Transcat(TRNS) - 2026 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements The company reported a 14.6% revenue increase to $76.4 million for Q1 FY26, though net income declined to $3.3 million Condensed Consolidated Statements of Income Q1 FY26 revenue grew 14.6% YoY to $76.4 million, but higher expenses led to a net income decline to $3.3 million Q1 FY26 vs Q1 FY25 Income Statement Highlights (In Thousands, Except Per Share) | Metric | Q1 Ended June 28, 2025 | Q1 Ended June 29, 2024 | YoY Change | | :--- | :--- | :--- | :--- | | Total Revenue | $76,424 | $66,707 | +14.6% | | Service Revenue | $49,144 | $43,778 | +12.3% | | Distribution Revenue | $27,280 | $22,929 | +19.0% | | Gross Profit | $25,821 | $22,655 | +14.0% | | Operating Income | $5,338 | $5,099 | +4.7% | | Net Income | $3,261 | $4,408 | -26.0% | | Diluted EPS | $0.35 | $0.48 | -27.1% | Condensed Consolidated Balance Sheets Total assets grew to $392.5 million as of June 28, 2025, alongside increases in total liabilities and shareholders' equity Balance Sheet Summary (In Thousands) | Account | June 28, 2025 | March 29, 2025 | | :--- | :--- | :--- | | Total Assets | $392,536 | $385,242 | | Total Current Assets | $79,654 | $78,009 | | Goodwill | $177,114 | $176,928 | | Total Liabilities | $100,000 | $98,362 | | Long-Term Debt | $33,182 | $30,892 | | Total Shareholders' Equity | $292,536 | $286,880 | Condensed Consolidated Statements of Cash Flows Net cash from operations decreased significantly to $3.6 million in Q1 FY26 from $8.9 million in the prior year Cash Flow Summary (In Thousands) | Activity | Three Months Ended June 28, 2025 | Three Months Ended June 29, 2024 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $3,623 | $8,924 | | Net Cash Used in Investing Activities | ($4,598) | ($4,094) | | Net Cash Provided by/(Used in) Financing Activities | $1,946 | ($1,935) | | Net Increase in Cash | $344 | $3,011 | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, segment performance, recent acquisitions, and a new $150 million credit facility - The company's two reportable segments are Service (calibration, repair, etc) and Distribution (sales and rentals of instruments)[61] - The acquisition of Martin Calibration (Dec 2024) for ~$81.8 million contributed $7.9 million in revenue in Q1 FY26[69][72][73] - The acquisition of Becnel Rental Tools (Apr 2024) for ~$49.8 million contributed $3.4 million in revenue in Q1 FY26[74][77][80] - Subsequent to the quarter end, on July 29, 2025, the company entered a new five-year $150.0 million secured revolving credit facility, replacing its former $80.0 million facility[85] - On August 5, 2025, the company acquired Essco Calibration Laboratory for approximately $84.0 million in cash[86] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management attributes 14.6% revenue growth to acquisitions, while rising operating expenses compressed operating margin to 7.0% Results of Operations Q1 FY26 revenue rose 14.6% driven by acquisitions, but lower Service gross margin and higher operating expenses reduced net income Q1 FY26 Revenue Performance (in thousands) | Segment | Q1 FY26 Revenue | Q1 FY25 Revenue | YoY Change ($) | YoY Change (%) | | :--- | :--- | :--- | :--- | :--- | | 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% | - Acquired revenue from businesses bought after the prior period was $7.9 million, while organic revenue increased by 4.1%[91] - Service revenue organic growth was negative 1.0% due to lower revenue from the Transcat Solutions business[96] - The effective tax rate increased significantly to 28.6% from 15.7% in the prior-year quarter, mainly due to the timing of discrete tax items relative to pre-tax income[109] Non-GAAP Financial Measures Adjusted EBITDA increased 15.2% to $11.8 million, while Adjusted Diluted EPS decreased to $0.59 from $0.68 YoY Reconciliation of Net Income to Adjusted EBITDA (in thousands) | Line Item | Q1 Ended June 28, 2025 | Q1 Ended June 29, 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 | Metric | Q1 Ended June 28, 2025 | Q1 Ended June 29, 2024 | | :--- | :--- | :--- | | Diluted EPS – GAAP | $0.35 | $0.48 | | Adjusted Diluted EPS | $0.59 | $0.68 | Liquidity and Capital Resources The company secured a new $150 million credit facility while cash from operations declined due to working capital changes - On July 29, 2025, the company established a new five-year, $150.0 million secured revolving credit facility, replacing the previous $80.0 million facility[120] - Net cash from operating activities decreased to $3.6 million from $8.9 million YoY, primarily due to changes in working capital[128] - Capital expenditures were $4.6 million in Q1 FY26, up from $3.7 million in Q1 FY25, used for expanding Service capabilities and the rental business[130] Outlook Management anticipates a return to high single-digit Service organic growth in H2 FY26, supported by a strong acquisition pipeline - The company expects a return to high single-digit Service organic revenue growth in the second half of Fiscal 2026[135] - The acquisition of Essco Calibration is the largest deal in the company's history and establishes a strong presence in the New England market[134] - The estimated income tax rate for the full fiscal year 2026 is expected to be between 27% and 29%[135] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's primary market risks stem from interest rate fluctuations and foreign currency exchange rates - A 1% change in interest rates would increase or decrease annual interest expense by approximately $0.3 million, assuming constant borrowing levels as of June 28, 2025[137] - About 90% of total revenues are denominated in U.S. dollars, with the rest in Canadian dollars and Euros; a 10% change in these foreign currencies' value would impact total revenue by about 1%[139] - The company utilizes short-term foreign exchange forward contracts to hedge against Canadian dollar currency fluctuations[140] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 28, 2025[141] - No changes occurred during the first quarter of fiscal 2026 that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[142] PART II. OTHER INFORMATION Item 6. Exhibits This section lists filed exhibits, including the Essco acquisition agreement and the new credit facility agreement - Key exhibits filed include the purchase agreement for Essco Holdings Inc and the new Credit Agreement with Manufacturers and Traders Trust Company[145] Signatures The report was duly signed and authorized by the CEO and CFO on August 6, 2025 - The report was signed on August 6, 2025, by the company's CEO and CFO[151]