EquipmentShare.com Inc. (EQPT) Earnings Call Transcript

Hello, everyone. Thank you for joining us, and welcome to the EquipmentShare.com Inc. Q2 earnings. [Operator Instructions]. I will now hand the conference over to Rhett Butler, VP of Investor Relations. Please go ahead.

Good morning, and welcome to EquipmentShare's Second Quarter 2026 Financial Results Conference Call. Joining me today are Jabbok Schlacks, Founder and Chief Executive Officer; Willy Schlacks, Founder and President; Mark Wopata, Chief Data Officer and Executive Vice President of Finance; and David Marquardt, Chief Financial Officer and Chief Accounting Officer. Last night, we issued our earnings press release and posted an earnings presentation to our Investor Relations website. We encourage you to review those materials alongside today's remarks. Please be advised that the call is being recorded. Comments made on today's call and responses to your questions may contain forward-looking statements within the meaning of applicable securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to our earnings press release, presentation and SEC filings for a discussion of those risks. EquipmentShare has no obligation to update or revise forward-looking statements made on this call. We will also reference certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are included in our earnings press release. With that, I'll turn the call over to Jabbok.

Thank you, Rhett, and good morning, everyone. EquipmentShare delivered another exceptional quarter, supported by healthy customer demand, continued market share gains and disciplined execution across the business. Rental segment revenue increased more than 39% year-over-year and mature rental locations generated 55% trailing 12-month margins. Mature locations now represent 56% of our rental network. Adjusted core EBITDA grew to $531 million. This is the metric we use to compare our performance with the rest of the rental industry that own and finance equipment, entirely on balance sheet. We also expanded our fleet under management to nearly $10 billion of OEC. These results reflect the strength and durability of our growth model. Approximately 91% of rental segment revenue comes from national and regional customers, supporting some of the largest and most complex construction projects in the country. As we expand into new markets, approximately 75% of first year rental segment revenue comes from customers already doing business with equipment share. We believe this reflects the strength of our customer relationships and create significant embedded earnings power as today's growth locations become tomorrow's mature markets. With our existing footprint, we believe at maturity, this is already a $4 billion core EBITDA business. Our capital allocation decisions also reflect the strength of the business and our long-term outlook. On July 9, our Board authorized a $500 million share repurchase program through December 31, 2028, providing flexibility to act on compelling opportunities or market dislocations while remaining within our leverage and liquidity targets. While we believe the authorization is a prudent tool to have, our priority remains investing in the significant organic growth opportunities ahead and continuing to transform the industry. Moving to our updated outlook. The midpoint of our rental segment revenue guidance implies approximately 33% growth for the full year. To put the second half in context, our guidance implies approximately 28% rental segment revenue growth in the back half against a second half of 2025 that itself grew approximately 36% and year-over-year as large-scale mega projects began ramping across our network. So while the full year guide implies some conservatism in the back half of 2026, it represents very strong growth against an exceptionally strong prior year comparison. There's also some timing to consider. Our 39% growth in the second quarter represented significant outperformance as fleet absorption ran ahead of plan due to accelerated mega project wins and our ability to deploy against that demand. In Q2 alone, we put more than $750 million of new fleet on rent for the first time, including fleet, we had originally expected to deploy in Q3. Importantly, the underlying demand environment remains strong. Our mega project pipeline continues to expand. We're seeing upward pressure on rental rates, and we have substantial new fleet coming into the business. We're excited about the momentum heading into the second half of the year and believe the investments we have made set the stage for strong performance in 2027. Moving down the P&L. We also continue to expect modest rental segment margin expansion in the second half. As our network matures, fleet absorption improves, and we realize additional operating efficiencies. Taken together, we believe our guidance reflects conservative assumptions for the second half. At the midpoint, we're guiding to approximately 28% growth against the prior year period that grew approximately 36%. Given the demand visibility deployed fleet and continued