Q4 2025 Transcat Inc Earnings Call

Breathing spoken to cramp.

Operator: Inc., 4th Quarter and Full Fiscal Year 2025 Financial Results Call. As a reminder, this conference is being recorded.

<unk> Cat, Inc, fourth quarter and full year full fiscal year 'twenty 25 financial results call. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Tom Barbados Chief Financial Officer. Thank you Tom you may begin.

Thomas Barbato: It is now my pleasure Barbato, Chief Financial Officer. Thank you, Tom. Thank you, Sherry, and good morning, everyone. We appreciate your time and your interest in Transcat.

Speaker Change: Thank you Sherry and good morning, everyone. We appreciate your time and your interest in Transcon.

Thomas Barbato: With me here on the call today is our President and CEO, Lee Rudow, and our Chief Operating Officer, Mike West. We'll begin the call with some prepared remarks, and then we'll open the call for questions. Our earnings release crossed the wire after market closed yesterday. Both the earnings release and the slides that we will reference during our prepared remarks can be found on our website, transcat.com, in the investor relations section.

With me here on the call today is our president and CEO, Lee Rudow, and our Chief operating Officer, Mike West.

We will begin the call with some prepared remarks, and then we'll open the call for questions.

Our earnings release crossed the wire after market closed yesterday, both the earnings release and the slides that we will reference during our prepared remarks can be found on our website transcatheter com in the Investor Relations section.

Thomas Barbato: If you would please refer to slide two, as you are aware, we may make forward-looking statements during the formal presentation and Q&A portion of this teleconference. These statements apply to future events which are subject to risks and uncertainty. as well as other factors that could cause the actual results to differ materially from where we are today. These factors are outlined in the news release, as well as the documents filed by the company with the SEC. You can find those on our website, where we regularly post information about the company, as well as on the SEC's website at sec.gov.

Speaker Change: If you would please refer to slide two.

Speaker Change: You are aware, we may make forward looking statements during the formal presentation and Q&A portion of this teleconference. These statements apply to future events, which are subject to risks and uncertainties.

As well as other factors that could cause the actual results to differ materially from where we are today.

These factors are outlined in the news release as well as the documents filed by the company with the SEC.

Speaker Change: You can find those on our website, where we regularly post information about the company as well as on the Sec's website at SEC Gov.

Thomas Barbato: We undertake no obligation to publicly update or correct any of the forward looking statements contained in this call, whether as a result of new information, future events, or otherwise, except as required by law. Please review our forward looking statements in conjunction with these precautionary factors.

Speaker Change: We undertake no obligation to publicly update or correct any of the forward looking statements contained in this call whether as a result of new information future events or otherwise except as required by law.

To review our forward looking statements in conjunction with these precautionary factors.

Thomas Barbato: Additionally, during today's call, we will discuss certain non-GAP measures, which we believe will be useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAP.

Speaker Change: Additionally, during today's call, we will discuss certain non-GAAP measures, which we believe will be useful in evaluating our performance you should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP.

Lee Rudow: We've provided reconciliations of non-GAAP to compare GAAP measures in the tables accompanying the earnings With that, I'll turn the call over to Lee. Thank you, Tom. Good morning, everyone. Thank you for joining us on the call today. The fiscal 2025 consolidated revenue was up 7% to $278.4 million on continued, consistent demand for both our services and products. Service revenue grew 7% to $181.4 million, driven by strength and our core calibration business. Distribution revenue grew 8% to $97 million on continued growth in our rental platform. Operating cash flow for the full fiscal 2025 year was a record $38.6 million, a year-over-year increase of 18%.

Speaker Change: We've provided reconciliations of non-GAAP to comparable GAAP measures in the tables accompanying the earnings release.

Lee Rudow: With that I'll turn the call over to Lee.

Lee Rudow: Okay. Thank you Tom.

Lee Rudow: Good morning, everyone. Thank you for joining us on the call today.

Lee Rudow: Fiscal 2025 consolidated revenue was up 7% to $278 $4 million on continued consistent demand for both our services and products.

