Open main menu
Open main menu
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM
(Mark one)
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended:
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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 |
| Global Market |
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. ☑ No ☐
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). ☑ No ☐
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). Yes No ☑
The number of shares of common stock, par value $0.50 per share, of the registrant outstanding as of July 31, 2025 was .
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TRANSCAT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
| (Unaudited) | ||||||||
| First Quarter Ended | ||||||||
| June 28, | June 29, | |||||||
| 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 | $ | $ | ||||||
| Weighted Average Shares Outstanding | ||||||||
| Diluted Earnings Per Share | $ | $ | ||||||
| Weighted Average Shares Outstanding | ||||||||
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
| (Unaudited) | ||||||||
| First Quarter Ended | ||||||||
| June 28, | June 29, | |||||||
| 2025 | 2024 | |||||||
| Net Income | $ | $ | ||||||
| Other Comprehensive Income/(Loss) : | ||||||||
| Currency Translation Adjustment | ( | ) | ||||||
| Other, net of tax effects of $- and $2 for the first quarter ended June 28, 2025 and June 29, 2024, respectively | ||||||||
| Total Other Comprehensive Income/(Loss) | ( | ) | ||||||
| Comprehensive Income | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Amounts)
| (Unaudited) | (Audited) | |||||||
| June 28, | March 29, | |||||||
| 2025 | 2025 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and Cash Equivalents | $ | $ | ||||||
| Accounts Receivable, less allowance for credit losses of $642 and $659 as of June 28, 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 $0.50 per share, 30,000,000 shares authorized; 9,318,490 and 9,315,840 shares issued and outstanding as of June 28, 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) | ||||||||
| Three Months Ended | ||||||||
| June 28, | June 29, | |||||||
| 2025 | 2024 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net Income | $ | $ | ||||||
| Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: | ||||||||
| Net Loss/(Gain) on Disposal of Property and Equipment | ( | ) | ||||||
| Noncash Lease Expense | ||||||||
| Deferred Income Taxes | ( | ) | ||||||
| Depreciation and Amortization | ||||||||
| 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/(Repayment of) Revolving Credit Facility, net | ||||||||
| Repayments of Term Loan | ( | ) | ( | ) | ||||
| 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 (received)/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 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| 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 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Over Time - Output Method
Total
million and are included as a component of Other Assets (non-current) on the Condensed Consolidated Balance Sheets.
million and million, respectively, in the Condensed Consolidated Statements of Income.
million for the first quarter of fiscal year 2026 and a net loss of less than $ million for the first quarter of fiscal year 2025. The Company continually utilizes short-term foreign exchange forward contracts to reduce the risk that its future earnings denominated in Canadian dollars would be adversely affected by changes in currency exchange rates. The Company does not apply hedge accounting and therefore the net change in the fair value of the contracts, which totaled a loss of less than $ million during each of the first quarter of fiscal years 2026 and 2025, 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 June 28, 2025, the Company had a foreign exchange contract, which matured in July 2025, outstanding in the notional amount of $ million. This contract was subsequently renewed and remains in place. The Company does not use hedging arrangements for speculative purposes.
per share ("common stock"), are computed based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share of common stock reflect the assumed conversion of stock options, unvested restricted stock units using the treasury stock method and contingent consideration classified as equity in periods in which they have a dilutive effect. In computing the per share effect of assumed conversion, proceeds received from the exercise of options and unvested restricted stock units are considered to have been used to purchase shares of common stock at the average market prices during the period, and the resulting net additional shares of common stock are included in the calculation of average shares of common stock outstanding.
For the first quarter of fiscal year 2026, the net additional common stock equivalents had effect on the calculation of diluted earnings per share. For the first quarter of fiscal year 2025, the net additional common stock equivalents had a ($) effect on the calculation of diluted earnings per share. The average shares outstanding used to compute basic and diluted earnings per share are as follows (amounts in thousands):
Effect of Dilutive Common Stock Equivalents
Average Shares Outstanding – Diluted
Anti-dilutive Common Stock Securities
Covenant not to Compete
2 Years
Tradenames/Trademarks
10 Years
Other
3 Years
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):
Covenant not to Compete
2 Years
Tradenames/Trademarks
10 Years
Other
3 Years
Intangible Assets, net
Intangible assets, namely customer base and covenants not to compete, 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 $ million in fiscal year 2026, $ million in fiscal year 2027, $ million in fiscal year 2028, $ million in fiscal year 2029 and $ million in fiscal year 2030.
