UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM
(Mark one)
For the quarterly period ended:
or
For the transition period from to
Commission File Number:
TRANSCAT, INC.
(Exact name of registrant as specified in its charter)
| | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
(
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | | |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☑
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☑
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | Accelerated filer ☐ |
| Non-accelerated filer ☐ | Smaller reporting company |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
The number of shares of common stock, par value $0.50 per share, of the registrant outstanding as of October 31, 2025 was
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TRANSCAT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
| (Unaudited) | (Unaudited) | |||||||||||||||
| Second Quarter Ended | Six Months Ended | |||||||||||||||
| September 27, | September 28, | September 27, | September 28, | |||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Service Revenue | $ | $ | $ | $ | ||||||||||||
| Distribution Revenue | ||||||||||||||||
| Total Revenue | ||||||||||||||||
| Cost of Service Revenue | ||||||||||||||||
| Cost of Distribution Revenue | ||||||||||||||||
| Total Cost of Revenue | ||||||||||||||||
| Gross Profit | ||||||||||||||||
| Selling, Marketing and Warehouse Expenses | ||||||||||||||||
| General and Administrative Expenses | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| Operating Income | ||||||||||||||||
| Interest Expense | ||||||||||||||||
| Interest Income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Expense | ||||||||||||||||
| Total Interest and Other Expense/(Income), net | ( | ) | ||||||||||||||
| Income Before Provision For Income Taxes | ||||||||||||||||
| Provision for Income Taxes | ||||||||||||||||
| Net Income | $ | $ | $ | $ | ||||||||||||
| Basic Earnings Per Share | $ | $ | $ | $ | ||||||||||||
| Basic Average Shares Outstanding | ||||||||||||||||
| Diluted Earnings Per Share | $ | $ | $ | $ | ||||||||||||
| Diluted Average Shares Outstanding | ||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
| (Unaudited) | (Unaudited) | |||||||||||||||
| Second Quarter Ended | Six Months Ended | |||||||||||||||
| September 27, | September 28, | September 27, | September 28, | |||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Net Income | $ | $ | $ | $ | ||||||||||||
| Other Comprehensive Income/(Loss) : | ||||||||||||||||
| Currency Translation Adjustment | ( | ) | ||||||||||||||
| Other, net of tax effects of $ and $ for the second quarter ended September 27, 2025 and September 28, 2024, respectively; and $ and $ for the six months ended September 27, 2025 and September 28, 2024, respectively | ( | ) | ( | ) | ||||||||||||
| Total Other Comprehensive Income/(Loss) | ( | ) | ||||||||||||||
| Comprehensive Income | $ | $ | $ | $ | ||||||||||||
Note: Tax effect is calculated using the expected annual tax rate, which was 31.1% and 25% for the fiscal year 2026 and 2025 periods, respectively.
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Amounts)
| (Unaudited) | (Audited) | |||||||
| September 27, | March 29, | |||||||
| 2025 | 2025 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and Cash Equivalents | $ | $ | ||||||
| Accounts Receivable, less allowance for credit losses of $ and $ as of September 27, 2025 and March 29, 2025, respectively | ||||||||
| Other Receivables | ||||||||
| Inventory | ||||||||
| Prepaid Expenses and Other Current Assets | ||||||||
| Total Current Assets | ||||||||
| Property and Equipment, net | ||||||||
| Goodwill | ||||||||
| Intangible Assets, net | ||||||||
| Right to Use Assets | ||||||||
| Other Assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts Payable | $ | |||||||
| Accrued Compensation and Other Current Liabilities | ||||||||
| Current Portion of Long-Term Debt | ||||||||
| Total Current Liabilities | ||||||||
| Long-Term Debt | ||||||||
| Deferred Tax Liabilities, net | ||||||||
| Lease Liabilities | ||||||||
| Other Liabilities | ||||||||
| Total Liabilities | ||||||||
| Shareholders' Equity: | ||||||||
| Common Stock, par value $ per share, shares authorized; and shares issued and outstanding as of September 27, 2025 and March 29, 2025, respectively | ||||||||
| Capital in Excess of Par Value | ||||||||
| Accumulated Other Comprehensive Loss | ( | ) | ( | ) | ||||
| Retained Earnings | ||||||||
| Total Shareholders' Equity | ||||||||
| Total Liabilities and Shareholders' Equity | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
| (Unaudited) |
||||||||
| Six Months Ended |
||||||||
| September 27, |
September 28, |
|||||||
| 2025 |
2024 |
|||||||
| Cash Flows from Operating Activities: |
||||||||
| Net Income |
$ | $ | ||||||
| Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: |
||||||||
| Net Loss on Disposal of Property and Equipment |
||||||||
| Noncash Lease Expense |
||||||||
| Deferred Income Taxes |
||||||||
| Depreciation and Amortization |
||||||||
| Amortization of Deferred Financing Costs |
||||||||
| Provision for Accounts Receivable and Inventory Reserves |
||||||||
| Stock-Based Compensation Expense |
||||||||
| Changes in Assets and Liabilities, net of acquisitions: |
||||||||
| Accounts Receivable and Other Receivables |
( |
) | ||||||
| Inventory |
||||||||
| Prepaid Expenses and Other Current Assets |
( |
) | ||||||
| Accounts Payable |
( |
) | ||||||
| Accrued Compensation and Other Current Liabilities |
( |
) | ( |
) | ||||
| Income Taxes Payable |
( |
) | ||||||
| Net Cash Provided by Operating Activities |
||||||||
| Cash Flows from Investing Activities: |
||||||||
| Purchase of Property and Equipment |
( |
) | ( |
) | ||||
| Business Acquisitions, net of cash acquired |
( |
) | ( |
) | ||||
| Sales of Marketable Securities |
||||||||
| Net Cash Used in Investing Activities |
( |
) | ( |
) | ||||
| Cash Flows from Financing Activities: |
||||||||
| Proceeds From Revolving Credit Facility |
||||||||
| Repayment of Revolving Credit Facility |
( |
) | ||||||
| Repayments of Term Loan |
( |
) | ( |
) | ||||
| Payments of Deferred Financing Costs |
( |
) | ||||||
| Issuance of Common Stock, net of direct costs |
||||||||
| Repurchase of Common Stock |
( |
) | ( |
) | ||||
| Net Cash Provided by/(Used in) Financing Activities |
( |
) | ||||||
| Effect of Exchange Rate Changes on Cash and Cash Equivalents |
( |
) | ( |
) | ||||
| Net Increase in Cash and Cash Equivalents |
||||||||
| Cash and Cash Equivalents at Beginning of Period |
||||||||
| Cash and Cash Equivalents at End of Period |
$ | $ | ||||||
| Supplemental Disclosure of Cash Flow Activity: |
||||||||
| Cash paid during the period for: |
||||||||
| Interest |
$ | $ | ||||||
| Income Taxes, net |
$ | $ | ||||||
| Supplemental Disclosure of Non-Cash Investing and Financing Activities: |
||||||||
| Common stock issued for acquisitions |
$ | $ | ||||||
| Balance Sheet Reclassification of Property and Equipment, net to Inventory |
$ | $ |
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(In Thousands, Except Par Value Amounts)
(Unaudited)
| Capital | ||||||||||||||||||||||||
| Common Stock | In | Accumulated | ||||||||||||||||||||||
| Issued | Excess | Other | ||||||||||||||||||||||
| $0.50 Par Value | of Par | Comprehensive | Retained | |||||||||||||||||||||
| Shares | Amount | Value | (Loss) | Earnings | Total | |||||||||||||||||||
| Balance as of March 30, 2024 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Issuance of Common Stock | ||||||||||||||||||||||||
| Contingent Consideration Classified as Equity | - | |||||||||||||||||||||||
| Repurchase of Common Stock | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Stock-Based Compensation | ||||||||||||||||||||||||
| Other Comprehensive Loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Net Income | - | |||||||||||||||||||||||
| Balance as of June 29, 2024 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Issuance of Common Stock | ||||||||||||||||||||||||
| Repurchase of Common Stock | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Stock-Based Compensation | ||||||||||||||||||||||||
| Other Comprehensive Income | - | |||||||||||||||||||||||
| Net Income | - | |||||||||||||||||||||||
| Balance as of September 28, 2024 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Capital |
||||||||||||||||||||||||
| Common Stock |
In |
Accumulated |
||||||||||||||||||||||
| Issued |
Excess |
Other |
||||||||||||||||||||||
| $0.50 Par Value |
of Par |
Comprehensive |
Retained |
|||||||||||||||||||||
| Shares |
Amount |
Value |
(Loss) |
Earnings |
Total |
|||||||||||||||||||
| Balance as of March 29, 2025 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| Issuance of Common Stock |
||||||||||||||||||||||||
| Repurchase of Common Stock |
||||||||||||||||||||||||
| Stock-Based Compensation |
- | |||||||||||||||||||||||
| Other Comprehensive Income |
- | |||||||||||||||||||||||
| Net Income |
- | |||||||||||||||||||||||
| Balance as of June 28, 2025 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| Issuance of Common Stock |
||||||||||||||||||||||||
| Repurchase of Common Stock |
- | ( |
) | ( |
) | ( |
) | |||||||||||||||||
| Stock-Based Compensation |
- | |||||||||||||||||||||||
| Other Comprehensive Loss |
- | ( |
) | ( |
) | |||||||||||||||||||
| Net Income |
- | |||||||||||||||||||||||
| Balance as of September 27, 2025 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – GENERAL
Description of Business: Transcat, Inc. (“Transcat,” “we,” “us,” “our” or the “Company”) is a leading provider of accredited calibration services, cost control and optimization services, and distribution and rental of value-added professional grade handheld test, measurement and control instrumentation. The Company is focused on providing services and products to highly regulated industries, particularly the life science industry, which includes pharmaceutical, biotechnology, medical device and other FDA-regulated businesses. Additional industries served include industrial manufacturing; energy and utilities, including oil and gas; chemical manufacturing; FAA-regulated businesses, including aerospace and defense and other industries that require accuracy in their processes, confirmation of the capabilities of their equipment, and for which the risk of failure is very costly.
