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TI

TRANSCAT INC (TRNS)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 FY25 was mixed: revenue rose 2.4% y/y to $66.754M, but margins compressed (gross margin -260 bps) and EPS fell to $0.25 as Service organic revenue declined 3.8% on December holiday shutdowns; Distribution grew 6.5% y/y but mix shift pressured margins .
  • Non-GAAP held up better: Adjusted EBITDA was $7.914M (–13% y/y) and Adjusted EPS $0.45 (–20% y/y), reflecting acquisition costs and amortization; management reaffirmed automation/productivity as margin levers .
  • Guidance tone narrowed: FY25 Service organic growth now “mid‑to‑low single digits” normalized for the extra week (from “mid single digits” in Q2); tax rate unchanged at 21–23% .
  • Pipeline strong; Martin Calibration ($79M) closed in December, expanding Midwest footprint/capabilities; integration underway with expected cost and growth synergies .
  • Stock reaction catalysts: trimmed Service growth outlook, evidence of January catch-up after December shortfall, rental mix/margin trajectory, and early integration signals from Martin .

What Went Well and What Went Wrong

  • What Went Well

    • Distribution revenue +6.5% y/y to $25.197M; rental and product growth drove top line (though rentals softened late December) .
    • Strong liquidity and manageable leverage after Martin: cash $4.6M, $40.5M revolver availability, leverage ratio 0.97x .
    • CEO on pipeline strength: “Our organic sales pipeline is very strong and we believe it supports a return to more historic organic growth levels.” .

  • What Went Wrong

    • Service organic revenue –3.8% y/y; December mid-week Christmas led to extended customer shutdowns, limiting incoming equipment, compressing Service gross margin by 280 bps to 29.7% .
    • Consolidated gross margin –260 bps to 29.5% and operating margin –350 bps to 3.1%; Adjusted EBITDA –13.2% y/y .
    • Distribution gross margin –240 bps to 29.1% on mix shift as rentals slowed late December; operating income fell 48% y/y to $0.688M .

Financial Results

MetricQ3 FY24Q1 FY25Q2 FY25Q3 FY25
Revenue ($USD Millions)$65.166 $66.707 $67.826 $66.754
Diluted EPS ($)$0.38 $0.48 $0.35 $0.25
Adjusted Diluted EPS ($)$0.56 $0.68 $0.52 $0.45
Gross Margin (%)32.1% 34.0% 31.3% 29.5%
Operating Margin (%)6.6% 7.6% 5.5% 3.1%
Net Income Margin (%)5.1% 6.6% 4.8% 3.5%
Adjusted EBITDA ($USD Millions)$9.120 $10.212 $8.861 $7.914
Adjusted EBITDA Margin (%)14.0% 15.3% 13.1% 11.9%

Segment performance (revenue, margins):

SegmentMetricQ1 FY25Q2 FY25Q3 FY25
ServiceRevenue ($M)$43.778 $44.083 $41.557
Gross Margin (%)34.0% 33.1% 29.7%
Operating Margin (%)9.3% 8.4% 3.4%
DistributionRevenue ($M)$22.929 $23.743 $25.197
Gross Margin (%)33.9% 27.9% 29.1%
Operating Margin (%)4.4% 0.1% 2.7%

KPIs and balance sheet/liquidity:

KPIQ3 FY25
Operating Cash Flow (YTD, $M)$28.357
Purchase of Property & Equipment (YTD, $M)$(10.502)
Cash & Equivalents ($M)$4.640
Total Debt ($M)$41.9
Leverage Ratio (Credit Agreement)0.97x
Revolver Availability ($M)$40.5
Diluted Avg Shares (Q3)9.326M
Service Organic Revenue Growth YoY–3.8%

Estimate comparison (S&P Global consensus):

  • Not available: We attempted to retrieve Q3 FY25 consensus Revenue, EPS, EBITDA, but S&P Global data access was unavailable at time of request; therefore, no beat/miss determination can be made (Values would be retrieved from S&P Global).*

Guidance Changes

MetricPeriodPrevious Guidance (Q2 FY25)Current Guidance (Q3 FY25)Change
Service Organic Revenue Growth (normalized for 53rd week)FY25Mid-single digits Mid-to-low single digits Lowered
Service Organic Growth TrajectoryFY26 (outlook)Return to high single-digit by 1H FY26 “More in line with historical performance” in FY26 Maintained (qualitatively consistent)
Income Tax RateFY2521%–23% 21%–23% Maintained
Solutions (Nexa) ChannelFY25Softness expected through FY25 Softness persisted; strengthening expected back half FY26 Maintained timeline

