Participants

Matthew Flannery; President, Chief Executive Officer, Director; United Rentals Inc

William Grace; Executive Vice President, Chief Financial Officer; United Rentals Inc

David Raso; Analyst; Evercore ISI

Rob Wertheimer; Analyst; Melius Research LLC

Angel Castillo; Analyst; Morgan Stanley

Jamie Cook; Analyst; Truist Securities

Michael Feniger; Analyst; Bank of America Merrill Lynch

Timothy Thein; Analyst; Raymond James

Jerry Revich; Analyst; Goldman, Sachs & Co.

Steven Fisher; Analyst; UBS Investment Research

Kyle Menges; Analyst; Citi Research

Tami Zakaria; Analyst; JPMorgan

Kenneth Newman; Analyst; KeyBanc Capital Markets

Scott Schneeberger; Analyst; Oppenheimer & Co.

Steven Ramsey; Analyst; Thompson Research Group

Presentation

Operator

Good morning, and welcome to the United Rentals investor conference call. Please be advised that this call is being recorded. Before we begin, please note that the company's press release, comments made on today's call and responses to your questions contain forward-looking statements.
The company's business and operations are subject to a variety of risks and uncertainties, many of which are beyond its control, and consequently, actual results may differ materially from those projected. A summary of these uncertainties is included in the safe harbor statement contained in the company's press release.
For a more complete description of these and other possible risks, please refer to the company's annual report on Form 10-K for the year ended December 31, 2024, as well as to subsequent filings with the SEC. You can access these filings on the company's website at www.unitedrentals.com.
Please note that United Rentals and makes no commitment to update or publicly release any revisions to forward-looking statements in order to reflect new information or subsequent events, circumstances or changes in expectations. You should also note that the company's press release and today's call include references to non-GAAP terms such as free cash flow, adjusted EPS, EBITDA and adjusted EBITDA.
Please refer to the back of the company's recent investor presentations to see the reconciliation from each non-GAAP financial measure to the most comparable GAAP financial measure. Speaking today for United Rentals is Matt Flannery, President and Chief Executive Officer; and Ted Grace, Chief Financial Officer. I will now turn the call over to Mr. Flannery. Please go ahead, sir.

Matthew Flannery

Thank you, operator, and good morning, everyone. Thanks for joining our call. Yesterday afternoon, we were pleased to report our first quarter results, which reflected a solid start to the year. We saw growth across both our industrial and construction end markets. Demand for used equipment remains healthy and importantly, our customers continue to feel good about their own outlooks.
As you've heard me, a key element of our strategy is being the partner of choice for our customers. Thanks to the team's steadfast commitment to this, which always includes putting safety first, we delivered first quarter records across revenue and adjusted EBITDA.
This is facilitated by our focus on operational excellence and innovation. And as you saw through our reaffirmed guidance, 2025 is on track to be another year of profitable growth, reinforced by the momentum we've carried into our busy season.
Today, I'll review our first quarter results followed by why we feel confident in our 2025 guidance. And finally, I'll discuss how we think about managing this business for the long-term success. And then Ted will discuss financials in detail before we open up the call to Q&A. So with that, let's start with the first quarter results.
Our total revenue grew by 6.7% year-over-year to $3.7 billion. And within this, Rental revenue grew by 7.4% to $3.1 billion, both first quarter records. Fleet productivity increased to 3.1% as reported and 1.9% pro forma for Yak, which we've now lapped. Adjusted EBITDA increased to a first quarter record of $1 million, translating to a margin of nearly 45%. And finally, adjusted EPS came in at $8.86.
Now, let's turn to customer activity. We continue to see growth in both our Gen Rent and Specialty businesses. In fact, Specialty rental revenue grew 22% year-over-year and 15% pro forma for Yak. We opened eight Specialty cold starts in the first quarter and expect to open at least 50 this year.
By vertical, our construction end markets saw solid growth across both infrastructure and non-res while our industrial end markets saw particular strength within power and chemical process. We continue to see new projects kicking off with a few recent examples, including data centers, pharmaceuticals, airports and industrial manufacturing facilities.
Now turning to the used market. We sold over $740 million of OEC, which was a first quarter record. The demand for used equipment remains healthy, and we're on track to sell an estimated $2.8 billion of fleet this year. We spent over $700 million on rental CapEx in the quarter in response to solid customer demand. As you'd expect, growth continues to be led by large projects where all elements of our strategy position us to be the partner of choice. We grow free cash flow of nearly $1.1 billion, setting us up for another year of strong cash generation, which we view as a hallmark of the company.
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.
Finally, capital allocation. Priority number 1 for us is funding growth while maintaining a healthy balance sheet. After the organic growth we supported in the quarter, we returned nearly $370 million to shareholders through a combination of share buybacks and our dividend.
Our leverage of 1.7 times remains towards the lower end of our targeted range, leaving plenty of dry powders to support both inorganic growth and to return excess capital to our shareholders. And to this point, following the completion of our prior share repurchase authorization last month, I'm pleased to share that our Board has approved a new $1.5 billion program, as Ted will discuss shortly.
Now let's turn to the rest of 2025. As evidenced by our reiterated guidance, our expectations for the year are unchanged. The year is off to a start we anticipated, while feedback from the field continues to be optimistic, particularly for large projects. The momentum we're carrying into our busy season, along with backlogs and our customer confidence index are all supportive of our outlook.
I'll note, we've not seen a change in customer outlooks for the balance of 2025. But with all that said, we understand the recent concerns around the macro uncertainty. And if things change, we feel confident in our ability to react to best support both our customers and our stakeholders. And as we think about the long term, our strategy is built on how we can competitively differentiate ourselves and outpace the market.
When we listen to the voice of the customer, we gain additional conviction that our one-stop shop offering is critically important. The power of cross-selling lets us take our long-established relationships and accelerate our growth by meeting our customer demands with both our Gen Rent and Specialty products.
And when we layer on our technology offerings, we're able to provide our customers a truly unique experience. And while we've had Specialty as part of our business mix for many years, we believe this growth engine has a lot of runway ahead, supported by both geographic white space and additional products that we can add to our portfolio to continue to better serve our customers.
To bring this to light, we have a large national account customer with a long-standing relationship, primarily with our Gen Rent team. And as we dug into how we could better serve the customers' needs, we learned we had the opportunity to be a better partner. This included not just providing additional products, but also innovating together, such as feeding information directly into their own internal tracking systems.
And through our partnership, we learned more about the customers' requirements and added Specialty products to fit the bill. Well, to make a long story short, over just two years, we've increased their spend with us by 12 times. By becoming an enterprise solution, Specialty has increased from 10% of their spend with us to 40%. And this example is another strong go-to-market strategy.
In closing, we remain focused on being the best partner to our customers. We're on track for another year of profitable growth, and we believe the longer-term outlook we see, combined with our business model, strategy, capital discipline and our competitive advantages will allow us to generate compelling shareholder returns.
And with that, I'll hand the call over to Ted, and then we'll take your questions. Ted, over to you.