strength in our mega project pipeline, we believe the second half of the year is derisked, and we see a meaningful opportunity to outperform. Moving to the story of the quarter. The construction environment remains one of the strongest backdrops I've experienced in over 25 years in construction. Demand across our core nonresidential and industrial markets continues to be supported by large multiyear investments in data centers, advanced manufacturing, health care, energy and transportation infrastructure. These large complex projects require dependable service, coordinated execution and long-term customer partnerships, areas where equipment share continues to differentiate itself. Against that backdrop, we believe that equipment share continues to grow substantially faster than the broader rental market while maintaining pricing at or above our rental competitors, demonstrating that our growth is being driven by the value we deliver rather than competing on price. That outperformance is driven by 3 factors: First, we continue to win with national and regional customers, which represented approximately 91% of our trailing 12-month revenue as of June 30, 2026. These customers increasingly want larger strategic partners that can consistently support projects across multiple markets through one integrated platform. Second, we're expanding our geographic network in response to identifiable customer demand. We've opened 39 full-service rental locations year-to-date and remain on pace to meet our full year expectations. Importantly, more than 75% of first year revenue in new locations comes from customers already doing business put EquipmentShare elsewhere in our network. That customer pull is what gives us confidence to enter new markets and provides a strong foundation for those locations to scale. Third, T3 continues to deepen customer relationships by improving equipment visibility, reducing downtime and helping customers manage increasingly complex job sites. We continue to have strong visibility into customer demand and their project pipeline, reinforcing our confidence in the industry outlook. This is a different rental industry today. Projects are larger, longer duration, and more complex, giving us greater visibility into demand and confident to continue investing beyond the opportunity. One recent customer relationship illustrates how these advantages come together. Earlier this quarter, I visited one of the largest health care construction projects underway in the United States where EquipmentShare was selected as a sole source equipment partner across core fleet, industrial tooling, fueling, temporary power and job site technology. What stood out wasn't just the scale of the project, it was the depth of the partnership. The customer dedicated approximately 5 acres on the site to an equipment share operations yard, complete with a full service operations and maintenance facility built specifically for our team. Walking the job site, the customer talked about the visibility, service and coordination we provide. But what impressed me most was that they were already planning to expand our relationship as they develop additional campuses around the country. To me, that reflects a much broader trend, whether it's health care, advanced manufacturing, data centers, energy or transportation infrastructure, customers increasingly want a partner that can support the entire job site, not just provide equipment. That's exactly where EquipmentShare continues to win, allowing us to support more of our customers' equipment means while capturing a greater share of their spend. Before turning the call over, I'd also like to briefly provide an update on our corporate governance initiatives and an update regarding our related party transactions, wind-down plan. We've enhanced our Board with the appointment of [ Damien ] and [ Harley ] as independent directors. [ Damian ] also joined our Audit Committee and brings significant public company and audit committee experience, including serving on the Audit Committee of a NASDAQ-listed public company. [ Harley ] brings deep knowledge of EquipmentShare having previously served on our Board during an important period of the company's growth. Historically, equipment share entered into certain related party arrangements involving the founders, primarily through participation in the own program and property leases. About a year ago, we began substantially reducing those arrangements, and we have made meaningful progress. As of the end of the second quarter, less than $1 million of the $5.5 billion owned program fleet remained owned by these related parties. Our remaining related party arrangements involving the founders primarily relate to certain real estate used in our operations, for which we have paid just under $5 million in lease payments year-to-date. We remain committed to substantially reducing these related party arrangements by the end of 2026, with the objective of transitioning off of these related party transaction as we enter 2027. I'll now turn it over to Willy to discuss T3.