Revenue Recognition: Distribution non-rental revenue is recorded when an order’s title and risk of loss transfers to the customer, which is generally upon shipment. Distribution rental revenue is recognized over time using the time-elapsed output method as this portrays the transfer of control to the customer. The Company recognizes the majority of its Service revenue based upon when the calibration or other activity is performed and then shipped and/or delivered to the customer. The majority of the Company’s revenue generating activities have a single performance obligation and are recognized at the point in time when control transfers and/or the Company's obligation has been fulfilled, which is generally upon shipment. Some Service revenue is generated from managing customers’ calibration programs in which the Company recognizes revenue over time using the time-elapsed output method as this portrays the transfer of control to the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for product shipped or services performed. Sales taxes and other taxes billed and collected from customers are excluded from revenue. The Company generally invoices its customers for freight, shipping, and handling charges. Freight billed to customers is included in revenue. Shipping and handling is not included in revenue. Provisions for customer returns are provided for in the period the related revenue is recorded based upon historical data.
Under Accounting Standards Codification ("ASC") Topic 606, "Revenue from Contracts with Customers", The Company uses judgments that could potentially impact the timing of its satisfaction of performance obligations. Such judgments include considerations in determining transaction prices and when performance obligations are satisfied for standard product sales that include general payment terms that are between net 30 and 90 days.
Revenue recognized from prior period performance obligations for the second quarter of the fiscal year ending March 28, 2026 (“fiscal year 2026”) was immaterial. As of September 27, 2025, the Company had no unsatisfied performance obligations for contracts with an original expected duration of greater than one year. Pursuant to ASC Topic 606, the Company applied the practical expedient with respect to disclosure of the deferral and future expected timing of revenue recognition for transaction price allocated to remaining performance obligations. Deferred revenue, unbilled revenue and deferred contract costs recorded on the Condensed Consolidated Balance Sheets as of September 27, 2025 and March 29, 2025 were immaterial. See Note 4 for disaggregated revenue information.
| % of Total Net Sales | ||||||||||||||||
| Second Quarter Ended | Six Months Ended | |||||||||||||||
| September 27, | September 28, | September 27, | September 28, | |||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Point-in-Time | % | % | % | % | ||||||||||||
| Over Time - Output Method | % | % | % | % | ||||||||||||
| Total | % | % | % | % | ||||||||||||
Foreign Currency Translation and Transactions: The accounts of Cal OpEx Limited (d/b/a Transcat Ireland), an Irish company, and Transcat Canada Inc., both of which are wholly-owned subsidiaries of the Company, are maintained in their local currencies, the Euro and the Canadian dollar, respectively, and have been translated to U.S. dollars. Accordingly, the amounts representing assets and liabilities have been translated at the period-end rates of exchange and related revenue and expense accounts have been translated at an average rate of exchange during the period. Gains and losses arising from translation of Cal OpEx Limited’s and Transcat Canada Inc.’s financial statements into U.S. dollars are recorded directly to the accumulated other comprehensive loss component of shareholders’ equity.
Transcat records foreign currency gains and losses on business transactions denominated in foreign currency. The net foreign currency was a net loss of $
Earnings Per Share: Basic earnings per share of the Company's common stock, par value $
For the first six months of fiscal years 2026 and 2025, the net additional common stock equivalents had a ($
| Second Quarter Ended | Six Months Ended | |||||||||||||||
| September 27, | September 28, | September 27, | September 28, | |||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Average Shares Outstanding – Basic | ||||||||||||||||
| Effect of Dilutive Common Stock Equivalents | ||||||||||||||||
| Average Shares Outstanding – Diluted | ||||||||||||||||
| Anti-dilutive Common Stock Securities | ||||||||||||||||
Goodwill and Intangible Assets: Goodwill represents the excess of the purchase price over the fair values of the underlying net assets of an acquired business. The Company tests goodwill for impairment for each reporting unit on an annual basis during the fourth quarter of its fiscal year, or immediately if conditions indicate that such impairment could exist. The Company is permitted, but not required, to qualitatively assess indicators of a reporting unit’s fair value to determine whether it is necessary to perform the two-step goodwill impairment test. If a quantitative test is deemed necessary, a discounted cash flow analysis is prepared to estimate fair value.
The gross carrying amount and accumulated amortization of Transcat's acquired identifiable intangible assets as of September 27, 2025 were as follows (in thousands):
| Gross Carrying | Accumulated | |||||||||||
| Amount | Amortization | Total | ||||||||||
| Customer Base | $ | $ | ( | ) | $ | |||||||
| Covenant not to Compete | ( | ) | ||||||||||
| Tradenames/Trademarks | ( | ) | ||||||||||
| Other | ( | ) | ||||||||||
| Intangible Assets, net | $ | $ | ( | ) | $ | |||||||
The gross carrying amount and accumulated amortization of Transcat's acquired identifiable intangible assets as of March 29, 2025 were as follows (in thousands):
| Gross Carrying | Accumulated | |||||||||||
| Amount | Amortization | Total | ||||||||||
| Customer Base | $ | $ | ( | ) | $ | |||||||
| Covenant not to Compete | ( | ) | ||||||||||
| Tradenames/Trademarks | ( | ) | ||||||||||
| Other | ( | ) | ||||||||||
| Intangible Assets, net | $ | $ | ( | ) | $ | |||||||
Intangible assets, namely customer base, covenants not to compete, and tradenames/trademarks, represent an allocation of purchase price to identifiable intangible assets of an acquired business. Intangible assets are evaluated for impairment when events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Amortization expense relating to intangible assets is expected to be $
A summary of changes in the Company’s goodwill is as follows (amounts in thousands):
| Goodwill | ||||||||||||
| Distribution | Service | Total | ||||||||||
| Net Book Value as of March 29, 2025 | $ | $ | $ | |||||||||
| Additions | ||||||||||||
| Currency Translation Adjustment | ||||||||||||
| Net Book Value as of September 27, 2025 | $ | $ | $ | |||||||||
Other Liabilities: A summary of other current and non-current liabilities is as follows (amounts in thousands):
| (Unaudited) | (Audited) | |||||||
| September 27, | March 29, | |||||||
| 2025 | 2025 | |||||||
| Current Liabilities: | ||||||||
| Accrued Payroll and Employee Benefits | $ | $ | ||||||
| Accrued Incentives | ||||||||
| Current Portion of Lease Liabilities | ||||||||
| Accrued Acquisition Holdbacks | ||||||||
| Accrued Sales Tax | ||||||||
| Income Taxes Payable | ||||||||
| Other Current Liabilities | ||||||||
| Accrued Compensation and Other Current Liabilities | $ | $ | ||||||
| Non-Current Liabilities: | ||||||||
| Postretirement Benefit Obligation | $ | $ | ||||||
| Accrued Acquisition Holdbacks | ||||||||
| Other Non-Current Liabilities | ||||||||
| Other Liabilities | $ | $ | ||||||
Recently Adopted Accounting Pronouncements:
There have been no significant changes in our reported financial position or results of operations and cash flows resulting from the adoption of new accounting pronouncements.
Recent Accounting Guidance Not Yet Adopted:
In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures". The ASU expands the income tax disclosure requirements, principally related to the rate reconciliation table and income taxes paid. ASU 2023-09 is effective for annual periods beginning in fiscal 2026, with early adoption permitted. The adoption of the ASU is not expected to have a material impact on the Company’s financial statement disclosures.
In November 2024, the FASB issued ASU 2024-03 “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses” which requires public entities to disclose specified information about certain costs and expenses. ASU 2024-03 is effective for annual reporting periods beginning in fiscal 2028, and interim reporting periods beginning after December 15, 2027, with early adoption permitted. The adoption of the ASU is not expected to have a material impact on the Company’s financial statement disclosures.
In July 2025, the FASB issued ASU 2025-05 “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets,” which introduces a practical expedient for the application of the current expected credit loss model to current accounts receivable and contract assets. ASU 2025-05 is effective for interim and annual reporting periods beginning in fiscal 2027, with early adoption permitted. The adoption of the ASU is not expected to have a material impact on the Company’s financial statement disclosures.
NOTE 2 – LONG-TERM DEBT
On July 29, 2025, the Company entered into a Credit Agreement (the “Credit Agreement”) with a group of lenders establishing a new five-year $
In connection with the Credit Agreement, the Company entered into a syndicated loan. The lender of the Replaced Facility participated in the Credit Agreement. For accounting purposes, the transaction was accounted for as a debt modification; however, there were
On July 7, 2021, the Company entered into the Replaced Facility with Manufacturers and Traders Trust Company (“M&T”), that amended and restated in its entirety the Company’s prior credit agreement with M&T. The Replaced Facility provided for a revolving credit commitment of $
The Credit Agreement allows the Company to use up to $
As of September 27, 2025, $
Interest and Other Costs: Effective July 1, 2023, interest on outstanding borrowings under the revolving credit facility accrued, at Transcat’s election, at either the variable Daily Simple SOFR or a fixed rate for a designated period at the SOFR corresponding to such period (subject to a
Covenants: The Credit Facility has certain covenants with which the Company is required to comply, including a fixed charge ratio covenant, which prohibits the Company's fixed charge ratio from being less than
Other Terms: The Company pledged all of its U.S. tangible and intangible personal property, the equity interests of its U.S.-based subsidiaries, and a majority of the common stock of Transcat Canada Inc. and Cal Op Ex Limited as collateral security for the loans made under the Credit Facility.