A summary of changes in the Company’s goodwill is as follows (amounts in thousands):
Additions
Amortization
Currency Translation Adjustment
Net Book Value as of June 28, 2025
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:
In November 2023, the FASB issued ASU 2023-07 “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” to expand the disclosure requirements for reportable segments. The standard expands reportable segment disclosure requirements for public business entities primarily through enhanced disclosures about significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment operating income. The Company adopted ASU 2023-07 in fiscal year 2025. The adoption of this new accounting standard did not have an impact on the Company's results of operations, financial position or cash flows.
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.
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 (the “revolving credit facility”) of $ million through June 2026, with a letter of credit subfacility of $ million. The 2018 Term Loan was also provided for under the Replaced Facility.
The Replaced Facility allowed the Company to use up to $ million under the revolving credit facility for acquisitions in any single fiscal year. The Replaced Facility restricted the Company's ability to complete acquisitions of businesses with a principal place of business located in the United Kingdom or the European Union to an aggregate purchase price of $ million during the term of the Replaced Facility, if the acquisition is financed directly or indirectly with the revolving credit facility.
Under the Replaced Facility, the Company was permitted to make restricted payments up to $ million in the aggregate over the term of the Replaced Facility and $ million in any single fiscal year to repurchase shares and pay dividends.
As of June 28, 2025, $ million was available for borrowing under the revolving credit facility, of which $ million was outstanding.
As of June 28, 2025, $ million was outstanding on the 2018 Term Loan, which was included in current liabilities on the Condensed Consolidated Balance Sheets. The 2018 Term Loan required total amortizing repayments (principal plus interest) of $ million per month through its maturity date in December 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 % floor), in each case, plus a margin. Unused fees accrued based on the average daily amount of unused credit available on the revolving credit facility. Interest rate margins and unused fees are determined on a quarterly basis based upon the Company’s calculated leverage ratio. The Company’s interest rate for the revolving credit facility for the first quarter of fiscal year 2026 was %. Interest on outstanding borrowings under the 2018 Term Loan accrued at a fixed rate of % over the term of the loan.
Covenants: The Replaced Facility had certain covenants with which the Company was required to comply, including a fixed charge ratio covenant, which prohibited the Company's fixed charge ratio from being less than to 1.00, and a leverage ratio covenant, which prohibited the Company's leverage ratio from exceeding to 1.00.
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. as collateral security for the loans made under the revolving credit facility.
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 quarter of fiscal year 2026 and fiscal year 2025 were less than $ million and $ million, respectively.
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 the restricted stock unit grants is the quoted market price for the Company’s common stock on the date of grant. These restricted stock units are either time vested, or vest following the third fiscal year from the date of grant subject to cumulative diluted earnings per share or cumulative Adjusted EBITDA 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 expense relating to the time vested restricted stock units is recognized on a straight-line basis over the requisite service period for the entire award.
The following table summarizes the non-vested restricted stock units outstanding as of June 28, 2025 (in thousands, except per unit data):
Time Vested
August 2022
August 2022 – August 2025
Time Vested
May 2023
May 2023 – March 2026
150% of target level
May 2023
May 2023 – March 2026
Time Vested
May 2023
May 2023 – May 2026
Time Vested
April 2024
April 2024 - April 2027
Time Vested
April 2024
April 2024 - April 2027
Time Vested
May 2024
May 2024 - May 2027
Time Vested
May 2024
May 2024 - March 2027
100% of target level
May 2024
May 2024 - March 2027
Time Vested
July 2024
July 2024 - July 2027
Time Vested
September 2024
September 2024 - September 2025
Time Vested
September 2024
September 2024 - September 2027
100% of target level
September 2024
September 2024 - September 2027
Time Vested
December 2024
December 2024 - December 2027
Time Vested
March 2025
March 2025 - March 2028
Time Vested
May 2025
May 2025 - March 2028
Time Vested
May 2025
May 2025 - March 2028
100% of target level
June 2025
June 2025 - March 2028
Time Vested
June 2025
June 2025 - June 2028
Time Vested
Total expense relating to restricted stock units, based on grant date fair value and the achievement criteria, was $ million and $ million in the first quarter of fiscal year 2026 and fiscal year 2025, respectively. As of June 28, 2025, unearned compensation, to be recognized over the grants’ respective service periods, totaled $ million based on estimated achievement levels as of June 28, 2025. If the maximum performance levels were achieved, the unearned compensation could be a maximum of $ million.
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 either immediately or over a period of up to five years using a straight-line basis and expire either five years or ten 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 quarter of fiscal year 2026 and fiscal year 2025:
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 no expected dividends. Under FASB ASC Topic 718, Compensation – Stock Compensation, the Company has elected to account for forfeitures as they occur.
During the first quarter of fiscal year 2026, the Company granted options for shares of common stock in the aggregate to a Company employee that vest over three years.
During the first quarter of fiscal year 2025, the Company granted options for shares of common stock in the aggregate to Company employees that vest over three years.
