of 700 full-service rental locations, the same illustrative economics imply approximately $2.2 billion of annual cash flow. This return profile is why we continue investing in organic growth to meet customer demand. Our T3-powered rental operations generate strong margins, and as our locations scale, significant free cash flow.
We control the pace of growth investment and can moderate it to prioritize free cash flow. All of our success starts with our teams. I recently visited one of our rental locations to celebrate the team reaching a significant financial milestone. I make these visits a regular part of my schedule, and each visit reminds me that we have the best teams in the industry. The branch manager, a veteran with more than 30 years in the industry, told me he has never worked for a rental company so focused on solving customer problems and operating efficiently. He credited the transparency and accountability built into our processes and technology. His team can see how they're performing, take ownership of results, and address problems quickly. That is how we put operating discipline into practice across our network.
He also shared how the team is supporting a major engineering and construction customer on large technology projects, including providing cooling through our Advanced Solutions divisions. Earning more of that customer's business requires both technical expertise and disciplined execution. Getting the right equipment to the site, keeping it productive, and responding quickly when needs change, our team earns that trust through the work they do every day. The cooling work that team is doing is one example of the demand driving Advanced Solutions, where revenue more than doubled year-over-year. We are also seeing strong demand for PowerGen from customers whose projects are moving ahead before utility power is available. To serve that demand, we announced a multi-year agreement with Cummins to expand our natural gas generation fleet to nearly one gigawatt of capacity, which our teams will combine with T3 and our nationwide service network.
We see a significant opportunity to grow Advanced Solutions by meeting more of these needs for customers we already serve, and you can find more details at equipmentshare.com/energy. Before I turn it over to Willy, I encourage investors and shareholders to review the business and governance overview we posted to our investor relations website on October 19th, 2026. Among other topics, it provided additional details on our related party relationships. Equipment ownership by those parties in the OWN Program is now zero, down from less than $1 million at the end of the second quarter. We continue to make progress towards eliminating property leases with those parties and are working to complete the remaining transactions in the months ahead. I will now turn the call over to Willy.
Thanks, Jabbok. Our product teams are constantly delivering capabilities across our tech portfolio, and I want to highlight a few for you guys that we've been developing for some time that we anticipate scaling into next year. First, our latest access control technology brings touchless experience to equipment access. This is something that most folks are familiar with within the consumer world, where you can pull out your iPhone and unlock a lock, pay for goods and services, et cetera. But to have this within the construction equipment environment is quite unique, and it really reflects the investment for the last decade that we put into the access control market. With this product, we've got demand that consumes all of our production capacity for the next couple years, so I'm really excited to see the impact this is going to make.
Second, we've begun field testing machine-mounted 360-degree camera capture and safety systems. We see two primary benefits here: helping operators work more safely and reducing that operating risk at the edge, and capturing that visual information that gives customers a much clearer picture of what's happening across a project. This really becomes another node in our suite of vision systems, which is unique in the sense that customers will ultimately have, across our portfolio, that vision system of site security cameras, on-highway vehicles, and now machines, all generating this visual intelligence. That's a secondary benefit, of course, to that primary of safety at the edge.
We've seen immediate interest from particularly the larger enterprise customers who prioritize that risk reduction, and I see this ultimately scaling to every category of applicable rental fleet that would be using a type of camera safety system like this and creating substantial value that is really only offered by EquipmentShare. Third, our next-generation telemetry device has entered early production. This brings substantially more compute power, greater capacity to connect with machines, systems, sensors, and a far more robust operating system at the edge, and the ability to support these increasingly sophisticated AI applications that we're certainly deploying and investing in. As a reminder, we design and build our own telemetry, so this is manufactured by us for industrial and construction markets.
Our deployed fleet really provides one of the largest contiguous datasets on machine failure patterns, signals that are really coming from the edge around structured data of service events and unstructured information that might surround that. That translates to simply more uptime and lower cost for our customers. This is a small sampling of what our teams are working on and deploying, which really continues to influence an impact trend that's accelerating not only within our business operations, but clearly the external demand it helps generate. With that, I will turn it over to Dave to walk through our financial performance details.
