Good morning, and welcome to the United Rentals Investor Conference Call. Please be advised that this call is being recorded. Before we begin, 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, 2020 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 has no obligation and makes no commitment to update or publicly revise 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 these reconciliation from our 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 Jessica Graziano, Chief Financial Officer.

I will now turn the call over to Mr. Flannery. Mr. Flannery, you may begin.

Matthew J. Flannery - President and Chief Executive Officer

Thank you, operator, and hello everyone. Thanks for joining us this morning. Three months ago we said that 2021 was shaping up to be a great year for United Rentals, and that's still very much the case. Our operating environment continues to recover. Our customers are increasingly optimistic about their prospects and our company is continuing to lean into growth from a position of strength as a premium provider and our industry's largest one-stop shop, with the supply leader in the demand environment, and we've leveraged that to deliver another consecutive quarter of strong results.

The big themes of the second quarter are strong growth in line with our expectations and robust free cash flow, either after the step up in our capex, positive industry indicators, including a strong used-equipment market, where pricing was up 7% year-over-year. The expansion of our go-to-market platform through M&A and cold starts. This is timed to the broad based recovery in demand and our focus on operational discipline, as we manage the increase in both volume and capacity, while driving fleet productivity of nearly 18%. Another key takeaway our safety performance and I'm very proud of the team for holding the line on safety with another recordable rate below 1, while at the same time managing a robust busy season and on-boarding our acquired locations. This includes General Finance, which we acquired at the end of May. As you know, this was both a strategic and financial move designed to build on our strength. The acquisition expanded our growth capacity and gave us a leading position in the rental market for mobile storage and office solutions. The integration is going well. And while we still have more work to do, we're moving steadily through our playbook.

As you saw in our release, we raised our outlook to include the expected impact of General Finance and other M&A we closed since the first quarter. It also includes some additional investments we plan to make in capex that will serve us beyond 2021. This outlook follows the higher guidance we issued in April when we raised every range compared to our initial guidance. So as you can see, we're tenacious about pursuing profitable growth and the investments we're making will still have a positive impact on our immediate performance as well as future years.

And before Jess gets into the numbers, I want to spend a few minutes on our operating landscape. Almost all of the challenges of 2020 have right of themselves. We have a better line of sight and so to our customer. When we surveyed our customers at the end of June, the results showed that over 60% of our customers expect to grow their business over the coming 12 months, which is a post-pandemic high. And notably, only 3% saw a decline coming over the same period. Customer optimism is a great barometer and the trends we see in the field support their view. 2021 is a pivotal year for us. It confirms our return to growth, including our 19% rental revenue growth in the second quarter. I'll point to some of the drivers of that growth, starting with geography.

The rebound in our end markets continues to be broadly positive with all geographic regions reporting year-over-year growth in rental revenue. Our Specialty segment generated another strong performance with rental revenue topping 25% year-over-year, including same-store growth of over 19%. And importantly, we grew each major line of business by double digits, which underscores the broadness of the demand. For years now, our investment in building out our specialty network has been a key to our strategic position. These services differentiate our offering to customers and add resilience to our results throughout the cycle and this is true of cold starts as well as M&A. This year, we've opened 19 new specialty branches in the first six months, which puts us well on our way to our goal of 30 by year-end. We're also investing in growth in our General Rental segment, where the big drivers are non-res construction and plant maintenance. Both areas a continuing to gain traction and most of our end markets are trending up. Verticals like chemical process, food and beverage, metals and mining, and health care all showing solid growth. And while the energy sector remains a laggard, it was up year-over-year for the first time in eight quarters. We also have customers in verticals that are less mainstream, like entertainment, where demand for our equipment on movie sets and events more than doubled in the quarter. And while it's a relatively small part of the revenue, it's a good sign to see it come back.

I also want to give you some color on project types. There are two takeaways, the diversity of the projects in Q2 and the fact that each region contributed to growth in its own way. The recovery has taking root across geographies and verticals on both coasts, with solid activity in heavy manufacturing, corporate campuses, schools and transmission lines. In this quarter, we're also seeing project starts in power transit and technology. These job sites are using our General Rental equipment and our trench safety and power solutions.

And fluid solutions has seen a rebound in chemical processing and sewer [Indecipherable] as well as mining. These are just a few of the favorable dynamics in a very promising up cycle. And I want to put that in context. 2020 was about the temporary loss of market opportunity, particularly in the second quarter. Now, the pendulum is swinging back. And 2021 is about locking in that opportunity within the framework of our strategy and our team is managing that extremely well. One proof point is our financial performance and the confidence we have in our guidance. Another is our willingness to lean into growth today to create outsized value tomorrow. And it's about more than capex and cold starts. We're constantly exploring new ways to capture growth by testing new products in the field, developing new sales pipelines and forging digital connections with customers. And finally, the most important proof point is the quality of our team. You could see that reflected our safety record and our strong culture. And here's the thing to remember about 2021. This is still the early innings of the recovery. We're committed to capitalize on more and more demand as the opportunity unfolds. We see a long runway ahead to drive growth, create value and deliver shareholder returns.

I'll stop here and ask Jess to go through the numbers and then we'll take your questions. Over to you, Jess.

Jessica T. Graziano - Executive Vice President and Chief Financial Officer

Thanks, Matt, and good morning, everyone. When we increased our 2021 guidance back in April, we expected a strong second quarter supported by the momentum we were seeing to start the year. We're pleased to see that play out as anticipated with the second quarter results. And importantly, we're also pleased to see the momentum accelerate in our core business and support another raise to our guidance for the year. We've also added the impact from our acquisitions, notably the General Finance deals. And I'll give a little bit more color on our guidance in a few minutes, but let's start now with the results for the second quarter.