Thanks, Jabbok. Turning to T3. We continue to see meaningful progress across all 3 ways the platform creates value for equipment share, improving our internal operations, deepening customer relationships in rental and expanding our stand-alone SaaS business. First, we run our rental business on T3. Over the last several quarters, we've rolled out new capabilities across dispatch, hauling, fuel and logistics. We use these tools every day, and they're improving route planning, increasing recovery rates and helping offset some of the fuel and logistics pressures that we're seeing across the broader market. More broadly, T3 and the AI tools we are developing and deploying into the field are helping us operate more efficiently. As we scale, SG&A has continued to decline as a percentage of rental revenue. That reflects a business that is getting more done with less through technology-enabled execution. Second, T3 is an important driver of rental growth large regional and national customers increasingly expect real-time access, fleet visibility and control across their job sites. We provide T3 with every rental and customers who engage with the platform spend approximately 6x more with us than customers who do not. That customer value proposition, combined with our fleet, branch network and service model continues to deepen relationships and drive demand, which shows up in our growth in rental margins. And the last thing I'd highlight on T3 is that we're starting to see the platform mature beyond the rental experience. Increasingly, larger customers are looking at T3 as a platform to manage more of their business. Their mixed fleet, service, logistics, field operations and over time, broader ERP workflows. The scope of those conversations and the size of commitments are changing. As an example, my team has worked closely with the customer spending over $1 million in annual recurring SaaS revenue on T3. The most important thing for that customer was seeing T3 as a platform they can run their business on. and not simply a technology layer around EquipmentShare rental. And with that, I will turn it over to Mark to discuss the OWN program.

Thanks, [ Willie ]. The OWN Program is a managed asset program that allows us to scale our fleet to meet our customer demand at a cost of capital competitive with our on-balance sheet financing. As a reminder, OWN is just one component of our diversified funding strategy. Alongside asset-backed financing options and access to high-yield markets, we have ample sources of capital to fund the fleet growth and meet customer demand. Through the first half of the year, we are ahead of our OWN Program execution plan due to continued excess demand across the platform. Turning to Slide 6 on our investor presentation, this page shows how the capital supporting the OWN Program has evolved over the past 2.5 years. In 2023, OWN represented approximately 1/3 of our fleet under management and participants were primarily high net worth individuals and family offices. Beginning in 2024, we expanded into institutional capital while continuing to develop our footprint across all 3 channels. Since then, approximately 45% of the net OEC growth within the program has been funded through institutional buyers. That includes the 4 ABS transactions completed with large institutional investors. We introduced this as a new product to the ABS market. And as the program has scaled, it has generated significant investor interest and gain meaningful credibility in the market across all channels. When we evaluate diversification and counterparty exposure within OWN, we focus on the owners of the equipment. Whether the participants access the program directly through an institutional structure or through a buying group, the underlying equipment owners are who provide the capital and hold title to the equipment. Each of the OWN channels remains multiple times oversubscribed. That competitive demand has allowed us to continue improving the economics of the program, which we will show more directly in the following slide. On the right side of the page, we provide a reminder of how OWN works and the contractual protections built into the program. There are no minimum lease payments and no utilization guarantees. If the equipment does not generate rental revenue no lease payment is owed. At the end of the lease term, which is generally 6 to 7 years, equipment share has no obligation to repurchase the equipment. There is no put right to equipment share and no guaranteed residual value. These are long-duration agreements. If an OWN participant wants to remove equipment before the end of the agreement, significant early removal penalties of up to 50% of the equipment's OEC or purchase price apply. Those provisions align the party's economic interest. Given the magnitude of the penalties and the underlying economics, we view voluntary early removal as a remote outcome were it to occur, the contractual payment would provide meaningful economic protection to EquipmentShare. At the end of certain agreements, EquipmentShare may also serve as the remarketing agent. Our scale, equipment expertise and relationships with OEMs and then buyers can help maximize the disposition value of those assets. That can benefit the equipment owner while also helping protect the brand value of EquipmentShare and our OEM partners. In most agreements, we also have the right of first offer and right of first refusal at the market value of the equipment typically supported by a third-party appraisal. That gives us the option to purchase equipment and bring it onto our balance sheet when doing so makes economic sense, but it is an option, not an obligation and remains entirely at our discretion. So to reiterate, OWN has no minimum lease payments, no utilization guarantees, no residual value guarantees and no obligation for EquipmentShare to repurchase the equipment. Now turning to the cost of funding for OWN on Slide 7. For transactions completed during the first half of 2026, the expected economics imply a balance sheet equivalent cost of capital of approximately 7% and making OWN a competitive and attractive source of long-duration fleet capital. To be clear, OWN does not create a fixed payment obligation or financing liability. OWN is structured as a sale-leaseback with variable payments, enabling us to calculate an equivalent implied cost of capital based on the expected cash flows over the life of the agreement. To walk through the math, during the first half of the year, we received approximately $728 million of gross sale proceeds from equipment sold into the OWN program. Using historical utilization assumptions, we expect to make approximately $649 million of net payments over the 7-year term. Those payments are net of the fees that we retain and the insurance and tax costs that are borne by the equipment owners rather than EquipmentShare, using standard industry depreciation curves we estimate that the equipment will have a residual value of approximately $338 million at the end of the term. Calculating the implicit interest rate based on the upfront proceeds, expected monthly payments and estimated terminal value produces an equivalent cost of capital of approximately 7%. EquipmentShare has no obligation to repurchase the equipment at the end of the agreement. The estimated residual value is included solely to calculate the implied economics of the transaction, not because it represents a future obligation. Taken together, we believe -- on provides an efficient scalable source of long-duration fleet capital, which is why we continue to target a balanced mix between OWN funded and company-owned fleet. Finally, turning to the earnings contribution from the OWN program on Slide 8 with additional supporting data in the appendix on Slide 56. Along with being a balance sheet light source of fleet capital OWN is also a meaningful contributor to the earnings of our rental business. As I just mentioned in the previous slide, the all-in cash flows from the OWN Program are substantially similar to our on-balance sheet equipment. Importantly, the analysis on Slide 8 excludes the gain recognized when equipment is initially sold to new the OWN Program as well as any future remarketing fees we may earn at the end of the agreements. Those amounts are reported separately within our equipment sales segment. As earlier OWN Program vintages mature and newer transactions with improved economics become a larger portion of the portfolio, we believe the profitability and cash flow profile from the own funded equipment can expand even further. The broader takeaway straightforward. OWN not only provides balance sheet flexibility, but it also generates meaningful recurring earnings and cash flow similar to balance sheet-funded equipment while supporting continued organic growth. I'll now hand the call over to Dave.