Thank you, Willy. The operating trends we have discussed are reflected in our financial performance. Strong customer demand and continued geographic expansion drove another quarter of accelerating growth while reinforcing the scalability of our business model. For the third quarter, total revenue was nearly $1.5 billion, an increase of 55% year-over-year. Net income and Adjusted Net Income were $20 million and $46 million respectively, as compared to net income and Adjusted Net Income of $6 million in the prior year period. Rental segment revenue was approximately $1.1 billion, up 49%, and rental segment Adjusted Core EBITDA was $491 million, up 52%. Rental segment Adjusted Core EBITDA margin increased nearly 70 basis points year-over-year to 44%. We delivered approximately 380 basis points of SG&A leverage, reflecting scale, cost savings, and operating efficiencies.
That exceeded approximately 310 basis points of margin impact related to additional costs incurred to serve customer demand, which is primarily derived from three areas. The first is ancillary services, which had a margin impact of approximately 90 basis points. Ancillary services often lead to larger project rental revenues on customer job sites and produce a high return on minimal invested capital, but generate lower margins as compared to the mix of our other rental revenues. The ancillary services we offer help us serve more of our customers' needs, expanding those relationships. The second area is fuel and delivery costs, which together had a margin impact of 112 basis points during the quarter. Higher fuel prices and related logistics costs increased our direct operating expenses this year.
While we have passed a significant portion of those increases onto customers, that revenue carries a lower margin that impacts our overall margin percentage. It is also notable that we placed approximately $900 million of equipment on rent for the first time during the third quarter, as compared with approximately $550 million placed on rent a year ago. Getting that additional equipment into customers' hands brings upfront fuel and delivery costs before it generates a full period of rental revenue. Those initial deployment costs, together with higher fuel and logistics costs overall, explain the margin impact. The third area is re-rent, or equipment re-rent from another provider and then rent out to our customers to meet demand. This had a margin impact of 108 basis points during the quarter.
We increased re-rent volume to meet strong customer demand where equipment availability was tight, particularly in certain categories of equipment that our customers need. Re-renting equipment supplements the fleet under our management and allows us to serve customers as we continue to scale, but generates lower margins as the third-party rental expense runs through our direct operating costs. As we expand the fleet under our management, we expect to fulfill a greater share of customer demand directly, further enhancing our margins over time. Re-renting equipment to supplement our rental fleet helps us meet customer demand, which ultimately generates attractive returns. Our sales segment revenue was $294 million, including $243 million of sales to OWN Program participants, reflecting our discipline and selective process for equipment sales into the OWN Program. Sales segment Adjusted Core EBITDA was $44 million for the quarter.
Adjusted Core EBITDA, which is the combination of our rental segment and sales segment and excludes $59 million of new market startup costs, was $594 million, increasing 40% year-over-year. Turning now to our capital allocation strategy. We remain focused on supporting customer demand while maintaining substantial liquidity and financial flexibility. At quarter end, total available liquidity was approximately $2.3 billion, consisting of $359 million of cash and $1.9 billion of availability under our ABL credit facility. Net leverage was 3.4 turns as compared to 3.7 turns a year ago. We continue to target year-end net leverage in the low three turns. Share repurchases are also an important part of our broader capital allocation strategy.
When there is a severe dislocation of our share price in the market and we are permitted to trade outside of blackout periods, we are prepared and have the flexibility to repurchase shares within our financial policies. Turning to our outlook, we are reiterating the guidance announced on October 19th. At the midpoints, we expect total revenue of approximately $5.9 billion and Adjusted Core EBITDA of approximately $2.2 billion, excluding approximately $284 million of sales segment Adjusted EBITDA and $216 million of implied full-year new market startup costs yields approximately $1.7 billion of rental segment Adjusted EBITDA on approximately $3.9 billion of rental segment revenue. Our guidance implies 32% growth in average OEC, supporting 43% growth in rental segment revenue and 47% growth in rental segment Adjusted EBITDA.