Rental revenue for the second quarter was $1.95 billion, that's an increase of $309 million or 19%. If I exclude the impact of acquisitions on that number, rental revenue from the core business grew a healthy 16% year-over-year. Within rental revenue, OER increased $231 million or 16.5%. The biggest driver in that change with fleet productivity, which was up 17.8% or $250 million, that's primarily due to stronger fleet absorption on higher volumes in part as we comp the COVID-impacted second quarter last year. Our average fleet size was up 0.2% or a $3 million tailwind to revenue and rounding out OER, the inflation impact of 1.5% cost us $22 million. Also within rental, ancillary revenues in the quarter were up about $65 million or 31% and rerent was up $30 million. And we'll talk more about the increase in ancillary revenues in a moment.

Used equipment sales came in at $194 million, that's an increase of $80 million or about 10%. Pricing at retail in the quarter increased over 7% versus last year and supported robust adjusted used margins of 47.9%, and that represents a sequential improvement of 520 basis points and is 190 basis points higher than the second quarter of 2020. Used sales proceeds for the quarter represented a strong recovery of about 59% of the original cost of fleet that was on an average over seven years old.

Let's move to EBITDA. Adjusted EBITDA for the quarter was $999 million, an increase of 11% year-over-year or $100 million, that included $13 million of one-time costs for acquisition activity. The dollar change includes a $141 million increase from Rentals and in that, OER was up $125 million, ancillary contributed $10 million and rerent added $6 million. Used sales were tailwind to adjusted EBITDA of $12 million and other non-rental lines of business provided $6 million. The impact of SG&A and adjusted EBITDA was a headwind for the quarter of $59 million, which came mostly from the resetting of bonus expense. We also had higher commissions on better revenue performance and higher discretionary expenses like T&E that continue to normalize. Our adjusted EBITDA margin in the quarter was 43.7%, down 270 basis points year-over-year and flow-through as reported was about 29%.

Let's take a closer look at margin and flow-through this quarter. Importantly, you'll recall that our COVID response last year included a swift and significant pullback in certain operating and discretionary costs that was especially pronounced in the second quarter and is impacting flow-through this year as activity continues to ramp and costs continue to normalize. We expect this will play through the rest of the year, notably in the third quarter.

And specific to the second quarter, we've shared in previous calls that one of the costs that will reset this year is bonus expense from the low levels incurred last year. As a result, we had an expected drag in flow-through in the second quarter as we reset and now true up this year's expense. Flow-through and margins were also impacted as anticipated by acquisition activity, including the one-time costs I mentioned earlier.

I also mentioned higher ancillary revenue in the second quarter, which represents in part the recovery of higher delivery costs. Delivery has been an area where we've seen the most inflation pressure, including higher costs for fuel and third-party hauling. While recovering a portion of that increase in ancillary protected gross profit dollars, it impacted flow-through and margin this quarter as a pass-through, and we expect to see that play out over the next couple of quarters as well. Adjusting for these few items, the implied flow-through for the second quarter was about 46% with implied margins flat versus last year. With our expenses normalizing, that reflects the cost performance across the core that came in as expected.

I'll shift to adjusted EPS, which was $4.66 for the second quarter, including a $0.13 drag from one-time costs. That's up $0.98 versus last year, primarily on higher net income.

Looking at capex and free cash flow. For the quarter, gross rental capex was a robust $913 million. Our proceeds from used equipment sales were $194 million, resulting in net capex in the second quarter of $719 million, that's up $750 million versus the second quarter last year. Even as we've invested in significantly higher capex spending so far this year, our free cash flow remains very strong at just under $1.2 billion generated through June 30th.

Now turning to ROIC, which was a healthy 9.2% on a trailing 12-month basis. Notably, our ROIC continues to run comfortably above our weighted average cost of capital. Our balance sheet remains rock solid. Year-over-year, net debt is down 4% or about $454 million. That's after funding over $1.4 billion of acquisition activity this year with the ABL. Leverage with 2.5 times at the end of the second quarter. That's flat to where we were at the end of the second quarter of 2020, and an increase of 20 basis points from the end of the first quarter this year, mainly due to the acquisition of General Finance in May. I'll look at our liquidity, which is very strong. We finished the quarter with over $2.8 billion in total liquidity. That's made up of ABL capacity of just under $2.4 billion and availability on our AR facility of $106 million. We also had $336 million in cash.

Looking forward, I'll share some color on our revised 2021 guidance. We've raised our full year guidance ranges at the midpoint by $350 million in total revenue and $100 million in adjusted EBITDA, as we now expect stronger double-digit growth for the core business in the back half of the year. Our current guidance also includes the impact of acquisition activity since our last update, predominantly to include General Finance. That increase for acquisitions reflects $250 million in total revenue and $60 million in adjusted EBITDA, which includes $15 million of expected full year one-time costs. Additional capex investment will help support higher demand. To that end, we raised our growth capex guidance by $300 million, a good portion of which reflects fleet we are purchasing from Acme Lift. While the fleet will provide some contribution in 2021 and is assumed in our guidance, we expect to see the full benefit next year. Finally, our update to free cash flow reflects the additional capex we'll buy as well as the puts and takes from the changes I mentioned. It remains a robust $1.7 billion at the midpoint and we'll continue to earmark our free cash flow this year towards debt reduction to enhance the firepower we have to grow our business.

Now let's get to your questions. Jonathan, would you please open the line.

Question & Answers

Operator

Certainly. [Operator Instructions] Our first question comes from the line of David Raso from Evercore ISI. Your question please.