The expense related to all stock option awards was $ million in the first quarter of fiscal year 2026 and $ million in the first quarter of fiscal year 2025.
The following table summarizes the Company’s options as of and for the first quarter ended June 28, 2025 (in thousands, except price per option data and years):
Granted
Exercised
Forfeited
Outstanding as of June 28, 2025
Exercisable as of June 28, 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 first 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 June 28, 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 June 28, 2025 was $ million, which is expected to be recognized over a period of three years. There were stock option exercises during the first quarter of fiscal year 2026. The aggregate intrinsic value of stock options exercised during the first quarter of fiscal year 2025 was $ million. Cash received from the exercise of options in the first quarter of fiscal year 2025 was less than $ million.
Cost of Revenue
Gross Profit
Operating Expenses
Operating Income
Capital Expenditures
Depreciation and Amortization
Cost of Revenue
Gross Profit
Operating Expenses
Operating Income
Capital Expenditures
Depreciation and Amortization
The following table presents geographic data for the first quarter of fiscal years 2026, and 2025 (dollars in thousands):
Canada
Other International
Total
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. |
Intangible Assets – Customer Base & Contracts
Intangible Assets – Trademarks and Tradenames
Plus:
Cash and equivalents
Accounts Receivable
Property and Equipment
Right To Use Assets
Other Current Assets
Less:
Current Liabilities
Lease Liabilities
Total Purchase Price
During the first quarter of fiscal year 2026, Martin has contributed revenue of $ million and operating income of $ million, which includes the negative impact of amortization of the acquired intangible assets.
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 eleven 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 $ million and was assigned a useful life of years. The Becnel tradenames and Trademarks was calculated using the relief from royalty approach, which is a variant of the income approach and adjusting for the cash flow benefit of tax amortization of purchased intangibles. The fair value was determined to be $ million and was assigned a useful life of eleven years.
The total purchase price for Becnel was approximately $ million consisting of up to $ million in cash and the issuance of common stock valued at $ million. Pursuant to the Becnel agreement, the Company held back approximately $ million of the purchase price for certain potential post-closing adjustments. This includes $ million withheld for ordinary post-closing adjustments and $ million withheld that is subject to revenue target achievement.
Pursuant to the Becnel agreement, the purchase price is subject to reduction by $ million if certain revenue targets are not met through April 15, 2026. As of April 15, 2024, the estimated fair value of this contingent consideration, classified as Level 3 in the fair value hierarchy, was approximately $ million. 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 %, 2) risk-free interest rate of %, 3) asset volatility of %, and 4) forecasted revenue. % of this contingent consideration is payable in cash and % of this contingent consideration is payable in shares of Transcat common stock. The cash portion of the contingent consideration is classified as a liability and is recorded in other liabilities in the Condensed Consolidated Balance Sheets. The stock portion of the contingent consideration is classified as equity and is recorded in shareholders equity in the Condensed Consolidated Balance Sheets. The contingent consideration payout will either be $ or $ million depending on the revenue target achievement.
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. There was no impact from the remeasurement done during the first nine months of fiscal year 2025. After reviewing the fiscal year 2026 forecast, the Company revalued the contingent consideration payout during the fourth quarter of fiscal year 2025. As of June 28, 2025 and March 29, 2025, the estimated fair value of the contingent consideration, classified as Level 3 in the fair value hierarchy, was 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 %, 2) risk-free interest rate of %, 3) asset volatility of %, and 4) forecasted revenue. The Company recognized a non-cash gain of approximately $ million, which was recorded in general and administrative expenses in its Consolidated Statement of Income for the quarter ended March 29, 2025.
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, based on Level 3 inputs, of Becnel's assets and liabilities acquired on April 15, 2024 (in thousands):
Intangible Assets – Customer Base & Contracts
Intangible Assets – Trademarks and Tradenames
Plus:
Cash and equivalents
Accounts Receivable
Property and Equipment
Other Current Assets
Less:
Current Liabilities
Total Purchase Price
During the first quarter of fiscal year 2026, Becnel has contributed revenue of $ million and operating income of $ million, which includes the negative impact of amortization of the acquired intangible assets.
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 acquisitions of Martin and Becnel 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.
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 June 28, 2025, no contingent consideration and $ million of other holdback amounts were unpaid and are reflected in current liabilities on the Condensed Consolidated Balance Sheets and $ million of other holdback amounts unpaid are reflected in other liabilities in the Condensed Consolidated Balance Sheets. During the first quarter of fiscal year 2026, $ million of holdback obligations were paid related to Martin and Becnel. During the first quarter of fiscal year 2025, $ million was paid to settle the earn-out obligation due to Cal OpEx Limited (d/b/a NEXA Enterprise Asset Management)(“NEXA”) for calendar 2023. This amount was paid in shares of Transcat common stock.