NOTE 3 – STOCK-BASED COMPENSATION
In September 2021, the Transcat, Inc. 2021 Stock Incentive Plan (the “2021 Plan”) was approved by shareholders and became effective. The 2021 Plan replaced the Transcat, Inc. 2003 Incentive Plan (the “2003 Plan”). Shares available for grant under the 2021 Plan include any shares remaining available for issuance under the 2003 Plan and any shares that are subject to outstanding awards under the 2003 Plan that are subsequently canceled, expired, forfeited, or otherwise not issued or are settled in cash. The 2021 Plan provides for, among other awards, grants of restricted stock units and stock options to directors, officers and key employees at the fair market value at the date of grant. At September 27, 2025,
The Company receives an excess tax benefit related to restricted stock vesting and stock options exercised and redeemed. The discrete tax benefits related to share-based compensation and stock option activity during the first six months of fiscal year 2026 and fiscal year 2025 were less than $
Restricted Stock Units: The Company grants time-based and performance-based restricted stock units as a component of executive and key employee compensation. Expense for restricted stock unit grants is recognized on a straight-line basis for the service period of the stock award based upon fair value of the award on the date of grant. The fair value of a restricted stock unit grant is the quoted market price for a share of the Company’s common stock on the date of grant. These restricted stock units are generally either time vested or vest following the fiscal year end from the date of grant subject to cumulative Adjusted EBITDA (a non-GAAP measure) targets over the eligible period. There was a special award granted in September 2025 that will vest following the second fiscal year end from the date of grant subject to cumulative Adjusted EBITDA (a non-GAAP measure) targets over the eligible period.
Compensation cost ultimately recognized for performance-based restricted stock units will equal the grant date fair market value of the unit that coincides with the actual outcome of the performance conditions. On an interim basis, the Company records compensation cost based on the estimated level of achievement of the performance conditions. The estimated level of achievement for performance-based restricted stock units granted in fiscal year 2025 and fiscal year 2026, are estimated to be
The following table summarizes the non-vested restricted stock units outstanding as of September 27, 2025 (in thousands, except per unit data):
| Weighted | ||||||||
| Average | ||||||||
| Number | Grant Date | |||||||
| Of | Fair | |||||||
| RSUs | Value | |||||||
| Outstanding as of March 29, 2025 | $ | |||||||
| Granted | $ | |||||||
| Vested | $ | |||||||
| Forfeited | $ | |||||||
| Outstanding as of September 27, 2025 | $ | |||||||
Total expense relating to restricted stock units, based on grant date fair value and the achievement criteria, was $
Stock Options: The Company grants stock options to employees and directors with an exercise price equal to the quoted market price of the Company’s stock at the date of the grant. The fair value of stock options is estimated using the Black-Scholes option pricing formula that requires assumptions for expected volatility, expected dividends, the risk-free interest rate and the expected term of the option. Expense for stock options is recognized on a straight-line basis over the requisite service period for each award. Options vest over a period of to years either in annual tranches or cliff vesting and expire either years or years from the date of grant.
The Company calculates the fair value of the stock options granted using the Black-Scholes model. The following weighted-average assumptions were used to value options granted during the first six months of fiscal year 2026 and fiscal year 2025:
| Second Quarter Ended | Six Months Ended | |||||||||||||||
| September 27, | September 28, | September 27, | September 28, | |||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Risk-Free Interest Rate | % | % | % | % | ||||||||||||
| Volatility Factor | % | % | % | % | ||||||||||||
| Expected Term (in Years) | ||||||||||||||||
| Annual Dividend Rate | % | % | % | % | ||||||||||||
The Company calculates expected volatility for stock options by taking an average of historical volatility over the expected term. The computation of expected term was determined based on safe harbor rules, giving consideration to the contractual terms of the stock-based awards and vesting schedules. The interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield in effect at the time of grant. The Company assumes expected dividends.
During the first six months of fiscal year 2026, the Company granted options for
During the first six months of fiscal year 2025, the Company granted options for
The expense related to all stock option awards was $
The following table summarizes the Company’s options as of and for the first six months ended September 27, 2025 (in thousands, except price per option data and years):
| Weighted | Weighted | |||||||||||||||
| Average | Average | |||||||||||||||
| Number | Exercise | Remaining | Aggregate | |||||||||||||
| Of | Price Per | Contractual | Intrinsic | |||||||||||||
| Options | Option | Term (in years) | Value | |||||||||||||
| Outstanding as of March 29, 2025 | $ | |||||||||||||||
| Granted | $ | |||||||||||||||
| Exercised | $ | |||||||||||||||
| Forfeited | $ | |||||||||||||||
| Outstanding as of September 27, 2025 | $ | $ | ||||||||||||||
| Exercisable as of September 27, 2025 | $ | $ | ||||||||||||||
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the second quarter of fiscal year 2026 and the exercise price, multiplied by the number of in-the-money stock options) that would have been received by the option holders had all holders exercised their options on September 27, 2025. The amount of aggregate intrinsic value will change based on the fair market value of the Company’s common stock.
Total unrecognized compensation cost related to non-vested stock options as of September 27, 2025 was $
NOTE 4 – SEGMENT INFORMATION
Operating segments represent a component of the Company that engages in business activities from which it may recognize revenues and incur expenses whose operating results are regularly reviewed by the public entity’s chief operating decision maker (“CODM”) to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. Once operating segments are identified, the Company determined which of those operating segments are required to be presented as reportable segments based on the quantitative thresholds.
Transcat has reportable segments: Service and Distribution. Through its Service segment, the Company offers calibration, repair, inspection, analytical qualifications, preventative maintenance, consulting and other related services. Through its Distribution segment, the Company sells and rents national and proprietary brand instruments to customers globally. There are no intersegment revenues.
The Company's CODM is Lee Rudow, President & Chief Executive Officer. Both of the Company's reportable segments are regularly reviewed by the CODM through monthly revenue, gross profit, operating income and consolidated financial forecast updates and through regular and monthly meetings with the executive leadership team. The primary financial measure used by the CODM for the Company's reportable segments is Operating Income, as reported in the Condensed Consolidated Statements of Income and is most consistent with the measurement principles used in the consolidated financial statements. This is used by the CODM to make decisions on resource allocation, assess the performance of the business, and monitor budget versus actual results. Significant expenses reviewed by the CODM consist of cost of revenue and operating expenses, which individually are consistent in total with what is shown on the face of the Condensed Consolidated Statements of Income.
The CODM does not review assets in evaluating the results of the Company's segments, and therefore, such information is not presented.
| Three Months Ended September 27, 2025: | ||||||||||||
| Distribution | Service | Total | ||||||||||
| Revenue | $ | $ | $ | |||||||||
| Cost of Revenue | ||||||||||||
| Gross Profit | ||||||||||||
| Operating Expenses | ||||||||||||
| Operating Income | ||||||||||||
| Capital Expenditures | ||||||||||||
| Depreciation and Amortization | ||||||||||||
| Three Months Ended September 28, 2024: | ||||||||||||
| Distribution | Service | Total | ||||||||||
| Revenue | $ | $ | $ | |||||||||
| Cost of Revenue | ||||||||||||
| Gross Profit | ||||||||||||
| Operating Expenses | ||||||||||||
| Operating Income | ||||||||||||
| Capital Expenditures | ||||||||||||
| Depreciation and Amortization | ||||||||||||
| Six Months Ended September 27, 2025: | ||||||||||||
| Distribution | Service | Total | ||||||||||
| Revenue | $ | $ | $ | |||||||||
| Cost of Revenue | ||||||||||||
| Gross Profit | ||||||||||||
| Operating Expenses | ||||||||||||
| Operating Income | ||||||||||||
| Capital Expenditures | ||||||||||||
| Depreciation and Amortization | ||||||||||||
| Six Months Ended September 28, 2024: | ||||||||||||
| Distribution | Service | Total | ||||||||||
| Revenue | $ | $ | $ | |||||||||
| Cost of Revenue | ||||||||||||
| Gross Profit | ||||||||||||
| Operating Expenses | ||||||||||||
| Operating Income | ||||||||||||
| Capital Expenditures | ||||||||||||
| Depreciation and Amortization | ||||||||||||
The following tables present geographic data for the second quarter and first six months of fiscal year 2026 and fiscal year 2025 (dollars in thousands):
| Second Quarter Ended | Six Months Ended | |||||||||||||||
| September 27, | September 28, | September 27, | September 28, | |||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Geographic Data: | ||||||||||||||||
| Revenues (1): | ||||||||||||||||
| United States (2) | $ | $ | $ | $ | ||||||||||||
| Canada | ||||||||||||||||
| Other International | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Second Quarter Ended | ||||||||
| September 27, | September 28, | |||||||
| 2025 | 2024 | |||||||
| Property and Equipment: | ||||||||
| United States (2) | $ | $ | ||||||
| Canada | ||||||||
| Other International | ||||||||
| Total | $ | $ | ||||||
| (1) | Revenues are attributed to the countries based on the destination of a product shipment or the location where service is rendered. |
| (2) | United States includes Puerto Rico. |
NOTE 5 – BUSINESS ACQUISITIONS
Essco: Effective August 5, 2025, the Company acquired
The Essco goodwill is primarily attributable to the workforce acquired, as well as operational synergies and other intangibles that do not qualify for separate recognition. The goodwill and intangible assets related to the Essco acquisition have been allocated to the Service segment. Intangible assets related to the Essco acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful lives of up to
The Essco Customer Base & Contracts intangible asset was calculated using the MPEEM (Multi-Period Excess Earnings Method) under the Income approach and adjusting for the cash flow benefit of tax amortization of purchased intangibles. The fair value was determined to be $
The total purchase price for Essco was approximately $
The Company has preliminarily estimate fair values for the assets purchased and liabilities assumed as of the date of the acquisition. The amounts reported are considered preliminary as the Company is completing the valuations required to allocate the purchase price. The following is a summary of the preliminary purchase price allocation, in the aggregate, to the fair value, of Essco's assets and liabilities acquired on August 5, 2025 (in thousands):
| Goodwill | $ | ||||
| Intangible Assets – Customer Base & Contracts | |||||
| Intangible Assets – Trademarks and Tradenames | |||||
| Plus: | Cash and Cash equivalents | ||||
| Accounts Receivable, Net | |||||
| Property and Equipment, net | |||||
| Right To Use Assets | |||||
| Prepaid Expenses and Other Current Assets | |||||
| Other Assets | |||||
| Less: | Current Liabilities | ( | ) | ||
| Lease Liabilities | ( | ) | |||
| Total Purchase Price | $ | ||||
Since the acquisition, Essco has contributed revenue of $
Martin: Effective December 10, 2024, the Company acquired Martin Calibration, Inc, a privately-held Minnesota calibration services company ("Martin"). Martin is ISO 17025 certified. This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that expand the depth and breadth of the Company’s service capabilities.