William Grace

Thanks, Matt. Good morning, everyone. As Matt just shared, 2025 is off to a good start with first quarter records across total revenue, rental revenue and EBITDA, which combined with the momentum we're carrying into our busy season and encouraging customer sentiment is enabling us to reaffirm our full year guidance. So with that said, let's jump into the numbers. First quarter rental revenue was a record at $3.15 billion. That's a year-on-year increase of $216 million or 7.4%, supported again by growth from large projects and key verticals.
Within this, OER increased by $118 million or 4.9%, driven by 3.3% growth in our average fleet size and fleet productivity of 3.1%, partially offset by assumed fleet inflation of 1.5%. Also, within rental, ancillary and re-rent grew by 19% and 15% respectively, guiding a combined $98 million of revenue. This outsized growth relative to OER was primarily driven by Specialty where delivery represents a bigger portion of revenue from our Matting business and where our other Specialty businesses support customers with value-added services like fueling and installation as part of our one-stop shop strategy.
Turning to our used results. As Matt mentioned, we took advantage of strong demand to sell a first quarter record amount of OEC generating $377 million of proceeds at an adjusted margin of 47.2% and a 51% recovery rate. Moving to EBITDA. As I mentioned, adjusted EBITDA was a first quarter record of $1.67 billion. translating to an increase of $84 million or 5%.
Within this, rental gross profit contributed $89 million. This was partially offset by used where the continuing normalization of the market drove a 13% decline in used gross profit dollars translating to a $26 million headwind to adjusted EBITDA. SG&A increased by $47 million year-over-year, including $12 million of H&E related merger costs.
Excluding these costs, our growth in SG&A was roughly in line with growth in rental revenue. And finally, the EBITDA contribution from other non-rental lines of businesses increased $68 million primarily due to the $64 million breakup fee we received from the termination of the H&E deal.
Looking at profitability. Our first quarter adjusted EBITDA margin was 44.9%, implying 60 basis points of compression. Notably, and as our press release highlighted, this includes a $52 million net benefit related to the breakup fee, which is the $64 million less the $12 million of related SG&A costs.
Although it doesn't impact EBITDA, we also absorbed roughly $13 million of bridge financing fees related to the deal that are included in our net interest expense. Taken together, our first quarter results included a net pretax benefit of $39 million. Bringing us back to margins, excluding the H&E benefit and the impact of used sales, our EBITDA margin compressed 150 basis points year-over-year.
Similar to last quarter, I thought it would be helpful to talk through a few of the key factors here ahead of Q&A. Now of course, margins in any given quarter will fluctuate with normal variability. But at a high level, several of the dynamics in Q1 were consistent with what we talked about in January.
First, Ancillary revenue again significantly outpaced our core rental growth. These are core elements of our service offering, particularly within Specialty that come at a lower margin than our core rental business but have attractive returns as they don't employ much capital. As importantly, they provide a unique aspect to customer service that both differentiates United Rentals and helps drive deeper customer engagement.
So from this perspective, we view this as good business, but it does have a dilutive impact on margins that we'd estimate at about 50 basis points in Q1 or about a third of the 150-basis point decline. Secondly, first quarter delivery costs were up, driven by a few dynamics, including our growth in matting and the increased dispersion of growth across our footprint. A byproduct of the latter is the greater need to reposition fleet in support of high time utilization. Said differently, these are choices we make between costs and capital efficiency with the idea of supporting returns.
For the quarter, these additional repositioning cost impacted our margin by about 30 basis points. And finally, given where we sit in the current cycle, our OER growth remains relatively low in a still fairly inflationary environment. At the same time, we continue to make long-term strategic investments in important areas like Specialty cold starts and technology, both of which enable to be the partner of choice to customers and provide attractive returns.
The combination of these factors and normal variability in our costs accounted for the balance of the decline, so call it about 70 basis points. Importantly, these are all contemplated within the ranges provided in our guidance.
And lastly, on the P&L side of things, our adjusted earnings per share was $8.86, including a $0.45 benefit from H&E. Shifting to CapEx. First quarter gross rental CapEx was $707 million, in line with normal seasonality. Moving to returns and free cash flow. Our return on invested capital of 12.6% remained well above our weighted average cost of capital, while free cash flow totaled a robust $1.08 billion. Our balance sheet rate is quite strong with net leverage of 1.7 times a quarter and total liquidity of over $3.3 billion.
I'll note, this was after returning $368 million to shareholders in the first quarter, including $118 million via dividend and $250 million via repurchases. Looking forward, following the completion of our repurchase program last month, we are pleased to share that our Board approved a new $1.5 billion program supported by our continued strong free cash flow generation and healthy balance sheet.
The new program will begin this quarter and is expected to be completed by the end of the first quarter of 2026. For the year, it is our intent to repurchase a total of $1.5 billion of common stock, including the shares we repurchased in the first quarter. At our current share price, this represents about 4% of our market capitalization. In total, we intend to return roughly $2 billion in cash to shareholders in 2025 equating to over $30 per share or a return of capital yield of better than 5%.
So to wrap up my prepared remarks, overall, another solid quarter that puts us in a position to reaffirm guidance on total revenue, EBITDA, CapEx and free cash flow. The balance sheet remains in great shape, providing strong optionality for the business while our commitment to capital discipline keeps us positioned to support long-term shareholder value.
And with that, let me turn the call over to the operator for Q&A. Operator, please open the line.

