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Management believes the company is in the early stages of a once-in-a-generation transmission demand super cycle, driving record OEC on rent and historically high utilization.

Record STEM revenue was driven by strong utility end market demand and high delivery volumes, though backlog decreased sequentially due to record Q2 deliveries.

The SER segment achieved a 700 basis point margin expansion year-over-year, attributed to improved rental fundamentals and pricing discipline in transmission and distribution markets.

Strategic chassis prebuy actions and inventory positioning have been implemented to mitigate potential disruptions from upcoming EPA '27 NOx emission regulations.

The company is intentionally aging its rental fleet to just over 3 years to reduce maintenance CapEx and prioritize free cash flow generation.

A shift in the timing of new and used equipment deliveries and RPO buyouts into Q2 contributed to the record quarterly performance.

Full-year 2026 guidance was raised for both revenue and adjusted EBITDA, reflecting sustained momentum in core T&D end markets.

Management expects Q3 results to be modestly below Q2 levels due to the pull-forward of equipment deliveries and RPO buyouts into the second quarter.

The company targets a net leverage ratio meaningfully below 4x by year-end 2026, with a long-term goal of reaching 3x in 2027.

Inventory and floor plan balances are expected to decrease in the second half of 2026 to support a target of below 6 months of inventory on hand.

Net rental CapEx for 2026 is projected at $170 million to $200 million, a significant reduction from 2025 levels while still supporting mid-single-digit OEC growth.

Non-conformance penalties for 2027 NOx standards are estimated between $4,500 and $7,000 per unit, representing a looming cost increase for customers.

STEM gross margins were slightly lower in Q2 due to a higher mix of sales to national accounts, which typically carry lower margins.

The company is monitoring the transition from Cummins L9 engines to X10 engines, with full production expected in Q3 2027.

Infrastructure end market growth has been less robust than utility markets, with federal funding from the IIJA and IRA yet to impact results meaningfully.

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Management expects a 48%/52% split between first-half and second-half results, a shift from the typical 45%/55% split due to Q2 timing.

Q3 revenue and EBITDA are expected to grow in the high single-digit range year-over-year but will be lower than Q2 levels.

Demand is driven by long-term planning for new lines through 2027 and 2028, with conversations shifting toward multi-year staging of equipment.

Transmission projects typically offer longer durations and higher on-rent yields compared to distribution, benefiting overall utilization and margins.

The company implemented a roughly 5% price increase at the start of the year and sees further opportunity as the mix shifts toward transmission.

STEM margins are currently at the lower end of the 15% to 18% target range due to customer mix, but management expects to move toward the higher end as demand persists.