Lee Rudow: Service revenue grew 7% to 181 $4 million driven by strength in our core calibration business.

Lee Rudow: Distribution revenue grew 8% to $97 million from continued growth in our rental platform.

Lee Rudow: Operating cash flow for the full fiscal 2025 year. It was a record $38 $6 million a year over year increase of 18%.

Lee Rudow: Additionally, on December 9th, we acquired the coveted Martin Calibration, the largest acquisition in Transcat's history. Martin is a very profitable, well-run company with over $25 million of mostly calibration service revenue. The Martin deal is highly synergistic and fulfills all three of our strategic acquisition drivers, including geographic expansion into the Minneapolis and Chicago regions of the Midwest. expanded capabilities and expertise, particularly on the dimensional and mechanical measuring side of the business, and finally, two bolt-on opportunities where we can leverage our current infrastructure in Southern California and Phoenix, Arizona.

Lee Rudow: Additionally on December nine we acquired the coveted Martin calibration the largest acquisition in transcripts history. Martin is a very profitable well run company with over $25 million of mostly calibration service revenue.

Lee Rudow: The Martin deal is highly synergistic and fulfill all three of our strategic acquisition drivers, including geographic expansion into the Minneapolis, and Chicago regions of the Midwest expanded capabilities and expertise, particularly on the dimensional and mechanical measuring side of the business and finally to bolt on opportunities.

Lee Rudow: Where we can leverage our current infrastructure and southern California, and Phoenix, Arizona.

Lee Rudow: Turning to the fourth quarter results for our service segment, Transcat's calibration services business continues to perform well and benefit from high levels of regulation and recurring revenue stream. In the fourth quarter, Calibration Services achieved double-digit revenue growth of 11%, of which organic growth was in the high single-digit range when normalized for the 53rd week. and Excluding Solutions. We reported a service gross margin of 36.2% in the fourth quarter, which expanded 50 basis points versus the prior year. Margin expansion was driven by organic revenue growth and the associated inherent leverage in our calibration lab operating model, along with increased productivity from continued automation and process improvement.

Lee Rudow: Turning to the fourth quarter results for our service segment.

Speaker Change: He has got calibration services business continues to perform well and benefit from high levels of regulation and recurring revenue streams.

Speaker Change: In the fourth quarter calibration services achieved double digit revenue growth of 11% of.

Speaker Change: Of which organic growth was in the high single digit range when normalized for the 50 <unk> week.

Speaker Change: And excluding solutions.

Speaker Change: We reported a service gross margin of 36, 2% in the fourth quarter, which expanded 50 basis points versus the prior year.

Speaker Change: Margin expansion was driven by organic revenue growth and the associated inherent leverage in our calibration lab operating model along with increased productivity from continued automation and process improvements.

Lee Rudow: Turning to the fourth quarter results for our distribution segment, distribution revenue grew 4% driven by growth in the rental channel. It's important to note our associated e-commerce platform continues to be an important component to lead generation for the service segment. Transcat's distribution platform, including rentals, uniquely positions the company to achieve its consistent organic service growth. barriers to entry in this respect have defended and we expect will continue to defend both our unique value proposition and strong brand across both operating sectors.

Speaker Change: Turning to the fourth quarter results for our distribution segment distribution revenue grew 4% driven by growth in the rental channel.

Speaker Change: It's important to note our associated E. Commerce platform continues to be an important component to lead generation for the service segment Trans cats distribution platform, including rentals uniquely positions the company to achieve its consistent organic service growth.

Speaker Change: Barriers to entry in this respect have defended and we expect will continue to defend both our unique value proposition and strong brand across both operating segments with that I'll turn things over to Tom for more detailed look at our Q4 and full year financial performance.

Thomas Barbato: With that, I'll turn things over to Tom for a more detailed look at our Q4 and full year financial performance. Thanks, Lee. I'll start on slide four of the earnings deck, which provides detail regarding our revenue on a consolidated basis and by segment for the fourth quarter and full year. Fourth quarter consolidated revenue of $77.1 million was up 9% versus the prior year on service segment strength and growth in our distribution segment. Looking at it by segment, service revenue grew 11% to $52 million, which included $6.8 million from acquisitions in the quarter. As Lee mentioned, growth was driven by strong performance in our calibration business, and service organic revenue growth was in the high single-digit range when normalized for the 53rd week in excluding Transcat's.