David Raso - Evercore ISI - Analyst

Hi, thank you for the time. A bigger picture question about the margins. I think investors are wondering out there about how the margins can improve from current levels? Over the last, say, four years or so, we've seen steady degradation on the rental margins, in particular even the EBITDA margins had been under a little pressure. I'm just trying to think through like - when you think of the five large acquisitions you've done over the last few years, right? Starting with NES and kind of running through Gen Finance. Time of acquisition, you bought over, say about $2.25 billion revenues and those EBITDA margins were only 38, right?, and used to run high 40. So I appreciate that's a lot of revenue you bought that's dragging down the margin. But when I look at the business today moving forward, how do we think about the rental margin structurally? If you want to leave that all the way into EBITDA, but really in particularly the rental margins is just as much about just a shift toward specialty, might lower margins but improve returns on capital just so we can kind of level set how we should think about not just topline growth growing earnings but margins.

Matthew J. Flannery - President and Chief Executive Officer

Sure, David. A great question. Thanks for taking a longer-term view of this because that's really how we manage and see the business. And although we have some short-term pressures when we acquire businesses that come in that lower margins. If you look over our experience of these acquired assets and what we've done with the business pro forma, it validates why we do M&A. We feel we can be a better owner. We could bring more value to those assets. If it drops EBITDA margin for a period of time, that's one metric, but we also are very focused and quite frankly model our M&A deals on returns, so, and our turns continue to be well of our cost of capital. So I don't think rental margin degradation is a concern for us. We will continue to drive fleet productivity to overcome natural inflationary costs as well as efficiencies in our operations and we think that's how we've taken these businesses that are in the '30s, yet maintain mid 40s, depending on time of the year to higher EBITDA margin and that's what we do, right? So it's a great question and I think sometimes when people are looking at the headline, they may miss the fact of what we've done with these businesses pro forma is driving more value.

Jessica T. Graziano - Executive Vice President and Chief Financial Officer

And if I can ask one thing, Dave, Good morning. Is that to the earlier part of your question, there is no structural change in the way that we're managing the business and we're looking at the business longer-term and we're thinking about the continued margin that we believe we'll be able to generate going forward.

David Raso - Evercore ISI - Analyst

But fair to say from that answer. Structurally, you don't think this is driving margins not, it's a matter of improving returns on capital, better cash flow and obviously what you do with the cash flow from capex to M&A is how you drive earnings more so than thinking of this as a margin expansion. Is that a fair generalization?

Matthew J. Flannery - President and Chief Executive Officer

We still are focused on margin expansion in the individual businesses, right? So some of those structurally come in a little bit differently to your point earlier, some of the acquired assets, GFN being in the most recent one, as an example. That's never going to be a 50% margin business, but it's going to be a heck of a good return. So that's really what we're saying. No structural issues that we're having here to continue to focus on margin expansion.

David Raso - Evercore ISI - Analyst

Yeah, I mean, look everybody wants everything right. You want margins, you want the returns, you want the cash flow. But I'm seeing structurally of your pecking order feels like this is more about returns cash flow and then grow the business utilizing that cash flow effectively is what I was trying to generalize. And that point when we think of '22 versus '21, and if you can help us with on framework in the sense of resetting the bonus pool, how do we think about how '22 starts initially? Other cost that came back or even how you think about delivery costs on the ancillary? Can you just give us some thoughts around how we should think of puts and takes on '22 versus '21, in particularly regarding regarding costs?

Matthew J. Flannery - President and Chief Executive Officer

Yeah, so without even attempting to try to give guidance in '22, I think it's clear to say we feel good about the environment. We wouldn't be leaning into this capital spend in the M&A if we didn't, right? That's not just a '21 experience and we will lap some of the headwinds that we've had this year from a comp perspective and specifically in this quarter as Jess will continue to talk through as she did in her opening remarks. But we feel good about '22. We feel good about the prospects. As I said in my opening remarks, we think we're in the early innings of the cycle here. So we're excited about the prospects.

David Raso - Evercore ISI - Analyst

Any color, Jess on the cost so. I mean, I appreciate Matt's comments, but that's little bit of a top comment, which I think at the moment folks aren't really pushing back on that. They're just trying to think about some leverage as well ideally, and just anything you can do on the bonus pool and other cost we can be thoughtful about how you're lining up your your delivery cost for next year, any change, and how you're contracting things out or any color would be appreciated? Thank you. That's it from me.

Jessica T. Graziano - Executive Vice President and Chief Financial Officer

Sure. It's a little too early for us to start to find on any kind of guide numerically right of where we think some of those expenses are going to go as far as how the bonus will play through next year compared to this year, and even what the inflation environment is going to look like next year. I think it's anybody's guess right now as - if there's still be pressure in delivery because there's pressure in other places. I think the takeaway for us is we're going to continue to respond the way we have, right, in looking to pass through and mitigate some of the inflation pressures that we're seeing right now, particularly in delivery and just as we even think about where all the pressures could come from in looking to how the business will be able to respond to continue to drive the kind of profitability that we can across the business. So it's too early for more specifics than that, but I can tell you we're going to continue to be focused on through the planning process, looking at all of those inputs and managing them appropriately.

David Raso - Evercore ISI - Analyst

All right, thank you for the time.

Matthew J. Flannery - President and Chief Executive Officer

Thanks, David.

Operator

Thank you. Our next question comes from the line of Mircea Dobre from Baird. Your question please.

Mircea Dobre - Robert W. Baird & Co. - Analyst

Yes, good morning, everyone.

Jessica T. Graziano - Executive Vice President and Chief Financial Officer

Hi, Mircea.

