Transcat Q2 Earnings Call Highlights

Key Points

• Fiscal Q2 revenue rose 18% to $97.1 million, while adjusted diluted EPS increased 46% to $0.64. Gross margin expanded 110 basis points to 33.6%.
• Service revenue grew 23%, including 16% organic growth, and service gross margin expanded 220 basis points. Transcat raised its fiscal 2027 service organic revenue growth outlook to the low-double-digit range.
• Distribution revenue increased 10%, supported by rental demand, and management highlighted acquisitions as a core growth strategy, including its August purchase of Southeastern Biomedical Associates.

Transcat NASDAQ: TRNS reported fiscal second-quarter 2027 revenue growth of 18% as demand remained strong across its calibration services and distribution businesses, prompting the company to raise its full-year outlook for service organic revenue growth.

Consolidated revenue rose to $97.1 million in the quarter. Gross profit increased 22% to $32.6 million, while consolidated gross margin expanded 110 basis points to 33.6%. Net income grew 90%, and diluted earnings per share rose 79% to $0.25. On an adjusted basis, diluted EPS increased 46% year over year to $0.64.

“The fiscal second quarter of 2027 marked another sequential quarter of strong financial performance, led by strength in our calibration business,” President and CEO Jaime Irick said. He said the company believes it is gaining market share through organic growth, acquisitions and a more productive sales organization.

Service Segment Drives Growth and Margin Expansion

Service revenue increased 23% to $64.8 million, including 16% organic growth. The company said the quarter marked its 70th consecutive quarter of year-over-year service revenue growth. Service gross profit climbed 31%, and service gross margin expanded 220 basis points from the prior-year period to 34.4%.

Irick attributed the improvement to operating leverage, operational initiatives, pricing, business mix and the maturation of new customer relationships. He said Transcat is focused on improving customer-facing processes, applying Lean principles and using technology, including artificial intelligence, to improve productivity.

During the question-and-answer session, Chief Financial Officer Tom Barbato said the broader calibration market was growing at approximately 4% to 6%, while Transcat’s service growth reflected pricing gains of roughly a couple of percentage points and market-share gains. He said growth was broad-based across geographies and end markets.

Irick said the company’s sales organization has become more focused on upstream performance measures, including pipeline development, win rates and customer retention. He added that Transcat is seeing continued demand in regulated markets such as life sciences, aerospace and defense, and energy.

Management raised its fiscal 2027 outlook for service organic revenue growth to the low-double-digit range, up from its prior forecast for high-single-digit growth. The company also continues to expect service gross-margin expansion for the full year, including at least 100 basis points of year-over-year expansion in the second half.

Distribution Growth Supported by Rentals

Distribution revenue grew 10% to $32.3 million, driven by rental-channel demand and product sales. Distribution gross profit increased 6%, while gross margin was 32%, improving sequentially from 31.4% in the fiscal first quarter but declining from the prior-year period.

Barbato said the year-over-year margin decline reflected sales of lower-margin used equipment, which enabled the company to reinvest in its rental asset portfolio. He said Transcat expects distribution margins to improve year over year in the second half of fiscal 2027, supported by the higher-margin rental business.

The company expects its rental business to grow at a low-double-digit rate over time. Barbato said the company periodically sells underutilized rental assets to free capital for reinvestment in equipment with stronger yields.

Management also identified energy as a source of demand, including power generation, power consumption, transmission and distribution, and electric-vehicle charging infrastructure. Barbato said data-center expansion has so far represented a larger opportunity for Transcat’s rental and distribution business than for calibration services, though management expects it to be a future tailwind.

M&A Remains Central to Strategy

Transcat highlighted its August acquisition of Southeastern Biomedical Associates, which serves hospital networks across the southeastern U.S. and other markets. Irick said the acquisition expands the company’s biomedical calibration footprint in high-cost-of-failure applications where accredited calibration is important for patient safety and regulatory compliance.

Management said Southeastern’s culture, customer focus and quality standards align closely with Transcat’s. The company has also invested capital to expand Southeastern’s capabilities and support growth among its existing customers.

Irick said acquisitions will remain a core part of Transcat’s growth strategy alongside organic expansion. He noted that the company has acquired 14 businesses over the past five years, with all but one completed through proprietary processes. Management is working to further strengthen its integration processes and to identify opportunities in adjacent regulated, recurring-revenue markets.

• Adjusted EBITDA increased 23% to $14.9 million.
• Adjusted EBITDA margin expanded 70 basis points to 15.4%.
• Service adjusted operating income increased 45% to $10.6 million.
• Operating free cash flow for the first six months rose 46% to $10.9 million.
• At quarter-end, total debt was $116.9 million and the leverage ratio was 2.18 times.

Irick said Transcat sees a path toward $500 million in revenue and continued margin expansion over the next three to five years, supported by organic growth, acquisitions and expansion of its rental business.

About Transcat (NASDAQ:TRNS)

Transcat, Inc NASDAQ: TRNS provides calibration, compliance, and measurement services for organizations that rely on accurate test and measurement equipment. The company supports customers in regulated industries, including life sciences, aerospace and defense, energy, manufacturing, and other industrial markets.

Its service offerings include laboratory and onsite calibration, repair, validation, and asset-management services. Transcat calibrates a broad range of equipment used to measure temperature, pressure, electrical and electronic properties, radio frequency signals, dimensional characteristics, and other technical parameters.

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