Core Viewpoint - Transcat, Inc. reported quarterly earnings of $0.45 per share, missing the Zacks Consensus Estimate of $0.53 per share, representing an earnings surprise of -15.09% [1]. Financial Performance - The company posted revenues of $66.75 million for the quarter ended December 2024, missing the Zacks Consensus Estimate by 5.49%, compared to year-ago revenues of $65.17 million [2]. - Over the last four quarters, Transcat has surpassed consensus EPS estimates two times and topped consensus revenue estimates just once [2]. Stock Performance - Transcat shares have lost about 5.9% since the beginning of the year, while the S&P 500 has gained 3.7% [3]. - The current Zacks Rank for Transcat is 5 (Strong Sell), indicating expected underperformance in the near future [6]. Earnings Outlook - The current consensus EPS estimate for the coming quarter is $0.73 on revenues of $76.9 million, and for the current fiscal year, it is $2.45 on revenues of $282.09 million [7]. - The estimate revisions trend for Transcat is currently unfavorable, which could change following the recent earnings report [6]. Industry Context - The Instruments - Control industry, to which Transcat belongs, is currently in the bottom 17% of over 250 Zacks industries, indicating potential challenges for stock performance [8]. - Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions, suggesting that industry outlook can materially impact stock performance [5][8].

Core Insights - Analysts project Transcat, Inc. (TRNS) will report quarterly earnings of $0.53 per share, reflecting a 39.5% year-over-year increase [1] - Revenue is expected to reach $70.63 million, marking an 8.4% increase from the same quarter last year [1] - The consensus EPS estimate has remained unchanged over the last 30 days, indicating stability in analyst projections [1] Revenue Estimates - Analysts estimate 'Revenue- Distribution Sales' at $26.60 million, representing a year-over-year change of +12.4% [3] - 'Revenue- Service Revenue' is projected to reach $44.03 million, indicating a year-over-year change of +6.1% [4] Profit Estimates - 'Gross Profit- Distribution' is expected to be $8.68 million, up from $7.44 million reported in the same quarter last year [4] - The consensus for 'Gross Profit- Service' is $14.28 million, compared to $13.49 million from the previous year [4] Market Performance - Transcat shares have returned -3.1% over the past month, contrasting with the Zacks S&P 500 composite's +2.1% change [5] - The company holds a Zacks Rank 5 (Strong Sell), suggesting it may underperform the overall market in the near future [5]

