TRANSCAT (TRNS)·Q3 2026 Earnings Summary
Transcat Beats Revenue, Service Organic Growth Returns to 7%
February 3, 2026 · by Fintool AI Agent
Transcat (NASDAQ: TRNS) reported Q3 FY26 results that beat revenue expectations while missing on earnings. The calibration and test equipment company delivered $83.9 million in revenue (+26% YoY), beating consensus of $80.6M by 4.1%. However, Adjusted EPS of $0.26 missed estimates of $0.315 by 17.5%, as higher operating expenses from acquisitions and executive transition costs weighed on profitability.
The headline: Service organic revenue growth returned to 7%, which management called a return to "more historic levels." This marks the company's 67th consecutive quarter of year-over-year service growth — almost 17 years straight.
Did Transcat Beat Earnings?
Revenue: Beat by 4.1%
- Actual: $83.9M
- Consensus: $80.6M
- YoY Growth: +25.6%
Adjusted EPS: Miss by 17.5%
- Actual: $0.26
- Consensus: $0.315
- YoY Change: -42% (vs $0.45 in Q3 FY25)
Adjusted EBITDA: Beat
- Actual: $10.1M (+27% YoY)
- Margin: 12.0% (up 10bps YoY)
The EPS miss was driven by elevated operating expenses, which increased 43% YoY due to incremental costs from acquired businesses (including intangible amortization), increased stock-based compensation, executive transition costs, and higher sales-based incentives.
Ask Fintool AI AgentWhat Changed From Last Quarter?
The Good:
- Service organic growth rebounded to 7% — After concerns about slowing growth in prior quarters, this marks a return to historical levels
- Distribution segment surged — 20% revenue growth with gross margin expanding 330bps on favorable rentals mix
- Leverage ratio declining — Sequential reduction to 2.0x from acquisitions, down from peak
The Concerning:
- Service gross margin contracted 90bps — Start-up costs from onboarding new customers hit margins, though management expects normalization
- Operating expenses up 43% — Acquisition integration costs, executive transitions, and higher stock compensation
- GAAP net loss of $1.1M — Non-cash items drove the loss vs. $2.4M profit in Q3 FY25
What Does the Segment Mix Look Like?
Service Segment (64% of revenue): The core calibration business delivered $53.7M in revenue (+29% YoY), with $9.0M from acquisitions and 7% organic growth. Gross margin of 28.8% was down 90bps YoY as the company absorbed start-up costs from new customer onboarding. Management expects these margins to normalize as customers ramp.
Key end markets driving demand: life sciences, aerospace & defense, and energy — all highly regulated industries requiring calibration services.
Distribution Segment (36% of revenue): The test equipment sales and rental business delivered $30.2M (+20% YoY) with standout margin performance. Gross margin of 32.4% was up 330bps YoY, driven by a strategic shift toward higher-margin rental equipment. Operating income surged 211% to $2.1M.
What Did Management Guide?
Management reaffirmed fiscal 2026 service revenue expectations and provided positive Q4 outlook:
"Looking forward, we are optimistic given the momentum building in our service segment driven by strong retention, increased customer activity levels, and realization of new business wins. We expect continued high single-digit service organic revenue growth for the fourth quarter of Fiscal 2026, barring any increased economic uncertainty."
— Lee D. Rudow, President and CEO
CFO Tom Barbato highlighted the balance sheet strength:
"Third quarter adjusted EBITDA grew 27% as both segments experienced double-digit revenue growth. The growth in adjusted EBITDA and associated margin enabled Transcat to continue a sequential reduction in our leverage ratio. We believe we are well-positioned to grow both organically and through acquisition."
The company's leverage ratio declined to 2.0x as of December 27, 2025, down from higher levels post-acquisition.
Ask Fintool AI AgentHow Did the Stock React?
The stock traded up ~5% in the days leading into earnings, rising from $60.31 on January 30 to $63.53 on February 3. Despite the EPS miss, the market appears to be rewarding:
- The return to 7% service organic growth
- Strong revenue beat on both segments
- Margin expansion in Distribution
- Reaffirmed guidance for high single-digit organic growth
Key levels:
- Current price: $63.53
- 52-week high: $97.08
- 52-week low: $50.23
- Market cap: $593M
The stock remains well below its 52-week high, reflecting broader concerns about small-cap valuations and the company's margin trajectory as it integrates recent acquisitions.