Mircea Dobre - Robert W. Baird & Co. - Analyst

So sticking with this discussion on costs, I think I heard Jessica commenting that the flow-through on EBITDA in the third quarter was going to be relatively modest as well, maybe you can put a finer point here. And I'm curious on the SG&A side, you talked about truing up on a bonus pool. Is that a comment that impacts Q3 as well or was that just for Q2 specifically?

Jessica T. Graziano - Executive Vice President and Chief Financial Officer

Hey, Mircea, good morning. So let me start with the third and fourth quarter, and actually I'll take it from the perspective of the back half, right? We'll talk about the phasing in a second. But just to give a little bit of color behind what's implied and yeah, I'll start with my normal call out not to anchor to the midpoint here. But let me use the midpoint just to give some color behind those, the bonus dynamic and even some of the acquisition impact that we'll have in the back half. So if I use the margin at the midpoint, the - that half implied margin would be down about 120 basis points for us, and that's going to generate flow-through again at midpoint of about 39%. So think about margins, 46.2%. That headwind is going to continue for us more so in the third quarter than in the fourth as we think about the comp to last year where the bonus was, I'll call it abnormally low, right? Lower than normal. So if you think about that bonus headwind as well as the incentivated headwinds in flow-through and margin that we get from the acquisition activity, that margin goes from down 120 basis points to up 40 basis points or margin implied in the back half at midpoint of 47.8% from 46.2%. Flow-through at the midpoint is about 50% adjusting for those two items. So those obviously will be an impact for us. And as you mentioned, the quarterly dynamic will play out if you just think about the comps we have again the belt tightening that we did last year, the third quarter will have more flow-through pressure than you'll in the fourth. And then the other thing I just want to mention is third quarter, just to be helpful in the modeling is third quarter last year we had $20 million of one-time benefits from insurance recoveries. And those are not expected to repeat.

Mircea Dobre - Robert W. Baird & Co. - Analyst

Okay. Yes, thank you, by the way for that, the reminder. Then I guess to try to ask David's question maybe a little bit differently, again sticking with SG&A. When we're looking at 2022, is it fair for us to think that you guys can get some leverage on this line item that revenue growth can exceed whatever inflation you're going to have an SG&A. Is that how you're intending to run the business? Or are there some other things happening in here that might make that difficult to achieve?

Jessica T. Graziano - Executive Vice President and Chief Financial Officer

Yes, I think that's definitely fair, and I'd be remiss not to point to the 2021 dynamic is one that in part is because of the comp in 2020, right? If you think about sort of the normal course in 2022, it gets back to us, our comment about, there is no real structural change in the way we're planning to run the business in '22.

Mircea Dobre - Robert W. Baird & Co. - Analyst

Understood. Then lastly for me, infrastructure is once again in the headlines and I think by now we all sort of had a lot of time to kind of ponder as to what this would mean. So I'm sort of curious from your perspective If something were to actually pass and become legislation, how if at all do you plan to change your strategy, your fleet, your go-to-market as a result? And at this point, have you sort of anticipated any of that in your capex plans or the way you're kind of starting to think about framing internally?

Matthew J. Flannery - President and Chief Executive Officer

It's a great question, Mircea. We started focusing on this, preparing for this all the way back, if you recall from the NES acquisition. Well, that added to some of our dirt engaging fleet experience that team brought with it and product they brought with which would be played into infrastructure and we've actually been growing our infrastructure structure business really because the demand is there, right? We all know the need is there. So now we would view this as icing on the cake. As far as fleet profile changes, I don't - I'll hazard to guess, so say 80% of the fleet that we would use to support and that we do use to support infrastructure is core fleet. So we have - we have very fluid fleet and very fungible fleet to support this vertical on the boundaries, yeah we would certainly as things started to move, buy some more attenuated trucks, buy some message board, some infrastructure specific fleet. But outside of that, most of what we serve that end market with is core fleet of our very fungible assets. But we feel we're really well positioned not just talent wise, not just knowledge wise, but also relationship wise. We deal with these large customers, these large civil contractors. So we feel good whenever the money get released and gets past, we'll be able to help control waste in that category.

Mircea Dobre - Robert W. Baird & Co. - Analyst

Okay, thank you.

Matthew J. Flannery - President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Ross Gilardi from Bank of America. Your question, please.

Ross Gilardi - Bank of America Merril Lynch - Analyst

Good morning, guys.

Matthew J. Flannery - President and Chief Executive Officer

Good morning, Ross.

Ross Gilardi - Bank of America Merril Lynch - Analyst

We had a couple of specialty rental questions just on growth. And aside from General Finance, what are some of the larger growth opportunities in your legacy specialty rental business? And I'm thinking specifically of trench and hoping you can comment there EPG [Phonetic] and he is talking about bearing 10,000 miles of power lines in California to curtail forest fire risk. I mean, is a enormous project if it actually happens. It's all over the headlines. I don't know that many people would necessarily connect the dots with the United Rentals on something like that. But is that the type of project you're trench business would be potentially engaged in? And beyond that, like pertaining to all the stuff and headlines about forest fires, hurricanes, and routes and everything. What about disaster recovery and how big that business is and how big it can become?

Matthew J. Flannery - President and Chief Executive Officer

Sure. And you made a great point about trench and how we would do with that type of business. And frankly, a lot of infrastructure business, right? Really plays into our specialty network as well, but also our Gen rent products. And when we think about emergency response, we've really built up that need, certainly Power & HVAC team has done a great job responding to that. But whatever the needs are, our fluid solutions team has really broaden their network of customers they serve back in the day when we basically bought an oil and gas pump company. So this type of spreading the product knowledge and breadth across our broader network and relationships to serve these unique end markets is really part of the specialty strategy for us. So, thanks for giving me that soft comments [Phonetic] it certainly is really a - really a great part of our growth strategy for specialty.