Financial Performance - Net income for the second quarter ended September 28, 2024, was $3,286,000, a significant increase from $460,000 in the same quarter of 2023, representing a growth of 615%[7] - For the six months ended September 28, 2024, net income reached $7,694,000, compared to $3,409,000 for the same period in 2023, marking a 126% increase[7] - The company reported comprehensive income of $3,672,000 for the second quarter of 2024, compared to $114,000 in the same quarter of 2023, showing a substantial increase[7] - The company reported a net foreign currency loss of $0.4 million for the first six months of fiscal year 2025, compared to a net gain of less than $0.1 million for the same period in fiscal year 2024[31] - Net income for the second quarter ended September 28, 2024, was $3,286,000, compared to $460,000 for the same period in 2023[7] - Comprehensive income for the six months ended September 28, 2024, was $7,925,000, up from $3,545,000 in the prior year[7] - Net income for the first six months of FY 2025 was $7.7 million, an increase of $4.3 million or 125.7% compared to $3.4 million in the same period of FY 2024[127] - Adjusted EBITDA for Q2 FY 2025 was $8.9 million, a decrease of $0.5 million or 5.0% from Q2 FY 2024, with a margin of 13.1% compared to 14.9%[118] Revenue and Growth - Total revenue for the second quarter ended September 28, 2024, was $67.826 million, a 8.08% increase from $62.804 million in the same quarter of fiscal year 2024[64] - Consolidated revenue for the second quarter of fiscal year 2025 was $67.8 million, an increase of $5.0 million or 8.0% compared to the same quarter in fiscal year 2024[93] - Total revenue for the first six months of FY 2025 was $134.5 million, an increase of $11.1 million or 9.0% from $123.4 million in the same period of FY 2024[119] - Service revenue accounted for 65.0% of total revenue in the second quarter of fiscal year 2025, increasing by $2.7 million or 6.4% year-over-year[99] - Distribution revenue was $23.7 million, an increase of $2.3 million or 11.1%, driven by acquisitions and rental revenue[105] - Service revenue accounted for 65.3% of total revenue in the first six months of FY 2025, increasing by $6.6 million or 8.1% year-over-year[119] Assets and Equity - Total assets as of September 28, 2024, amounted to $323,553,000, up from $287,552,000 as of March 30, 2024, indicating an increase of 12.5%[10] - The total shareholders' equity rose to $268,757,000 as of September 28, 2024, compared to $225,169,000 as of March 30, 2024, representing an increase of 19.3%[10] - As of September 28, 2024, the net book value of intangible assets totaled $138.1 million, with additions of $32.5 million during the fiscal year[36] - Goodwill and intangible assets increased to a total net book value of $138.127 million as of September 28, 2024, from $105.585 million[36] Cash Flow and Investments - Cash and cash equivalents increased to $23,815,000 as of September 28, 2024, from $19,646,000 at the beginning of the period, reflecting a growth of 21.0%[14] - The company incurred a net cash used in investing activities of $7,958,000 for the six months ended September 28, 2024, compared to $18,326,000 for the same period in 2023, indicating a reduction in cash outflow[14] - Cash provided by operating activities was $15.759 million for the first six months of fiscal year 2025, slightly down from $15.972 million in the same period last year[143] - The company invested $7.6 million in capital expenditures during the first six months of fiscal year 2025, compared to $5.4 million in the same period last year, marking a 40.7% increase[149] Stock and Compensation - The average shares outstanding for basic earnings per share increased to 9,160 thousand in the second quarter of fiscal year 2025 from 7,819 thousand in the same quarter of fiscal year 2024[34] - Stock-based compensation costs recorded for the first six months of fiscal year 2025 were $1.6 million, compared to $2.2 million for the same period in fiscal year 2024[28] - Total expense related to restricted stock units was $0.9 million in the first six months of fiscal year 2025, down from $1.5 million in the same period of fiscal year 2024[53] - The total expense related to stock option awards was $0.7 million in the first six months of fiscal year 2025, up from $0.6 million in the same period of fiscal year 2024, indicating a 16.67% increase[58] Acquisitions - The company acquired Becnel Rental Tools, LLC for approximately $49.8 million, consisting of $17.5 million in cash and $32.3 million in common stock[67] - The company purchased Axiom Test Equipment, Inc. on August 8, 2023, to enhance its Distribution capabilities[71] - The total purchase price for Axiom was approximately $38.7 million, paid with $10.0 million in cash and $28.6 million in common stock[75] - The total purchase price for SteriQual was approximately $4.3 million, with a reduction to $3.8 million due to unmet revenue targets[79] - The total purchase price for TIC-MS was approximately $9.7 million, including $2.9 million in cash and $6.9 million in common stock[84] Debt and Financing - The revolving credit facility has a commitment of $80.0 million, with no amounts outstanding as of September 28, 2024[43] - The interest rate for the revolving credit facility was 7.1% for the first six months of fiscal year 2025[45] - The company's leverage ratio was 0.08 as of September 28, 2024, compared to 0.10 at March 30, 2024, indicating strong compliance with loan covenants[46] - The company can make restricted payments up to $25.0 million over the term of the credit agreement for share repurchases and dividends[43] Operational Insights - The company serves highly regulated industries, including life sciences, industrial manufacturing, and aerospace, focusing on accuracy and risk management[19] - The company plans to subcontract approximately 13% to 15% of its service revenue to third-party vendors while evaluating outsourcing needs and making capital investments[102] - The company expects to fully integrate NEXA's sales and marketing to drive anticipated revenue growth despite a decline in its cost control services[101]