The Martin goodwill is primarily attributable to the workforce acquired, as well as operational synergies and other intangibles that do not qualify for separate recognition. The goodwill and intangible assets relating to the Martin acquisition have been allocated to the Service segment. Intangible assets related to the Martin acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up to
| Goodwill | $ | ||||
| Intangible Assets – Customer Base & Contracts | |||||
| Intangible Assets – Trademarks and Tradenames | |||||
| Plus: | Cash and Cash equivalents | ||||
| Accounts Receivable, Net | |||||
| Property and Equipment, net | |||||
| Right To Use Assets | |||||
| Prepaid Expenses and Other Current Assets | |||||
| Less: | Current Liabilities | ( | ) | ||
| Lease Liabilities | ( | ) | |||
| Total Purchase Price | $ | ||||
During the first six months of fiscal year 2026, Martin has contributed revenue of $
Becnel: Effective April 15, 2024, the Company acquired Becnel Rental Tools, LLC, a privately-held Louisiana limited liability company (“Becnel”), pursuant to an Agreement and Plan of Merger (the “Becnel agreement”), by and among the Company, Becnel and the other parties thereto. Becnel is an ISO 9001:2015 certified provider of rental tools and services primarily utilized in the decommissioning and maintenance of oil wells. This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that expand the depth and breadth of the Company’s service and rental capabilities.
The Becnel goodwill is primarily attributable to the workforce acquired, as well as operational synergies and other intangibles that do not qualify for separate recognition. The goodwill and intangible assets relating to the Becnel acquisition have been allocated to both the Service and Distribution segment. Intangible assets related to the Becnel acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up to years and are deductible for tax purposes. Amortization of goodwill related to the Becnel acquisition is deductible for income tax purposes.
The Becnel customer base intangible was calculated using the MPEEM approach and adjusting for the cash flow benefit of tax amortization of purchased intangibles. The fair value was determined to be $
The total purchase price for Becnel was approximately $
Pursuant to the Becnel agreement, the purchase price is subject to reduction by $
This cash portion of the contingent consideration is remeasured quarterly. If, as a result of remeasurement, the value of the cash portion of the contingent consideration changes, any charges or income will be included in the Company’s Condensed Consolidated Statements of Income. After reviewing the fiscal year 2026 forecast, the Company revalued the contingent consideration payout during the fourth quarter of fiscal year 2025. As of September 27, 2025 and March 29, 2025, the estimated fair value of the contingent consideration, classified as Level 3 in the fair value hierarchy, remains zero. This amount was calculated using a Geometric Brownian motion distribution that was then used in a Monte Carlo simulation model. Assumptions used in the Monte Carlo simulation model included: 1) discount rate of
Due to the uncertainty with utilizing these significant unobservable inputs for this Level 3 fair value measurement, materially higher or lower fair value measurements may be recognized at subsequent remeasurement periods.
The following is a summary of the purchase price allocation, in the aggregate, to the fair value, of Becnel's assets and liabilities acquired on April 15, 2024 (in thousands):
| Goodwill | $ | ||||
| Intangible Assets – Customer Base & Contracts | |||||
| Intangible Assets – Trademarks and Tradenames | |||||
| Plus: | Cash and Cash equivalents | ||||
| Accounts Receivable, Net | |||||
| Property and Equipment, net | |||||
| Prepaid Expenses and Other Current Assets | |||||
| Less: | Current Liabilities | ( | ) | ||
| Total Purchase Price | $ | ||||
During the first six months of fiscal year 2026, Becnel has contributed revenue of $
The results of acquired businesses are included in Transcat’s consolidated operating results as of the dates the businesses were acquired. The following unaudited pro forma information presents the Company’s results of operations as if the acquisition of Essco had occurred at the beginning of fiscal year 2025. The pro forma results do not purport to represent what the Company’s results of operations actually would have been if the transactions had occurred at the beginning of the period presented or what the Company’s operating results will be in future periods.
| (Unaudited) | (Unaudited) | |||||||||||||||
| Second Quarter Ended | Six Months Ended | |||||||||||||||
| (in thousands except per share information) | September 27, 2025 | September 28, 2024 | September 27, 2025 | September 28, 2024 | ||||||||||||
| Total Revenue | $ | $ | $ | $ | ||||||||||||
| Net Income | $ | $ | $ | $ | ||||||||||||
| Basic Earnings Per Share | $ | $ | $ | $ | ||||||||||||
| Diluted Earnings Per Share | $ | $ | $ | $ | ||||||||||||
Certain of the Company’s acquisition agreements include provisions for contingent consideration and other holdback amounts. The Company accrues for contingent consideration and holdback provisions based on their estimated fair value at the date of acquisition and at subsequent remeasurement periods, as applicable. As of September 27, 2025, contingent consideration and $
During the first six months of fiscal years 2026 and 2025, acquisition costs were $
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements. This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to expectations, estimates, beliefs, assumptions and predictions of future events and are identified by words such as “anticipate,” “believes,” "continue," “estimates,” “expects,” "focus," “potential,” “outlook,” “seek,” “strategy,” “target,” “could,” "can," “may,” “will,” “would,” and other similar words. Forward-looking statements are not statements of historical fact and thus are subject to risks, uncertainties and other factors that could cause actual results to differ materially from historical results or those expressed in such forward-looking statements. You should evaluate forward-looking statements in light of important risk factors and uncertainties that may affect our operating and financial results and our ability to achieve our financial objectives. These factors include, but are not limited to, general economic conditions applicable to our business, inflationary impacts and changes in interest rates, the highly competitive nature of the industries in which we compete and in the nature of our two business segments, the concentration of Service segment customers in the life science and other FDA-regulated businesses as well as the industrial manufacturing, aerospace, defense, energy and utilities industries, the significant competition we face in our Distribution segment, any impairment of our goodwill or intangible assets, tariffs and changing trade relations, regional and international conflicts and political conditions, negative publicity and other reputational harm, our ability to successfully complete and integrate business acquisitions, potential unexpected liabilities associated with companies we acquire, cybersecurity risks, the risk of significant disruptions in our information technology systems, our ability to recruit, train and retain quality employees, skilled technicians and senior management, fluctuations in our operating results, our ability to achieve or maintain adequate utilization and pricing rates for our technical service providers, the prices we are able to charge for our services in our Service segment, our ability to adapt our technology, reliance on our enterprise resource planning system, technology updates, supply chain delays, disruptions or product shortages, the risks related to current and future indebtedness, foreign currency rate fluctuations, risks related to protecting our intellectual property, geopolitical events, adverse weather events or other catastrophes, natural disasters or widespread public health crises, the volatility of our stock price, the relatively low trading volume of our common stock, changes in tax rates, changes in accounting standards, legal requirements and listing standards, and legal and regulatory risks related to our international operations. These risk factors and uncertainties are more fully described by us under the heading “Risk Factors” in our reports filed with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the fiscal year ended March 29, 2025. You should not place undue reliance on our forward-looking statements, which speak only as of the date they are made. Except as required by law, we undertake no obligation to update, correct or publicly announce any revisions to any of the forward-looking statements contained in this report, whether as a result of new information, future events or otherwise.
CRITICAL ACCOUNTING ESTIMATES
There have been no material changes to our critical accounting policies and estimates from the information provided in our Annual Report on Form 10-K for the fiscal year ended March 29, 2025.
RESULTS OF OPERATIONS
Executive Summary
During our second quarter of fiscal year 2026, we had consolidated revenue of $82.3 million. This represented an increase of $14.4 million or 21.3% versus the second quarter of fiscal year 2025. This increase was primarily due to acquisitions and a $5.7 million increase in distribution revenue. Acquired revenue, which represents revenue from acquisitions completed after the end of the prior period, was $9.8 million. Organic revenue, increased by 6.8% versus the second quarter of fiscal year 2025. See Note 5 – “Business Acquisitions” to our unaudited consolidated financial statements in this report for more information about the impact of our acquisitions.
Our second quarter of fiscal year 2026 gross profit was $26.8 million. This was an increase of $5.6 million or 26.2% versus the second quarter of fiscal year 2025. Consolidated gross margin was 32.5%, an increase of 1.2% versus the second quarter of fiscal year 2025. This increase in gross profit percentage was primarily due to higher margins from the Distribution segment when compared to the prior year period.
Total operating expenses were $23.3 million in the second quarter of fiscal year 2026, an increase of $5.8 million or 33.1% when compared to the prior fiscal year second quarter. Included in operating expenses during the second quarter of fiscal year 2026 were incremental operating expenses from the acquisitions of Martin and Essco, including customer base amortization and acquisition-related costs, increased stock-based compensation and higher incentive-based employee costs due to higher sales. As a percentage of total revenue, operating expenses were 28.3% in the second quarter of fiscal year 2026, up 2.5% from 25.8% in the second quarter of fiscal year 2025. Operating income was $3.5 million, a decrease of $0.2 million, or 6.2% and operating margin decreased from 5.5% to 4.3% in the second quarter of fiscal year 2026.
Net income was $1.3 million in the second quarter of fiscal year 2026 versus $3.3 million in the second quarter of fiscal year 2025. The decrease was primarily due to an increase in administrative costs, interest expense and income tax expense.