Tom Barbados: Thanks, Lee I'll start on slide four of the earnings deck, which provides detail regarding our revenue on a consolidated basis and by segment for the fourth quarter and full year.

Speaker Change: Fourth quarter consolidated revenue of $77 1 million was up 9% versus the prior year service segment strength and growth in our distribution segment.

Speaker Change: Looking at it by segment service revenue grew 11% to 52 million, which included $6 8 million from acquisitions in the quarter.

Speaker Change: As Lee mentioned growth was driven by strong performance in our calibration business and service organic revenue growth was in the high single digit range when normalized for the 53rd week and excluding transcript solutions.

Thomas Barbato: Turning to distribution, revenue of $25.1 million was up 4% versus the prior year.

Speaker Change: Turning to distribution revenue of $25 1 million was up 4% versus the prior year.

Thomas Barbato: continue to see growth in the rental channel. Finally, on a full-year basis, the consolidated revenue, total consolidated revenue was $278.4 million, an increase of 7% compared to the prior fiscal year. Our service segment saw continued demand in our calibration business, resulting in year-over-year growth of 7%. On a full-year basis, service revenue benefited by $10.4 million resulting from acquisition. Distribution segment revenue grew 8% driven by rent. Turning to slide 5, our consolidated gross profit for the fourth quarter of $25.9 million was up 8% from the prior year, and our gross margin declined 30%. Service Gross Margin Expanded 50 Basis Points to 36.2% The service margin increase further demonstrated the inherent leverage in our business model, as well as our ability to leverage higher levels of automation and technician productivity.

Speaker Change: To see growth in the rental channel.

Speaker Change: Finally on a full year basis. The consolidated revenue total consolidated revenue was 2200, $78 4 million, an increase of 7% compared to the prior fiscal year. Our service segment saw continued demand in our calibration business, resulting in year over year growth of 7% on a.

Speaker Change: A full year basis service revenue benefited by $10 4 million, resulting from acquisition.

Speaker Change: Distribution segment revenue grew 8% driven by rentals.

Speaker Change: Turning to slide five our consolidated gross profit for the fourth quarter of 'twenty four 'twenty $5 9 million was up 8% from the prior year and our gross margin declined 30 basis points.

Speaker Change: Service gross margin expanded 50 basis points to 36, 2%.

Speaker Change: The service margin increased further demonstrating the inherent leverage in our business model as well as our ability to leverage higher levels of automation and technician productivity.

Thomas Barbato: The distribution segment gross margin of 28.2% was down 210 basis points. For the full year, our consolidated gross profit increased 7% to $89.5 million, and our gross margin declined 20 basis points to 32.1%. Our service gross margins was 33.4%, which represented a decrease of 30 basis points. compared to the prior year. Distribution segment gross margin of 29.7% was up 20 basis points. as a segment benefited from the growth in the higher margin rental.

Speaker Change: The distribution segment gross margin of 28, 2% was down 210 basis points.

Speaker Change: For the full year, our consolidated gross profit increased 7% to $89 5 million and a gross margin declined 20 basis points to 32, 1% or.

Speaker Change: Our service gross margin was 33, 4%, which represented a decrease of 30 basis points compared to the prior year.

Speaker Change: Distribution segment gross margin of 29.7% was up 20 basis points as the segment benefited from the growth in the higher margin rental channel.

Thomas Barbato: Turning to slide 6, Q4 net income of $4.5 million decreased from $6.9 million in the prior year. and our diluted earnings per share decreased to $0.48 from $0.77.

Speaker Change: Turning to slide six Q4 net income of $4 5 million decreased from $6 9 million in the prior year and our deliberate diluted earnings per share decreased to 48 cents from 77 sets. The prior year net income included a noncash profit increase of $2 4 million for the amended ex the earn out agreement.

