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TI

TRANSCAT INC (TRNS)·Q1 2026 Earnings Summary

Executive Summary

  • Q1 FY26 delivered double-digit revenue growth (+14.6% YoY to $76.4M) and adjusted EBITDA growth (+15.2% YoY to $11.8M), while GAAP diluted EPS fell to $0.35 on higher interest and tax; adjusted diluted EPS was $0.59 .
  • The quarter was a significant beat vs Wall Street: revenue $76.4M vs ~$72.3M consensus*, adjusted EPS $0.59 vs ~$0.19*, and adjusted EBITDA $11.8M vs ~$9.5M*; strength was driven by record distribution gross margin from rentals and continued service growth .
  • Management reiterated confidence in returning to high single-digit organic service revenue growth in H2 FY26 and highlighted margin expansion drivers (automation/productivity) and rental mix tailwinds in distribution .
  • Strategic catalysts: closed a new $150M syndicated credit facility and acquired Essco Calibration (>$22M annual revenue, >25% EBITDA margins), expanding capabilities and regional scale; near-term stock narrative centers on estimate beats and accretive M&A capacity .

What Went Well and What Went Wrong

What Went Well

  • Record distribution gross margin (35.2%, +130 bps YoY) on strong rentals; distribution revenue +19% YoY to $27.3M and adjusted EBITDA +49% to $4.8M .
  • Service revenue +12% YoY to $49.1M, marking the 65th straight quarter of YoY growth; acquisitions (e.g., Martin) contributed and are integrating ahead of schedule .
  • CEO quote: “Distribution revenue grew 19%…with a record 35% gross margin driven primarily by strong rentals performance,” underscoring execution and mix benefits .

What Went Wrong

  • GAAP diluted EPS declined to $0.35 (vs $0.48 prior year) as net income fell 26% YoY, impacted by higher interest and taxes; operating margin down 60 bps YoY to 7.0% .
  • Service gross margin decreased 100 bps YoY to 33.0%; service operating income fell 37% YoY to $2.6M on higher OpEx and amortization .
  • Operating cash flow decreased YoY to $3.6M from $8.9M on working capital timing, while capex increased; management noted OCF timing and ongoing capability investments .

Financial Results

MetricQ3 2025Q4 2025Q1 2026 ActualQ1 2026 Consensus*
Revenue ($USD Millions)$66.8 $77.1 $76.4 $72.3*
Gross Margin (%)29.5% 33.6% 33.8% N/A
Adjusted EBITDA ($USD Millions)$7.9 $12.7 $11.8 $9.5*
Diluted EPS ($USD)$0.25 $0.48 $0.35 N/A
Adjusted Diluted EPS ($USD)$0.45 $0.64 $0.59 $0.19*

Asterisked values retrieved from S&P Global.

Segment performance and margins:

Segment MetricFY25 Q3FY25 Q4FY26 Q1
Service Revenue ($USD Millions)$41.6 $52.0 $49.1
Service Gross Margin (%)29.7% 36.2% 33.0%
Service Operating Income ($USD Millions)$1.4 $6.0 $2.6
Service Adjusted EBITDA ($USD Millions)$4.9 $10.2 $6.9
Distribution Revenue ($USD Millions)$25.2 $25.1 $27.3
Distribution Gross Margin (%)29.1% 28.2% 35.2%
Distribution Operating Income ($USD Millions)$0.7 $1.0 $2.8
Distribution Adjusted EBITDA ($USD Millions)$3.0 $2.6 $4.8

Balance sheet and cash flow KPIs:

KPIFY25 Q4FY26 Q1
Cash & Equivalents ($USD Millions)$1.5 $1.9
Total Debt ($USD Millions)$32.7 $34.4
Leverage Ratio (Credit Agreement)0.78x 0.82x
Available Borrowing ($USD Millions)$49.1 $46.8
Operating Cash Flow ($USD Millions, quarter)N/A$3.6
Capital Expenditures ($USD Millions, quarter)N/A$4.6

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Service organic revenue growthH2 FY26Return to high single-digit organic growth as macro normalizes Confident in return to high single-digit organic growth in H2 FY26, barring further uncertainty Maintained
Service margin driversOngoingMargin expansion via automation/productivity Reinforced: leverage and automation as key enablers of margin expansion Maintained
Distribution margin trajectoryMulti-yearN/A (directional commentary)Expect margin benefits over time as rentals increase share of mix Raised (directional)
Transcat Solutions (Nexa)FY26 H2Back-half strengthening expected Stabilization in back half contributing to H2 organic growth Maintained
Credit capacityCurrent$80M prior facility New $150M syndicated revolver closed; greater flexibility and capacity Raised
Tax rateFY2521–23% FY25 No FY26 update providedN/A