The resulting full-year rental segment Adjusted EBITDA margin in our outlook is approximately 43%, representing more than 100 basis points of expansion over 2025. Specific to the fourth quarter, our guidance implies approximately mid-40s year-over-year growth in rental segment revenue and in rental segment Adjusted EBITDA, with upside potential in margins. We held the midpoints of our gross and net rental CapEx guidance unchanged while increasing expected year-end managed fleet OEC by $400 million to approximately $11.5 billion. That incremental fleet is expected to be sold directly into the OWN Program, so it does not affect our net rental capital expenditures. Those equipment sales also contribute to the increase in our sales segment Adjusted EBITDA guidance. Strong customer demand and oversubscribed OWN Program demand allow us to expand our managed fleet in the second half without increasing planned CapEx.
At the midpoint, our full-year net rental CapEx guidance is approximately $1 billion, as compared with $1.1 billion year-to-date through Q3. Consistent with our normal capital planning and historical performance, we expect to execute sales of equipment selectively into the OWN Program for equipment purchased earlier in the year and absorbed in our rental fleet. The equipment sales proceeds are expected to exceed fourth-quarter equipment purchases, reducing our full-year net CapEx target. Our net CapEx and equipment sales guidance reflect strong, oversubscribed demand across OWN Program channels and our confidence in completing those transactions. In summary, customer demand continues to drive our organic site expansion, with additional full-service branch facilities and equipment fleet under our management. We are executing our expansion strategy prudently, mindful of building the business while maintaining a strong balance sheet and flexibility to provide optimal returns on the allocation of capital.
And looking ahead, we believe there is a meaningful opportunity to outperform as we exit 2026. With that, I'll turn the call back over to Jabbok.
Thanks, Dave. To summarize the quarter, OEC grew 32%, rental segment revenue grew 49%, and rental segment Adjusted Core EBITDA grew 52%. We are meeting strong customer demand, generating more revenue from our fleet, and expanding rental margins as we grow. We also have substantial growth ahead within the locations we've already opened. As those sites scale, we expect them to contribute more earnings and free cash flow. That gives us confidence in the investments we are making today and the business we are building for the long term. Thank you to our customers for trusting us with their work, to our employees for delivering these results, and to our investors for their continued support. Operator, we're ready for your questions.
We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question is from the line of Rob Wertheimer with Melius Research. Rob, your line is open. Please go ahead.
Thank you. Good morning, everybody. I wanted to start out with PowerGen, which I think is an interesting expansion, and I'm not sure it's gotten It has not been replicated elsewhere. So, Jabbok, it seems like a gigawatt could be something close to $1 billion in OEC. It's a little less flexible than some rental equipment, but I assume you have reasonable line of sight into placing it. So I wonder if you could give us any sense as to how much either rental revenue or EBITDA or timeline or how you see that business evolving. Thank you.
Yeah, thanks, Rob. Great question. Power is something we are 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 is not just, I think everybody talks of AI. It is 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 is 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.
You will see some other announcements from us in the long term. What I do think is a difference that we are doing, we are in the short to mid-term power. So that is a difference between a lot of competitors and peer sets 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 mid-term 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 is an important thing as we are building as we scale.
Then if I may, should we think about the Cummins/Prime Power as being a sort of 2028, 2029 opportunity, or you said multi-year in the press release. I just do not know when to start thinking about putting in the numbers.
Yeah, I think as you have probably read in a lot of the planning has to be done years in advance. We saw this about three years ago, that excess demand for different power solutions, and you will hear more announcements from us. It is a multi-year going forward, the relationship with Cummins, and you will start seeing some of that impact maybe as soon as the latter part of this quarter, which we are about halfway through, and as we roll into 2027, 2028, and 2029. And we have the optionality to take that and deploy it with projects that we have excess demand currently in projects. And again, the return on that division, the specialty division, specifically power, is higher than you see in the core rental division.
Thank you.
Thank you.
Your next question is from the line of Jamie Cook with Truist Securities. Jamie, your line is open. Please go ahead.