Thomas Barbato: The prior year net income included a non-cash profit increase of $2.4 million for the amended NEXA Earn Out Agreement. We report adjusted diluted earnings per share as well to normalize for the impact of upfront and ongoing acquisition-related costs. Q4 Adjusted Diluted Earnings Per Share was 64%.

Speaker Change: We reported adjusted diluted earnings per share as well to normalize for the impact of upfront and ongoing acquisition related costs.

Speaker Change: Q4, adjusted diluted earnings per share was <unk> 64 cents.

Thomas Barbato: Lastly, full year net income increased 6% to $14.5 million.

Speaker Change: Lastly, full year net income increased 6% to $14 5 million.

Thomas Barbato: Flipping to slide seven, where we show our adjusted EBITDA and adjusted EBITDA margin. We use adjusted EBITDA, which is non-GAAP, to gauge the performance of our business because we believe it is the best measure of our operating performance and ability to generate cash. as we continue to execute on our acquisition strategy.

Speaker Change: Flipping to slide seven where we show our adjusted EBITDA and adjusted EBITDA margin, we use adjusted EBITDA, which is non-GAAP to gauge the performance of our business because we believe it is the best measure of our operating performance and ability to generate cash.

Speaker Change: As we continue to execute on our acquisition strategy. This metric becomes even more important to highlight as it does adjust for onetime deal related transaction transaction costs as well as the increased levels of noncash expense that will hit our income statement from acquisition purchase accounting.

Thomas Barbato: This metric becomes even more important to highlight, as it does adjust for one-time deal-related transaction costs, as well as the increased levels of non-cash expense that will hit our income statement from acquisition purchase accounts. With that in mind, fourth quarter consolidated adjusted EBITDA of $12.7 million was up 9% from the same quarter in the prior year, driven by growth of 16% in the service segment. Q4, even a margin of 16.5% was consistent with last. Full year EBITDA of $39.7 million, which was up 3% compared to the prior year, driven by strength in the calibration business.

Speaker Change: With that in mind fourth quarter consolidated adjusted EBITDA of $12 7 million was up 9% from the same quarter in the prior year driven by growth of 16% in the service segment.

Speaker Change: Q4, EBIT margin of 16, 5% was consistent with last year.

Speaker Change: Full year EBITDA of $39 7 million, which was up 3% compared to the prior year driven by strength in the calibration business.

Thomas Barbato: As always, a reconciliation of adjusted EBITDA to operating income and net income can be found in the supplemental section of this presentation.

Speaker Change: As always a reconciliation of adjusted EBITDA to operating income.

Speaker Change: And net income can be found in the supplemental section of this presentation.

Thomas Barbato: Moving to slide eight, operating free cash flow of $25.4 million, improved 31% versus the prior year.

Speaker Change: Moving to slide eight operating free cash flow of $25 4 million improved 31% versus the prior year.

Thomas Barbato: Full year capital expenditures were consistent with the prior year and continue to be centered around service segment capabilities, rental pool assets, technology, and future growth projects. The spend was in line with expectations for fiscal year 2026.

Speaker Change: Full year capital expenditures were consistent with the prior year, we continue to be centered around service segment capabilities rental pool assets technology and future growth projects.

Speaker Change: Spend was in line with expectations for fiscal year 'twenty 'twenty six we expect net capex to be in the range of $14 million to $16 million.

Thomas Barbato: We expect our net capex to be in the range of 14 to 16 million dollars.

Speaker Change: Yeah.

Thomas Barbato: Slide nine highlights our strong balance sheet. At year-end, we had a total net debt of $31 million with a leverage ratio of 0.7x.

Speaker Change: Slide nine highlights our strong balance sheet at year end, we had a total net debt of $31 million with a leverage ratio of 0.7 X, we had $49 million available from our credit facility at quarter end.

Thomas Barbato: We had $49 million available from our credit facility a quarter after.

Thomas Barbato: Lastly, we expect to file our 10-K on May 27. With that, I'll turn it back to you, Lee.

