Transcat, Inc. (TRNS) Earnings

Management highlights

**Strategic Direction & New CEO Overview** - Newly appointed CEO Jaime Eirich (a US military veteran and West Point graduate) joined Transcat at the end of March, and after visiting facilities and meeting stakeholders, confirmed Transcat's existing 4 strategic pillars will remain the core focus: high single-digit service organic revenue growth, service gross margin expansion, strategic M&A, and rental business growth. - Transcat is an established leader in the calibration services market, serving highly regulated end markets with durable secular tailwinds, recurring revenue streams, and significant room for both organic growth and disciplined consolidation. The company gained market share in the calibration services market during FY26. **Consolidated Financial Performance** - Q4 FY26 consolidated revenue grew 16% year-over-year to $89.3 million, with full year consolidated revenue growing 19% to $331.9 million, driven by double-digit growth in both segments. - Q4 consolidated gross profit grew 18% year-over-year, with gross margin expanding 50 basis points to 34.1%. Full year consolidated gross profit grew 21% year-over-year, with gross margin also expanding 50 basis points. - Q4 adjusted EBITDA grew 16% year-over-year to $14.8 million, with full year adjusted EBITDA growing 23% to $48.7 million, and full year adjusted EBITDA margin expanding 40 basis points. - The company holds a strong balance sheet, with a sequentially reduced leverage ratio of 2.03x, $100.0 million available under its secured revolving credit facility, sufficient capital to support both organic and acquisition-based growth. **Operational Updates** - The Service segment delivered its 68th straight consecutive quarter of year-over-year revenue growth. - The recent acquisition of SCM Metrology and Laboratories established Transcat's first operational presence in Latin America, aligned with the company's strategy to grow alongside multinational customers in high-demand regulated end markets. - Demand remains strong across core end markets: life sciences, aerospace and defense, and energy, which has emerged as a new high-growth vertical with increasing demand for calibration and rental services.

Guidance

- For Q1 FY27, management expects service organic growth rate to be higher than the 7% organic growth achieved in Q4 FY26, driven by increased customer activity levels, solid customer retention, and new business wins. - Management reaffirmed the full year FY27 target of high single-digit service organic revenue growth, and expects full year service gross margins to improve year-over-year versus FY26. - The rental business is expected to continue delivering low double-digit organic growth in FY27, supporting strong performance of the Distribution segment. - No changes to long-term strategic growth targets were announced; management maintained the existing core strategic guidance.

Segment performance

**Service Segment**: In Q4 FY26, total service revenue grew 18% year-over-year, with 7% organic growth, and the remaining growth came from the ESCO Calibration acquisition. Full year service revenue grew 20% year-over-year. Q4 service gross profit increased 16% year-over-year, with a Q4 gross margin of 35.5%, which improved 76 basis points sequentially from Q3 FY26. Service adjusted operating income was $11.2 million in Q4, up 9% year-over-year, and up 6% for the full year. The Service segment contributed 65% of consolidated Q4 revenue. **Distribution Segment**: In Q4 FY26, distribution revenue grew 11% year-over-year, with full year revenue growing 18% year-over-year, driven by strong rental demand and product sales. Q4 distribution gross margin expanded 280 basis points year-over-year to 31.0%, with full year gross margin expanding 330 basis points. This expansion was driven by a favorable mix shift toward higher-margin rental offerings. Distribution adjusted operating income was $3.7 million in Q4, up 42% year-over-year, and up 67% for the full year. The Distribution segment contributed 35% of consolidated Q4 revenue.

Risks & headwinds

Management did not disclose any new material operational risks or failures during this call. All potential risks that could impact future results were referenced as being outlined in prior SEC filings and the earnings release, as is standard practice for forward-looking statements.

Analyst Q&A

• Q: New CEO Irick has had 60 days at the company—what operational improvements does he plan to prioritize to expand margins, beyond the existing strategy?

  A: Irick plans to accelerate ongoing work in several areas: improving efficiency across customer-facing processes (from inquiry to order placement), reducing cycle times to improve on-time delivery and the customer experience, streamlining order-to-cash workflows, and continuing to expand customer-focused service innovation. He will leverage his 20+ years of experience in Lean 6 Sigma and operational excellence to drive these changes.

• Q: Service gross margins improved sequentially in Q4 but are still down year-over-year—when can we expect year-over-year margin expansion to return?

  A: CFO Barbato explained that ongoing onboarding of large volumes of new customers has weighed on near-term margins, similar to the dynamic in Q3. Management expects margins to normalize as we move through the first half of FY27, and confirms full year FY27 service gross margins are expected to improve year-over-year versus FY26.

• Q: What is the opportunity for the SCM Metrology acquisition in Latin America, and how does its valuation compare to US acquisitions?

  A: SCM is located in Costa Rica's dense free trade zones with a high concentration of existing life sciences and medtech customers, and already serves clients across multiple Latin American markets. The deal's valuation falls back into Transcat's historical range of acquisition multiples, and is expected to generate strong returns. Early post-close upstream indicators are positive, and the acquisition allows Transcat to grow alongside multinational clients in the region, an opportunity that did not exist before.

• Q: What geographies are the top priorities for future M&A and expansion in the US?

  A: Management confirmed that the priority expansion geographies remain consistent with prior commentary: Northern California (to support high concentrations of life sciences and technology firms), Dallas, Atlanta, and the Mid-Atlantic region around Baltimore, which has a high density of pharmaceutical and medical device businesses.

• Q: What is driving stronger than expected sequential organic growth guidance for Q1, and what is the latest demand dynamic in the energy vertical?

  A: The stronger Q1 organic growth reflects broad-based improvement across all end markets, driven by the successful rebuilding of the sales pipeline after 2025 first half macro headwinds from tariffs. Energy demand spans power generation, conditioning, and monitoring—most notably calibration and rental services for data center power infrastructure, which has become a major growth catalyst for both calibration and the rental business.