Thank you, Mark. The operating trends we discussed so far are clearly reflected in our financial performance, strong customer demand, continued geographic expansion and the increasing earnings power of our mature rental locations drove another quarter of exceptional growth, while reinforcing the scalability of our business model. For the second quarter, total revenue was $1.4 billion, an increase of 26% year-over-year. Rental segment revenue was $908 million, an increase of more than 39% as compared to the prior year. Rental segment adjusted EBITDA was $449 million for the quarter, including approximately $60 million of new market start-up costs. Our mature rental locations produced 55% trailing 12-month rental segment EBITDA margins. Margins for the rental segment overall were up year-over-year driven primarily by our maturing market footprint and customer relationships despite an approximately 50 basis point headwind due to increased fuel costs. We were able to preserve margins through our ability to pass price on to customers and through efficiency and cost savings initiatives. We accomplished this while producing industry-leading growth and substantially expanding our customer reach. Equipment sales revenue for the second quarter was $483 million, including $428 million of equipment sales into the OWN Program. Equipment sales segment adjusted EBITDA was $82 million, reflecting disciplined and selective sales into the own program, which, as Mark discussed, continues to be oversubscribed across each funding channel. Adjusted core EBITDA for the second quarter was $531 million, increasing 34% year-over-year. That growth rate is driven by the margin mix between rental and sales segments. You can also see the mix difference implied in the full year guidance. Adjusted core EBITDA is intended to reflect our underlying operating performance by excluding items unique to our organic growth and fleet sourcing strategy, most notably OWN Program payouts and new market start-up costs. Turning now to our capital allocation strategy. We remain focused on supporting customer demand while maintaining substantial liquidity and financial flexibility. At the end of the quarter, total available liquidity was $2.8 billion, consisting of $443 million of cash on hand million of availability under our ABL facility and on a pro forma basis, the $1.35 billion bond offering that closed on July 1. The notes carry a 7.5% coupon and mature in 2034, providing us with attractive long-term financing while further extending the maturity profile of our capital structure. We used the net proceeds primarily to repay outstanding borrowings under our ABL facility and for general corporate purposes, increasing our available liquidity and financial flexibility. Prior to the bond offering, Fitch has signed the equipment share its first issuer credit rating of BBB- with a stable outlook. We believe this rating reflects the strength of our balance sheet, the quality of our rental fleet and our enhanced financial flexibility. At the end of the quarter, net leverage was 3.0 turns as compared to 3.4 turns a year ago. Net rental capital expenditures during the quarter were $321 million after gross purchases of $689 million. With that, I'll turn the call back over to Jabbok.