Speaker Change: Lastly, we expect to file our 10-K on May 27th.

Lee Rudow: With that I'll turn it back to you Lee.

Lee Rudow: Thanks, Tom. Those of you who follow Transcat know we have consistently delivered strong results through various economic cycles over the past decade and a half. We have a proven track record of delivering profitable growth and being disciplined capital allocators.

Lee Rudow: Thanks, Tom.

Speaker Change: Those of you who followed trans cat no. We have consistently delivered strong results through various economic cycles over the past decade, and a half we have a proven track record of delivering profitable growth and being disciplined capital allocators.

Lee Rudow: Our strategy is differentiated and our leadership team is poised to execute our plan and to drive excellent performance. While the macroeconomic backdrop, including tariffs, have become more uncertain since the beginning of the year, over time, Transcat's business, particularly our calibration services channel, has been resilient as it continues to benefit from recurring revenue streams and highly regulated markets. Put simply, in the past, the business holds up well. Holds up well because our organic growth typically returns to growth levels more in line with the historical high single-digit growth range as macro trends normalize.

Speaker Change: Our strategy is differentiated and our leadership team is poised to execute our plan and to drive excellent performance.

Speaker Change: While the macro economic backdrop, including tariffs have become more uncertain since the beginning of the year overtime transcribe business particular, our calibration services channel has been resilient as it continues to benefit from recurring revenue streams and highly regulated markets put simply in the past the business holds up well.

Speaker Change: L.

Speaker Change: Holds up well because our organic growth typically returns to growth levels more in line with the historical high single digit growth range as macro trends normalize.

Lee Rudow: As we look at the landscape for strategic accretive acquisitions, we are excited by our current pipeline and our opportunity to drive both synergistic growth opportunities and strengthen our foundation for future growth. And as I mentioned, we're particularly excited with the recent Martin acquisition, which is both sizable and right down the fairway for Transcat. The early Martin integration activities are going very well and ahead of schedule. We continue to believe the service segment has a substantial runway for growth, both organically and through acquisition. Our solutions business is making slow and steady progress towards the short-term goals we communicated over the last couple of quarters.

Speaker Change: As you look at the landscape for strategic accretive acquisitions, we are excited by our current pipeline and our opportunity to drive both synergistic growth opportunities and strengthen our foundation for future growth.

Speaker Change: And as I mentioned, we are particularly excited with the recent March Martin acquisition, which is both sizeable and right down the fairway for Transcatheter. The early Martin integration activities are going very well and ahead of schedule.

Speaker Change: We continue to believe the service segment has a substantial runway for growth both organically and through acquisition.

Speaker Change: Our solutions business is making slow and steady progress towards the short term goals, we communicated over the last couple of quarters. We are now actively operating the proven trans cat sales playbook, and our solutions channel and.

Lee Rudow: We are now actively operating the proven Transcat sales playbook in the solutions channel. And as we integrate the solutions channel into our overall service platform, expectations are for improved results. stabilization, and ultimately growth, which will contribute to our overall organic service goal.

Speaker Change: And as we integrate the solutions channel into our overall service platform expectations are for improved results.

Speaker Change: Stabilization and ultimately growth, which will contribute to our overall organic service goals.

Speaker Change: Yeah.

Lee Rudow: I'll close by saying that our leadership team has never been stronger. Across the organization, we've invested in recruiting and developing a higher level of leadership in sales, technology and operations. all commensurate with our ambitious long-term expectation for Transcat. It all starts with strong leadership and culture, and in our business space. We believe our leadership team is second to none. We intend to leverage these strengths as we create, communicate, and execute our strategy and vision for the future.

Speaker Change: I'll close by saying that our leadership team has never been stronger across the organization, we've invested in recruiting and developing a higher level of leadership in sales technology and operations.

Speaker Change: All commensurate with our ambitious long term expectation for Trans cat. It all starts with strong leadership and culture and in our business space. We believe our leadership team is second to none.

Speaker Change: We intend to leverage these strengths as we create communicate and execute our strategy and vision for the future.

