Transcat Q3 Earnings Call Highlights

Key Points

• Consolidated revenue rose 26% year‑over‑year to $83.9 million, driven by services (service revenue up 29% with the 67th consecutive quarter of growth), a favorable shift to higher‑margin instrument rentals, and the acquisitions of Martin Calibration and Essco Calibration; distribution revenue increased 20% to $30.2 million with distribution gross profit up 34% and margin expansion of 330 basis points.
• Profitability improved on an operational basis—consolidated gross profit rose 28% to $25.3 million and adjusted EBITDA climbed 27.2% to $10.1 million—but the company reported a GAAP net loss of $1.1 million due to acquisition‑related amortization, higher interest, and one‑time CEO succession charges (adjusted diluted EPS was $0.26).
• Transcat ended the quarter with total debt of $99.9 million, $50.1 million available on its revolver and a 2x leverage ratio, reaffirmed guidance for high single‑digit organic service revenue growth in Q4, and said its CEO search is nearing completion with additional one‑time expenses expected.

Transcat NASDAQ: TRNS reported strong third-quarter fiscal 2026 results, highlighting double-digit revenue growth in both its service and distribution segments and an improvement in consolidated profitability metrics. Management pointed to sustained demand in regulated end markets, improving order realization after earlier delays, and a favorable product mix shift toward higher-margin instrument rentals.

Quarterly performance driven by services, rentals, and acquisitions

President and CEO Lee Rudow said Transcat “delivered strong performance across our entire business portfolio” in the third quarter. Consolidated revenue increased 26% year over year to $83.9 million, supported by growth in both distribution and services.

Rudow attributed the quarter to four main factors:

• Strong demand for core calibration services in regulated end markets, including life science, aerospace and defense, and energy
• Transcat’s “differentiated brand” and value proposition
• Significant growth and favorable mix in the instrument rental channel
• Continued strong performance from acquired businesses Martin Calibration and Essco Calibration

He said the acquisitions expanded Transcat’s geographic footprint and technical capabilities, and the company is working to accelerate both sales and cost synergies.

Service segment: 67th straight quarter of year-over-year growth

In services, Transcat posted 29% revenue growth, including 7% organic growth. Rudow said organic service growth “returned to more historic levels,” and the quarter marked the company’s 67th consecutive quarter of year-over-year service growth—nearly 17 years.

Management noted that service order realization improved in the third quarter after delays in the first two quarters of the fiscal year, with the trend “most evident” in life sciences and aerospace and defense. Rudow said demand remains high and that the momentum seen in the third quarter is expected to continue into the fourth quarter.

Service margins declined in the quarter, which management characterized as typical during periods of elevated onboarding of new customers. On the Q&A, executives said the associated startup costs were not “huge dollars” but reflected the company’s focus on launching new customer relationships correctly, particularly for large customers with high lifetime value. They indicated these costs generally normalize over the next few quarters.

Distribution segment: mix shift toward rentals boosts margin

Distribution revenue increased 20% to $30.2 million, driven by strength in both traditional product sales and rentals. Management emphasized that growth in rentals has been aided by investments made roughly 18 to 24 months ago in rental products used in power generation, power conditioning, and power management—areas aligned with data centers and EV charging infrastructure.

That rental mix shift contributed to notable margin improvement within distribution. CFO Tom Barbato said distribution gross profit rose 34%, and gross margin expanded 330 basis points versus the prior year, primarily due to the higher share of rental revenue.

Profitability, net loss, and non-GAAP results

On a consolidated basis, gross profit increased 28% to $25.3 million, and consolidated gross margin expanded 60 basis points, according to management’s prepared remarks.

Despite higher operating performance, the company reported a net loss of $1.1 million in the quarter. Barbato said the loss reflected higher amortization expense tied to the Martin and Essco acquisitions—described as the two largest in Transcat’s history—as well as higher interest expense and one-time charges related to the execution of the CEO succession plan. Transcat also reported adjusted diluted EPS of $0.26.

Adjusted EBITDA rose 27.2% to $10.1 million, with management citing 10 basis points of margin expansion. Barbato said adjusted EBITDA is a key metric for the company, particularly as it continues to pursue acquisitions, because it adjusts for transaction costs and non-cash purchase accounting impacts.

Balance sheet, cash flow, outlook, and CEO succession

Operating cash flow was “slightly lower” year over year, as increased net cash from operations was offset by higher capital expenditures. Barbato said capex was in line with expectations and focused on service capabilities, rental pool assets, technology, and future growth initiatives.

At quarter-end, Transcat reported total debt of $99.9 million, with $50.1 million available under its secured revolving credit facility and a leverage ratio of 2x. Barbato said the company’s leverage ratio has been reduced sequentially as adjusted EBITDA and margins improved.

Looking ahead, Rudow said the company reaffirmed its expectation for fourth-quarter organic service revenue growth in the high single-digit range. Barbato added on the call that Transcat is “committed” to that range, while noting the company is comparing against a strong prior-year fourth quarter. He also said the company’s new business pipeline remains strong, though management did not provide fiscal 2027 guidance.

On M&A priorities, management identified geographic gaps it continues to target, including Northern California, Dallas, the Atlanta area, and the Mid-Atlantic/Baltimore area. Executives also referenced an expanded presence in Ireland and said additional opportunities could arise to follow customers into other markets.

Regarding executive leadership, Barbato said the board’s search committee is evaluating internal and external CEO candidates and that the process is nearing completion. In response to an analyst question, management said it was reasonable to expect a conclusion during the current quarter and confirmed there will be additional one-time expenses tied to the search in the fourth quarter.

About Transcat NASDAQ: TRNS

Transcat, Inc NASDAQ: TRNS is a leading provider of calibration, laboratory, and metrology services in North America. Founded in 1964 and headquartered in Ronkonkoma, New York, the company specializes in ensuring the accuracy and compliance of measurement instruments across a wide range of industries. Transcat operates a network of ISO/IEC 17025–accredited laboratories and offers on-site field calibration, instrument repair, and preventive maintenance services.

In addition to its calibration services, Transcat distributes precision instrumentation and related software solutions from top manufacturers.

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