Actuals vs. estimates

Revenue — API Ninjas revenue difference does not reconcile with local math

Highlights & what matters

• Revenue of $495 million missed the $516.5 million estimate by 4.2%; GAAP diluted EPS of $0.01 beat the $0.0083 estimate on a net income of just over $2 million.
• Guidance moved up where the rental business drives it: full-year adjusted EBITDA raised for the third time this year to $447.5-$460 million and SER revenue raised to $870-$890 million, while consolidated revenue of $2.1-$2.2 billion and STEM revenue of $1.63-$1.7 billion were only affirmed.
• Rental carried the quarter: adjusted EBITDA rose 16% to $111 million on revenue up just 3%, with SER revenue up 18% to $223 million, utilization at 81.5% (up 220 basis points) and adjusted rental gross margin near 79%.
• The cost of the fleet build is cash: net rental fleet investment rises to $210-$230 million and 2026 levered free cash flow drops to slightly positive from more than $50 million, with most of the payback deferred to 2027.
• The one thing that matters: the revenue miss sits in STEM, where third-party sales fell 5% to $283 million as production went to the company's own rental fleet and more than $20 million of deliveries slipped to Q4; the rental engine the EBITDA raise rests on is running at record levels.

Guidance & KPIs

Management commentary

• CEO Ryan McMonagle called capital allocation the most important decision of the quarter, directing STEM production capacity to the company's own fleet to meet transmission demand that has outrun the original fleet plan.
• Management sized the payback: roughly $60 million of fleet generates about $20 million of annualized revenue and $15 million of annualized adjusted EBITDA at current rates and utilization, with most of it landing in 2027.
• McMonagle described transmission demand as "the early stages of what could be a once-in-a-generation transmission demand super cycle", citing customer projects now scheduled to start in 2027 and 2028.
• CFO Chris Eperjesy said net leverage of 3.7 times should finish 2026 well below four times, with the target of below three times in 2027 resting on double-digit adjusted EBITDA growth plus debt paydown from lower fleet investment and inventory.
• On the delayed STEM deliveries, management said the majority has already been delivered in October, the hailstorm loss is insured above a $1 million deductible, and the OEM is covering the recall repair costs.

Quality of earnings

• The EBITDA growth is operating leverage in rental, not mix accounting. Adjusted EBITDA grew 16% on 3% revenue growth, SER segment adjusted EBITDA rose about 23% to $122 million at a 54.6% margin, and on-rent yield held at 39.4%, up 120 basis points year over year.
• GAAP earnings remain thin and partly tax-aided. Q3 net income was just over $2 million, or one cent per diluted share; of the year-to-date swing to almost $9 million of net income from a loss of just under $52 million, about $11 million is a favorable tax swing that includes a discrete valuation-allowance benefit.
• STEM growth is largely internal and its margin is not like-for-like. STEM total revenue rose 8% to $442 million while third-party revenue fell 5% to $283 million, and 2026 segment adjusted EBITDA of $37 million includes margin on inter-segment sales that 2025 excluded.

Gotchas & watch items

• Cash conversion is weaker than the EBITDA line: levered free cash flow was only about $4 million through nine months against LTM adjusted EBITDA of $446 million, and the full-year target was cut to slightly positive from more than $50 million.
• Demand is running ahead of the reported quarter: OEC on rent is currently above $1.5 billion against a Q3 average just over $1.39 billion, utilization is above 84% versus 81.5% in Q3, and the STEM backlog has grown to almost $400 million from $342 million at quarter end.
• The STEM shortfall is partly self-inflicted timing: more than $20 million of new equipment sales slipped on a chassis vendor recall and hailstorm damage at the Kansas City facility, and management guides Q4 third-party new sales up at a mid to high teens rate to recover it.
• Backlog cover is below target: the $342 million STEM backlog equals 3.8 months of new equipment sales, just under the targeted four to six months, even with orders up 22% year over year.

Last quarter's watch items: what happened

• No watch items on file from a prior quarter - this is the first tracked quarter for this company.

Next quarter: the 2-3 things that matter

• STEM third-party sales recovery as delayed deliveries complete Baseline: Q3 STEM third-party revenue $283 million, down 5% year over year, with more than $20 million of sales delayed Confirms: Q4 STEM third-party new sales up at least a mid-teens rate year over year, as guided Breaks: Q4 third-party new sales growth below 10% or further delivery slippage cited Check in: Q4 2026. Source: CFO prepared remarks on STEM third-party revenue and Q4 outlook
• Rental fleet KPIs holding through the seasonal Q4 slowdown Baseline: Q3 average utilization 81.5%, average OEC on rent just over $1.39 billion, on-rent yield 39.4% Confirms: Q4 average utilization above 81.5% and average OEC on rent above $1.5 billion Breaks: Q4 average utilization below 81.5% or on-rent yield below 39% Check in: Q4 2026. Source: CFO prepared remarks on SER rental KPIs and Q4 commentary
• Deleveraging despite the larger fleet build Baseline: Net leverage 3.7 times on net debt of $1.65 billion; 2026 levered free cash flow guided slightly positive Confirms: Year-end 2026 net leverage below 3.7 times with positive full-year levered free cash flow Breaks: Year-end net leverage at or above 3.7 times or negative full-year levered free cash flow Check in: Q4 2026. Source: CFO remarks on balance sheet, leverage and levered free cash flow