Thanks, Dave. Wrapping up today's call, our second quarter results reinforced the strength of the equipment share model. As customer products become larger and more complex, we're continuing to take share by combining equipment, technology and service through one integrated platform. That is driving durable rental segment growth today, and we believe it will create embedded earnings power and attractive returns on invested capital for years to come. We're pleased with our performance in the first half. We remain confident in our outlook and continue to see a significant long-term opportunity ahead for equipment share. Operator, we're now ready to take your questions.

[Operator Instructions]. Your first question is from the line of Rob Wertheimer with Melius Research.

You mentioned a couple of interesting things on the demand environment in your comments. I think you characterized it as one of the strongest you've seen in decades and also with improving rate. And so my question is going to be around rate and mega projects and where rate is improving because there's been this perception that mega projects might not be as profitable and yet you just kind of went through a lot of value add that you can uniquely and maybe some of the other leaders, but certainly you uniquely can add. And so where is rate trending? Is it strong on mega projects. And just in general, could you talk to that topic?

Yes, absolutely. Thank you, Rob. I think if you look at the 91% mix of the regional and national customers, that exposure of equipment share is to larger projects, these complex projects. So when you see the rate pressure that we are seeing going up, that is really 91% due to the complex projects and large projects we talked about, the health care, the sports stadiums, the data centers, the power. So that's really where we're seeing it. We do see some, again, if you think smaller customers, localized customers. We still do see some there as well, and that's more of a pull-through when you have a limited environment of actual fleet. When you have a massive demand in that fleet, it's all ships rise with the tide, so we see that. But our real visibility is within that 9%.

And then where are your customers at in the mega projects and kind of seeing the value of this? So rental maybe 10, 20 years ago was you order up a piece of equipment and you get it. And now you're providing a more holistic service with breadth of fleet but also just the analytics, the manageability, I think you kind of talked about in the presentation. Are people sort of seeing that value? And do you have a pathway to sort of continue improving margins as you somehow charge for that systematic value and also out there.

Yes. I think on the bigger customers, the projects are more complex today than they've ever been. I know we repeated it a bunch of times, but it definitely bears notice. When you're managing projects that are $10 billion, $20 billion in nature. And if you talk to any of the customers that we deal with, if you had 5, 7 years ago, a $2 billion, $3 billion project, that was a really significant project for a huge amount of customers, [indiscernible] in the world. Now you hear every day, $5 billion, $10 billion, $20 billion, $30 billion, and we're on a huge portion of those projects. And many times, we are the sole source provider, that first source they go for with equipment. And exactly what you're saying, billing, when you have technology when you think of everything else that a customer of ours deals with every day, that might seem just like, okay, bill should be correct. When you think of construction and when you have -- you're managing 3,000, 4,000 machines, 6,000 to 10,000 people, getting that right every single day, getting that accuracy is incredibly important. And that is driven by having a platform, having an operating system stuff that we talk over and over, and you've heard us talk about it, and you've seen that in action. So that is really important. But the output of what we're solving for is incredibly important to understand. At the end of the day, you do make more money. You do get a better return on capital. We see that with our [indiscernible] of that 6.5% as well.

Your next question comes from the line of Jamie Cook with Truist.