Question and Answer Session

Operator

(Operator Instructions)
David Raso, Evercore ISI.

David Raso

Hi, thank you for the time. I'll let others sort of dig into the margin question. I was curious about two things. The implied revenue growth the rest of the year and how tariffs are impacting conversations with your customers. So first, on the revenue growth, if you pull out the used equipment sales, the rest of the year the sales guide is implying up about 3%.
When you look at the CapEx and the used sales and the OEC you're looking to sell, it seems like the average fleet size growth is going to be 3%. So that one implies no meaningful help at all from fleet productivity. Is that conservatism or something else you're trying to signal, especially you noted in the first quarter, the time it was still fairly healthy that you were moving equipment. So I was just curious how that dovetails into the fleet productivity guide.
And then to follow up on the tariff, how does the potential inflation from tariffs, on new equipment sales, right, meaning for an OEM raising price, does your customer then look at rental as a better alternative right now or particularly does it give you maybe an umbrella to maybe raise rates or you just had conversations leaning that way versus maybe some negative inflation impacting the level of construction activity, be it lumber or whatever may be impacting construction project decisions? Thank you.

Matthew Flannery

Sure, David. This is Matt. I'll take the tariff part first and then both Ted and I can discuss the revenue -- back half revenue growth back to two-thirds. When we think about the tariffs, first of all, our 2025 CapEx is fully negotiated and over 80% of it already has POs and is -- should -- will not be impacted by tariffs in any way.
In the future, to your point about what would happen if our partners did have to drop significant tariffs and did have to make some changes in the future. Well, a couple of points. To your comment, we probably have to pass it on, like happened post-COVID when we all had to enjoy some pretty healthy increases. And then secondly, there'd be some decisions to make. There's -- we've got vendors -- a couple of vendors in every category of equipment we buy, and there is not a product category that I could think of that doesn't have a non-tariff impacted partners.
So there'll be a way for us to manage through it and whatever we did have to absorb would be something the whole industry absorbed and, to your point, could be an umbrella coverage for maybe some increased productivity. Not our preference, but certainly something we have the ability to do. From the growth perspective, Ted, do you want to take.

William Grace

Yeah. The one thing I might add on tariffs. And certainly, any time there's uncertainty, that tends to favor rental over ownership, and we never advocate for uncertainty, but we are in a period of time where there obviously is a couple of things that the macro is trying to struggle with. So I'd say at the margin, that's also going to benefit rental even more than we think some of the other advantages we have over ownership.
On the implied revenue side, I guess the one piece you didn't really weave into that question, David, was the impact of inflation. And so when we think about that OEC growth, that's in nominal terms. And so I think when you do the math, you'd see that -- adjusting for that, we'd want to make sure that we are contemplating the effect of inflation, which obviously ties us back to fleet productivity. And in terms of just the growth rate kind of what you saw in the first quarter versus what would be implied in the back three quarters.
Obviously, we've now lapped Yak. So as people think about that relative -- there's relative growth rates. They just want to be mindful of that shift as well. And we could dig in if you want to touch on any part of that?

David Raso

Well, at the end of the day, when you look at the size of the average OEC growth implied from a fairly normal cadence of what you're going to sell the OEC being sold and of course, the gross landed fleet per quarter. Just to level set a little bit. It sounds like the fleet productivity, which was 1.9% in the first quarter, ex-Yak, right, pro forma, let's call it. The rest of the year, those fleet productivity numbers implied or at least level set, they're lower than the 1.9%. Is that fair?
Like the first quarter --

Matthew Flannery

Not really. I'd say it'd be pretty steady, David, is what our -- listen, we're not in the game of forecasting them because there's a big portion of it is just an output of what our revenue construct looks like, specifically in mix. But generally, what's embedded in the guide, especially if you're using the midpoint, is a continuation of that type of positive fleet productivity. And that's what our expectation is, and that's what is embedded in the guidance.

David Raso

All right, that's very helpful. Thank you so much.

Operator

Rob Wertheimer, Melius.