The following table presents, for the second quarter of fiscal year 2026 and fiscal year 2025, the components of our Condensed Consolidated Statements of Income:
| (Unaudited) |
(Unaudited) |
|||||||||||||||
| Second Quarter Ended |
Six Months Ended |
|||||||||||||||
| September 27, |
September 28, |
September 27, |
September 28, |
|||||||||||||
| 2025 |
2024 |
2025 |
2024 |
|||||||||||||
| As a Percentage of Total Revenue: |
||||||||||||||||
| Service Revenue |
64.2 | % | 65.0 | % | 64.3 | % | 65.3 | % | ||||||||
| Distribution Revenue |
35.8 | % | 35.0 | % | 35.7 | % | 34.7 | % | ||||||||
| Total Revenue |
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
| Gross Profit Percentage: |
||||||||||||||||
| Service Gross Profit |
32.2 | % | 33.1 | % | 32.6 | % | 33.5 | % | ||||||||
| Distribution Gross Profit |
33.2 | % | 27.9 | % | 34.2 | % | 30.8 | % | ||||||||
| Total Gross Profit |
32.5 | % | 31.3 | % | 33.1 | % | 32.6 | % | ||||||||
| Selling, Marketing and Warehouse Expenses |
12.9 | % | 12.1 | % | 12.7 | % | 11.9 | % | ||||||||
| General and Administrative Expenses |
15.4 | % | 13.7 | % | 14.9 | % | 14.2 | % | ||||||||
| Total Operating Expenses |
28.3 | % | 25.8 | % | 27.6 | % | 26.0 | % | ||||||||
| Operating Income |
4.3 | % | 5.5 | % | 5.6 | % | 6.6 | % | ||||||||
| Interest and Other Expense,/(Income) net |
1.8 | % | 0.0 | % | 1.4 | % | (0.1 | )% | ||||||||
| Income Before Provision for Income Taxes |
2.5 | % | 5.5 | % | 4.2 | % | 6.6 | % | ||||||||
| Provision for Income Taxes |
0.9 | % | 0.6 | % | 1.3 | % | 0.9 | % | ||||||||
| Net Income |
1.5 | % | 4.8 | % | 2.9 | % | 5.7 | % | ||||||||
Second QUARTER ENDED September 27, 2025 COMPARED TO Second QUARTER ENDED September 28, 2024 (dollars in thousands):
Revenue:
| Second Quarter Ended |
Change |
|||||||||||||||
| September 27, |
September 28, |
|||||||||||||||
| 2025 |
2024 |
$ |
% |
|||||||||||||
| Revenue: |
||||||||||||||||
| Service |
$ | 52,836 | $ | 44,083 | $ | 8,753 | 19.9 | % | ||||||||
| Distribution |
29,436 | 23,743 | 5,693 | 24.0 | % | |||||||||||
| Total |
$ | 82,272 | $ | 67,826 | $ | 14,446 | 21.3 | % | ||||||||
Total revenue was $82.3 million, an increase of $14.4 million, or 21.3%, in our fiscal year 2026 second quarter compared to the prior fiscal year second quarter.
Service revenue, which accounted for 64.2% and 65.0% of our total revenue in the second quarter of fiscal years 2026 and 2025, respectively, increased $8.8 million or 19.9% from the second quarter of fiscal year 2025 to the second quarter of fiscal year 2026 despite economic volatility. This year-over-year increase included $9.8 million in service revenue from the acquisitions of Martin and Essco. Organic revenue, decreased by 1.7% primarily due to lower revenue from the Transcat Solutions business.
Our fiscal years 2026 and 2025 Service revenue growth, in relation to prior fiscal year quarter comparisons, was as follows:
| FY 2026 |
FY 2025 |
|||||||||||||||||||||||
| Q2 |
Q1 |
Q4 |
Q3 |
Q2 |
Q1 |
|||||||||||||||||||
| Service Revenue Growth |
19.9 | % | 12.3 | % | 11.3 | % | 0.1 | % | 6.4 | % | 9.8 | % | ||||||||||||
Within any fiscal year, while we add new customers, we also have customers from the prior fiscal year whose service orders may not repeat for any number of factors. Among those factors are variations in the timing of periodic calibrations and other services, customer capital expenditures and customer outsourcing decisions. Because the timing of Service segment orders can vary on a quarter-to-quarter basis, we believe trailing twelve-month information provides a better indication of the progress of this segment.
The following table presents the trailing twelve-month Service segment revenue for the first and second quarters of fiscal year 2026 and each quarter in fiscal year 2025 as well as the trailing twelve-month revenue growth as a comparison to that of the prior fiscal year period:
| FY 2026 |
FY 2025 |
|||||||||||||||||||||||
| Q2 |
Q1 |
Q4 |
Q3 |
Q2 |
Q1 |
|||||||||||||||||||
| Trailing Twelve-Month: |
||||||||||||||||||||||||
| Service Revenue |
$ | 195,548 | $ | 186,794 | $ | 181,428 | $ | 176,054 | $ | 176,006 | $ | 173,450 | ||||||||||||
| Service Revenue Growth |
11.0 | % | 7.7 | % | 7.0 | % | 8.3 | % | 12.1 | % | 15.0 | % | ||||||||||||
Our strategy has been to focus our investments in the core electrical, temperature, pressure, physical/dimensional and radio frequency/microwave calibration disciplines. We expect to subcontract approximately 13% to 15% of our Service revenue to third-party vendors for calibration beyond our chosen scope of capabilities. We continually evaluate our outsourcing needs and make capital investments, as deemed necessary, to add more in-house capabilities and reduce the need for third-party vendors. Capability expansion through business acquisitions is another way that we seek to reduce the need for outsourcing. The following table presents the source of our Service revenue, and the percentage of Service revenue derived from each source for the first and second quarters of fiscal year 2026 and for each quarter during fiscal year 2025:
| FY 2026 |
FY 2025 |
|||||||||||||||||||||||
| Q2 |
Q1 |
Q4 |
Q3 |
Q2 |
Q1 |
|||||||||||||||||||
| Percent of Service Revenue: |
||||||||||||||||||||||||
| In-House |
85.8 | % | 85.6 | % | 85.6 | % | 85.1 | % | 86.6 | % | 86.9 | % | ||||||||||||
| Outsourced |
12.9 | % | 13.2 | % | 13.2 | % | 13.7 | % | 12.3 | % | 12.0 | % | ||||||||||||
| Freight Billed to Customers |
1.3 | % | 1.2 | % | 1.2 | % | 1.2 | % | 1.1 | % | 1.1 | % | ||||||||||||
| 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||
Our Distribution revenue accounted for 35.8% of our total revenue in the second quarter of fiscal year 2026 and 35.0% of our total revenue in the second quarter of fiscal year 2025. During the second quarter of fiscal year 2026, Distribution segment revenue was $29.4 million which was an increase of $5.7 million or 24.0%. This increase was due to incremental traditional rental revenue, higher revenue from our non-rental products and $0.8 million of incremental revenue primarily related to the acquisition of Martin.
The following table presents the quarterly historical trend of Distribution revenue in fiscal years 2026 and 2025 compared to the prior year fiscal quarter:
| FY 2026 |
FY 2025 |
|||||||||||||||||||||||
| Q2 |
Q1 |
Q4 |
Q3 |
Q2 |
Q1 |
|||||||||||||||||||
| Distribution Revenue Growth |
24.0 | % | 19.0 | % | 3.9 | % | 6.5 | % | 11.1 | % | 10.5 | % | ||||||||||||
The Distribution segment revenue increase for the second quarter of fiscal year 2026 versus the second quarter of fiscal year 2025 was due to revenue primarily increases in traditional rental products, higher revenue from non-rental products, and incremental revenue related to the acquisition of Martin.
Distribution revenue includes orders for instruments that we routinely stock in our inventory, customized products, and other products ordered less frequently, which we do not stock. Product backorders are the total dollar value of orders received for which revenue has not yet been recognized. Pending product shipments are primarily backorders, but also include products that are requested to be calibrated in our service centers prior to shipment, orders required by the customer to be shipped complete or at a future date, and other orders awaiting final credit or management review prior to shipment. Management uses pending product shipments and backorders as measures of our future business performance and financial performance within the distribution segment.
The following table presents our total pending product shipments and the percentage of total pending product shipments that were backorders at the end of the first and second quarter of fiscal year 2026 and each quarter of fiscal year 2025:
| FY 2026 |
FY 2025 |
|||||||||||||||||||||||
| Q2 |
Q1 |
Q4 |
Q3 |
Q2 |
Q1 |
|||||||||||||||||||
| Total Pending Product Shipments |
$ | 7,510 | $ | 4,182 | $ | 3,317 | $ | 3,992 | $ | 4,102 | $ | 4,713 | ||||||||||||
| % of Pending Product |
||||||||||||||||||||||||
| Shipments that were Backorders |
89.7 | % | 85.8 | % | 81.9 | % | 84.0 | % | 84.7 | % | 78.4 | % | ||||||||||||
Our total pending product shipments at the end of the second quarter of fiscal year 2026 were $7.5 million, an increase of $3.4 million versus the end of the second quarter of fiscal year 2025 and an increase of $3.3 million since June 28, 2025. The increase in pending product shipments and backorders since June 28, 2025 was due in part to a one-time significant order.
Gross Profit:
| Second Quarter Ended |
Change |
|||||||||||||||
| September 27, |
September 28, |
|||||||||||||||
| 2025 |
2024 |
$ |
% |
|||||||||||||
| Gross Profit: |
||||||||||||||||
| Service |
$ | 16,993 | $ | 14,591 | $ | 2,402 | 16.5 | % | ||||||||
| Distribution |
9,769 | 6,615 | 3,154 | 47.7 | % | |||||||||||
| Total |
$ | 26,762 | $ | 21,206 | $ | 5,556 | 26.2 | % | ||||||||
Total gross profit for the second quarter of fiscal year 2026 was $26.8 million, an increase of $5.6 million or 26.2% versus the second quarter of fiscal year 2025. Total gross margin was 32.5% in the second quarter of fiscal year 2026, up from 31.3% in the second quarter of fiscal year 2025, a 1.2% increase.
Service gross profit in the second quarter of fiscal year 2026 increased $2.4 million, or 16.5%, from the second quarter of fiscal year 2025. Service gross margin was 32.2% in the second quarter of fiscal year 2026, a decrease of 0.9% compared to 33.1% in the second quarter of fiscal year 2025. This decrease in Service gross margin was the result of organic revenue decreases and lower margins from the Transcat Solutions business.
