Transcat, Inc. Q3 FY2026 earnings call

• Transcat delivered strong performance in Q3 with consolidated revenue up 26% to $83.9 million. Gross profit grew 28% and adjusted EBITDA increased $2.2 million to $10.1 million.
• Key factors driving performance: strong demand in regulated end markets (life science, aerospace, defense, energy), unique value proposition, growth in instrument rental channel, and performance of acquired companies (Martin calibration and Essco calibration).
• Service segment had 67th straight quarter of year-over-year growth, organic growth 7%, with margins declining temporarily due to new customer onboarding but expected to normalize.
• Distribution segment revenue grew 20% from high demand in rentals and product sales, with gross margin expansion from higher-margin rental channel.

Service Segment: Revenue grew 29% with organic revenue growth of 7%. Service gross margins historically lag due to start-up costs from onboarding new customers but are expected to normalize over time. Distribution Segment: Revenue grew 20% driven by strong performance in rentals and product sales. Distribution segment gross profit was up 34% with 330 basis points gross margin expansion, primarily due to growth in the higher-margin rental channel.

• Reaffirmed fourth quarter organic service revenue growth expectations in the high single-digit range.
• Strong balance sheet with total debt $99.9 million, $50.1 million available for borrowing, and leverage ratio 2x. Well-positioned for growth via organic and acquisition strategies.
• Invested in leadership, technology, and process improvement, well-positioned for AI with improved data sets contributing to business insights.

• Geopolitical and policy uncertainties.
• Onboarding new customers incurs start-up costs that temporarily affect service gross margins.

Q: Bucketing drivers of revenue growth and start-up costs impact A: Delayed decisions ramping up throughout the quarter, start-up costs not huge, margins expected to normalize over next few quarters Q: M&A and geographic expansion A: Targeting Northern California, Dallas, Atlanta, Mid-Atlantic; expanded in Ireland, looking at potential opportunities in Europe and other regions of North America/Central America Q: Gross margin and new business A: Q4 margins typically highest, start-up costs from new customers in Q3, expected to normalize in next few quarters Q: Long-term growth from manufacturing onshoring and defense spending A: Onshoring and defense spending good for Transcat, can participate in various phases of capital projects, organic growth expected to remain in high single-digit range Q: CEO search A: Search nearing completion, additional expenses related to CEO succession plan expected in Q4