Rob Wertheimer

Hi, thank you. I'd like to dig into a couple of the margin drivers that you guys called out, which was helpful, and basically trying to figure out how temporary they are, fleet repositioning. I wonder if you could kind of expand on what the dynamics were that led to that? I think you said maybe broadening out of growth. Is that repositioning done and thus that kind of headwind fades? And maybe the same question just on mix, maybe that's your Specialty, whether that reverse continuation of that mix, profitable ROIC, but lower margin drag? Thanks.

Matthew Flannery

Hey, Rob, I'll talk about the repositioning a little bit, and Ted can touch on the mix. So just think about the past couple of years before '24 when we had such broad-based growth, we really didn't pull any equipment from any market. Everybody had the opportunity to put the fleet they had to work and in some instances, even more, right? So when we think about now where major projects are really driving a big part of our growth, and the local markets are varied depending on where you are.
Now instead of just sending new equipment to manage these new projects, right, which was a much more cost-effective wage just coming right from the manufacturer, we're relocating equipment, right? So we're staging equipment. We're bringing it in from other places to serve these large projects. So I think that fleet balancing is what we're referring to that's driving a little bit of extra cost when you think about what we were able to do historically. And then, Ted, on the mix.

William Grace

Yeah. Rob, in terms of thinking about Specialty in the quarter itself, the mix, certainly, the ancillary grew there at a healthy pace relative to OER, still had very healthy OER growth. but we had an uptick in delivery and for a couple of different reasons. Part of that would have been Yak, and part of it would have been the repositioning the fleet just given the nature of projects ending and starting and just the greater dispersal in growth we've talked about all year.
So that would have been about 150 basis points of the 600-basis point decline in gross margins. That will really depend on how the year itself plays out. Elsewhere within that margin construct, we probably had about 50 basis points of impact from higher subcontract labor. Those are value-added services we're providing to customers to really help them with their projects and alleviate pain points in their business processes. So that, again, is really driven by serving our customers.
And there's another 30 basis points related to fuel services, again, one of those ancillary services we do at the request of customers. So when you add that up, you'd be looking at the better part of 230 basis points or so, I think, related to that mix. Depreciation, just to dimensionalize that because that was another important part of that revenue bridge. That was about 330 basis points of the 600 basis points in Specialty gross margins, all of which related to Yak.

Rob Wertheimer

Okay. That makes perfect sense. And then just as a minor follow-up. I know repositioning will continue as the market continues to shift. But when you say it's lumpy, the work you did in 1Q is the bulk of it? Or does that continue on through the year? And I'll stop. Thanks.

Matthew Flannery

The honest answer is we're on top of it, but we're not sure. We certainly did a deep dive when we saw the drag on the margins and looked at it. We're pretty confident with what the decisions the team made. But I would say this is really an output of where the demand shows up and where we have to put the fleet. We are on top of it. We've got a pretty good system to make sure we're making the right decisions and bidding out to third-party haulers in an effective manner. And if there is an anomaly, we'll report it out to you guys as it comes along.

Rob Wertheimer

Thank you.

Operator

Angel Castillo, Morgan Stanley.

Angel Castillo

Hi, good morning. Thanks for taking my question. Maybe just to kind of continue on that. Ted, I was wondering if you could expand just on the kind of uncertainty of whether some of these headwinds maybe persist or not. What does that kind of imply in terms of your ability to kind of deliver either on the low end or the high end of the guide, just kind of any implications there would be helpful.

Matthew Flannery

Yeah. And I'm going to jump in here, Angel, just to be clear, so no one misconstrues my answer to Rob's last question. We're not implying that the -- all these costs are going to persist or not. When you think about the ancillary, that's really an output in what customers needs are. It's a good decision. It's going to bring us more EBITDA dollars. It's just if the revenue construct gets higher than the midpoint, the EBITDA might not move along with it at the same pace as our OER rental.
So -- but it's still the right decision. Not doing it isn't an option. We're putting money in the till, so to speak, and taking care of our customer. What I was speaking to Rob about was that whatever it is $10 million to $15 million of repositioning. We don't really know how much of that will repeat because it's going to be responsive to where they equipment needs are. And Ted, please?

William Grace

I think that answers the question.

Angel Castillo

That's very helpful.

Matthew Flannery

I'm sorry, to the last part of your question. All contemplated, this isn't a big enough number to move us anywhere within the guide. We feel very comfortable. about reiterating the guidance.

Angel Castillo

Got it. That's helpful. Thank you. And maybe could you expand a little bit more on underlying demand trends? It sounds like your customers remain pretty optimistic here. Just curious, how did you see utilization or general overall demand kind of shift or change between January and February versus maybe March and more recently, April and what you're seeing there?

Matthew Flannery

Yeah. We don't really talk about monthly sequential in any way, shape or form, but the year is playing out as expected. And we talked about it being very similar to '24 when we came out with the guidance in January, and that's what we're seeing. We don't talk about whether we were big enough now and diverse enough that we don't have those type of issues to have to call out. And I would say that the year is playing out in a standard seasonal growth pattern and gives us a lot of confidence that there will be the demand to meet our goals here, and that's why we reiterated our guidance.

Angel Castillo

Understood. Thank you.

Operator

Jamie Cook, Truist Securities.

Jamie Cook

Hi, good morning. I guess two questions. One, Ted, just for you. Understanding the puts and takes of the margins in the quarter and the incremental margins in the quarter. I'm just wondering your confidence in the 50% to 60% throughcycle incremental margin for United Rentals, just given where the incrementals have been. It seems (inaudible) gross like the top line just had to grow to double-digit rate in order for you to achieve that. But just your confidence there, maybe we should start thinking about EBITDA growth versus incremental. So that's my first question.
And then my second question, obviously, the cash flow is strong. The increased authorization is a positive. But just what you're seeing on the M&A front with the H&E deal falling through, wondering given the uncertainty in the market, is there opportunities for you guys to sort of be more opportunistic and your preference for Specialty versus Gen Rent? Thanks.