During the first quarter of fiscal years 2026 and 2025, acquisition costs of less than $ million and $ million, respectively, were recorded as incurred as general and administrative expenses in the Condensed Consolidated Statements of Income.
Effective August 5, 2025, the Company acquired Essco Calibration Laboratory, LLC (“Essco”), a privately held calibration services corporation located in the Boston Metro area. This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that expand the Company’s geographic reach and the depth and breadth of the Company’s Service capabilities. Pursuant to the purchase agreement, the total purchase price for the membership units of Essco was approximately $ million in cash and is subject to customary post-closing adjustments and indemnification claims, if any.
On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (“OBBBA”) enacting a broad range of tax reform provisions, including extending and modifying certain key domestic and international Tax Cuts & Jobs Act provisions. Only certain provisions will have current financial reporting implications due to varying effective dates and discretionary elections. The Company is currently evaluating the OBBBA and does not anticipate a material impact to the condensed consolidated financial statements.
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 first quarter of fiscal year 2026, we had consolidated revenue of $76.4 million. This represented an increase of $9.7 million or 14.6% versus the first quarter of fiscal year 2025. This increase was primarily due to acquisitions. Acquired revenue, which represents revenue from acquisitions completed after the end of the prior period, was $7.9 million. Organic revenue increased by 4.1% versus the first 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 first quarter of fiscal year 2026 gross profit was $25.8 million. This was an increase of $3.2 million or 14.0% versus the first quarter of fiscal year 2025. Consolidated gross margin was 33.8%, a decrease of 20 basis points versus the first quarter of fiscal year 2025. This decrease in gross profit percentage was due to low organic revenue increases and lower margins from the Transcat Solutions business.
Total operating expenses were $20.5 million in the first quarter of fiscal year 2026, an increase of $2.9 million or 16.7% when compared to the prior fiscal year first quarter. Included in operating expenses during the first quarter of fiscal year 2026 were incremental operating expenses from the acquisitions of Martin and Becnel, investments in technology and higher incentive-based employee costs due to higher sales. As a percentage of total revenue, operating expenses were 26.8% in the first quarter of fiscal year 2026, up 50 basis points from 26.3% in the first quarter of fiscal year 2025. Operating income was $5.3 million, an increase of $0.2 million, or 4.7% and operating margin decreased from 7.6% to 7.0% in the first quarter of fiscal year 2026.
Net income was $3.3 million in the first quarter of fiscal year 2026 versus $4.4 million in the first quarter of fiscal year 2025. The decrease was primarily due to higher operating income offset by increases in interest expense and provision for income taxes.
The following table presents, for the first quarter of fiscal year 2026 and fiscal year 2025, the components of our Condensed Consolidated Statements of Income:
| (Unaudited) |
||||||||
| First Quarter Ended |
||||||||
| June 28, |
June 29, |
|||||||
| 2025 |
2024 |
|||||||
| As a Percentage of Total Revenue: |
||||||||
| Service Revenue |
64.3 | % | 65.6 | % | ||||
| Distribution Revenue |
35.7 | % | 34.4 | % | ||||
| Total Revenue |
100.0 | % | 100.0 | % | ||||
| Gross Profit Percentage: |
||||||||
| Service Gross Profit |
33.0 | % | 34.0 | % | ||||
| Distribution Gross Profit |
35.2 | % | 33.9 | % | ||||
| Total Gross Profit |
33.8 | % | 34.0 | % | ||||
| Selling, Marketing and Warehouse Expenses |
12.5 | % | 11.7 | % | ||||
| General and Administrative Expenses |
14.4 | % | 14.6 | % | ||||
| Total Operating Expenses |
26.8 | % | 26.3 | % | ||||
| Operating Income |
7.0 | % | 7.6 | % | ||||
| Interest and Other Expense,/(Income) net |
1.0 | % | (0.2 | )% | ||||
| Income Before Provision for Income Taxes |
6.0 | % | 7.8 | % | ||||
| Provision for Income Taxes |
1.7 | % | 1.3 | % | ||||
| Net Income |
4.3 | % | 6.6 | % | ||||
First QUARTER ENDED June 28, 2025 COMPARED TO First QUARTER ENDED June 29, 2024 (dollars in thousands):
Revenue:
| First Quarter Ended |
Change |
|||||||||||||||
| June 28, |
June 29, |
|||||||||||||||
| 2025 |
2024 |
$ |
% |
|||||||||||||
| Revenue: |
||||||||||||||||
| Service |
$ | 49,144 | $ | 43,778 | $ | 5,366 | 12.3 | % | ||||||||
| Distribution |
27,280 | 22,929 | 4,351 | 19.0 | % | |||||||||||
| Total |
$ | 76,424 | $ | 66,707 | $ | 9,717 | 14.6 | % | ||||||||
Total revenue was $76.4 million, an increase of $9.7 million, or 14.6%, in our fiscal year 2026 first quarter compared to the prior fiscal year first quarter.