Hi, good morning. I guess just my first question, I appreciate the color on some of the headwinds you saw this quarter, whether it was fuel delivery, ancillary. Can you just talk to what's embedded in your numbers for the fourth quarter, and do you expect this to be a headwind in 2027, or can pricing offset that? Then my second question is, it looks like you're making fairly good improvement on your rental segment margins. Can you just talk about how you're thinking about the fourth quarter and whether we expect that trend to continue into next year? Thank you.
I think I will answer the second part of that question. Rental segment margins, absolutely. We do see significant opportunities from a margin standpoint. The headwinds from the macro, Dave talked about that on the prepared remarks. We have been able to get, as we scale, and you saw that, there are efficiencies you get. A lot of that is driven by our tech stack, being able to use the data to run a more efficient company as we scale, not only for our customers, but also for us internally, operationally. Headwinds there. I think, again, to double-click on those verticals, re-rent, when you are deploying almost $1 billion worth of fleets, we bring it in a quarter, you deploy that on job site, there is a cost associated with that first-time deployment.
Even excess above that, customers are wanting to work with us, which is where you get that re-rental. That is very transitory in nature, so you will see that margin uplift as we swap that out with our own machines. Fuel from the macro, it is better from a dollar basis. More money flows through to the bottom line, but it does have a margin impact, and I think that is why it was relevant to call those out as well.
Okay. Just, sorry, one follow-up question again, just following on with the power theme and the announcement with Cummins. Should we expect, like is this relationship with Cummins exclusive, or could we expect you to announce additional relationships with other OEMs out there? Just wondering if this is a bigger opportunity besides Cummins. Thank you.
Yeah, it is a great question, Jamie. There is not enough power by any one manufacturer. Cummins is a very, very important relationship with us at EquipmentShare, and we are integrating and growing with them. There is a lot more than 1 GW 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 in the U.S., there is, by 2030 to 2035, almost a doubling of the need of power, if you look at the reports. If you think of that is 500 to 600 GW. We work with multiple partners, and you will see announcements on a go-forward basis. Again, each one, and specifically as we are talking about Cummins, is very, very important for us.
Thank you.
Your next question is from the line of Aaron Kimson with Citizens JMP. Aaron, your line is open. Please go ahead.
Great. Thank you, guys, and congrats to Mark and his family on their growing family. My first question is, rental line was up 47% year-over-year, but OWN payouts were only up 37% year-over-year, so a 10%+ delta. That compares to a 5%+ delta in 2Q, negative 3% in 1Q. Can you talk a little bit more about the improving drivers of OWN economics and what you think that will look like going forward?
Yeah, I think it expresses the strength of our model and the power of the structure from a capital allocation standpoint. Actually, you are exactly right. The OWN economics on a go-forward basis, we dug into that really in 2Q. 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 are now seeing that flow through, and you saw that specifically in third quarter, and you will see that on a go-forward basis as well.
Got it. Thank you. As a follow-up, you have called out a number of tailwinds driving the demand for rental equipment at a scale only four players can really meet. I feel like a disproportionate amount of investor focus goes to data center builds relative to the low double-digit proportion of revenue that comes from data centers for you guys. Can you give us a line or two on what you are seeing from some of the other tailwinds driving your business and what the pipeline looks like between money coming in from the eight-year infrastructure bill passed in 2021, onshoring, medical campuses, and biotech manufacturing, and electrification?
Yeah, it is a great question. For us, if AI went away tomorrow, we see the same growth pattern and the same, actually increased margins as we scale. So similar growth patterns we see today. I think you called it out specifically. When you think of things that did not really exist four years ago, that there is only effectively four companies in the world that can serve the U.S. market on projects where you need to deploy 2,000- 3,000 machines within a relatively short amount of time. Healthcare, peptides, GLP-1, healthcare campuses, the scale and scope of these projects really did not exist three to four years ago. Huge tailwind. Onshoring, same thing. We saw that really in the '80s with a lot of the car manufacturers.
The U.S. did not really do much for 30, 40-plus years, then the last two or three years, the amount of $10 billion, $20 billion, $30 billion, $50 billion projects specifically in manufacturing here in the U.S., because it is riskier for manufacturers to build really anywhere else, even closer partners, a huge tailwind for our industry and specifically the top four. Electrification, even if you take out AI, when you think of electric vehicles, semi-trucks, others, huge massive pull on the grid. We think of clean energy, that is 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. Infrastructure, it is about $1 trillion with the infrastructure bill. That happens over time, going from the federal government to the state to the local to municipalities.