Financial Data and Key Metrics Changes - Consolidated revenue increased by 8% to $67.8 million, driven by consistent demand for calibration services and strong performance in the rental business [7][14] - Consolidated gross profit grew by 5% to $21.2 million, with service gross profit increasing by 4% [8][16] - Net income for Q2 was $3.3 million, up from $0.5 million in the prior year, with diluted earnings per share increasing by 29% to $0.35 [17] - Adjusted EBITDA decreased by 5% to $8.9 million due to lower-than-expected NEXA revenue impacting services EBITDA [19] Business Line Data and Key Metrics Changes - Service revenue grew by 6%, with 4% organic growth; excluding NEXA, organic service growth was 9% [15][10] - Distribution revenue increased by 11% to $23.7 million, with gross profits growing by 10% despite margin pressure from hurricanes [11][15] Market Data and Key Metrics Changes - The core calibration services business continues to perform well, benefiting from recurring revenue streams in regulated markets such as life sciences and aerospace [10][12] - The NEXA cost control and optimization services business experienced a decline, impacting overall service revenue growth [8][9] Company Strategy and Development Direction - The company plans to rename NEXA to Transcat Solutions to leverage the Transcat brand and improve integration into sales and marketing processes [9] - The M&A strategy remains a key component of growth, with a robust acquisition pipeline aimed at expanding geographical footprint and capabilities [23][24] - Continuous process improvement and automation are emphasized as enablers for future margin expansion [25] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in returning to growth in the first quarter of fiscal 2026, despite temporary setbacks in the NEXA sales channel [12][40] - The company expects organic service revenue growth in the mid-single digits for the full fiscal year 2025, normalizing for the extra week in fiscal 2024 [22][23] - Management noted that the challenges faced by NEXA are fixable and not indicative of broader market issues [39][38] Other Important Information - The balance sheet remains strong, with total net cash of $20.8 million and a leverage ratio of 0.8x [21] - Capital expenditures for Q2 were $2.2 million higher than the prior year, focused on service segment capabilities and growth projects [20] Q&A Session Summary Question: When did the company recognize NEXA was falling short of expectations? - Management noted subtle signs in the first quarter but did not anticipate the significant drop in Q2 [26][27] Question: Is the softness in NEXA indicative of broader macroeconomic issues? - Management clarified that the core calibration business grew organically by 9%, indicating isolated issues with NEXA [28] Question: What is the current state of the M&A pipeline? - Management expressed confidence in a robust M&A pipeline and the ability to pursue strategic deals [30] Question: What changes are being made to NEXA's sales and marketing processes? - Management is integrating NEXA into Transcat's established sales and marketing framework to enhance performance [45][46] Question: What is the revenue contribution of NEXA to the overall business? - NEXA contributes approximately 10% to service revenue [62] Question: How will the company manage operating expenses in the second half of the year? - An increase in operating expenses is expected as the company supports growth initiatives [31] Question: What impact did the hurricanes have on Becnel's performance? - The hurricanes caused both revenue and profit issues, but management expects distribution margins to return to previous levels [41][42]

Revenue Growth - Consolidated revenue for Q2 FY2025 was $67.8 million, an increase of 8.0% compared to $62.8 million in Q2 FY2024[3] - Service revenue grew to $44.1 million, up 6.4% year-over-year, while distribution revenue increased by 11.1% to $23.7 million[4] - Total revenue for the second quarter ended September 28, 2024, was $67.826 million, representing an increase from $62.804 million in the same quarter of the previous year, a growth of approximately 3.2%[24] - Total revenue for FY 2025 Q2 reached $67,826, an increase of 8.0% compared to $62,804 in FY 2024 Q2[36] - Service revenue for FY 2025 YTD was $87,861, up 8.1% from $81,284 in FY 2024 YTD[37] - Distribution revenue for FY 2025 YTD was $46,672, representing a 10.8% increase from $42,118 in FY 2024 YTD[38] Profitability - Gross profit for the quarter was $21.2 million, a 5.4% increase from $20.1 million in the prior year, with a gross margin of 31.3%[3] - Gross profit for the second quarter was $21.206 million, up from $20.125 million year-over-year, reflecting a growth of about 5.4%[24] - Operating income surged to $3.7 million, reflecting a 127.3% increase from $1.6 million in the same quarter last year[3] - Net income for the second quarter was $3.286 million, compared to $460,000 in the same quarter last year, indicating a significant increase[24] - Net income per diluted share rose to $0.35, compared to $0.06 in the prior year, marking a 483.3% increase[4] - Year-to-date operating income for FY 2025 reached $8,834, a 40.6% increase from $6,283 in FY 2024 YTD[39] Cash and Assets - The company had $23.8 million in cash and cash equivalents and $80.0 million available for borrowing as of September 28, 2024[13] - Total cash and cash equivalents at the end of the period were $23,815,000, compared to $1,246,000 at the end of the previous year[28] - Total assets increased to $323.553 million as of September 28, 2024, up from $287.552 million as of March 30, 2024[26] Operational Performance - Adjusted EBITDA is used as a key performance measure, allowing for evaluation of core operations by excluding non-GAAP items[17] - Adjusted EBITDA for Q2 was $8,861,000, with a year-to-date total of $19,073,000, reflecting strong operational performance[29] - Transcat's service segment adjusted EBITDA was $6,624,000 for Q2, while the distribution segment adjusted EBITDA was $2,237,000[30] - Cash flows from operating activities were $15,759,000 for the six months ended September 2024, slightly down from $15,972,000 in the prior year[28] Strategic Initiatives - The company expects FY25 organic service revenue growth in the mid-single digits, with a return to high single-digit growth anticipated by the first half of FY2026[14] - Transcat's acquisition pipeline remains robust, focusing on strategic opportunities to drive organic revenue growth[14] - The company aims to expand its addressable calibration market through acquisitions and capability investments[21] - Transcat operates 29 Calibration Service Centers across the U.S., Puerto Rico, Canada, and Ireland, enhancing its service capabilities[19] - The company emphasizes its strategy to leverage its strong brand and unique value proposition to drive organic sales growth[21] Shareholder Information - The company reported a total of 9,199,277 shares outstanding as of September 28, 2024, compared to 8,839,299 shares as of March 30, 2024[25] - Transcat's average diluted shares outstanding were 9,222,000 for the year-to-date period, reflecting a slight increase in share count[31] - Diluted earnings per share for the second quarter were $0.35, compared to $0.06 in the same quarter of the previous year, marking a substantial rise[24] - The company reported a diluted earnings per share of $0.83 for the year-to-date period, with an adjusted diluted earnings per share of $1.20[31] Expense Management - Selling, marketing, and warehouse expenses increased by 19.3% to $8,181 in FY 2025 Q2 from $6,856 in FY 2024 Q2[36] - General and administrative expenses decreased by 20.1% to $9,290 in FY 2025 Q2 from $11,626 in FY 2024 Q2[36] - Depreciation and amortization expenses for Q2 amounted to $4,399,000, contributing to the overall adjusted EBITDA calculation[29] - The company incurred transaction expenses of $33,000 in Q2, indicating ongoing costs related to acquisitions[29]