William Grace

Yeah, Jamie, I'll take that first one. I think Matt will probably take the second. Nothing has changed in our view of our ability to drive margin expansion over the course of the cycle. One of the things we've talked about over really 2024 and now 2025 is the fact that we're in a relatively slower growth phase of the cycle, that's still relatively inflationary. It's not our expectation that these kinds of conditions will last for a multiyear period. Our expectation is that the economy and our markets do obviously accelerate as you get more accommodative Fed and better interest rate policies that support overall economic growth.
And as we get there, that obviously gives us the ability to leverage fixed cost more efficiently. And so nothing has changed from that perspective. The other thing that's just something we highlighted today was obviously this revenue construct and the impact we've had from providing more ancillary which we view as a good thing. It has the effect on margins and flow-through we've talked about but it's a very good business that supports customers and adds EBITDA dollars, just not in the same margin we would in our core business. So we can -- if there's any follow-up on that side, let me know, otherwise, I'll hand it over to Matt.

Matthew Flannery

Yeah. So from the M&A front, we had a pretty robust pipeline before the H&E deal, and that pipeline remains. So to the focus areas that we really like to hone in on. Certainly, it's adding any new products and services to our customer base. We've done very well with that. When you think about Yak and General Finance before that.
So that's our primary focus. But adding more capacity within Specialty, where we still have white space and penetration opportunities to support this double-digit growth trend that we're on would be another area of focus. And there's still a pretty good pipeline that the team is working through. We have plenty of dry powder as we talked about earlier, a 1.7 times leverage and a strong balance sheet, and we have the capability. So we certainly are still in the M&A game. We just have to find the right dance partner and make sure it meets our very high bar.

Jamie Cook

Thank you very much.

Operator

Michael Feniger, Bank of America.

Michael Feniger

Hey, guys. Thanks for taking my question. Just on the Specialty growth, even ex-M&A, up 15%, I know you touched on it earlier, but is there anything you can flesh out in terms of what's driving that in terms of end markets product lines? Is it gaining more customer share wallet. Is it the cold starts, just your confidence on that kind of double-digit growth rate that we've kind of seen from Specialty so far for the rest of this year?

Matthew Flannery

Well, I think it's all of the above, right? So -- and when you think about the example I gave in the opening remarks about even with long-standing relationships, we could -- as we continue to add more products and services to our portfolio even with long-standing relationships, we find we have opportunities. And also, they have to have the demand. So the kind of projects that specifically our larger customers tend to have are more complex and need more support, and we're there to meet that support. I think that's Specialty growth.
But then also as we add these new products to our platform and the ability to scale them up is another big opportunity, and we still have white space there. And that would be dismissive of what's happened in one of our most established ones, which is Power. Our HVAC team still growing double digits and one of our strongest growers in the company as they not only get more penetration but add more products to their portfolio. So it's really across the board, which is why you hear the confidence in our voice, a double-digit growth for Specialty for the foreseeable future.

Michael Feniger

Great. And Matt, just a follow-up, just like Gen Rent is still positive, but clearly in a slow growth phase right now. Just in terms of the cycle, how to think about it. Do you have to go negative first before we see a reacceleration? Based on the conversations in the field, what would be that catalyst for reacceleration. Is it more de-escalation of tariffs? Is it Fed rate cuts? Is it deregulation?
I mean if you look back in 2009, obviously, that was a very severe recession. There was just a very long lag for non-res to recover. Do you think that is the case, this go around when we're kind of talking about maybe a reacceleration in some areas like the local markets or some areas that have been soft. Thank you.

Matthew Flannery

Yeah. So we certainly don't think it needs to go negative. We feel like we're in the slow part of the cycle, and we're not going negative. But to your point about the local market, we're much more highly penetrated in the local market Gen Rent, and that's a needle mover for them. But they still have some of the opportunities that we have in large projects to help offset that.
And I think although most of our growth is coming from Specialty, I think our Gen Rent team is well positioned as the market picks back up, as the local market repairs, whether that's driven by interest rates, just overall stronger economy, whatever, we're very well positioned.
We've kept our capacity. We didn't overreact to the slower growth, which although maybe it drags on margins a little bit, it's the right long-term decision. So we feel really good about where we're positioned. We don't think we have to turn negative for an acceleration.

William Grace

And Mike, I might just add from a vertical perspective, the two areas that have been most challenging there. have been residential and residential related and kind of, call it, the oil patch. So I think those are verticals that people understand have had kind of unique challenges. But to the degree you saw those inflect, that would be a positive for the Gen Rent growth.

Michael Feniger

Thank you.

Operator

Tim Thein, Raymond James.

Timothy Thein

Great. Thanks. Just wanted to circle back as a follow-up on the earlier question on tariffs. And Ted, you covered it with respect to the CapEx impact from new equipment. But I was just curious from an OpEx perspective, to the extent we were to see parts pricing change or be impacted by tariffs. Is there a protection there? Or how would we think about that? I guess it's hypothetical at this point, but can you maybe just update us on that point?

Matthew Flannery

Yeah. It's a fair point, Tim, but still all negotiated for '25. So we're locked in for '25. But it's no different than the fleet cost. We negotiate our parts and our fleet costs with our partners annually. And in '26, if there's some stuff there, we're going to have to make sure we're aligned with the folks that can either bypass having to push them on or avoid them altogether, and that will be part of our '26 negotiation. But nothing that we see in '25.