Those tailwinds, we are seeing a lot more drivers and again, very large projects that only a few players in the world can support the U.S. market.
Understood. Thanks so much.
Your next question is from the line of Sean Wondrack with Deutsche Bank. Sean, your line is open. Please go ahead.
Yeah, good morning. Nice quarter. Just a question. You had 49% growth on 32% OEC growth. How sustainable is that improvement in fleet productivity? If you could give us just a rough idea of what is happening with utilization and price, just directionally, that would be super helpful.
Yeah, I think, and I will turn to Dave here so he can jump in, but yeah, the 49% growth really reflects the strength of the model that we have built. That is built on a tech stack that serves customers differently. When you deploy 32% OEC, so that is a clear number deployment, 49% growth, and then on top of that, 52% from a Core EBITDA standpoint, really it is a couple vectors happening there. It is one, pricing. We are in a good, you kind of think of economics 101. We are in an environment where there is more demand and less supply, which pricing does go up. That is absolutely a tailwind for us. We are also increasing the productivity for our customers. If the question is, why do customers choose you and do not choose your competitors?
When you are able to increase their productivity, utilizing a better tech stack in a demand environment when there is not enough equipment available, you do have that from a fleet productivity, they are able to get done more with less, and I am able to charge more, which you see flowing through the margins. It is a good macro, and specifically where we fit in is super helpful. Dave, you want to add as well?
Yeah. Just to add to that, of course, our rental revenue is supported by the 32% growth in our fleet OEC, strong fleet absorption, high utilization, and positive pricing. We are seeing that demand across mature and newer locations, but particularly on megaproject sites, where we 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 is very helpful. Thank you. Just as we sit here, it is sort of mid-November, have you had any initial thoughts about CapEx in 2027? Do you expect the OWN Program to sort of stay at the same percentage of the overall fleet?
Yeah, I think we try to make sure we have a long-term vision of where the company is on the 2030, and we do see that at 50:50 with the data we have today on a go-forward basis. CapEx, I think we are looking at currently, and Dave talked about that a little bit, on Q4 as a standalone quarter, we have a CapEx reduction. What is interesting, and I think this shows the strength of our capital structure, Q4 on 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.
That is good from a reflection standpoint on the flexibility of our capital structure.
That's very helpful. Jabbok, just to that one point, how long do you need to cancel orders? Like, what is your visibility? Let's say the market turns pretty dramatically, how much visibility do you require to sort of alleviate the CapEx burden there?
Yeah, I think what's fascinating is we have more visibility at the edge, which is a fancy way of saying at the equipment. Willy talked about the devices we have and the data, and data is incredibly powerful, even more so in the age of AI. We are 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 have 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 2027 and as we move into 2028. And that is really the strength of the megaprojects across the different types of projects that we actually see today.
Thank you very much.
Your next question is from the line of Scott Schneeberger with Oppenheimer. Scott, your line is open. Please go ahead.
Thanks very much. Good morning. Just curious, I mean, a lot of increases to guidance this year. Business is clearly very strong, and I believe it was cited that there's potential upside still even to the existing guidance. Could you just speak to what the primary drivers would be to achieve that? Then kind of the flip side of the question of, what are you on the watch out for that could push you toward the lower end of the guidance, not just the coming quarter, but how you view the business out a few quarters? Thanks.
I think watching out for, just starting with the last question there, 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 countercyclical 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, our shareholders, on the guidance on a go-forward basis.
Great. Thanks. Then, just curious on 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? 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 is a broad spectrum. 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 EquipmentShare because of the tech stack, because of the service that enables, that is where we want to say yes to customers. So, it is pretty broadly distributed. We did support almost $1 billion, Dave talked about that, deployed in one quarter. So, it is that excess demand, which happens the next quarter too, and that is where the slight margin drag is transitory. You will see that replaced by on-balance sheet fleet. But to answer the question, it is pretty broadly based across those categories.