Financial Performance - For the quarter ended September 2024, Transcat, Inc. reported revenue of $67.83 million, an increase of 8% year-over-year [1] - The earnings per share (EPS) for the quarter was $0.35, down from $0.41 in the same quarter last year [1] - The reported revenue fell short of the Zacks Consensus Estimate of $70.69 million, resulting in a surprise of -4.06% [1] - The company experienced an EPS surprise of -25.53%, with the consensus EPS estimate being $0.47 [1] Key Metrics - Distribution Sales revenue was $23.74 million, compared to the two-analyst average estimate of $25.34 million, reflecting a year-over-year change of +11.1% [3] - Service Revenue was reported at $44.08 million, below the estimated $45.47 million, with a year-over-year change of +6.4% [3] - Gross Profit from Distribution was $6.62 million, compared to the average estimate of $7.92 million [3] - Gross Profit from Service was $14.59 million, below the average estimate of $16.10 million [3] Stock Performance - Over the past month, shares of Transcat have returned -1.4%, while the Zacks S&P 500 composite has increased by +2% [4] - The stock currently holds a Zacks Rank 3 (Hold), indicating potential performance in line with the broader market in the near term [4]

Core Viewpoint - Transcat, Inc. reported quarterly earnings of $0.35 per share, missing the Zacks Consensus Estimate of $0.47 per share, representing a year-over-year decline from $0.41 per share [1][2] Financial Performance - The company posted revenues of $67.83 million for the quarter ended September 2024, which was 4.06% below the Zacks Consensus Estimate and an increase from $62.8 million a year ago [2] - Over the last four quarters, Transcat has surpassed consensus EPS estimates three times and topped revenue estimates two times [2] Stock Performance - Transcat shares have increased approximately 9.5% since the beginning of the year, while the S&P 500 has gained 21.8% [3] - The current Zacks Rank for Transcat is 3 (Hold), indicating expected performance in line with the market in the near future [6] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $0.44 on revenues of $71.9 million, and for the current fiscal year, it is $2.06 on revenues of $287.03 million [7] - The estimate revisions trend for Transcat is mixed, and changes in earnings expectations may occur following the recent earnings report [6][7] Industry Context - The Instruments - Control industry, to which Transcat belongs, is currently in the bottom 33% of over 250 Zacks industries, which may impact stock performance [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, suggesting that industry outlook can materially affect stock performance [5][8]

