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TI

TRANSCAT INC (TRNS)·Q2 2026 Earnings Summary

Executive Summary

  • Strong topline with broad-based growth: revenue grew 21.3% YoY to $82.3M, gross profit +26.2% with 120 bps margin expansion; distribution was the standout (rentals mix), while service grew 19.9% including M&A contribution . Adjusted EBITDA rose 36.7% to $12.1M with 160 bps margin expansion .
  • Mixed EPS outcome: GAAP diluted EPS fell to $0.14 on higher interest and a higher effective tax rate tied to CEO succession costs, but adjusted diluted EPS of $0.44 compared to $0.52 LY; management flagged similar one-time costs and elevated tax rate in 2H FY26 .
  • Estimate context (S&P Global): Revenue beat ($82.27M vs $79.51M*). Adjusted/Primary EPS beat ($0.44 vs $0.24*). SPGI EBITDA lens shows a miss (actual $10.0M vs $11.6M*), reflecting definitional differences vs company Adjusted EBITDA [GetEstimates].
  • Outlook/tone: Management reiterated expectation for a return to high single-digit service organic growth in 2H, citing recent wins and pipeline visibility; distribution margin expansion should continue albeit at a moderated 250–300 bps YoY pace; leverage spiked to fund Essco acquisition but is expected to decline as margins expand .

What Went Well and What Went Wrong

  • What Went Well
    • Rentals-driven distribution strength: Distribution revenue +24% to $29.4M with gross margin +530 bps to 33.2%, driven by higher rentals mix and improved execution post-integration of Axiom; distribution operating income rose to $2.6M and adjusted operating income to $5.0M .
    • Adjusted EBITDA outperformance: Adjusted EBITDA +36.7% to $12.1M with 14.7% margin (+160 bps), reflecting double-digit growth across both segments and mix shift to higher-margin rentals .
    • Accretive M&A traction: Early results from Essco Calibration were “very strong”; Martin and Essco both growing double digits since acquisition; integration and synergy capture “second to none” per management .
  • What Went Wrong
    • GAAP profitability pressure: Net income fell 61% to $1.3M; diluted EPS dropped to $0.14, driven by higher interest expense (new facility and acquisition) and a higher-than-anticipated effective tax rate tied to CEO succession .
    • Service margin compression: Service gross margin fell 90 bps to 32.2% and service operating income decreased 75% to $0.9M, as organic growth ran below historical levels and Transcat Solutions remained a drag YoY (stabilizing sequentially) .
    • Opex elevated with M&A and equity comp: Total operating expenses +33.1% YoY on acquired businesses, stock-based comp, amortization, and higher sales incentives; consolidated operating income declined 6% .

Financial Results

MetricQ4 FY2025 (oldest)Q1 FY2026Q2 FY2026 (newest)
Revenue ($M)$77.134 $76.424 $82.272
Gross Profit ($M)$25.913 $25.821 $26.762
Gross Margin (%)33.6% 33.8% 32.5%
Operating Income ($M)$6.940 $5.338 $3.505
Operating Margin (%)9.0% 7.0% 4.3%
Net Income ($M)$4.464 $3.261 $1.269
Diluted EPS (GAAP)$0.48 $0.35 $0.14
Adjusted Diluted EPS (non-GAAP)$0.64 $0.59 $0.44
Adjusted EBITDA ($M)$12.745 $11.768 $12.115
  • Q2 vs S&P Global consensus (SPGI lens):
    • Revenue: Consensus $79.512M*, Actual $82.272M* → Beat by $2.76M (3.5%)* [GetEstimates].
    • Primary (Adjusted) EPS: Consensus $0.24*, Actual $0.44* → Beat by $0.20* [GetEstimates].
    • EBITDA: Consensus $11.61M*, Actual $9.99M* → Miss by $1.62M*, noting SPGI methodology vs company Adjusted EBITDA [GetEstimates].
    • Values marked with * retrieved from S&P Global.

Segment performance

SegmentQ1 FY2026Q2 FY2026
Service Revenue ($M)$49.144 $52.836
Service Gross Margin (%)33.0% 32.2%
Service Operating Income ($M)$2.567 $0.920
Service Adjusted Operating Income ($M)$6.930 $7.124
Distribution Revenue ($M)$27.280 $29.436
Distribution Gross Margin (%)35.2% 33.2%
Distribution Operating Income ($M)$2.771 $2.585
Distribution Adjusted Operating Income ($M)$4.839 $4.990

Balance sheet / cash flow KPIs

KPIQ1 FY2026Q2 FY2026
Cash & Equivalents ($M)$1.861 $5.082
Total Debt ($M)$34.4 $111.9
Available Revolver ($M)$46.8 $38.1
Leverage Ratio (per credit agreement)0.82x 2.26x

