TRANSCAT INC (TRNS Q2 FY2026 earnings call

• Transcat delivered strong performance in Q2 2026 despite economic uncertainty. Consolidated revenue grew 21% to $83 million. • Service revenue increased 20% for 66th straight quarter of y-o-y growth. Acquisitions of Essco Calibration and Martin Calibration have been strong with double-digit growth. • Distribution revenue grew 24% driven by the rental channel, with gross margin expanding 530 basis points. • New syndicated credit facility nearly doubles resources for acquisitions and growth. • AI initiatives are in development to generate data insights for sales, operations, marketing, and customer retention.

Consolidated revenue for the second quarter of fiscal 2026 was $82.3 million, up 21% year-over-year. Service revenue grew 20%, with 66 consecutive quarters of year-over-year growth. Distribution revenue was $29.4 million, up 24%, driven by the rental channel. Consolidated gross profit was $26.8 million, up 26%. Service gross profit increased 17%, while distribution segment gross profit was $9.8 million, up 48% with a 530 basis points expansion in gross margin. Adjusted EBITDA for the quarter was $12.1 million, up 37% with a 160 basis points margin expansion.

• Expect high single-digit organic service growth in the second half of fiscal 2026. • Anticipate margin expansion as returning to historical organic growth rates. • Have a strong acquisition pipeline to expand geographic footprint, capabilities, and market share.

• Macroeconomic uncertainty and volatility impacting customer spending and sales cycles. • Potential delays in customer decision-making due to economic uncertainty. • Impact of interest rates and tariff levels on customer behavior, causing slower sales cycles.

Q: What's driving the rentals acceleration in distribution and the mix of rentals in distribution?

A: Thomas Barbato says rentals growth is driven by integration of acquired businesses like Axiom Test Equipment and strong performance of Becnel rental business, with execution and integration work contributing.

Q: What gives confidence in returning to high single-digit organic service growth in H2 2026?

A: Lee Rudow states that despite low single-digit organic decline in first half, recent account wins and sight lines into more growth in Q3 and Q4 provide confidence.

Q: Any positives or negatives with the Essco acquisition?

A: Lee Rudow says very few obstacles, acquired a good management team, Essco has done really well with double-digit growth since acquisition with smooth integration.

Q: How does economic uncertainty stall service growth in H2?

A: Thomas Barbato mentions macroeconomic factors like tariff levels and interest rates causing customers to react slower.

Q: When will rental business be broken out?

A: Thomas Barbato says rental business has overlaps with distribution in resources, but net CapEx is about 1/3 of total, and it's operated as one business internally currently.

Q: Performance of solutions business and when it stops being a drag?

A: Lee Rudow says solutions business is stable, within expectations, and should stop being a drag as it stabilizes and grows in line with calibration service growth.

Q: Growth dynamics between acquired and other service businesses?

A: Lee Rudow says acquired businesses like Essco and Martin have strong customer bases in specific regions, while some other service areas have headwinds. Thomas Barbato mentions Martin's performance will be organic growth next quarter.

Q: Distribution seasonality and competitive landscape?

A: Lee Rudow says distribution is expected to continue strong, with Pulse metrics remaining positive, and Transcat is better positioned competitively due to investments, acquisitions, and diversification compared to competitors.