Core Viewpoint - Growth investors are focused on stocks with above-average financial growth, but identifying stocks that can fulfill their potential is challenging due to associated risks and volatility [1] Group 1: Company Overview - Transcat, Inc. (TRNS) is currently recommended as a cutting-edge growth stock by the Zacks Growth Style Score system, which evaluates a company's real growth prospects beyond traditional metrics [2] - The company has a favorable Growth Score and a top Zacks Rank, indicating strong potential for growth [2] Group 2: Earnings Growth - Historical EPS growth for Transcat is 14.2%, but projected EPS growth for this year is expected to be 26.2%, significantly higher than the industry average of 17.4% [5] Group 3: Asset Utilization - Transcat has an asset utilization ratio (sales-to-total-assets ratio) of 0.93, outperforming the industry average of 0.74, indicating higher efficiency in generating sales from its assets [6] Group 4: Sales Growth - The company's sales are projected to grow by 10.6% this year, compared to the industry average of 9.2%, showcasing strong sales growth potential [7] Group 5: Earnings Estimate Revisions - The current-year earnings estimates for Transcat have been revised upward, with the Zacks Consensus Estimate increasing by 3.5% over the past month, indicating positive momentum [9] Group 6: Investment Positioning - Transcat's combination of a Growth Score of A and a Zacks Rank of 2 positions it well for outperformance, making it an attractive option for growth investors [10]

Core Viewpoint - Transcat, Inc. (TRNS) has been upgraded to a Zacks Rank 2 (Buy) due to an upward trend in earnings estimates, which is a significant factor influencing stock prices [1][3]. Earnings Estimates and Stock Price Movement - The Zacks rating system is based on the consensus measure of EPS estimates from sell-side analysts, reflecting the company's changing earnings picture [1][2]. - Changes in future earnings potential, as indicated by earnings estimate revisions, are strongly correlated with near-term stock price movements, particularly influenced by institutional investors [4]. Business Improvement Indicators - Rising earnings estimates and the Zacks rating upgrade suggest an improvement in Transcat's underlying business, which could lead to increased stock prices as investors respond positively [5][10]. - For the fiscal year ending March 2025, Transcat is expected to earn $2.06 per share, representing a 26.4% increase from the previous year, with a 4.1% increase in the Zacks Consensus Estimate over the past three months [8]. Zacks Rank System - The Zacks Rank system classifies stocks into five groups based on earnings estimates, with a strong historical performance, particularly for Zacks Rank 1 stocks, which have generated an average annual return of +25% since 1988 [7]. - The upgrade of Transcat to a Zacks Rank 2 places it in the top 20% of Zacks-covered stocks, indicating a strong potential for market-beating returns in the near term [10].

Industry Overview - The Zacks Instruments – Control industry focuses on energy-efficient production processes and integrated software systems, with rising demand for advanced technology to replace legacy industrial control systems expected to drive growth [1][2] - The industry comprises manufacturers of precision and specialty motion-control components and systems, providing solutions for flow measurement, control, and communication across various sectors [3] Growth Drivers - Increased adoption of industrial automation and higher investments in new technologies are anticipated to propel growth, particularly in North America, supported by infrastructural investments in energy and power sectors [4] - Solid demand for power generation, especially in Asia, and the need for backup power for data centers are contributing to growth momentum in the industry [5] - The emphasis on digitized technologies, such as the Industrial Internet of Things, is driving demand for process automation and instrumentation products, which enhance product quality and reduce emissions [7] Challenges - Elevated customer inventory levels and geopolitical challenges may negatively impact the process automation and instrumentation market [2] - Material cost inflation and rising transportation costs are affecting industry margins, with companies struggling to pass on increased raw material prices to customers due to competitive pressures [6] Market Performance - The Zacks Instruments – Control industry has underperformed compared to the S&P 500 and the broader Zacks Computer and Technology sector over the past year, with a growth of 6.7% compared to 15% and 21.3% respectively [10] - The industry has a trailing 12-month EV/EBITDA ratio of 11.6X, lower than the S&P 500's 16.77X and the sector's 17.89X, indicating potential undervaluation [10] Notable Companies - **Watts Water Technologies, Inc. (WTS)**: Focuses on water safety and flow control products, benefiting from cost-reduction actions and a strong balance sheet, with a long-term earnings growth expectation of 8% [13] - **Badger Meter, Inc. (BMI)**: Provides flow measurement and control solutions, with a focus on digital solutions and a long-term earnings growth expectation of 17.9% [15] - **Transcat, Inc. (TRNS)**: Offers calibration and inspection services, with a focus on the life sciences market and a long-term earnings growth expectation, having gained 21.8% over the past year [16]