REVENUEMiss -4.1%
EPSBeat +20.5%
Actuals vs. estimates
| Metric | Actual | Consensus | Surprise |
|---|---|---|---|
| RevenueTotal revenue | $495.2M | $516.5M | ▼ Miss -4.1% |
| EPS(GAAP diluted) | $0.01 | $0.01 | ▲ Beat +20.5% |
Highlights & what matters
- Revenue of $495.2 million missed the $516.5 million estimate by 4.1%; diluted EPS of $0.01 beat the $0.0083 estimate. The gap is roughly the more than $20 million of third-party STEM deliveries pushed into Q4 by a hailstorm and a vendor recall.
- Guidance raised for the third time this year: FY2026 Adjusted EBITDA to $447.5-460 million from $437.5-455 million; SER revenue to $870-890 million from $850-875 million.
- Rental accelerated: rental revenue up 20.1% on 10.5% more average OEC on rent, utilization 81.5% vs 79.3%. Adjusted EBITDA rose 15.6% to $110.9 million, margin up about 250 bps to 22.4%.
- The cost is cash: net rental fleet investment raised to $210-230 million from $170-200 million, and FY2026 levered free cash flow cut to slightly positive from more than $50 million.
- The one thing that matters: the revenue miss is a STEM timing slip, while rental is compounding fast enough to lift the EBITDA guide again; the real trade is 2026 free cash flow redirected into fleet whose earnings land in 2027.
Key metrics
| Metric | Reported | Prior year | Change |
|---|---|---|---|
| Rental revenue | $152.7 million | $127.1 million | +20.1% |
| Adjusted EBITDA | $110.9 million | $96.0 million | +15.6% |
| Adjusted EBITDA margin | 22.4% | — | +~250 bps |
| Average OEC on rent | $1.39 billion | — | +10.5% |
| Net leverage ratio | 3.70x | 4.53x | — |
| Sales order backlog | $342 million | — | +22% |
Guidance changes
| Item | New guidance | Prior guidance |
|---|---|---|
| FY2026 Adjusted EBITDA | $447.5 million to $460 million | $437.5 million to $455 million |
| FY2026 SER segment revenue | $870 million to $890 million | $850 million to $875 million |
| FY2026 Revenue | $2,100 million - $2,200 million | — |
| FY2026 net rental fleet investment | $210 million to $230 million | $170 million to $200 million |
| FY2026 levered free cash flow | slightly positive | more than $50 million |
| FY2026 gross rental fleet investment | approximately $400 million to $430 million | — |
Quality of earnings
- The adjusted-to-reported gap is wide and partly recurring. Adjusted EBITDA of $110.9 million sits against net income of $2.3 million; add-backs include $8.5 million of transaction and integration costs, up from $3.2 million and $22.8 million over twelve months.
- Net income leans on tax. Pre-tax income was $1.4 million; a $0.9 million tax benefit lifted net income to $2.3 million, and the nine-month benefit of $2.0 million followed a valuation-allowance reduction.
- Cash conversion weakened. Nine-month operating cash flow fell to $231.7 million from $262.8 million as inventories absorbed $83.4 million of cash versus a $15.8 million release a year ago; inventory stands at $1.016 billion against $930.9 million at year-end.
Gotchas & watch items
- STEM's doubled EBITDA is mostly accounting: $36.6 million vs $17.7 million reflects new markup on $159.0 million of intersegment sales, and $25.9 million of intersegment margin is eliminated in consolidation. Third-party STEM revenue fell 5.3%.
- Rental momentum carried into Q4: OEC on rent passed $1.5 billion and utilization passed 84% in October, versus the Q3 averages of $1.39 billion and 81.5%; SER segment EBITDA margin reached 54.6% from 52.4%.
- The raised guide needs a record Q4: $447.5-460 million full-year less $325.7 million through nine months implies $121.8-134.3 million of Q4 Adjusted EBITDA, above Q3's $110.9 million, with third-party STEM new sales needing mid-to-high-teens growth.
- STEM backlog is thinner than it looks: $342 million is up 22% but covers about 3.8 months of third-party new sales, below the four-to-six-month target, while the delayed hailstorm and recall units sit inside it.