Lee Rudow: A future we feel is incredibly exciting.

Speaker Change: Our future we feel is incredibly exciting.

Operator: And with that, operator, you can open the call for questions. Thank you.

Speaker Change: And with that operator, you can open the call for questions.

Speaker Change: Thank you if he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue.

Operator: If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line are two.

Operator: If you would like to remove your question from and for part. speaker equipment, it may be necessary to pick up your handset before pressing the button. A moment while we pull for questions.

Speaker Change: And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, while we poll for questions.

Gregory Palm: Our first question is from Greg Palm with Craig Hallam Capital. Yeah, good morning. Thanks for taking the questions and congrats on the results. Thanks Greg.

Speaker Change: Our first question is from Greg Palm with Craig Hallum Capital Group. Please proceed.

Greg Palm: Yeah. Good morning, Thanks for taking the questions and congrats on the results.

Speaker Change: Thanks, Great. Thanks, Greg.

Lee Rudow: Can we maybe just start with in terms of the cadence, thinking back to December and some of the timing issues you had back in late January, you talked about a big bounce back in January. How did the rest of the quarter flow and then I guess more importantly over the last, call it four, five, six weeks, any change versus what you saw back in February and March? You know, I would characterize the fourth quarter, February, March, I would just include in my characterization as good, solid, kind of what we expected. You know, we probably saw some of the pent up demand from the December timeframe that I think you're referring to make its way into the fourth quarter, and that helped contribute to the high single digit organic growth.

Greg Palm: Can we maybe just start with.

Speaker Change: Of like you know.

Speaker Change: The cadence thinking about you know thinking back to December and some of the timing issues you had in and you know back in late January you talked about a big bounce back in January how how did the rest of the quarter flow and then I guess more importantly, you know over the last you know call. It 456 weeks any any change versus what you saw.

Speaker Change: You know back in February and March.

Speaker Change: You know I would characterize the fourth quarter or February March I would just include in my characterization as good solid kind of what we expected you know we probably saw some of the pent up demand from the December time frame that I think you're referring to make its way into the fourth quarter.

Speaker Change: And that helped contribute to the high single digit organic growth I don't think we saw it all and I think that will play out over time, that's a kind of interesting thing I mean, given the backdrop, we have in some of the volatility and this work has to be done and we're going to do it but there is some flexibility in the short term for customers too.

Lee Rudow: I don't think we saw it all, and I think that will play out over time.

Lee Rudow: That's a kind of interesting thing. I mean, given the backdrop we have and some of the volatility, I mean, this work has to be done and we're going to do it, but there is some flexibility in the short term for customers to, you know, kind of wiggle around certain dates and extend intervals when necessary. So I think it all plays out as we'll get the work, but from a quarter to quarter, month to month basis, it's hard to predict, particularly the volatility. So we're pleased with the high single digit growth. We think there's probably more over time, but it's going to take a couple quarters to get past the current volatility before we probably see it all.

You know kind of wiggle around certain dates and extend intervals when necessary. So I think it all plays out as we'll get to work, but from a quarter to quarter month to month basis, it's hard to predict particularly the volatility. So we're pleased with the high single digit growth. We think there's probably more over time, but it will take a couple of quarters to get past the current volatility.

Speaker Change: We probably see at all.

Lee Rudow: Yeah, that's fair.

Speaker Change: Yeah, that's fair and I remember last quarter you in the service business, specifically you talked about that there were several big opportunities looming out there did any of those close or the or is that kind of what you're referring to in terms of you know still opportunities and things are shifting around timing wise et cetera.

Lee Rudow: And I remember last quarter you in the service business, specifically, you had talked about that there were kind of several big opportunities looming out there. Did any of those close? Or is that kind of what you're referring to in terms of, you know, still opportunities and things are shifting around timing wise, etc. Yeah, I mean, we have a healthy pipeline currently of new opportunities we're working on. We've had a number of, you know, new wins contributing to what we think will be momentum primarily, or particularly in the back half of the year, as we kind of look out at some of the, you know, potentiality of it.