Ross Gilardi - Bank of America Merril Lynch - Analyst

But that goes specifically. What about bearing, just - like thousands of miles of power line, like - is that something you'd be engaged in? Is that like - would that be kind of a common project for your trench business? All the dirt that's got to be dug for that and it's - I'm just trying to rather than just talking about this all in very much generalities, trying to talk about in relation to like a big project, it's all over the headlines that we can all kind of relate to a little bit more concretely.

Matthew J. Flannery - President and Chief Executive Officer

Yeah, I'm sorry. Absolutely. So that is absolutely true. So one that - maybe we take for granted, but absolutely would be a higher participation of trench than anywhere.

Ross Gilardi - Bank of America Merril Lynch - Analyst

Okay, great. And then just studio entertainment and live events. I mean, you've got a little bit of a presence there, but the absence of a bigger presence was - it seems like it was a key factor that might have caused you to lag some of the competition on topline growth at least off of the bottom. Do you feel like you need to get bigger in that market? And are there opportunities to do so via acquisition?

Matthew J. Flannery - President and Chief Executive Officer

We certainly, it's a market that we continue to get bigger and I think you just saw we're the official supplier of NASCAR now. So we keep adding to this portfolio organically. We don't feel aching need in the space, but we certainly organically are growing that space, have some great people associated with it that continue to grow that space. If an M&A opportunity arose, that was positive. I think you always know we have a robust pipeline we look at, but it's not strategic necessary focus. Certainly an opportunity that we would want to uncover organically and M&A if it arose.

Ross Gilardi - Bank of America Merril Lynch - Analyst

Thank you.

Matthew J. Flannery - President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Jerry Revich from Goldman Sachs. Your question, please.

Jerry Revich - Goldman, Sachs & Co. - Analyst

Yes, hi, good morning, everyone.

Matthew J. Flannery - President and Chief Executive Officer

Good morning, Jerry.

Jerry Revich - Goldman, Sachs & Co. - Analyst

Matt, Jess, I'm wondering if you could just talk about your capital deployment options now that you have a bigger footprint in terms of broadening the specialty business with GFN and new regions as well. Where are you folks optimistic about being able to put capital to work in a way where United Rentals is a good owner for additional assets now that you have those additional regions and products? Thanks.

Matthew J. Flannery - President and Chief Executive Officer

Well, certainly GFN, right? So this is an absolute growth play for this acquisition, not synergy play, not a consolidation play. So that would be the most obvious area because we really think we could spread that throughout our network and fill in the blanks in their distribution points. Continued focus on penetration within our existing businesses and someone had asked earlier about specialty growth. We continue to grow specialty strong double digits. Because although we're very, very mature in some of those markets, there's still opportunity to continue to penetrate further in those spaces. And so I would say all of the above. And then we'll see. We're not ready yet to declare, but we'll see about some of the other opportunities that are out there. We're certainly going to fund organic growth in a very aggressive way because we think coming off of this disruption that we had last year, we're seeing the opportunity to refresh the fleet, get the fleet out there and continue to serve more customers.

Jerry Revich - Goldman, Sachs & Co. - Analyst

And on the GFN acquisition, Jessie, you spoke about good line of sight on getting GFN margins closer to industry level margins and now that you've owned the asset for a little bit, I'm wondering if you could talk about and just flesh that out in terms of what do you think of the logistics opportunity set, the opportunity to leverage your pricing tools? I know it's early, but given we have a little bit more visibility than we did at the time the acquisition, I'm wondering if you might just parse out a little bit for us?

Jessica T. Graziano - Executive Vice President and Chief Financial Officer

Sure. Good morning. So I think - I can tell you the - we are doing the system integration in North America for General Finance this weekend, right? And that's a great step towards continuing to leverage the United Rentals tools and support the growth and the opportunities and the efficiencies, right? that we can share with that business as they grow. Obviously, as Matt mentioned, with this being a growth play, we're going to look for every opportunity we can to grow as productively and as efficiently as we can and to work through how the extension of those branches, right? If you think about part of the growth that we talked about was cross sell in existing United business, but the other part of the growth was to expand that business into more MSAs where they're currently orange [Phonetic] right. That's an opportunity for us to leverage the efficiencies and the productivity that we have now in our branches as we continue to support those geographic extensions for them. So we still feel very comfortable with our original thesis of getting those margins up to be closer to where that business and the peers in that business operate. And again, very excited about looking under the hood over the last month and a half, very excited about getting that going, its been possible.

Jerry Revich - Goldman, Sachs & Co. - Analyst

Terrific. I appreciate the discussion.

Matthew J. Flannery - President and Chief Executive Officer

Thanks, Jerry Thanks.

Operator

Thank you. Our next question comes from the line of Tim Thein from Citigroup. Your question, please.

Timothy W. Thein - Citigroup Investment Research - Analyst

Thank you. Good morning. Matt, the first one was just on - just trying to kind of talk through the opportunity for fleet productivity in the back half of the year and obviously the comps get tougher, but as you think about kind of the components of that if, I mean, I know my estimates are right, but I would assume that from a time standpoint you're running at or near all-time high level. So obviously that - well, I would assume from here rate and mix are likely to play a bigger role, but maybe you can just touch on each of those in terms of where you and how you see the opportunity in the back half of the year?