Service revenue, which accounted for 64.3% and 65.6% of our total revenue in the first quarter of fiscal years 2026 and 2025, respectively, increased $5.4 million or 12.3% from the first quarter of fiscal year 2025 to the first quarter of fiscal year 2026. This year-over-year increase included $6.4 million in service revenue from the acquisition of Martin. Organic revenue decreased by 1.0% 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 | |||||||||||||||||||
| Q1 |
Q4 |
Q3 |
Q2 |
Q1 |
||||||||||||||||
| Service Revenue Growth |
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 quarter 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 | |||||||||||||||||||
| Q1 |
Q4 |
Q3 |
Q2 |
Q1 |
||||||||||||||||
| Trailing Twelve-Month: |
||||||||||||||||||||
| Service Revenue |
$ | 186,794 | $ | 181,428 | $ | 176,054 | $ | 176,006 | $ | 173,450 | ||||||||||
| Service Revenue Growth |
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 quarter of fiscal year 2026 and for each quarter during fiscal year 2025:
| FY 2026 | FY 2025 | |||||||||||||||||||
| Q1 |
Q4 |
Q3 |
Q2 |
Q1 |
||||||||||||||||
| Percent of Service Revenue: |
||||||||||||||||||||
| In-House |
85.6 | % | 85.6 | % | 85.1 | % | 86.6 | % | 86.9 | % | ||||||||||
| Outsourced |
13.2 | % | 13.2 | % | 13.7 | % | 12.3 | % | 12.0 | % | ||||||||||
| Freight Billed to Customers |
1.2 | % | 1.2 | % | 1.2 | % | 1.1 | % | 1.1 | % | ||||||||||
| 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||
Our Distribution revenue accounted for 35.7% of our total revenue in the first quarter of fiscal year 2026 and 34.4% of our total revenue in the first quarter of fiscal year 2025. During the first quarter of fiscal year 2026, Distribution segment revenue was $27.3 million which was an increase of $4.4 million or 19.0%. This increase was due to $1.5 million of incremental revenue from the acquisition of Martin, incremental traditional rental revenue, and higher revenue from our non-rental products.
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 | |||||||||||||||||||
| Q1 |
Q4 |
Q3 |
Q2 |
Q1 |
||||||||||||||||
| Distribution Revenue Growth |
19.0 | % | 3.9 | % | 6.5 | % | 11.1 | % | 10.5 | % | ||||||||||
The Distribution segment revenue increase for the first quarter of fiscal year 2026 versus the first quarter of fiscal year 2025 was due to revenue from the acquisition of Martin, increases in traditional rental products and higher revenue from non-rental products.
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 quarter of fiscal year 2026 and each quarter of fiscal year 2025:
| FY 2026 | FY 2025 | |||||||||||||||||||
| Q1 |
Q4 |
Q3 |
Q2 |
Q1 |
||||||||||||||||
| Total Pending Product Shipments |
$ | 4,182 | $ | 3,317 | $ | 3,992 | $ | 4,102 | $ | 4,713 | ||||||||||
| % of Pending Product |
||||||||||||||||||||
| Shipments that were Backorders |
85.8 | % | 81.9 | % | 84.0 | % | 84.7 | % | 78.4 | % | ||||||||||
Our total pending product shipments at the end of the first quarter of fiscal year 2026 were $4.2 million, a decrease of $0.5 million versus the end of the first quarter of fiscal year 2025 and an increase of $0.9 million since March 29, 2025. The increase in pending product shipments and backorders since March 29, 2025 was a result of increased orders.
Gross Profit:
| First Quarter Ended |
Change |
|||||||||||||||
| June 28, |
June 29, |
|||||||||||||||
| 2025 |
2024 |
$ |
% |
|||||||||||||
| Gross Profit: |
||||||||||||||||
| Service |
$ | 16,209 | $ | 14,883 | $ | 1,326 | 8.9 | % | ||||||||
| Distribution |
9,612 | 7,772 | 1,840 | 23.7 | % | |||||||||||
| Total |
$ | 25,821 | $ | 22,655 | $ | 3,166 | 14.0 | % | ||||||||
Total gross profit for the first quarter of fiscal year 2026 was $25.8 million, an increase of $3.2 million or 14.0% versus the first quarter of fiscal year 2025. Total gross margin was 33.8% in the first quarter of fiscal year 2026, slightly down from 34.0% in the first quarter of fiscal year 2025, a 20 basis point decrease.