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 FY25 and Q4 FY25)Current Period (Q1 FY26)Trend
Distribution rentals & marginsQ3: rentals up; product mix pressured margins (29.1%) . Q4: distribution margin 28.2% .Record 35.2% margin on strong rentals; distribution revenue +19% YoY .Improving mix; margin expansion
Service organic growthQ3: holiday timing depressed organic; pipeline strong . Q4: high single-digit organic growth normalized excluding extra week .12% total service growth (2% organic excluding Solutions); expect high single-digit organic in H2 FY26 .Re-accelerating in H2
M&A integration (Martin, Essco)Martin acquired Dec; integrating, accretive .Essco acquired Aug 5; >$22M revenue, >25% EBITDA margin; swift integration and synergies .Scaling capabilities; regional dominance
Automation/productivityQ4: service margin up on productivity/automation .Margin expansion enablers reiterated; focus on process improvement .Structural margin lever
Macro/tariffs & onshoringQ4: macro uncertainty; tariffs noted .Tariff pull-forward not primary driver; onshoring seen as long-term tailwind .Neutral near term; tailwind LT
Credit capacityPrior facility constraints .New $150M credit facility; leverage 0.82x .Increased optionality

Management Commentary

  • CEO: “Consolidated revenue was up 15% to $76.4M… Adjusted EBITDA grew 15% as both service and distribution generated double digit revenue growth” .
  • CEO: “Distribution revenue grew 19%…with a record 35% gross margin driven primarily by strong rentals performance” .
  • CFO: “Q1 adjusted diluted EPS was $0.59… First quarter consolidated adjusted EBITDA of $11.8M increased 15%… Distribution EBITDA increased 49% driven by growth in rentals” .
  • CEO on outlook: “We anticipate a return to high single digit organic service revenue growth in 2026… leverage continuous process improvement and automation as key drivers of future service margin expansion” .
  • CFO: “We closed a new five year syndicated secured credit facility… nearly doubles our access to available capital and provides significant financial flexibility” .

Q&A Highlights

  • Rentals durability: Management emphasized rentals growth is strategic, not an anomaly; margins expand with rental mix, though >35% should not be expected every quarter .
  • Essco vs Martin: Essco specializes in high-end electronics calibrations; Martin strong in dimensional/mechanical—complementary capabilities enable regional leverage and synergies .
  • Core distribution strategy: Maintain core distribution as a differentiator to drive service leads; capital allocation prioritizes rentals and services .
  • Solutions stabilization: Back-half stabilization of Solutions channel is embedded in the H2 high single-digit organic growth expectation .
  • Onshoring tailwinds: Management sees increased US facility plans among customers; potential medium-term tailwind for Transcat’s calibration services .

Estimates Context

  • Revenue: $76.4M vs ~$72.3M consensus* → bold beat on distribution rentals strength and steady service demand .
  • Adjusted EPS: $0.59 vs ~$0.19 consensus* → bold beat, aided by mix and cost control; note higher interest/taxes weighed on GAAP EPS .
  • Adjusted EBITDA: $11.8M vs ~$9.5M consensus* → beat; 10 bps margin expansion YoY to 15.4% .
    Asterisked values retrieved from S&P Global.

Key Takeaways for Investors

  • Distribution rentals mix is a powerful margin lever; expect structural gross margin improvement over time as rentals scale, supporting EBITDA and adjusted EPS resilience .
  • Service momentum should re-accelerate in H2 FY26 as Solutions stabilizes and newly acquired capabilities (Essco, Martin) drive organic and synergy-led growth .
  • Accretive M&A and expanded credit capacity ($150M revolver) provide ample dry powder for continued consolidation in a fragmented market, bolstering the medium-term growth algorithm .
  • Near-term modeling: consider higher interest expense and amortization from acquisitions; GAAP EPS may lag adjusted EPS despite operational strength .
  • Watch for continued rental strength and margin trajectory; management cautions quarterly margin variability but points to sustained YoY improvement .
  • Macro/onshoring optionality: growing US manufacturing footprints in life sciences and aerospace & defense present secular demand tailwinds for regulated calibration services .
  • Stock narrative: estimate beats and accretive M&A capacity are positive catalysts; focus on execution of Essco integration and maintaining rental momentum .