The following table presents the quarterly historical trend of our Service gross margin as a percent of Service revenue:
| FY 2026 |
FY 2025 |
|||||||||||||||||||||||
| Q2 |
Q1 |
Q4 |
Q3 |
Q2 |
Q1 |
|||||||||||||||||||
| Service Gross Margin |
32.2 | % | 33.0 | % | 36.2 | % | 29.7 | % | 33.1 | % | 34.0 | % | ||||||||||||
Our Distribution gross margin includes net sales less the direct cost of inventory sold and the direct costs of equipment rental revenues, primarily depreciation expense for the fixed assets in our rental equipment pool, as well as the impact of rebates and cooperative advertising income we receive from vendors, freight billed to customers, freight expenses and direct shipping costs. In general, our Distribution gross margin can vary based upon the mix of products sold, price discounting, and the timing of periodic vendor rebates offered and cooperative advertising programs from suppliers.
The following table reflects the quarterly historical trend of our Distribution gross margin as a percent of Distribution revenue:
| FY 2026 |
FY 2025 |
|||||||||||||||||||||||
| Q2 |
Q1 |
Q4 |
Q3 |
Q2 |
Q1 |
|||||||||||||||||||
| Distribution Gross Margin |
33.2 | % | 35.2 | % | 28.2 | % | 29.1 | % | 27.9 | % | 33.9 | % | ||||||||||||
Distribution segment gross margin was 33.2% in the second quarter of fiscal year 2026 versus 27.9% in the second quarter of fiscal year 2025, an increase of 5.3%. The increase in Distribution gross margin was due to increased rental revenue and the mix of non-rental products sold.
Operating Expenses:
| Second Quarter Ended |
Change |
|||||||||||||||
| September 27, |
September 28, |
|||||||||||||||
| 2025 |
2024 |
$ |
% |
|||||||||||||
| Operating Expenses: |
||||||||||||||||
| Selling, Marketing and Warehouse |
$ | 10,627 | $ | 8,181 | $ | 2,446 | 29.9 | % | ||||||||
| General and Administrative |
12,630 | 9,290 | 3,340 | 36.0 | % | |||||||||||
| Total |
$ | 23,257 | $ | 17,471 | $ | 5,786 | 33.1 | % | ||||||||
Total operating expenses were $23.3 million in the second quarter of fiscal year 2026 versus $17.5 million during the second quarter of fiscal year 2025. The year-over-year increase in selling, marketing and warehouse expenses is primarily due to increased expenses related to recent acquisitions, including acquisition related amortization expense. The increase in general and administrative expenses is primarily due to an increase in stock-based compensation and increased payroll costs for new employees.
As a percentage of total revenue, operating expenses were 28.3% in the second quarter of fiscal year 2026 and 25.8% in the second quarter of fiscal year 2025, an increase of 2.5%.
Income Taxes:
| Second Quarter Ended |
Change |
|||||||||||||||
| September 27, |
September 28, |
|||||||||||||||
| 2025 |
2024 |
$ |
% |
|||||||||||||
| Provision for Income Taxes |
$ | 760 | $ | 427 | $ | 333 | 78.0 | % | ||||||||
Our effective tax rate for the second quarter of fiscal years 2026 and 2025 was 37.5% and 11.5%, respectively. The increase in effective tax rate is due to the timing of our discrete items in relation to the timing of our pre-tax net income. Our provision for income taxes is affected by discrete items that may occur in any given period but are not consistent from year to year. The discrete benefits related to share-based compensation activity in the second quarter of fiscal years 2026 and 2025 was an expense of less than $0.1 million and a benefit of $0.6 million, respectively. We continue to evaluate our tax provision on a quarterly basis and adjust, as deemed necessary, our effective tax rate given changes in facts and circumstances expected in the future.
Net Income:
| Second Quarter Ended |
Change |
|||||||||||||||
| September 27, |
September 28, |
|||||||||||||||
| 2025 |
2024 |
$ |
% |
|||||||||||||
| Net Income |
$ | 1,269 | $ | 3,286 | $ | (2,017 | ) | (61.4 | )% | |||||||
Net income for the second quarter of fiscal year 2026 decreased $2.0 million or 61.4% versus the second quarter of fiscal year 2025. As a percentage of revenue, net income was 1.5% in the second quarter of fiscal year 2026, down from 4.8% in the second quarter of fiscal year 2025. The year-over-year decrease in net income was primarily due to lower operating income, higher interest expense, net and an increase in income tax expense.
Adjusted EBITDA:
Total Adjusted EBITDA, a non-GAAP measure, for the second quarter of fiscal year 2026 was $12.1 million, an increase of $3.3 million or 36.7% versus the second quarter of fiscal year 2025. See “Non-GAAP Financial Measures” below for a description of the non-GAAP measures we use and a reconciliation to the most directly comparable GAAP measures. As a percentage of revenue, Adjusted EBITDA increased to 14.7% for the second quarter of fiscal year 2026 from 13.1% for the second quarter of fiscal year 2025. The increase in Adjusted EBITDA during the second quarter of fiscal year 2026 was primarily driven by depreciation and amortization expense, interest expense and non-cash stock compensation.
Six MONTHS ENDED September 27, 2025 COMPARED TO Six MONTHS ENDED September 28, 2024 (dollars in thousands):
Revenue:
| Six Months Ended |
Change |
|||||||||||||||
| (dollars in thousands) |
September 27, |
September 28, |
||||||||||||||
| 2025 |
2024 |
$ |
% |
|||||||||||||
| Revenue: |
||||||||||||||||
| Service |
$ | 101,980 | $ | 87,861 | $ | 14,119 | 16.1 | % | ||||||||
| Distribution |
56,716 | 46,672 | 10,044 | 21.5 | % | |||||||||||
| Total |
$ | 158,696 | $ | 134,533 | $ | 24,163 | 18.0 | % | ||||||||
Total revenue was $158.7 million, an increase of $24.2 million, or 18.0%, in the first six months of fiscal year 2026 compared to the first six months of the prior fiscal year.
Service revenue, which accounted for 64.3% and 65.3% of our total revenue in the first six months of fiscal years 2026 and 2025, respectively, increased $14.1 million or 16.1% from the first six months of fiscal year 2025 to the first six months of fiscal year 2026. This year-over-year increase included $16.1 million in service revenue from the acquisitions of Martin and Essco. Organic revenue, decreased by 1.7% primarily due to lower revenue from the Transcat Solutions business.
Gross Profit:
| Six Months Ended |
Change |
|||||||||||||||
| (dollars in thousands) |
September 27, |
September 28, |
||||||||||||||
| 2025 |
2024 |
$ |
% |
|||||||||||||
| Gross Profit: |
||||||||||||||||
| Service |
$ | 33,202 | $ | 29,474 | $ | 3,728 | 12.6 | % | ||||||||
| Distribution |
19,381 | 14,387 | 4,994 | 34.7 | % | |||||||||||
| Total |
$ | 52,583 | $ | 43,861 | $ | 8,722 | 19.9 | % | ||||||||
Total gross profit for the first six months of fiscal year 2026 was $52.6 million, an increase of $8.7 million or 19.9% versus the first six months of fiscal year 2025. Total gross margin was 33.1% in the first six months of fiscal year 2026, slightly up from 32.6% in the first six months of fiscal year 2025, a 0.5% increase.
Service gross profit in the first six months of fiscal year 2026 increased $3.7 million, or 12.6%, from the first six months of fiscal year 2025. Service gross margin was 32.6% in the first six months of fiscal year 2026, a 0.9% decrease versus the 33.5% in the first six months of fiscal year 2025. This decrease in Service gross margin was the result of organic revenue decreases and lower margins from the Transcat Solutions business.
Distribution gross profit in the first six months of fiscal year 2026 increased $5.0 million, or 34.7%, from the first six months of fiscal year 2025. Distribution gross margin was 34.2% in the first six months of fiscal year 2026, a 3.4% increase versus the 30.8% in the first six months of fiscal year 2025. Distribution gross margin for the first six months of fiscal year 2025 was due to lower revenue and margin contribution from Becnel, which was impacted by hurricanes in the Gulf of Mexico during that period.
Operating Expenses:
| Six Months Ended |
Change |
|||||||||||||||
| (dollars in thousands) |
September 27, |
September 28, |
||||||||||||||
| 2025 |
2024 |
$ |
% |
|||||||||||||
| Operating Expenses: |
||||||||||||||||
| Selling, Marketing and Warehouse |
$ | 20,142 | $ | 15,982 | $ | 4,160 | 26.0 | % | ||||||||
| General and Administrative |
23,598 | 19,045 | 4,553 | 23.9 | % | |||||||||||
| Total |
$ | 43,740 | $ | 35,027 | $ | 8,713 | 24.9 | % | ||||||||
Total operating expenses were $43.7 million in the first six months of fiscal year 2026 versus $35.0 million during the first six months of fiscal year 2025. The year-over-year increase in selling, marketing and warehouse expenses is due to increased expenses related to recent acquisitions, primarily attributable to acquisition related amortization expense. The increase in general and administrative expenses is due to incremental expenses related to acquired companies, an increase in stock-based compensation and increased payroll costs for new employees.
As a percentage of total revenue, operating expenses were 27.6% in the first six months of fiscal year 2026 and 26.0% in the first six months of fiscal year 2025, an increase of 1.6%.
Income Taxes:
| Six Months Ended |
Change |
|||||||||||||||
| (dollars in thousands) |
September 27, |
September 28, |
||||||||||||||
| 2025 |
2024 |
$ |
% |
|||||||||||||
| Provision for Income Taxes |
$ | 2,064 | $ | 1,247 | $ | 817 | 65.5 | % | ||||||||
Our effective tax rate for the first six months of fiscal years 2026 and 2025 was 31.3% and 13.9%, respectively. The increase in effective tax rate is due to the timing of our discrete items in relation to the timing of our pre-tax net income. Our provision for income taxes is affected by discrete items that may occur in any given period but are not consistent from year to year. The discrete benefits related to share-based compensation activity in the first six months of fiscal years 2026 and 2025 was an expense of $0.2 million and a benefit of $1.1 million, respectively. We continue to evaluate our tax provision on a quarterly basis and adjust, as deemed necessary, our effective tax rate given changes in facts and circumstances expected in the future.