Speaker Change: Yeah, I mean, we have a healthy pipeline currently of new opportunities. We're working on we've had a number of.

Speaker Change: New wins contributing to what we think will be momentum primarily are particularly in the back half of the year as we kind of look out at some of the potentiality of it but yeah. I mean, I think I think again, you know I've said this for many many years and and you know it's.

Lee Rudow: But yeah, I mean, I think, I think, again, you know, I've said this for many, many years, and, and, you know, it's difficult to look at any business, it's difficult to look at our business, you know, every 90 days and get a full picture, you know, it's a regulated market, the recurring revenue streams, if you do the work, if you do the work well, and your customers are satisfied, you'll get the work back most of the time. And so I think, you know, if you go beyond quarter quarter, look at the whole year, we would expect to, you know, hit our targets of high single digit growth, you know, as we exit this year and go into next, and how soon we get there and the volatility in the first quarter, these are, these are things are very difficult to determine, you know, given the current economic backdrop, but but I'm not, we don't have any concerns when we look, you know, beyond that.

Speaker Change: It's difficult to look at any business, it's difficult to look at our business.

Speaker Change: Every 90 days and get a full picture you know, it's a regulated market the recurring revenue streams to do the work if you do the work well and your customers are satisfied you'll get to work back most of the time and so I think you know if he.

Speaker Change: He goes beyond court, a court and look at the whole year, we would expect to hit our targets of high single digit growth as we exit this year and go into next and how soon we get there and the volatility in the first quarter. The these are these are things are very difficult to determine given the current economic backdrop, but I'm not we don't have any concerns when we.

Speaker Change: Look you know beyond that.

Lee Rudow: Fair enough. Okay.

Speaker Change: Fair enough, Okay, and then just on on distribution I'm. Just curious just given you know some of the tariff announcements from us.

Lee Rudow: And then just on distribution, I'm just curious, just given, you know, some of the tariff announcements, you know, from a, you know, a procurement standpoint, just remind us kind of where that that sits. And maybe more importantly, are you seeing any kind of changes in behavior from customers? Are you seeing more demand for or more interest in rentals versus buying outright? I'm just kind of curious to see what you're seeing in that segment as well. Right now, if I look at the current environment we're working in, distribution has held up really well. And what I mean by that is we're getting a fair amount of orders and volume in, but it's hard to determine, even a little bit of an uptick.

Speaker Change: Now a procurement standpoint, just remind us kind of where that that sits in and maybe more importantly are you seeing any kind of changes in behavior from customers. All odds are you seeing more demand for our more interest than in rentals versus buying outright I'm just kind of curious to see what you're seeing in that segment as well.

Speaker Change: Oh right right now you know if I if I look at the current environment. We're working in distribution has held up really well and what I mean by that is you know, we're getting a fair amount of orders and volume in but it's hard to determine even a little bit of an uptick so it's hard to determine whether people are getting ahead of some tariffs. So.

Lee Rudow: So it's hard to determine whether people are getting ahead of some tariffs. So some momentum is, that's the impetus for some of the momentum. We always used to say that the distribution business was kind of a leading indicator when the business was slow, that might tell you something about the economy. When you're doing well, it tells you something else.

Speaker Change: So momentum is the that's the impetus for some of the momentum that you know we always used to say that the distribution business was kind of a leading indicator.

Speaker Change: You know what when that when the business was slow you know that.

Speaker Change: That that might tell you something about the economy, when you're doing well. It tells you something else you know in this environment, where you've got you know the tariff discussion going on I think you know sort of all bets are off I think the uptick and the solid results that were seeing kind of currently you know maybe a leading indicator but may also just be a reaction to tariffs. So I think we're going to need more time.

Lee Rudow: In this environment where you've got the tariff discussion going on, I think sort of all bets are off. I think the uptick and the solid results that we're seeing kind of currently may be a leading indicator, but may also just be a reaction to tariffs. So I think we're going to need more time before we determine how that business is going to play out this year and what the current steadiness means. I don't know, but we're not overly thinking it because there's just too much volatility, but right now we're doing okay. But to be clear, when you're talking about uptick, are you talking like current quarter, like quarter to date, or are you putting in March?