Timothy Thein

Okay. And then, Matt, just you highlighted it as several others, the strength of the larger national account business and how we've been dealing with this softness in the local account business, which is a market for some time, which is -- it seems to be continuing. But I'm just curious if that -- A, is that create sort of a mix headwind for United? And I guess, if so, it would -- could it be more pronounced in what is a seasonally softer quarter, just normally slower activity in the first quarter. Is that more pronounced or none of the above? I'm just curious from a mix impact. Is there any sort of headwind there?

Matthew Flannery

Yeah. I don't think there'll be any further headwind. To your point about Q1 being part of the year and not the part of the year we bring in more CapEx, that could have some impact on that repositioning costs that we talked about. From an ancillary perspective, it's really mostly driven by the very high level of growth in Specialty and the extra products and services we provide with that offering.
So nothing that I think is going to change seasonally. It will depend. I think we'll continue to see the demand, and therefore, where we put our fleet to play out similar to '24. I guess the one difference would be as we continue to grow the Yak business, as we continue to grow the Specialty footprint through cold starts. I think that's driving some of the ancillary for all -- for good reasons, really for good cross-sell growth.

Timothy Thein

Okay. All right. We'll leave it there. Thank you for the time.

Operator

Jerry Revich, Goldman Sachs.

Jerry Revich

Yes. Hi, good morning, everyone. I'm wondering if we could just pull on the M&A thread, one of the hallmarks of where you folks added value over the years has been just the M&A and the ability to improve those operations. And so as you sit here today, given the size of the company, can you just talk about how active the runway is on a multiyear basis on the M&A pipeline. There is some concern that the magnitude of acquisitions that you folks have been able to deliver in the past that opportunities that might be slowing. So I wonder if you could just talk about what that looks like on a multiyear basis as you sit here today?

Matthew Flannery

We don't really forecast that or plan like any kind of budgetary goals for M&A. We think that it's a bad behavior. As far as we're thinking about what the pipeline looks like, we don't have the expectation that we don't have enough runway on M&A, whether it may be more like a string of pearls or even big pearls when we think about where can we fit out some of the Specialty offerings.
But I don't think we sat here couple of years ago and said, wow, matting would be a great thing to add. So we're continually investigating new opportunities, but there's still some chunky deals out there, certainly not as much on the Gen Rent space as what the other opportunities are, but we still think there's plenty of M&A runway. We don't really put a target on it, Jerry, because that's not the way we think about it. We're just constantly working the pipeline and see what meets our threshold and what could be a good use of capital and strategically beneficial.

Jerry Revich

I appreciate the color, Matt. And separately, obviously, you folks pulled cost levers really well in recessions. As we think recession scenario, can you just talk about the levers that you could pull in this coming cycle. So you just spoke about ancillary revenues, subcontractor costs, et cetera, to what extent if we were to see a negative economic outlook, could we see greater margin opportunities for you folks, similar to what you folks were able to deliver most recently in 2020?

William Grace

Yeah, I'll take that one and Matt, jump in if there's anything you want to add. At the end of the day, I think both from an OpEx and a CapEx standpoint, we've got a lot of flexibility. I feel like your question was more oriented towards margins. And so when you think about the nature of our cost structure and really our -- the core operating cost, something on the order of about 50% is going to be highly correlated to volume.
So it's going to be things like pickup and delivery and repair and maintenance, discretionary items like T&E or overtime, those we can flex very readily, and they move with demand. So that part of it, we feel very good about modulating in the downturn. You certainly saw that during COVID as an example.
There's a relatively small part of our cost structure that we would view as fixed. It's probably in the order at the very low double digits. In between it's really a function of labor and benefits. And that is as flexible as you're willing to make tough decisions on teammates, and that's something we want to protect at all costs when we're able to. So it's really going to be the interplay of how does volume perform versus how do we manage those costs. Certainly, we feel very good about what we demonstrated in 2020. We've only gotten better at managing the cost structure, but a lot of this would obviously depend on the nature of a downturn.

Matthew Flannery

Yeah. I would just add to Ted's point, how deep and how long would make the decisions on that middle 30%, let's call it, for lack of a better term of our costs. And just to remind people outside of '08, '09 when we had to do significant layoffs. During COVID, we made the opposite decision. And holding on to that capacity really paid off coming out of that. So that would be what our future outlook would be in a downturn, and we're certainly not trying to speak that into our future, would depend on how aggressively we get.

Jerry Revich

Appreciate it. Thank you.

Operator

Steven Fisher, UBS.

Steven Fisher

Thank you, good morning. I just wanted to come back to the ancillary pickup. And I know you gave us some good color on the fact that it was the Yak inclusion and some of the fueling services. I guess I'm just kind of curious if there's any other sort of broader reason kind of why now? Why this is all happening? Obviously, Yak is new, so that would make sense. But are you implementing specifically new initiatives to target the fueling operations? Are there any other particular services that you're kind of trying to bring forth to client's and to your customers' attention that they can kind of roll this out.

Matthew Flannery

Yeah. To your latter part of your question, the answer is yes, we're continuing to look at ways where we can solve more problems for our customers, right, and in an effective and profitable way. So Yak certainly was a big driver for it. But even when you think about as we're growing our mobile storage and modular business, the setup for that falls into this category. Fueling, whether it be not just for generators, but for equipment overall, is another pain point for the customers that if we can continue to increase that touch point, we'll do that.
So it's a little bit of both. It's the growth of the platforms like matting and modular and mobile storage. That's driving a lot of it, but also some additional services that we're offering.