Service gross profit in the first quarter of fiscal year 2026 increased $1.3 million, or 8.9%, from the first quarter of fiscal year 2025. Service gross margin was 33.0% in the first quarter of fiscal year 2026, a 100 basis point decrease versus the 34.0% in the first 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 |
|||||||||||||||||||
| Q1 |
Q4 |
Q3 |
Q2 |
Q1 |
||||||||||||||||
| Service Gross Margin |
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 | |||||||||||||||||||
| Q1 |
Q4 |
Q3 |
Q2 |
Q1 |
||||||||||||||||
| Distribution Gross Margin |
35.2 | % | 28.2 | % | 29.1 | % | 27.9 | % | 33.9 | % | ||||||||||
Distribution segment gross margin was 35.2% in the first quarter of fiscal year 2026 versus 33.9% in the first quarter of fiscal year 2025, an increase of 130 basis points. The increase in Distribution gross margin was due to increased rental revenue and the mix of non-rental products sold.
Operating Expenses:
| First Quarter Ended |
Change |
|||||||||||||||
| June 28, |
June 29, |
|||||||||||||||
| 2025 |
2024 |
$ |
% |
|||||||||||||
| Operating Expenses: |
||||||||||||||||
| Selling, Marketing and Warehouse |
$ | 9,515 | $ | 7,801 | $ | 1,714 | 22.0 | % | ||||||||
| General and Administrative |
10,968 | 9,755 | 1,213 | 12.4 | % | |||||||||||
| Total |
$ | 20,483 | $ | 17,556 | $ | 2,927 | 16.7 | % | ||||||||
Total operating expenses were $20.5 million in the first quarter of fiscal year 2026 versus $17.6 million during the first quarter 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, increased payroll costs for new employees and continued investments in technology.
As a percentage of total revenue, operating expenses were 26.8% in the first quarter of fiscal year 2026 and 26.3% in the first quarter of fiscal year 2025, an increase of 50 basis points.
Income Taxes:
| First Quarter Ended |
Change |
|||||||||||||||
| June 28, |
June 29, |
|||||||||||||||
| 2025 |
2024 |
$ |
% |
|||||||||||||
| Provision for Income Taxes |
$ | 1,304 | $ | 820 | $ | 484 | 59.0 | % | ||||||||
Our effective tax rate for the first quarter of fiscal years 2026 and 2025 was 28.6% and 15.7%, 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 quarter of fiscal years 2026 and 2025 was less than $0.1 million and $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:
| First Quarter Ended |
Change |
|||||||||||||||
| June 28, |
June 29, |
|||||||||||||||
| 2025 |
2024 |
$ |
% |
|||||||||||||
| Net Income |
$ | 3,261 | $ | 4,408 | $ | (1,147 | ) | (26.0 | )% | |||||||
Net income for the first quarter of fiscal year 2026 decreased $1.1 million or 26.0% versus the first quarter of fiscal year 2025. As a percentage of revenue, net income was 4.3% in the first quarter of fiscal year 2026, down from 6.6% in the first quarter of fiscal year 2025. The year-over-year decrease in net income was primarily due to higher operating income, offset by higher interest expense, net and provision for income taxes.
Adjusted EBITDA:
Total Adjusted EBITDA, a non-GAAP measure, for the first quarter of fiscal year 2026 was $11.8 million, an increase of $1.6 million or 15.2% versus the first 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 15.4% for the first quarter of fiscal year 2026 from 15.3% for the first quarter of fiscal year 2025. The increase in Adjusted EBITDA during the first quarter 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.
| First Quarter Ended |
||||||||
| (dollars in thousands) |
June 28, |
June 29, |
||||||
| 2025 |
2024 |
|||||||
| Net Income |
$ | 3,261 | $ | 4,408 | ||||
| + Interest Expense (Income), Net |
440 | (260 | ) | |||||
| + Tax Provision |
1,304 | 820 | ||||||
| + Depreciation & Amortization |
5,605 | 4,113 | ||||||
| + Transaction Expense |
28 | 434 | ||||||
| + Non-cash Stock Compensation |
1,130 | 697 | ||||||
| Adjusted EBITDA |
$ | 11,768 | $ | 10,212 | ||||
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.
| First Quarter Ended |
||||||||
| June 28, |
June 29, |
|||||||
| 2025 |
2024 |
|||||||
| Net Income |
$ | 3,261 | $ | 4,408 | ||||
| + Amortization of Intangible Assets |
2,844 | 1,749 | ||||||
| + Acquisition Amortization of Backlog |
- | 24 | ||||||
| + Acquisition Deal Costs |
28 | 434 | ||||||
| + Acquisition Stock Expense |
145 | 234 | ||||||
| + Income Tax Effect @ 25% |
(754 | ) | (610 | ) | ||||
| Adjusted Net Income |
5,524 | 6,239 | ||||||
| Weighted Average Diluted Shares Outstanding |
9,389 | 9,196 | ||||||
| Diluted Earnings Per Share – GAAP |
$ | 0.35 | $ | 0.48 | ||||
| Adjusted Diluted Earnings Per Share |
$ | 0.59 | $ | 0.68 | ||||
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.