Congratulations on a nice quarter. I guess just my first question. Obviously, the market seems fairly robust, and you -- while you raised your guidance when you preannounced, you kept it the same. Today, but at the same time, like on your slides and you're saying you expect -- it sounds like there's a lot of opportunity for upside. So can you just walk me through if there's upside, where you see the biggest opportunities? And would it be more third quarter related or fourth quarter related? And then I guess my second question. It also sounds like you expect the rental segment margins to improve in the back half of the year. If you could just provide a little more color around that.

Yes, I'll take the first part of that. We do see a significant opportunity on the upside of that guide. As a company, we want to always be conservative. And we do think, as we discussed, that really derisked the guide. And Mark, we [indiscernible] little more color on [indiscernible].

Yes. Thanks. Like [ David ] said, we view the guide as conservative as we mentioned in the call that we had a lot of fleet absorption in Q2, over $750 million of new equipment that had never been running before anything in Q2. That flows through obviously into the back half. And then we saw a lot of volume in Q2 and some pricing upward pressure we see even more upward pricing pressure from rental in the back half and beyond. And then on the guide math, as Jabbok mentioned, the rental segment implied back half is about 28% with the Rental segment, EBITDA actually growing about 29%. And so what we see there is EBITDA growing at a faster rate than revenue already implied in the guide. But with additional tailwinds in terms of volume, customer visibility and also upward pricing pressure in the second half. So all of those are really where you would see if there's opportunity to outperform. Those are the main areas where we see it.

Your next question comes from the line of Mig Dobre with Baird.

Maybe the first thing, I really appreciate all the additional disclosure surrounding the OWN Program. And your comment here on how the OWN Program has evolved and the increased participation from institutional investors. I guess one of the things that we've heard from investors was speculation that as you're accessing this institutional channel, the cost of capital is going up, you've provided an example of what the cost of capital has been year-to-date. And I think I've heard Mark talk about the fact that as these vintages in terms of who's involved in OWN Program evolve the economics actually get better. So I guess my question is, can you comment at all as to how this shifting mix towards institutional is impacting the cost of capital, whether that concern that you're going to operate with higher cost of capital is valid or not? And in general, how we should think about going forward?

Yes. Thanks, Mig. [indiscernible]. Thanks for the question. As you mentioned, first half [indiscernible], which we saw about $720 million of gross proceeds, equivalent cost of capital is approximately 7%. If you do the math, as we showed on the slide, that's a mix of institutional thing of it the high net worth channels. And then as we mentioned in the prepared remarks, some of the older vintages that were more focused and even before 2024, entirely focus on the high net worth family office channels carried a higher equivalent cost of capital, as those roll off, we expect this to improve. When we think about the competitive and oversubscribed nature of the OWN Program today, when we're selecting deals, we see relatively equivalent cost of capital between the [indiscernible] that we have. And so we are cost of capital optimizers. And so when we decide to mix between an institutional office or high net worth channel, they're going to have relatively similar cost of capital around that 7%, which is why you've seen that continue to compress in our favor as we've got the higher institutional mix and as the other channels have also incurred.

That's great. Then I guess my follow-up, going to Jabbok's comments on governance. I appreciate the wind down of the interest in the OWN Program as well as the real estate component. Can you comment on what the policies of the companies are currently on a go-forward basis in terms of how related transactions are being reviewed and evaluated what the thresholds are, really, the mechanisms that the board currently has put in place?

Yes, I think that's a helpful governance dock, which is consistent with how we and any other company that's public does governance on our website, absolutely points to that. But that is a consistent governance policy that we have. Even before going public, that governance policy was consistent. So through the private transaction, transition to a public company. But absolutely, that will be on our website. And I can give you to Dave and Dave can give a little more color on that as well.

Yes. So our policy is that all related party transactions go through an approval process where we evaluate the contractual terms, the economics of the transaction and the accounting treatment, all related party transactions are also approved by our Audit Committee. So again, as Jabbok mentioned, there's more discussion about our governance practices and policies on the investor website. I would point you to there for more information.

Your next question is from the line of Jerry Revich with Wells Fargo.