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1, Q2)Current Period (Q3)Trend
Solutions/Nexa channelQ1: strong quarter; no Nexa issue noted . Q2: Nexa slowdown; rebranded to Transcat Solutions; integration of sales/marketing; plan to return to high single-digit Service growth by 1H FY26 .Solutions soft as expected; pipeline work continues; improvement expected into FY26 .Stabilizing actions; recovery targeted FY26.
Holiday/seasonality impactNot highlighted. In Q2, hurricanes impacted Becnel rentals .Mid-week Christmas drove extended closures; December demand shortfall; rebound in January .One-off timing hit in Q3; watch for Q4 normalization.
Distribution rentals and marginsQ1: rentals strong; Distribution GM up 620 bps to 33.9% . Q2: Becnel hurricane impact; GM 27.9% .Rentals softened in late Dec.; GM 29.1%; targeting >30% going forward as rentals mix improves .Improving sequentially; target >30% reiterated.
M&A integrationQ1/Q2: Becnel acquisition and integration context .Martin Calibration closed ($79M); synergistic footprint/capabilities; integration underway .Positive; synergy capture expected.
Automation/productivityQ1/Q2: Key enablers of margin expansion .Reiterated as margin enablers alongside productivity focus .Consistent emphasis.
Pipeline/organic growthQ1: high single-digit to low double-digit Service growth expectation (normalized) . Q2: mid-single-digit FY25; HS mid-FY26 .“Very strong” pipeline; expect return to historic growth levels .Constructive; timing delays acknowledged.

Management Commentary

  • Holiday timing impact (CEO): “We discovered that the midweek Christmas holiday drove extended manufacturing closures… contributed to a reduced volume of incoming equipment… Service revenue picked up significantly in January as a result of pent-up demand” .
  • Pipeline strength (CEO): “Our core calibration pipeline is very strong… as strong as I probably have ever seen it… as these things come to fruition… we’re feeling pretty good” .
  • Structural outlook (CEO): “Nothing has changed… recurring revenue… regulation-driven… no competition taking market share… expect strong performance over the long and midterm” .
  • Distribution margin goal (CFO): “Consistently above 30%… and growing from there as the mix towards rentals continues” .
  • Non-GAAP rationale (release): Adjusted EBITDA and Adjusted EPS exclude interest, taxes, D&A, stock-based comp, acquisition-related transaction costs and acquisition amortization .

Q&A Highlights

  • Why lower FY25 Service growth guide after January pickup: Continued Solutions softness and timing delays on a few large wins drove conservatism despite January rebound; expect mid-single-digit organic growth overall .
  • Visibility/pipeline: Pipeline “very strong” with some verbally awarded opportunities delayed; expectation to return to historic growth rates as timing resolves and Solutions improves in FY26 .
  • Service margins: Expect Q4 to be roughly flat y/y, then improve into FY26 .
  • Distribution margins and Becnel: Target >30% GM; late-December rental slowdown impacted mix; Becnel improved sequentially in Q3 and expected to improve again in Q4 .
  • Working capital: Inventories down; receivables up partly from Martin; working capital to flex with growth (organic/inorganic) .

Estimates Context

  • S&P Global consensus estimates for Q3 FY25 Revenue, EPS and EBITDA were unavailable at time of request due to data access limitations, so we cannot assess beats/misses this quarter (Values would be retrieved from S&P Global).*
  • Given trimmed FY25 Service growth outlook (mid‑to‑low single digits normalized) and December timing impacts, Street models may need to reduce near-term Service/margin assumptions while considering a recovery trajectory into FY26 .

Key Takeaways for Investors

  • Q3 softness was largely timing-driven (mid-week Christmas) layered on known Solutions weakness; January rebound suggests transitory demand, but FY25 Service growth trimmed to mid‑to‑low single digits normalized .
  • Margin trajectory is the swing factor: watch Service GM rebound in Q4 and rentals mix returning >30% GM in Distribution; automation/productivity should support recovery into FY26 .
  • Martin acquisition expands Midwest footprint and capabilities, with clear cost and growth synergy opportunities; integration execution is a 2025–2026 catalyst .
  • Liquidity and leverage remain solid (<1x), providing capacity for integration and organic investments despite higher debt from Martin closing .
  • Pipeline commentary is notably constructive; timing of large wins and Solutions re-acceleration are key to re-attaining historic high single-digit organic Service growth rates in FY26 .
  • Near-term model risks: continued mix pressure if rentals lag and if Solutions turnaround extends; upside if January catch-up persists and pipeline closes accelerate .
  • Monitor Q4 commentary for: Service margin normalization, rental demand cadence, integration milestones for Martin, and any update to FY26 growth/margin framework .

Sources: Q3 FY25 press release and 8-K (Item 2.02) ; Q3 FY25 call transcript ; Q2 FY25 press release ; Q1 FY25 press release ; Martin acquisition press release .