Matthew J. Flannery - President and Chief Executive Officer

Sure. And so we're very pleased with fleet productivity and we have expectations for high fleet productivity in the back half. But just for clarity, that very 18% number is partially driven by the easy comp that we had in Q2. So we don't expect to have those type of double-digit fleet productivity improvements in the back half of the year, but still significant fleet productivity improvements. A lot of the absorption opportunity was certainly the big driver here in the near-term, but we think market conditions without getting into each individual component, we think the market conditions, and frankly the industry's discipline is very favorable towards continued fleet productivity, and most importantly, the demand is there. So we really feel good about it. Although I don't think we'll see 18% again. I do think that we will see strong fleet productivity and that's embedded in our guidance for the back half of the year.

Timothy W. Thein - Citigroup Investment Research - Analyst

Got it, okay. And then on - as you think about the volatility that we've seen this year and not just in terms of just commodity costs and how that's impacting equipment in some of your supply costs, but as well as just the availability of new fleet from the OEMs. Is that, do you expect that will influence how you'll approach the timing as you get closer to that initial planning in terms of capex planning for 2002? As well as maybe how you're thinking about used sales and perhaps maybe you flex that fleet age higher and I'm sure there is the push and pull here, but if the use market is, if it remains as strong as it is, which obviously will depend somewhat on new supply availability. But does that impact how you're again thinking; one, about the timing, the initial budgeting for next year?. And then two, just how you're thinking about managing the fleet in this environment of super type used markets. Thank you.

Matthew J. Flannery - President and Chief Executive Officer

Sure. So I'll take the latter part first. I think, and you see a little bit play out. We'll see a little bit play out in Q3 as in Q2. The used metering, just to use a work to characterize what you're saying is more about just time utilization, right? as we continue to drive high demand and high use of our assets, then they're not as available for sale. But the end market is strong there. So I think we'll continue to fill that demand as versus aged fleet. I don't think that's necessary.

And on the first part on the supply side, we've got some really good partners and good suppliers out there and I think they'll get their arms wrapped around these supply chain disruptions that everybody has been dealing with in every industry. But commodities probably will right size a little bit as we get to the end of this year. I'm assuming that our vendors are working. I'm not assuming, I saw them working really hard to continue to improve any supply chain disruptions they had. So I'm not really seeing that as a barrier to us supporting our customers next year. If it is, we will adjust. But we're not - that's not in our calculus right now and certainly not to age the fleet.

Timothy W. Thein - Citigroup Investment Research - Analyst

Got it. Thank you.

Matthew J. Flannery - President and Chief Executive Officer

Sure.

Operator

Thank you. Our next question comes from the line of Ken Newman from KeyBanc Capital Markets. Your question, please.

Kenneth Newman - KeyBanc Capital Markets - Analyst

Hey, good morning, guys.

Matthew J. Flannery - President and Chief Executive Officer

Good morning, Ken.

Kenneth Newman - KeyBanc Capital Markets - Analyst

I kind of want to piggyback off that last question a little bit, you know. One of your big suppliers talked this morning about some deliveries having slipped due to supply chain tightness. And I guess I am curious if you have any comment on equipment availability that you're seeing today and are you getting equipment on time? Obviously, you took the opex guide this quarter and I'm curious; one, how did you, how are you able to pull that off? And two, where do you see the opportunities for potentially increasing that fleet side again for the year end?

Matthew J. Flannery - President and Chief Executive Officer

Sure, Ken. So we still have a pretty big range. So within that, right? At the midpoint, you see - you all know about the $300 million change that we made. Although a lot of that is the active fleet that we acquired that we've so talked about, there's still a portion of that that's just organic. But even raising that guide in April tells you that we feel good about our ability and our team's ability to source the equipment, that means we need to supply customers. So we understand the noise. Maybe it's our relationships, maybe it's our scale or leverage, but we've been able to exceed when we sat here in January, what we originally expected to purchase this year. So I think that is good story. And I get the challenges that everybody has, but we've got what we want. Yeah, there has been some slippage. And if you ask me within a quarter, did stuff come in a few weeks later, absolutely. The team worked through it. We drove higher fleet productivity on the assets that we had, and this is part of those strong supply demand and industry dynamics that I referred to in the earlier question about fleet productivity. So nothing that's inhibited of supporting customers, but something we'll continue to talk our suppliers that how can we help them help us. And that's how we'll look at it going forward.

Kenneth Newman - KeyBanc Capital Markets - Analyst

Right. I know you're not ready to give guidance on capex or fleet growth next year. But as we kind of think about the normal course of the ordering patterns, I mean do you - can you give us a sense of just how much of the production slots you've got for next year so far or is there any kind of sizing of the production slide that you're talking to suppliers in terms of just helping us kind of figure out just how tight is supply today and how hard is to get new equipment?

Matthew J. Flannery - President and Chief Executive Officer

Yeah, it's a little bit early for us. We're not planning process. But as far as the more strategic part of the conversation, our suppliers know us pretty well. They have a good idea of what categories we're turning. They have enough information to know what kind of fleets coming out of what we call rental useful life or are you well as we refer to. So they've got a pretty good idea and then it's just a growth path. How much outside of your replacement of your rental use of life assets, are you going to add. So 70% of the answer is there for them already, make more in some years if you're not growing a lot. So we'll get through the planning process, see how we work through this year. But we don't see a need to actually lock in deals with which vendor is going to supply what. So fourth quarter like we normally do. They all certainly are much more keen to what's the opportunities and our fleet team discuss that with them every week.

Kenneth Newman - KeyBanc Capital Markets - Analyst

Yeah. Last one from me. Jess, thanks for the clarification on the guidance bridge, particularly from the acquisition contributions. I'm curious could you clarify how much of the $250 million of incremental acquisition sales are expected to flow through equipment rental versus some of the other businesses or other channels?