Steven Fisher

Okay. That's helpful. And then just to come back to the margins for a second, just so I'm totally clear on this. Obviously, the incrementals are implied to be higher for Q2 to Q4. Can you just remind me kind of what the reason is that -- what's going to drive that improvement in the second part of the year? What's going to be different relative to the first quarter? Thank you.

William Grace

Well, I think this is where it's important to decompose kind of what happened in the first quarter, right? And so you can look at -- you said flow through, we look at margins but being down nominally 150 basis points ex-H&E termination fee and ex-used. But when you cut through kind of the ancillary and dynamics we talked around repositioning, down 70%. And that's really how we think about that core performance.
So certainly, as we get into the busier season, and you lap some of these costs, some of which were transient, we would expect it to perform as expected. Now, the degree to where we land is going to depend on how that revenue ends up working out from the standpoint of ancillary probably as much as anything.

Steven Fisher

Okay. Thank you very much.

Operator

Kyle Menges, Citi.

Kyle Menges

Thank you. Could you guys just touch on just the level of confidence in the backlog for the rest of the year? And I understand visibility might normally be about six months out. Could you just talk about maybe level of visibility? And is there more visibility in the backlog now, just given more mega projects in the pipeline? And do you have any sort of sense on what percentage of your backlog is mega projects at this point versus maybe last year or kind of, I guess, in a more normal year?

Matthew Flannery

Yeah, sure, Kyle. So I think as far as the profile of the demand for major projects to the rest of the business is pretty similar to what it was last year. Maybe ticked up towards major projects maybe a hair, but pretty similar. I think as far as the forward-looking visibility, certainly higher than the six months on the projects because we got a plan with our partners. So we have more visibility there. And I think the backlog data is supporting six months plus of backlog.
But more importantly, our customer confidence index continues to give us confidence about the balance of the year. Our leadership team, sales teams thar are connecting with our customer on a daily basis out in the field is continuing to give us solid feedback. And then our metrics, our actual execution of what we're doing with fleet on rent and utilization rates. We have confidence that for the balance of 2025, we see the runway ahead, and that's why we reiterated our guidance.

Kyle Menges

Got it. Makes sense. And then just another tariff question more related to the value of your used fleet. Just how should we be thinking about maybe the value of the used fleet and the overall used market, just given maybe some tariffs on new equipment? And are you seeing any early signs of that just in the used market related to tariffs?

Matthew Flannery

No, it's way too soon. I mean I don't even know if people have finalized what their costs are going to be for most of these vendors. But theoretically, to what you're talking about, like it did post-COVID, if the new equipment pricing were to increase out of the ordinary that would act as an umbrella on used pricing values. We certainly have seen that in the past, and we would expect that to happen.
We don't feel at all that's what happened yet or is what driven the volume that we experience and demand we've experienced in Q1. It's similar to what we had planned for and what we expected. I think it's more about the demand out there in the end market.
And to your first question you asked earlier, it's another area of confidence for the outlook for the rest of '25. We sold a record level of OEC, and I don't think people are buying equipment to park it in yards. So there's still a good amount of work going on out there.

Kyle Menges

Helpful. Thank you.

Operator

Tami Zakaria, JPMorgan.

Tami Zakaria

Hey, good morning. Thanks for all the comments so far. I have only one question. I think I heard you mention that local markets are more indexed to your Gen Rent offering right now. I'm curious, is there a structural barrier or reason why Specialty maybe could not become a bigger part in local markets, meaning is there not a scalable market for Specialty at the local level? Or could over time, Specialty could become as big at the local level as it could be for the national accounts?

Matthew Flannery

Yeah. I think as our Specialty businesses mature, they'll get more penetration locally. But I think the one big part of our one-stop shop strategy is cross-selling. So we prioritize overall as a company, our larger half of our customer set, which tend to be more on projects and with bigger customers. So when we get new offerings, we really focus on that part of the cross-sell because they tend to do more complex projects.
So this is a decision for us. It doesn't mean that people -- that there's not local trench work, that there's not local temporary power work. It's just our profile and the way we go to market. The maturity of Gen Rent is so much further down the road and also through a lot of acquisitions that they're just -- the reality is they're just more penetrated. We do have that opportunity in the future for Specialty to continue to get more penetrated locally.

Tami Zakaria

Great. Thank you.

Operator

Ken Newman, KeyBanc Capital Markets.

Kenneth Newman

Hey, good morning, guys. Thanks for squeezing me in. I know it's a smaller part of your mix, but I was curious, can you just talk about what you're seeing in the smaller local accounts and just the expectation for that through the rest of the year. I'm just trying to get a sense of how much padding there is in the guide if that does get incrementally softer as the year progresses?

Matthew Flannery

It's really the area that we have the least visibility to. But when you take the aggregate of whether you're looking at a branch, a district or region of the activity in there, or where the field is very close to the local market and then they do their forecast, we feel confident that we have enough visibility through that ground-up mechanism to stay within the ranges of our guidance and certainly you hear the confidence in our voice of reiterating. So we don't expect that.
With that being said, it is still a smaller part of our business. So therefore, the impact of that variability would be a little bit less than if something happened in a macro that impacted our national accounts. And remember, for people that remember years ago, when we moved to larger customers' national accounts, it wasn't because mega projects. We didn't know this was going to be a thing or these tailwinds that we talked about. It was because when work does slow down, we do feel that larger contractors sell deeper into the pipeline, and we needed to be aligned with those.
And we learned that through the '08, '09 recession. And I think that, that would also be a buffer to any kind of change. I think we're better positioned with those customers.