Under the Replaced Facility, we could use up to $50.0 million for acquisitions in any single fiscal year. The Replaced Facility restricted our ability to complete acquisitions of businesses with a principal place of business located in the United Kingdom or the European Union to an aggregate purchase price of $40.0 million during the term of the Replaced Facility, if the acquisition was financed directly or indirectly with funds borrowed under the Replaced Facility. Under the Replaced Facility, we were permitted to make restricted payments up to $25.0 million in the aggregate over the term and $10.0 million in any single fiscal year to repurchase shares and pay dividends.
Effective July 1, 2023, interest on outstanding borrowings under the Replaced Facility accrued, at our 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 0.25% floor), in each case, plus a margin. Unused fees accrued based on the average daily amount of unused credit available on the Replaced Facility. Interest rate margins and unused fees were determined on a quarterly basis based upon our calculated leverage ratio. Our interest rate for the Replaced Facility for the first quarter of fiscal year 2026 was 5.2%. Interest on outstanding borrowings under the 2018 Term Loan accrue at a fixed rate of 3.90% over the term of the loan.
The Replaced Facility had certain covenants with which we were required to comply, including a fixed charge ratio covenant, which prohibits our fixed charge coverage ratio from being less than 1.15 to 1.00, and a leverage ratio covenant, which prohibits our leverage ratio from exceeding 3.00 to 1.00. We were in compliance with all loan covenants and requirements under the Replaced Facility during the first quarter of fiscal year 2026.
As of June 28, 2025, $80.0 million was available for borrowing under the Replaced Facility, of which, $33.2 million was outstanding. During the first quarter of fiscal year 2025, we used $16.0 million, drawn from cash and cash equivalents on hand, for a business acquisition.
As of June 28, 2025, $1.2 million was outstanding on the 2018 Term Loan, which was included in current liabilities on the Condensed Consolidated Balance Sheets. The 2018 Term Loan required total repayments (principal plus interest) of $0.2 million per month through December 2025.
Most borrowings under the new 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 Facility 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. We must also maintain a fixed charge coverage ratio of no less than 1.20 to 1.00.
Cash Flows: The following table is a summary of our Condensed Consolidated Statements of Cash Flows (dollars in thousands):
| Three Months Ended |
||||||||
| June 28, |
June 29, |
|||||||
| 2025 |
2024 |
|||||||
| Cash Provided by (Used in): |
||||||||
| Operating Activities |
$ | 3,623 | $ | 8,924 | ||||
| Investing Activities |
$ | (4,598 | ) | $ | (4,094 | ) | ||
| Financing Activities |
$ | 1,946 | $ | (1,935 | ) | |||
Operating Activities: Net cash provided by operating activities was $3.6 million during the first quarter of fiscal year 2026 compared to $8.9 million of net cash provided by operating activities during the first quarter of fiscal year 2025. The year-over-year decrease 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 increased $1.7 million during the first quarter of fiscal year 2026. During the first quarter of fiscal year 2025, accounts receivable decreased $0.3 million inclusive of $3.1 million of 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 June 28, 2025 and June 29, 2024 (dollars in thousands): |
| June 28, |
June 29, |
|||||||
| 2025 |
2024 |
|||||||
| Net Sales, for the last two fiscal months |
$ | 55,008 | $ | 47,789 | ||||
| Accounts Receivable, net |
$ | 57,651 | $ | 48,156 | ||||
| Days Sales Outstanding |
66 | 63 | ||||||
| ● |
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. Our inventory balance increased $0.9 million and $0.6 million during the first quarter of fiscal years 2026 and 2025, respectively. The increases in inventory are due 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 $3.3 million during the first quarter of fiscal year 2026. Accounts payable increased $1.5 million during the first quarter 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 quarter of fiscal year 2026, accrued compensation and other current liabilities decreased by $2.8 million. During the first quarter of fiscal year 2025, accrued compensation and other current liabilities decreased by $4.1 million, inclusive of $0.1 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 quarter of fiscal years 2026 and 2025, we invested $4.6 million and $3.7 million, respectively, in capital expenditures that was used primarily for customer-driven expansion of Service segment capabilities and our rental business.
During the first quarter of fiscal year 2025, we used $16.0 million for a business acquisition.