Great. Thanks.
Your next question is from the line of Jerry Revich with Wells Fargo. Jerry, your line is open. Please go ahead.
Morning. This is Kevin Uherek on for Jerry. Just had a question on how should we think about OEM capacity heading into 2027? Have lead times stretched out, and are you still able to get the equipment you need?
Yes. We are 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.
Understood. Then you talked about manufacturing strength in your prepared remarks. Semi fab CapEx is expected to roughly double in 2027. As we get closer to then, 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 have had a little bit faster fleet absorption. We talked about in Q2, we are talking about it now. So we expect to exceed that and actually happen faster. Maybe there is some more details that would 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 pre-loading of the fleet and whatnot? Just wanted to see what you are seeing on the ground.
Yeah, on the ground, we see I know there is a lot we hear from the macro. We see no slowdown. I think just to make it simple, across every single cohort. What is 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, and we have some information in the presentation on those. I think it is 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 is what we are seeing today in the market.
Okay, great. Thank you.
Your next question is from the line of Ken Newman with KeyBanc Capital Markets. Ken, your line is open. Please go ahead.
Hey, good morning, guys. Thanks for taking the question. Jabbok, for the first one, it feels like utilization has surprised to the upside for both you and most of your peers in the industry over the last few quarters. And I know you do not quantify time use specifically, but just from a higher level, I am curious how much more structural room is there for time utilization to go higher on a same-store basis? And just, I guess from a higher level, how do you think about your ability to raise the OEC per branch from here, or if that would incentivize you to maybe accelerate branch openings from here?
Yeah, I think time utilization, what is an interesting thing, you can see the cohort analysis, and we talked about with the governance and business update, gives even more detail on that transition from the less than 12 months to 24 months to over 48 months. Even as the stores are in longer and that increase in margin, which that does show both time and financial utilization as those margins increase. I think that is probably the most helpful way to look at it. We do have high growth. We look at current cash flow and future cash flow because that is a metric we judge ourselves on. But we do it in a very, very disciplined manner. Making sure as we scale the stores that we are getting margin increase across all cohorts. As they are in longer, they do become more mature.
You have clustering, you have similar customers, and we have seen that margin expansion over time. You will see that, and we think that is going to be consistent on a go-forward basis.
Got it. Okay. 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 am guessing that is mostly being driven by some of the ancillary headwinds that you guys pointed to earlier in the call. I know you do not want to guide to 2027 yet, but just from a higher level, how do you think about the trends for rental segment flow-through for through the upcycle if demand remains this strong? Obviously, you get the benefits of the mix from the 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, call it 12 months from now?
Dave, you want to start with that? I can follow up.
Yeah, I mean, we believe that there's continued support for SG&A leverage as we move forward, and that will be offset by higher cost to serve customers, in particular on the mix of services that we provide to some of the large national customers on megaproject sites. That will still be positive to EBITDA margin, but it may have a different margin profile, and so you will see that in our margin mix going forward.
Yeah, I think to answer the 2027, as we get more mature stores, those mature stores, as we have talked about, have a much higher margin profile. When you start, you deploy a billion dollars of the fleet. Half of that fleet went to mature stores, half that went to new stores. New stores start at zero. 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 are starting getting a location, you are 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 2027.
Very helpful. Thanks.
Your next question is from the line of Joe Ritchie with Goldman Sachs. Joe, your line is open. Please go ahead.
Thank you. Good morning, guys. So, look, clearly the demand environment remains strong. Your value proposition seems to be being taken well by the market. We kind of skipped over the data center demand picture at this point, given kind of changing politics, particularly in Texas, and concerns that the moratorium might create an air pocket for data center development there. I am just curious if you maybe want to just talk a little bit about your exposure and your thoughts around what is happening specifically in that region.
Yeah, I think we talked about that on the prepared remarks. I think it helps repeating, but we have about 10% exposure to data centers. We do not 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 the way we work. It is increasing productivity. What it is showing is the importance to have continuous new data at the edge. That edge is either human or, in our case, the machines as well, and the material. So, it strengthens our model and what we are 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 PowerGen. We are absolutely mobile power.