Kenneth Newman

Right. Okay. That makes sense. And then just quickly for my follow-up. I just had a clarification question on Yak. I know there's already been a lot of talk about inflation and tariffs. I know you depreciate those assets at Yak to 0, I think over a two- or three-year period. Obviously, lumber is much higher on a year-over-year basis. Can you remind us how margins in that business could or maybe it doesn't fluctuate with spot lumber prices?

William Grace

I don't think we've experienced much of that ourselves in the kind of woods we're buying. But certainly, we feel comfortable that they can maintain their margins. And I'll just leave it at that.

Kenneth Newman

Wonderful. Thanks.

Operator

Scott Schneeberger, Oppenheimer.

Scott Schneeberger

Thanks, guys. Good morning. Just on Specialty rental, curious, it's come up a few times, but this -- your confidence in continued double-digit growth, very impressive. Just curious, could you delve in -- you have seven product categories. Is everything growing? Is there a disparity or some carrying the weights and others not keeping up? Just kind of discussing across all seven platforms? And is it cold starts that's really driving it? Are you getting market share gains, pricing? Just curious to go in a level or two deeper on how you think you are differentiating in those markets. Thanks.

Matthew Flannery

Yes. No, it's pretty broad, and we've talked about that in the past, how even some of our more mature Specialty businesses, we're growing double digits. So each quarter, it may be a little more choppy, but you'd have to think about the newer platforms with more white space and more cold starts, you're going to grow faster. But Power being, I think, one of our most mature, continues to be one of the leaders in the pack on growth. So it's across the board.
It's partly driven by penetration and a big part of it driven by our go-to-market, right? So between the white space and our go-to-market are continuing to sell into our targeted customers, we're probably taking share as they maybe were using a myriad of smaller type providers. And I think the fact that we can bundle it's a big advantage for us and why we're seeing that growth and have confidence in that future growth.

Scott Schneeberger

Thanks. And just one more on Specialty and ancillary kind of following up a bunch of questions there, too. But it seems like you all maybe have more to say there. It sounds like you're digging in perhaps acquisitions can help in that space or maybe some internalization delivery or set up of maybe less outsourcing, and maybe we hear from this from you all in the future, but I got the sense on earlier questions, there's more you could and would be open to saying, so that's why I'm asking it now.

Matthew Flannery

Yeah. I mean, certainly, we're always looking at ways that we can be more efficient, and insourcing is one of the ways that we'll do that. And we'll always balance what we think we are a better provider at versus what we can do. And even within the fueling, we'll use some outside party stuff, that's certainly depending on the need.
So it is going to be a mix. We do look at in some of our businesses, how can we be a better provider of these ancillary services, but I wouldn't point to any specific targets right now for a couple of reasons, but it's a good thought that you're having and consistent with our continuous improvement mindset of how can we do better from a service and margin perspective.

Scott Schneeberger

Got it. Thanks, Matt. Appreciate it.

Operator

Steven Ramsey, Thompson Research Group.

Steven Ramsey

Hi, good morning. I wanted to think about cross-selling. You've done well going from Gen Rent to Specialty. I'm curious if there's any color on cross-selling within Specialty with these more mature categories and then being able to add on some of the less mature groups within that segment?

Matthew Flannery

Yeah. It's a great point. It's something that focused on with our teams and something that we're working on actively. Some of these actions naturally go together, right? And when we think about how we've organized our ROS business, right, which was our restroom trailers and porta johns along with our modular business, you would think set up some job sites. So that's one of the areas where we've really focused on putting those together.
When we think about what we did with our pump business when we bought Baker and make a full fluid solutions. Now we've made it a whole separate region of fluid solutions, right, to treat transfer and contain. So there's many examples of us doing that, and we continue to try to find as many opportunities we can to make it seamless for the customer. And that's really what the bundling is all about. If we make it easier for them to streamline their vendors and to have one solution provider, it's a win-win situation.

Steven Ramsey

Okay. That's helpful. And then one other thing on the ancillary re-rent, comp getting relatively tough for the last four quarters, 2% to 3% benefit on top of -- into rental revenue. Do you expect that same level of benefit in the rest of the year?

William Grace

That's a great question, Steven. And that's something we're trying to figure out at the end of the day. It is being responsive to what customers are asking of us. And if we just look at that in the first quarter, we grew 19% ancillary versus 5% OER. So call it a 4 times relative rate. Part of that was, of course, Yak. But last year, we grew at about, I want to say, 2 times the rate overall.
So we've seen an acceleration thus far, but it's hard to predict exactly how this will play out. It is part of our strategy. You heard Matt talk about that. This is being that partner of choice to our customers and making their life as easy possible. So time will tell and we'll have an update in July, obviously, about how this progressed in the second quarter.

Steven Ramsey

That's excellent. THanks.

Operator

Thank you. And gentlemen, that's all the questions we have this morning. Mr. Flannery, I'll turn things back to you, sir, for any closing comments.

Matthew Flannery

Thank you, operator. And to everyone on the call, we appreciate your time. I'm glad you could join us today. As always, our Q1 investor deck has the latest updates, and Elizabeth is available to answer your questions. So please stay safe, and we look forward to speaking to you all in July. Operator, you can now end the call.

Operator

Thank you again, ladies and gentlemen, that will conclude today's United Rentals' earnings conference call. Again, thanks so much for joining us, everyone, and we wish you all a great day. Goodbye.