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Service organic revenue growth2H FY2026Return to high single-digit in 2H, barring macro deterioration Reiterated expectation for high single-digit in 2H; recent wins to convert in Q3–Q4 Maintained
Distribution gross margin expansion2H FY2026“Meaningful” YoY expansion over FY26 as rentals mix rises Expect continued expansion but moderated to ~250–300 bps YoY in 2H Maintained/narrowed
Effective tax rate2H FY2026Not specifiedElevated due to one-time CEO succession costs; expect similar impact in 2H New
Leverage ratio pathwaySubsequent quartersStrong balance sheet; leverage 0.82x at Q1 Leverage 2.26x post-Essco; expect decline as Adjusted EBITDA margin expands Maintained trajectory (deleverage)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 FY2025, Q1 FY2026)Current Period (Q2 FY2026)Trend
Service organic growthQ4: High single-digit when normalized; macro/tariffs uncertain . Q1: High single-digit in 2H, Solutions stabilization targeted .Reiterated high single-digit in 2H; recent wins will convert; Solutions sequentially stable .Improving visibility; stabilization underway
Rentals and distributionQ4: Mix pressured margins YoY . Q1: Rentals drove record 35.2% gross margin .Rentals the highlight; +530 bps distribution GM; post-integration execution; expect continued expansion but moderated .Sustained strength; moderating expansion
Macro (tariffs/interest rates)Q4: Tariff uncertainty; resilient model .Q1: Demand consistent; watch tariffs .Q2: Longer sales cycles; uncertainty around tariffs/rates slowing starts; expect improvement with recent news .
AI/technology initiativesLimited prior disclosure.“Many new AI programs” to drive productivity, capacity planning, marketing and retention .Increasing investment focus
Competitive landscapeQ4: Differentiated via investment and M&A .Q1: Stronger positioning with Martin/Essco .Q2: Traditional peers facing headwinds; PE-backed aggregators need integration; Transcat better diversified .
Solutions channelQ4: drag in prior periods .Q1: Stabilization targeted .Q2: Stable sequentially; drag expected to fade over next 1–2 quarters .

Management Commentary

  • “Transcat had another strong quarter of revenue and Adjusted EBITDA performance driven by double-digit service revenue growth and continued high demand in our rentals channel.” — Lee D. Rudow, CEO .
  • “Q2 net income was negatively impacted by both one-time expenses related to the company's CEO succession plan and a higher effective income tax rate.” — Tom Barbato, CFO .
  • “We expect a return to high single-digit service organic revenue growth in the second half of fiscal 2026… and margin expansion as we return to historical rates of organic growth.” — Lee D. Rudow .
  • “Our new syndicated credit facility nearly doubles resources… and many new AI programs are in the works.” — Lee D. Rudow .
  • “Expanding Adjusted EBITDA margin will drive a lower leverage ratio in subsequent quarters.” — Tom Barbato .

Q&A Highlights

  • Rentals breakout and disclosure: Management attributes rentals acceleration to post-integration execution (Axiom) and some rent-vs-buy dynamics; internally distribution and rentals share resources, making separate breakout complex; ~one-third of CapEx is allocated to rentals on a net basis .
  • Service organic growth confidence: Despite low single-digit organic pressure (ex-Transcat Solutions ~1–2% growth), recent wins and improving visibility underpin high single-digit outlook for 2H; sales cycles have been elongated by macro uncertainty .
  • Solutions stabilization: Sequential stability achieved; YoY still down but drag expected to fade over next 1–2 quarters as stabilization completes .
  • Tax rate and EPS adjustments: Elevated effective tax rate tied to CEO succession raises GAAP tax expense; these succession and acquisition-related items are excluded from adjusted EPS; Q2 adjusted diluted EPS $0.44 .
  • Competitive dynamics: Traditional competitors facing headwinds; Transcat cites sustained investment, M&A quality, and integration discipline as advantages; PE-backed consolidators may struggle without deep integration .

Estimates Context

  • Revenue beat: $82.27M actual vs $79.51M consensus*; +3.5% surprise*.
  • Primary (Adjusted) EPS beat: $0.44 actual vs $0.24 consensus*; +$0.20 surprise*.
  • EBITDA (SPGI definition) miss: $9.99M actual vs $11.61M consensus*; note definitional differences vs company-reported Adjusted EBITDA of $12.12M .
  • Implications: Expect upward revisions to revenue and adjusted EPS; EBITDA modeling may require alignment to SPGI or company definitions to avoid mixed signals.
  • Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

  • Mix tailwind continues: Rentals-driven distribution strength with structurally higher margins is intact; expect continued but moderating YoY margin expansion (250–300 bps) in 2H .
  • Service inflection set up: Recent deal wins and Solutions stabilization underpin management’s reiterated high single-digit service organic growth target for 2H, a key multiple driver if delivered .
  • EPS quality vs GAAP: GAAP EPS compressed on interest and a temporarily higher tax rate from CEO succession; adjusted EPS better reflects core trajectory; similar effects likely in 2H .
  • Balance sheet capacity with near-term deleveraging: Leverage rose to 2.26x post-Essco, but management expects deleveraging as margins expand; $38.1M of revolver capacity supports continued M&A .
  • Integration edge: Martin and Essco are performing strongly and expanding geographic/capability footprint, reinforcing Transcat’s acquisition playbook and competitive moat .
  • Modeling notes: Use company Adjusted EBITDA for internal trend/margin analysis vs SPGI EBITDA for consensus comps; incorporate higher near-term tax rate and interest expense .
  • Near-term catalysts: Continued rentals strength through FY26, service organic acceleration confirmation in Q3/Q4, and incremental M&A pipeline updates; AI initiatives could add incremental productivity capacity over time .