We can deploy that anywhere in the U.S. in 48 hours. What is interesting about AI, which is different than a lot of these other large trends, if you go back the last couple hundred years with electricity, with railroads, with fiber, it does not really care where it is. Latency is less specific. So whether you are in North Dakota, whether you are in Texas, whether you are in Nevada, that is 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 cooling, which we have not talked about as much, but is a huge tailwind for us, and we are 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.
Okay, got it. That is helpful, Jabbok. I guess just a quick near-term question. You guys referenced conservatism in the guide. Clearly, you guys have been beating numbers all year. I guess if you had to point to whether it is fleet absorption, pricing, maybe some alleviation of those margin headwinds that you guys discussed earlier, where do you think that there is maybe potential upside in how you guys have laid out the guide for the rest of the year?
Yeah, I think I would say, again, we do not want to get ahead of our skis. I know we are conservative as a younger public company, even though we have 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.
Your next question is from the line of Seth Weber with BNP. Seth, your line is now open. Please go ahead.
Hey, guys. Good morning. I just wanted to ask, the local markets continue to be kind of just bumping along here. Are you starting to see any equipment kind of bleed from the local markets into the busier markets, whether from just a competitive perspective or the national guys just moving fleet out of the local markets into some of these more robust areas? Thanks.
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 billion-$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 3,000 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 the job going, changing 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 megaprojects. So it is a little bit of a mix right now, and some crossover when you think of the different cohorts or the customers that we're serving today.
That's helpful. Thanks. 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.
Yeah, thanks for the question. So, our policies are to maintain leverage in the near term in the low three turns, and we expect to be there by the end of the year as we exit 2026. Longer term, as we get toward 2030, we would expect to continue to de-lever and get into the mid to high two turns. So that's part of our plan and strategy as we continue to grow in a prudent way.
Got it. Thank you, guys. Appreciate it.
Your next question is from the line of Steven Fisher with UBS. Steven, your line is open. Please go ahead.
Thanks. Good morning. Clearly, the 49% growth you delivered is pretty robust growth, but there was a slight tick down in the number of new full-service rental locations you added this quarter. Any reason for that? What is your expectation for the full-service location adds in Q4, and maybe even kind of thoughts on Q1 at this point?
Yeah, we're about halfway through, or getting close to halfway through the fourth quarter, so we feel confident in our guide on locations. If you think of permitting and site openings, you do have a little bit of difference quarter by quarter, but we do feel confident in the year-end guide. Then we'll talk about 2027, excited to talk about that within first quarter of 2027.
Okay. Your Q4 rental revenue implies around, I think, 34%-35% growth down from the 49%. I know you said you are being conservative, and I know in the general topic of conservatism, you mentioned to Joe Ritchie about margins. I guess I am just curious, with the mindset going into Q4 that you are being conservative, how hard would it be to accelerate from the 49% growth that you have this quarter, given that you had the conservatism mindset last quarter and you actually accelerated from the 39%? Is this an environment where you think you can still even accelerate from here?
Yeah, I really appreciate the question. I think what is really interesting is, as you are pointing out, the 49% growth. This really has not been done in history from a billion-dollar base, and it really speaks to the strength of our model. The quality of growth, I think, is really important. We only put in 32% increase in OEC, and I am saying only, but that is fantastical from an organic growth standpoint. On that 32%, we grew 49% revenue. That rolls off the tongue. That has not happened in history, and it causes you to look, why is it different? That is the strength of our model. That is the data. That is the technology we provide our customers. On top of that, we grew 52% core EBITDA. That is a growth model and a growth engine that produces more dollars.
When you look at that enablement for the flexibility of our capital structure, that enabled the fourth quarter, on a standalone basis, for $400 million of free cash flow. If we move into harvest mode, a billion dollars on a run rate, on a forward run rate. That is a powerful engine and model. So I think it is 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.
This concludes our question and answer session. I will now turn the call back to Jabbok Schlacks for closing remarks.
Yeah, thank you all for joining. Have an amazing day. Thank you.
This concludes today's call. Thank you for attending. You may now disconnect.