Net Income:
| Six Months Ended |
Change |
|||||||||||||||
| September 27, |
September 28, |
|||||||||||||||
| 2025 |
2024 |
$ |
% |
|||||||||||||
| Net Income |
$ | 4,530 | $ | 7,694 | $ | (3,164 | ) | (41.1 | )% | |||||||
Net income for the first six months of fiscal year 2026 decreased $3.2 million or 41.1% versus the first six months of fiscal year 2025. As a percentage of revenue, net income was 2.9% in the first six months of fiscal year 2026, down from 5.7% in the first six months of fiscal year 2025. The year-over-year decrease in net income was primarily due to higher interest expense, net and a higher provision for income taxes.
Adjusted EBITDA:
Total Adjusted EBITDA, a non-GAAP measure, for the first six months of fiscal year 2026 was $23.9 million, an increase of $4.8 million or 25.2% versus the first six months of fiscal year 2025. See “Non-GAAP Financial Measures” below for a description of the non-GAAP measures we use and a reconciliation to the most directly comparable GAAP measures. As a percentage of revenue, Adjusted EBITDA increased to 15.0% for the first six months of fiscal year 2026 from 14.2% for the first six months of fiscal year 2025. The increase in Adjusted EBITDA during the first six months of fiscal year 2026 was primarily driven by increases in operating income, depreciation and amortization expense and non-cash stock compensation.
Non-GAAP Financial Measures
Adjusted EBITDA
In addition to reporting net income, a GAAP measure, we present Adjusted EBITDA (earnings before interest, income taxes, depreciation and amortization, non-cash stock compensation expense, acquisition related transaction expenses, contingent consideration, and certain other expenses), which is a non-GAAP measure. Our management believes Adjusted EBITDA is an important measure of our operating performance because it allows management, investors and others to evaluate and compare the performance of our core operations from period to period by removing the impact of the capital structure (interest), tangible and intangible asset base (depreciation and amortization), taxes, stock-based compensation expense and other items, which is not always commensurate with the reporting period in which it is included. As such, our management uses Adjusted EBITDA as a measure of performance when evaluating our business segments and as a basis for planning and forecasting. Adjusted EBITDA is also commonly used by rating agencies, lenders and other parties to evaluate our credit worthiness.
Adjusted EBITDA is not a measure of financial performance under GAAP and is not calculated through the application of GAAP. As such, it should not be considered as a substitute or alternative for the GAAP measure of net income and, therefore, should not be used in isolation of, but in conjunction with, the GAAP measure. Adjusted EBITDA, as presented, may produce results that vary from the GAAP measure and may not be comparable to a similarly defined non-GAAP measure used by other companies.
| Second Quarter Ended |
Six Months Ended |
|||||||||||||||
| (dollars in thousands) |
September 27, |
September 28, |
September 27, |
September 28, |
||||||||||||
| 2025 |
2024 |
2025 |
2024 |
|||||||||||||
| Net Income |
$ | 1,269 | $ | 3,286 | $ | 4,530 | $ | 7,694 | ||||||||
| + Interest Expense (Income), Net |
1,264 | (210 | ) | 1,704 | (470 | ) | ||||||||||
| + Tax Provision |
760 | 427 | 2,064 | 1,247 | ||||||||||||
| + Depreciation & Amortization |
6,487 | 4,399 | 12,092 | 8,512 | ||||||||||||
| + Transaction Expense |
496 | 33 | 524 | 467 | ||||||||||||
| + Non-cash Stock Compensation |
1,839 | 926 | 2,969 | 1,623 | ||||||||||||
| Adjusted EBITDA |
$ | 12,115 | $ | 8,861 | $ | 23,883 | $ | 19,073 | ||||||||
Adjusted Diluted Earnings Per Share
In addition to reporting Diluted Earnings Per Share, a GAAP measure, we present Adjusted Diluted Earnings Per Share (net income plus acquisition related amortization expense, acquisition related transaction expenses, acquisition related stock-based compensation and acquisition amortization of backlog; divided by the average diluted shares outstanding during the period), which is a non-GAAP measure. Our management believes Adjusted Diluted Earnings Per Share is an important measure of our operating performance because it provides a basis for comparison of our business operations between current, past and future periods by excluding items that we do not believe are indicative of our core operating performance.
Adjusted Diluted Earnings Per Share is not a measure of financial performance under GAAP and is not calculated through the application of GAAP. As such, it should not be considered as a substitute or alternative for the GAAP measure of Diluted Earnings Per Share and, therefore, should not be used in isolation of, but in conjunction with, the GAAP measure. Adjusted Diluted Earnings Per Share, as presented, may produce results that vary from the GAAP measure and may not be comparable to a similarly defined non-GAAP measure used by other companies.
| Second Quarter Ended |
Six Months Ended |
|||||||||||||||
| September 27, |
September 28, |
September 27, |
September 28, |
|||||||||||||
| 2025 |
2024 |
2025 |
2024 |
|||||||||||||
| Net Income |
$ | 1,269 | $ | 3,286 | $ | 4,530 | $ | 7,694 | ||||||||
| + Amortization of Intangible Assets |
3,461 | 1,888 | 6,305 | 3,637 | ||||||||||||
| + Acquisition Amortization of Backlog |
- | 4 | - | 28 | ||||||||||||
| + Acquisition Deal Costs |
496 | 33 | 524 | 467 | ||||||||||||
| + Acquisition Stock Expense |
226 | 130 | 371 | 364 | ||||||||||||
| + Income Tax Effect |
(1,297 | ) | (514 | ) | (2,051 | ) | (1,124 | ) | ||||||||
| Adjusted Net Income* |
4,155 | 4,827 | 9,679 | 11,066 | ||||||||||||
| Diluted Average Shares Outstanding |
9,399 | 9,282 | 9,392 | 9,222 | ||||||||||||
| Diluted Earnings Per Share – GAAP |
$ | 0.14 | $ | 0.35 | $ | 0.48 | $ | 0.83 | ||||||||
| + Amortization of Intangible Assets |
0.37 | 0.21 | 0.67 | 0.40 | ||||||||||||
| + Acquisition Amortization of Backlog |
- | - | - | - | ||||||||||||
| + Acquisition Deal Costs |
0.05 | 0.00 | 0.06 | 0.05 | ||||||||||||
| + Acquisition Stock Expense |
0.02 | 0.02 | 0.04 | 0.04 | ||||||||||||
| + Income Tax Effect |
(0.14 | ) | (0.06 | ) | (0.22 | ) | (0.12 | ) | ||||||||
| Adjusted Diluted Earnings Per Share* |
$ | 0.44 | $ | 0.52 | $ | 1.03 | $ | 1.20 | ||||||||
Note: Income tax effect is calculated using the expected annual tax rate, which was 31.1% and 25% for the fiscal year 2026 and 2025 periods, respectively.
LIQUIDITY AND CAPITAL RESOURCES
We expect that foreseeable liquidity and capital resource requirements will be met through cash and cash equivalents, anticipated cash flows from operations and borrowings from our revolving credit facility. We believe that these sources of financing will be adequate to meet our future requirements including anticipated operating expenses, capital expenditures, interest payments on our long-term debt, and planned business acquisitions. To the extent that we do not satisfy our liquidity requirements through cash and cash equivalents, anticipated cash flows from operations and borrowings from our revolving credit facility, we intend to satisfy such requirements through proceeds from the issuance of common stock.
On July 29, 2025, we entered into a Credit Agreement (the “Credit Agreement”) with a group of three lenders establishing a new five-year $150.0 million secured revolving credit facility (the “Credit Facility”). Borrowing options under the Credit Facility include: (i) a revolving loan option; (ii) a swingline loan option; and (iii) letters of credit, each of which is provided on a committed basis. The Credit Facility replaced the Company’s former $80.0 million credit facility (the “Replaced Facility”), which included a letter of credit subfacility of $10.0 million and our 2018 term loan, with an original principal amount of $15.0 million (the “2018 Term Loan”). We used initial borrowings under the Credit Facility to repay amounts due under the Replaced Facility, including the remaining amounts under the 2018 Term Loan, and for the acquisition of Essco.
Under the Credit Agreement, we can use up to $50.0 million for acquisitions in any single fiscal year, with an exception for the Essco acquisition. In addition, we are permitted to make restricted payments up to $25.0 million in the aggregate over the term of the Credit Facility and up to $10.0 million in any single fiscal year to repurchase shares and pay dividends.
As of September 27, 2025, $150.0 million was available for borrowing, subject to covenant restrictions, under the Credit Facility, of which, $111.9 million was outstanding. During the first six months of fiscal year 2026, we used approximately $83.0 million, drawn from the Credit Facility, for a business acquisition.
Most borrowings under the Credit Facility bear interest, at our election, at a fixed base rate or the daily simple SOFR rate, plus a margin. Any swingline loan will bear interest at the fixed base rate plus a margin. The applicable margin is based on our then-current leverage ratio. Under the Credit Facility, the applicable margin was reduced for most levels of leverage ratio for comparable categories of borrowings under the Replaced Facility. The applicable margin ranges from 0.00% to 0.75% for base rate loans and 1.00% to 1.75% for SOFR loans. We will pay a commitment fee based on the daily unused amount under the Credit Facility multiplied by the applicable margin, which ranges from 0.10% to 0.20% for the commitment fee.
The Credit Agreement has certain financial covenants with which we must comply. The leverage ratio covenant under the Credit Agreement requires us to maintain our ratio of outstanding indebtedness to consolidated EBITDA to be no greater than 3.00 to 1.00, provided that we may temporarily increase the leverage ratio covenant if we complete a material permitted acquisition under the terms of the Credit Agreement. The Company's leverage ratio, as defined in the Credit Agreement, was 2.26 on September 27, 2025, compared with 0.78 on March 29, 2025. We must also maintain a fixed charge coverage ratio of no less than 1.20 to 1.00. We were in compliance with all loan covenants and requirements of the Credit Agreement and the Replaced Facility, as applicable, during the first six months of fiscal year 2026.