Jessica T. Graziano - Executive Vice President and Chief Financial Officer

So in that number there's about $30 million of used sales.

Kenneth Newman - KeyBanc Capital Markets - Analyst

Got it. Thanks.

Matthew J. Flannery - President and Chief Executive Officer

Thanks, Ken.

Jessica T. Graziano - Executive Vice President and Chief Financial Officer

Thanks, Ken.

Operator

Thank you. Our next question comes from the line of Steven Fisher from UBS. Your question, please.

Steven M. Fisher - UBS Investment Research - Analyst

Great, thanks, good morning. Just wanted to follow-up on the acquisition impact here. It sounds like the market environment is continuing to get even better than it was a few months ago. So I guess I'm curious, I know it's still early, like GFN and Franklin. But I'm wondering to what extent the improvement in the markets could enable perhaps faster realization of the synergies on some of these acquisitions?

Matthew J. Flannery - President and Chief Executive Officer

Yes, certainly. So two totally different scenarios, right? Franklin is kind of scrambled egg in with the rest of the business already, so we are not even looking at standalone. Great acquisition by the way. I went visited some of these folks in the last two weeks and pleased with the facilities, quality of the team and everything. So they are all united right now and they're working hand-in-hand with the stores that we already had in that market.

GFN, just converting them this week the price. So we're going to convert and get them on our system this weekend. Dale and I attended a management meeting they had last week at the meet the team. So 100 of my new best friends and it was - we are really impressed with the quality and they're excited about moving forward, but it's too early to try to accelerate the timing one way or another. But I would say they are excited about growth prospects, they're excited about the opportunity to get more fleet to serve more customers. So the growth play is still very much in our sights, but a month in here, and I'm not even on the system yet. Would be premature for us to already ramp up the speed on that externally. Internally, maybe that if we told them about growth, growth growth by 10 times last week.

Steven M. Fisher - UBS Investment Research - Analyst

Got it. And I wonder if you can talk a little bit about the rerent market and I'm wondering if this is essentially a growing opportunity for you in any way?

Matthew J. Flannery - President and Chief Executive Officer

Yeah, so that it's not miss characterizing and this may be. I'm assuming this question is coming from the Acme acquisition. We're not necessarily buying those assets to rerent them. We do rerent every once in a while, and we do rerent for people every once in a while. But this was really us buying these assets because they were available and they really fit into our profile of the customers in the projects that we serve.

Steven M. Fisher - UBS Investment Research - Analyst

Got it. Thanks very much.

Matthew J. Flannery - President and Chief Executive Officer

Sure. Thank you.

Operator

Thank you. Our next question comes from the line of Neil Tyler from Redburn. Your question, please. Yes, good morning. Thank you. I suppose, Matt, sticking with the topic of the Millis deal. Could you talk a little bit more about the - how that perhaps came about? It seems to me that because of the unique opportunity that presented itself. And I think I think Jessica said in her introductory comments that the impact from those assets wouldn't really be meaningful this year and I wondered if I've interpreted that comment correctly, why that would be? And then secondly also on the topic of, I suppose gross capital. When you're thinking about the pace of new branch openings and presumably those branches before they mature, they have some drag on margin. Is it the - their own branches that you could potentially acquire in those locations or they're not for sale, at least not at the right price? Or is there something else about the sort of the greenfield development that is more attractive than acquiring? Thank you.

Matthew J. Flannery - President and Chief Executive Officer

Sure. Thanks. So a couple of questions there, so I'll break down. So let's talk about the Acme to clear up any misunderstanding. So within that $300 million of gross capex improvement, anywhere from $200 million to $250 million of that we've been telling people are going to be the Acme assets. The reason why that's not a definitive number is we are going to buy these throughout the rest of the year. Those assets, a lot of them that we don't have right now came off or has to come off rents from where they are to be serviced and delivered to us in rent ready good condition. And if they're not, we won't buy them. So where that ends up, we'll know a lot more when we all talk at the end of October. By then, hopefully we're primarily done. But because this is so back half loaded on the receipt of these assets, that's why you wouldn't see the normal correlating capex acquisition revenue impact that you'd see, let's say if we brought them in the second quarter. So I think that's what was referred to there and that opportunity came organically. We've had a relationship with them for many, many, many years and they're changing their model and we saw it as an opportunity to buy assets that fit our profile very well. So that's how that came up.

Your second question, I call it the build versus buy conversation. We absolutely have a dual-pronged approach to our strategy. As you know, M&A has been a big part of our business. I would even call the Franklin acquisition part of build diversified. We thought we had opportunity to do a better job in the markets they're operating in and there was an opportunity to happen to do that one in acquisition versus cold starts. But we are not going to wait just for the perfect deal to come along for us to have organic growth plans, whether it's specialty or markets where we think we have more opportunity within the overall portfolio in gen rent. So it's an analysis we do. It's part of our pipeline that build versus buy conversation. And we'll continue to look at it that way.

Neil Tyler - Redburn - Analyst

Thank you. That's helpful. Perhaps if I have just a chance to follow-up as well. On the topic of fleet utilization as it stands currently and I understand you don't provide those numbers, but it's clear that it's at a record level or close to. At what point does that start to introduce inefficiencies in the cost base? And if so, already are those represented in the higher delivery costs? Or is that just simply a cost of fuel and drivers?