I'm wondering if you could just talk about the dollar utilization acceleration that you folks saw 2Q versus 1Q. How broad-based was that? Was there any difference in performance of mature sites versus growing sites? And if you could just comment on the magnitude of rate pickup that you're seeing in an up cycle, normally, we see 0.5 point of sequential rate pickup per month. Are we at a point where we're seeing that type of pickup in the market?

Yes. Thank you, Jerry, for the question. I'll talk to the first part and then pass it to Mark. So we do see, as I said in the prepared remarks and what we see today, really a significant demand environment, which is causing across all cohorts. And the cohort specifically for us are the through and then the [ 13 to 24 ] and then the mature stores. So on all cohorts, we're seeing significant increase in demand and upward pricing pressure. So that's a huge thing across and we talked to that quite a bit in the prepared remarks. I'll give you to Mark for additional color on the other questions.

And then on the revenue side for the quarter, it was driven by both volume and the pricing pressure upwards, mostly volume in the second quarter as we saw the higher fleet absorption. There's just so much fleet going on rent that's what's going to drive a lot of the values there. A little bit of pricing pressure upward, we think that the price -- the upper pricing pressure, you'll -- if these trends continue, we would see more in the back half of this year and in the later period. But the mix is a lot of volume with more room to go on pricing -- on the pricing side.

Super clear. And then just to shift gears in terms of the margin cadence, gross margins, excluding DD&A on program were down to touch, even though, obviously, the profitability growth was really strong. Can you just talk about how much of that is diesel pass-through versus site mix? And should we be thinking about a sequential improvement in percent margins like we typically do seasonally for you folks?

A great question. So -- yes. As Dave mentioned in the prepared remarks, we did see approximately 50 basis point headwind on the fuel side. We also pass through a lot of those increases on the pricing side, plus there's a mix of ancillary services and other services that we're providing on these mega sites that produce strong gross dollars and ROIC, but the margin mix is a little bit different as well. That being said, as you mentioned, from an SG&A leverage perspective, and our ability to operate the business efficiently we've seen total margin expansion over time. And then as you've mentioned in the past, too, that the sequential into Q3 are typically strong, and we wouldn't expect anything different from a gross margin perspective.

Your next question is from the line of Joe Ritchie with Goldman Sachs.

So you referenced upward pricing pressure a few times on this call already. And I guess what I'm trying to understand into the second half of the year, like how much of that is contractually committed? Are you expecting a mix benefit on the equipment that's going to be utilized, given that you are working on all these complex projects and have line of sight?

Yes, I think it's both. If you think of mix is a really important thing in our industry. There we have about 3,000 classes and there's a different dollar utilization or financial utilization on each class. And depending on the project, you'll have excess demand and limited availability nationwide for certain products, which means you'll have an associated pricing pressure upward. So I really think it's both. So we have long-term contracts, and those contracts are driven by the need of our customers. And when there is less supply more demand, pricing within some of those class of equipment absolutely have upward pressure.

And then just to follow on to that a little bit, [indiscernible] mentioned how the back half of the year is derisked. If you think about the long-term nature of these projects as we're winning these projects, we have good visibility on kind of where price will be for a good amount of our projects in the back half of the year and beyond, which also gives us confidence in the trends in the industry.

Got it. That's helpful. And then just a quick question on capital allocation. You mentioned the buyback authorization earlier. Clearly, #1 priority is organic growth. But I'm curious, under what conditions would you maybe get more aggressive and with the buyback and potentially increase authorizations going forward?

Yes. As we talked about in the prepared remarks, we want to be opportunistic if there is a severe dislocation on something none of us control, which is stock price. So we want to be absolutely opportunistic. Governance is important to us, so we wanted to make sure this went through the proper processes as a Board and governance and that's where the $500 million was authorized if and when that does happen, a dislocation that the company can act upon that in an efficient way. And again, that's through 2028 for that $500 million. So Dave can talk a little bit more about some of the details.

Yes. I would just add that our intention is to operate the buyback authorization in an opportunistic way, but with in mind of our net leverage and liquidity goals that we'll continue to maintain as we go forward.