Financing Activities: During the first quarter of fiscal year 2026, $2.3 million was borrowed from our revolving line of credit and $0.3 million in cash was generated from the issuance of common stock. In addition, we used $0.6 million for scheduled repayments of our term loan.
During the first quarter of fiscal year 2025, $0.3 million in cash was generated from the issuance of common stock. In addition, we used $0.6 million for scheduled repayments of our term loan and $1.6 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 solid revenue and adjusted EBITDA performance in the fiscal first quarter highlighted by double-digit service revenue growth and better-than-expected demand in our distribution segment. Distribution revenue grew 19% in the quarter with a record 35% gross margin driven primarily by strong rentals performance and strategic inventory purchases. Rentals are benefiting from more efficient sales and marketing processes and post-integration synergies. 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 15% adjusted EBITDA 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, 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. Martin Calibration had another strong quarter in the Midwest, driven in part, by synergies with us. The integration of Martin is ahead of schedule as we deploy our well-honed integration playbook.
Looking forward, the macro environment continues to be a challenge, but our diversified portfolio of product and services along with a strong financial profile will continue to differentiate us in fiscal 2026 and beyond. We expect continued revenue growth, benefiting from our new strength in the Midwest, larger presence in the New England market, and progressively improving Service organic revenue. Barring any further economic deterioration, we are confident in our expectation of a return to high single-digit Service organic revenue growth in the second half of Fiscal 2026. The inherent operating leverage in our Service model, along with automation of our calibration processes and focus on productivity, remain key enablers of Service margin expansion. Our acquisition pipeline remains strong, and we will continue to leverage our integration expertise. We believe strong execution combined with the differentiation of our portfolio, positions us well to drive sustainable, long-term shareholder value
We expect our income tax rate to range between 27% and 29% 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 $0.3 million assuming our borrowing levels at June 28, 2025 remained constant under the Replaced Facility. As of June 28, 2025, $80.0 million was available for borrowing under the Replaced Facility, of which $33.2 million was outstanding. As described above under “Liquidity and Capital Resources,” as of June 28, 2025, we also had a $15.0 million (original principal) term loan. The 2018 Term Loan is considered a fixed interest rate loan. As of June 28, 2025, $1.2 million was outstanding under the 2018 Term Loan and was included in the current portion of long-term debt on the Condensed Consolidated Balance Sheets. The 2018 Term Loan required total (principal and interest) repayments of $0.2 million per month through December 2025.
Under the Replaced Facility, effective July 1, 2023, at our option, we were permitted to borrow from the Replaced Facility at the variable one-month Daily Simple SOFR or at a fixed rate for a designated period at the SOFR corresponding to such period (subject to a 0.25% floor), in each case, plus a margin. Our interest rate margin is determined on a quarterly basis based upon our calculated leverage ratio. Our interest rate during the first quarter of fiscal year 2026 for the Replaced Facility was 5.2%. Interest on outstanding borrowings of the 2018 Term Loan accrued at a fixed rate of 3.90% over the term of the loan. On June 28, 2025, we had no hedging arrangements in place for our Replaced Facility to limit our exposure to movements in interest rates.
FOREIGN CURRENCY
Approximately 90% of our total revenues for each of the first quarter 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 approximately 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 less than $0.1 million in the first quarter 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 June 28, 2025, we had a foreign exchange contract, which matured in July 2025, outstanding in the notional amount of $1.0 million. The foreign exchange contract was renewed in July 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 first 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
| Exhibit No. |
Description |
||
| (2) | Plan of acquisition, reorganization, arrangement, liquidation or succession | ||
| 2.1*^ | Membership Unit Purchase Agreement, dated August 5, 2025, by and among Transcat, Inc., Essco Holdings Inc., and Michael Walsh, individually and as trustee of the Michael Walsh Revocable Trust of 2020. | ||
| (10) | Material Contracts | ||
| 10.1*^ | Credit Agreement, dated as of July 29, 2025, by and among Transcat Inc., the guarantors party thereto, Manufacturers and Traders Trust Company, Wells Fargo Securities, LLC, and the other lenders party thereto. | ||
| (31) |
Rule 13a-14(a)/15d-14(a) Certifications |
||
| 31.1* |
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
||
| 31.2* |
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
||
| (32) |
Section 1350 Certifications |
||
| 32.1** |
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
||
| (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. |
| ^ | 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. |
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: August 6, 2025 |
/s/ Lee D. Rudow |
|
| Lee D. Rudow |
||
| President and Chief Executive Officer (Principal Executive Officer) |
||
| Date: August 6, 2025 |
/s/ Thomas L. Barbato |
|
| Thomas L. Barbato |
||
| Senior Vice President of Finance and Chief Financial Officer (Principal Financial Officer) |