Matthew J. Flannery - President and Chief Executive Officer

Yeah, I would say the latter for the delivery cost rate is such a quick ramp-up of the business when you look at it on a year-over-year perspective. But your question about utilization. We've always run higher utilization and we're not sharing individual components anymore. But from when we did, you all know that we've always shared higher utilization, that's part of what scale gives us. So we expect that. We continue to drive for that. And you don't see a correlating higher R&M so for that. That would be an area where you say you're maybe getting dilutive impact of running high utilization. We're not seeing that and I think we will continue to reinvent ourselves, get more efficiencies out of our business that scale they give us, options that haven't existed before to help continue to drive utilization, because that's a big component of fleet productive.

Neil Tyler - Redburn - Analyst

Okay, thank you. That's very helpful.

Matthew J. Flannery - President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Chad Dillard from Bernstein. Your question, please.

Chad Dillard - Bernstein Research - Analyst

Hi, good morning, guys. So my question was just on the bonus accrual. Can you quantify the dollar amount that you're seeing this year? And just to double check, it sounds like there was a pretty big catch-up in 2Q. What's the current for the balance of the year?

Jessica T. Graziano - Executive Vice President and Chief Financial Officer

So in that back half as I record earlier, Chad, there is about $45 million of year-over-year headwind that's coming from the bonus.

Chad Dillard - Bernstein Research - Analyst

Got you. And for the full year?

Jessica T. Graziano - Executive Vice President and Chief Financial Officer

For the full year is about $90 million.

Chad Dillard - Bernstein Research - Analyst

Okay, great.

Jessica T. Graziano - Executive Vice President and Chief Financial Officer

The way that'll face just based off the comp from last year and there'll be a little bit more in the third than in the fourth.

Chad Dillard - Bernstein Research - Analyst

Tot it. That's helpful. And then just a bigger picture question. Can you just talk about the customer acquisition cost for in brands versus e-commerce. How much of your sales are actually made through the e-commerce channel today? And I mean, is there any real preference from your end? Is there any margin differential? And I mean, I imagine that you want to segment that channel more towards your non-key account customers. Maybe you can talk about that strategy?

Matthew J. Flannery - President and Chief Executive Officer

Sure. I wouldn't say that this a cost play. I think it's about giving the customers the avenues to communicate with you that they prefer, right? So, and I've been very clear about that strategically that we want to - we want to engage the customer the way they want to engage. It's still not a big part of our revenue or to be fair, a big part of the industry's revenue, but it's continuing to grow. I think more importantly, specifically for the leader in the industry, you have to have that option available for the customer. And I will say the more and more than engage with it and a little bit of that ramped up during COVID, the more opportunity for growth there. I also think it's the information that some folks want to access information of their own time and their own way. And I think that's where the digital connections with customers really play out even more than just the acquisition. The acquisition is only a piece of the digital engagement with the customer, getting them to real-time information, getting them access information, they haven't had a big probably longer-term, the more valuable customer experience than just the acquisition.

Chad Dillard - Bernstein Research - Analyst

Great, thanks.

Matthew J. Flannery - President and Chief Executive Officer

Thank you.

Operator

Thank you. Our final question for today comes from the line of Scott Schneeberger from Oppenheimer. Your question, please.

Scott Schneeberger - Oppenheimer & Co. - Analyst

Thanks very much. Good morning. Just curious in times of - when business is going well, just supply-demand imbalance, delivery cost go up because of the third-party purchase transportation. I'm just curious - cyclically you encountered that, it's somewhat of a high-class problem. But how are you thinking about that strategically to mute it, having a very large, very large business, maybe to mute that in the future with employing more full-time drivers? And as a follow-up on this question, how are you seeing the labor market right now? And how are you feeling about staffing? And is that - is that going to be a problem going forward if we continue to see our demand environment? Thanks.

Matthew J. Flannery - President and Chief Executive Officer

Thanks. You're singing my tune here, Scott. I think as far as the in-sourcing, which was, we talked about a lot last year during COVID, keeping our people working showed us the opportunity. Now admittedly, the ramp-up came really quick. And now that we're in the peak season, outside services were necessary. But longer-term, I view this as an opportunity for us. The recruiting of drivers is probably the one area, not just for our industry. I think my trash pickup was late last month because they didn't have driver pickup. It's a problem for everybody. It's not going to be for us. So longer-term, I think this is an opportunity for us to continue to drive even more efficiency in our business by in-sourcing things that we were doing.

And as far as the labor market and overall, we're doing pretty well outside of being able to hire more drivers and even get trucks fast enough. I would say the rest of our labor situation, we feel really good about. Part of it is our low turnover. So we're not having to replace as many as if we had higher turnover. And frankly, part of it is decision we make to not do layoffs. So thank goodness we didn't do that because it would be really tough right now if we had mass layoffs during COVID and then still had to support this level of activity. So I feel really good about the way we've managed through it, but still opportunity to in-source in the future and we've been talking about about that a lot strategically here internal.

Scott Schneeberger - Oppenheimer & Co. - Analyst

Yeah, thanks.

Matthew J. Flannery - President and Chief Executive Officer

Thank you.

Jessica T. Graziano - Executive Vice President and Chief Financial Officer

Thanks, Scott.

Operator

Thank you. This does conclude the question-and-answer session. I'd like to hand the program back to management for any further remarks.

Matthew J. Flannery - President and Chief Executive Officer

Thanks, to operator and thanks everyone for joining us. And I'm sure you can hear and you can see we're full steam ahead in a favorable market and our Q2 investor deck reflects our recent expansion, so please download it from the website and feel free to reach out to Ted, if you have any other questions. Look forward to talking to you soon. Stay safe. And operator you can now end the call.

Operator

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UNITED RENTALS INC

Q2 2021

Earnings Transcript

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