Cash Flows: The following table is a summary of our Condensed Consolidated Statements of Cash Flows (dollars in thousands):
| Six Months Ended |
||||||||
| September 27, |
September 28, |
|||||||
| 2025 |
2024 |
|||||||
| Cash Provided by (Used in): |
||||||||
| Operating Activities |
$ | 16,504 | $ | 15,759 | ||||
| Investing Activities |
$ | (91,556 | ) | $ | (7,958 | ) | ||
| Financing Activities |
$ | 79,194 | $ | (3,346 | ) | |||
Operating Activities: Net cash provided by operating activities was $16.5 million during the first six months of fiscal year 2026 compared to $15.8 million of net cash provided by operating activities during the first six months of fiscal year 2025. The year-over-year increase in cash provided by operating activities was primarily the result of changes in net working capital (defined as current assets less current liabilities). The significant working capital fluctuations were as follows:
| ● |
Receivables: Accounts receivable and other receivables increased $3.6 million during the first six months of fiscal year 2026, inclusive of $2.9 million of accounts receivable acquired during the period. During the first six months of fiscal year 2025, accounts receivable and other receivables decreased $1.7 million inclusive of $3.1 million accounts receivable acquired during the period. The year-over-year variation reflects changes in the timing of collections. The following table illustrates our “days sales outstanding” as of September 27, 2025 and September 28, 2024 (dollars in thousands): |
| September 27, |
September 28, |
|||||||
| 2025 |
2024 |
|||||||
| Net Sales, for the last two fiscal months |
$ | 60,487 | $ | 49,548 | ||||
| Accounts Receivable, net |
$ | 62,573 | $ | 48,933 | ||||
| Days Sales Outstanding |
62 | 59 | ||||||
| ● |
Inventory: Our inventory strategy includes making appropriate large quantity, high dollar purchases with key manufacturers for various reasons, including maximizing on-hand availability of key products, expanding the number of SKUs stocked in anticipation of customer demand, reducing backorders for products with long lead times and optimizing vendor purchase and sales volume discounts. As a result, inventory levels may vary from quarter-to-quarter based on the timing of these large orders in relation to our quarter end. The decreases in inventory are primarily due to the timing of shipments relative to strategic inventory purchases during the periods. |
| ● |
Accounts Payable: Changes in accounts payable may or may not correlate with changes in inventory balances at any given quarter end due to the timing of vendor payments for inventory, as well as the timing of payments for outsourced Service vendors. Accounts payable decreased $1.6 million during the first six months of fiscal year 2026 inclusive of $0.2 million assumed in acquisition during the period. Accounts payable increased $1.5 million during the first six months of fiscal year 2025. The variances are largely due to the timing of inventory and capital expenditures and other payments in the respective periods. |
| ● |
Accrued Compensation and Other Current Liabilities: Accrued compensation and other current liabilities include, among other things, amounts paid to employees for non-equity performance-based compensation. At the end of any particular period, the amounts accrued for such compensation may vary due to many factors including changes in expected performance levels, the performance measurement period, and timing of payments to employees. During the first six months of fiscal year 2026, accrued compensation and other current liabilities decreased by $3.8 million inclusive of $3.2 million of accrued compensation and other current liabilities assumed during the period. During the first six months of fiscal year 2025, accrued compensation and other current liabilities decreased by $4.6 million, inclusive of $0.2 million from assumed liabilities and purchase price holdbacks and contingent consideration from acquisitions. The decreases are largely due to the annual payment of incentive-based compensation accruals and payments of acquisition related holdback and accruals. |
Investing Activities: During the first six months of fiscal years 2026 and 2025, we invested $9.0 million and $7.6 million, respectively, in capital expenditures that was used primarily for customer-driven expansion of Service segment capabilities and our rental business.
During the first six months of fiscal years 2026 and 2025, we used $82.5 million and $15.9 million, respectively, for business acquisitions.
Financing Activities: During the first six months of fiscal year 2026, net proceeds and repayments from our revolving Credit Facility was $81.0 million, and $0.5 million in cash was generated from the issuance of common stock. In addition, we used $1.8 million for repayments of our term loan.
During the first six months of fiscal year 2025, $0.8 million in cash was generated from the issuance of common stock. In addition, we used $1.2 million for scheduled repayments of our term loan and $3.0 million for the “net” awarding of certain share awards to cover employee tax-withholding obligations for share award and stock option activity in fiscal year 2025, which are shown as a repurchase of shares of our common stock.
OUTLOOK
Our team delivered another solid quarter of revenue and adjusted EBITDA (a non-GAAP measure) performance in the fiscal second quarter highlighted by double-digit revenue growth and continued high demand in our rentals channel. Distribution revenue grew 24% in the quarter with a gross margin of 33.2%, driven primarily by the strategic mix increase of higher-margin rentals. We continue to see measured improvement from our organic and inorganic initiatives, paired with another quarter of robust revenue growth and disciplined cost management that enabled us to deliver 37% adjusted EBITDA (a non-GAAP measure) growth.
Acquisitions continue to be a cornerstone of our growth strategy. We are extremely excited about the recent acquisition of Essco Calibration, the largest deal in our history, supported by our new, larger credit facility. Essco is a perfect fit into our calibration service portfolio and creates a strong presence for us in the New England market. With the Essco deal following the acquisition of Martin Calibration in December 2024, we have acquired two leading regional calibration providers in an 8-month period. This demonstrates our ability to attract and acquire highly sought-after calibration companies to expand our capabilities and geographic reach, while increasing market share.
Looking forward, uncertainty in the macro environment remains a challenge, but our diversified portfolio of products and services combined with the ability to execute against strategic priorities will differentiate us in fiscal 2026 and beyond. We expect continued service revenue growth, benefiting from a larger presence in the New England and Midwest markets, and improving Service organic revenue. We expect a return to single-digit Service organic revenue growth in the second half of fiscal 2026. Our acquisition pipeline remains strong, and we will continue to leverage our integration expertise. We believe the combination of our talented team, portfolio differentiation, and strong financial profile positions us well to drive sustainable, long-term shareholder value.
We expect our income tax rate to range between 30% and 32% for full fiscal year 2026. This estimate includes federal, various state, Canadian and Irish income taxes and reflects the discrete tax accounting associated with share-based payment awards.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATES
Our exposure to changes in interest rates results from our borrowing activities. In the event interest rates were to move by 1%, our yearly interest expense would increase or decrease by approximately $1.1 million assuming our borrowing levels at September 27, 2025 remained constant under the Credit Facility. As of September 27, 2025, $150.0 million was available for borrowing, under the Credit Facility, of which $111.9 million was outstanding.
Under the Credit Agreement, effective July 29, 2025, at our option, we are permitted to borrow from the Credit Facility at a base rate or the variable Daily Simple SOFR (subject to a 1.00% floor), in each case, plus a margin. Our interest rate margin is determined on a quarterly basis based upon our calculated leverage ratio. Our weighted average interest rate for the second quarter of fiscal year 2026 for the Credit Facility was 6.0%. On September 27, 2025, we had no hedging arrangements in place for our Credit Facility to limit our exposure to movements in interest rates.
FOREIGN CURRENCY
Approximately 90% of our total revenues for each of the first six months of fiscal year 2026 and 2025 were denominated in U.S. dollars, with the remainder denominated in Canadian dollars and Euros. A 10% change in the value of the Canadian dollar to the U.S. dollar and the Euro to the U.S. dollar would impact our revenue by less than 1%. We monitor the relationship between the U.S. dollar and the Canadian dollar and the U.S. dollar and the Euro on a monthly basis and adjust sales prices for products and services sold in Canadian dollars or Euros as we believe to be appropriate.
We continually utilize short-term foreign exchange forward contracts to reduce the risk that future earnings denominated in Canadian dollars would be adversely affected by changes in currency exchange rates. We do not apply hedge accounting and therefore the net change in the fair value of the contracts, which totaled a loss of $0.2 million and $0.4 million in the first six months of fiscal years 2026 and 2025, respectively, was recognized as a component of Interest and Other (Income) Expense, net in the Condensed Consolidated Statements of Income. The change in the fair value of the contracts is offset by the change in fair value on the underlying accounts receivables denominated in Canadian dollars being hedged. On September 27, 2025, we had a foreign exchange contract, which matured in October 2025, outstanding in the notional amount of $0.6 million. The foreign exchange contract was renewed in October 2025 and continues to be in place. We do not use hedging arrangements for speculative purposes.
ITEM 4. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures. Our principal executive officer and our principal financial officer evaluated our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this quarterly report. Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our principal executive officer and principal financial officer to allow timely decisions regarding required disclosure. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of such date.
Changes in Internal Control over Financial Reporting. There has been no change in our internal control over financial reporting that occurred during the last fiscal quarter covered by this quarterly report (our second quarter of fiscal year 2026) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
INDEX TO EXHIBITS
| (101) |
Interactive Data File |
||
| 101.INS* Inline XBRL Instance Document | |||
| 101.SCH* Inline XBRL Taxonomy Extension Schema Document | |||
| 101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||
| 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document | |||
| 101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document | |||
| 101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||
| (104) | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | ||
| * |
Exhibit filed with this report. |
| ** |
Exhibit furnished with this report. |
| # | Management contract or compensatory plan or arrangement |
| ^ | Schedules and similar attachments have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company will furnish a copy of any omitted schedule or similar attachment to the Securities and Exchange Commission upon request. |
| † | Certain portions of this exhibit have been omited (indicated by asterisks) pursuant to Item 601(b) of Regulation S-K, because such omitted information is (i) not material and (ii) the type of information that the Company treats as private or confidential |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| TRANSCAT, INC. | ||
| Date: November 5, 2025 |
/s/ Lee D. Rudow |
|
| Lee D. Rudow |
||
| President and Chief Executive Officer (Principal Executive Officer) |
||
| Date: November 5, 2025 |
/s/ Thomas L. Barbato |
|
| Thomas L. Barbato |
||
| Senior Vice President of Finance and Chief Financial Officer (Principal Financial Officer) |