Balance Sheet and Capital Allocation
The company ended Q3 with:
- Cash: $3.5M
- Total Debt: $99.9M (up from $32.7M in March 2025)
- Credit Facility Available: $50.1M
- Leverage Ratio: 2.0x (down sequentially)
In July 2025, Transcat secured a new 5-year $150M syndicated credit facility with M&T Bank, Wells Fargo, and Bank of America, replacing the prior $80M facility. This provides dry powder for continued M&A.
Nine-month cash flow performance:
- Operating cash flow: $28.6M
- Capital expenditures: $11.7M
- Operating free cash flow: $16.9M
- Business acquisitions: $82.5M
Key Risks and Concerns
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Service margin pressure: The 90bps gross margin decline reflects customer onboarding costs. Management says this will normalize, but the timeline is uncertain.
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Integration execution: With $82.5M in acquisitions YTD and operating expenses up 43%, execution risk is elevated.
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Economic sensitivity: Management's guidance is contingent on "barring any increased economic uncertainty" — suggesting some caution about macro conditions.
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Leverage: While declining, the 2.0x leverage ratio is elevated versus historical levels.
Q&A Highlights
On the drivers of 7% organic service growth:
Management confirmed that delayed customer decisions from Q1-Q2 began converting in Q3. CFO Tom Barbato noted: "Some of these decisions had been delayed... we had ink on paper in some cases, and we knew those would ramp throughout the quarter. There were other deals we anticipated would come to fruition, and they did."
On start-up cost timeline:
When asked to quantify the margin headwind from new customer onboarding, Barbato said: "We're not talking huge dollars... The most important thing is to make sure that as we start these new partnerships, we get off to a good start." He expects costs to "normalize over the next few quarters" with Q4 typically delivering the highest margins of the year (36.2% last year).
On M&A geographic priorities:
The company identified four remaining geographic gaps:
- Northern California — Life sciences cluster
- Dallas — Industrial base
- Atlanta — Southeastern U.S. coverage
- Mid-Atlantic/Baltimore — Currently serviced from other locations but enough business to justify physical presence
Additionally, management noted Ireland expansion is "going very well" with potential for further European or Central American expansion to follow customers.
On CEO succession:
CEO Lee Rudow confirmed the search committee is evaluating both internal and external candidates, with the process "nearing completion." When asked about timing, he said: "I think that's a reasonable expectation" that a decision would be announced by Q4 earnings. Additional one-time expenses related to the search are expected in Q4.
On life sciences and defense tailwinds:
An analyst noted significant onshoring investments — Lilly's $30B manufacturing commitment, AstraZeneca's $50B pledge, and Amgen's new facilities. CEO Rudow responded: "Any onshoring of manufacturing in the regulated business spaces is always going to be good for Transcat." He outlined participation across the capital project lifecycle from commissioning to ongoing calibration.
On defense, management noted: "The more defense contracting work there is, the bigger the government gets from that perspective. That's a highly regulated space, which means it's a good space for Transcat." They highlighted that as contractors like Lockheed increase CapEx budgets, it creates more calibration demand.
On distribution AI/data center opportunity:
The company made a conscious investment 18-24 months ago in rental equipment for "power generation, power conditioning, power management" applications aligned with data centers, EV charging, and related infrastructure. CFO Barbato noted: "It's really serving us well... there absolutely are recurring calibration opportunities that are and will continue to come along with those end markets."
Forward Catalysts
- Q4 FY26 earnings (late May 2026) — Will service organic growth sustain at high single digits?
- CEO announcement — Search nearing completion, expect announcement by Q4 earnings
- Service margin normalization — Q4 typically highest margin quarter (36.2% last year); onboarding costs should subside
- M&A pipeline — Four geographic gaps identified; $50M+ credit availability
- Rental mix shift — Distribution margin expansion could continue if power/data center rentals grow
- Life sciences onshoring — Multi-year tailwind from pharma manufacturing reshoring
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