Speaker Change: Before we determine.

Speaker Change: How that business is going to play out this year and what the current kind of steadiness means I don't know, but you know what not overly thinking it because there's just too much volatility, but right now we're doing okay.

Speaker Change: But to be clear when you were talking about uptick are you talking like current quarter like quarter to date or are you.

Speaker Change: Well I'm just saying currently yes current the current read is distributions holding up well.

Lee Rudow: I'm just saying currently, yes. The current read is distribution is holding up well. Yeah. Okay. All right.

Lee Rudow: I will leave it there. Thanks. You got it.

Speaker Change: Yeah, Okay, Alright, I will I'll leave it there thanks.

Chris: Got it thanks, Chris right.

Edward Jackson: Our next question is from Ted Jackson with Northland Security. Well, great. Thanks for taking the question.

Speaker Change: Our next question is from Ted Jackson with Northland Securities. Please proceed.

Ted Jackson: Oh, great. Thanks for taking the questions.

Speaker Change: Uh huh.

Thomas Barbato: So my first question, you did a really nice job with regards to expense control on the OPEC side. And I was kind of curious, you know, what were the levers you pulled in there and how would we think about those line items? put together. Yeah, I think, you know, obviously, it's something that we focus on, you know, regularly, Ted, and always trying to make sure that our costs are aligned with, you know, the levels of revenue we're seeing and also aligned with, you know, some of what we're seeing from a, you know, the economic backdrop here, right?

Speaker Change: My first question you did a really nice job with regards to expense control on the Opex side that was kind of curious.

Speaker Change: What were the levers you're pulling there and how would we think about those line items as we put together.

Speaker Change: Most of the 26.

Speaker Change: Yeah, I think you know obviously, it's something that we focus on.

Speaker Change: Irregular Ted and always trying to make sure that our costs are aligned with the levels of revenue. We are seeing in and also aligned with some of what we're seeing from a you know the economic backdrop here right. So.

Thomas Barbato: So, you know, some of it is, you know, delayed hires, some of it is just good, you know, cost management. And, you know, we'll continue to do that. I mean, on the, you know, on the hiring front, you can only you can only do that for so long, right?

Speaker Change: Some of it is you know delayed hires some of it is just good cost management and we will continue to do that I mean on the.

Speaker Change: The hiring front you you can all you can only do that for so long right because we want to make sure that we have the right teams in place to to deliver you know our long term plan. So, but we'll continue to focus on cost will continue to make good decisions and.

Thomas Barbato: Because we want to make sure that you know, we have the right teams in place to, to deliver, you know, our long term, you know, plan. So, but we'll continue to focus on costs, we'll continue to make good decisions. And, you know, as we go into, you know, this year, I would expect, you know, some, you know, nominal increases and, and you know, You know, there will be some items that kind of return, I'll just say to more normal levels, right? So, you know, as an example, based on our performance last year, you know, we didn't pay incentives at the level that we normally would, but we would expect this year with, with, you know, our expectations that, you know, we would see an uptick in some of those lines, but where we can, you know, be focused on, on cost savings and being very cost conscious, we absolutely will.

Speaker Change: You know as we go into.

Speaker Change: You know this year I would expect you know some you know nominal increases in and.

Speaker Change:

Speaker Change: You know there would be some items that kind of return I will just say to more normal levels right. So you know.

Speaker Change: As an example, based on our performance last year, we didn't pay incentives at the level that we normally would but we would expect this year with with you know are our expectations that we would see an uptick in some of those lines, but where we can.

Speaker Change:

Speaker Change: We focused on on cost savings in and being very cost conscious we absolutely will.

Edward Jackson: Well, it was impressive.

Speaker Change: Well it was impressive.

Edward Jackson: Next question, I'm going to kind of go back to what Greg was dancing around with. You know, when I listened to, you know, the prepared remarks, area that's in your slide. Thank you all for joining us for today's discussion with regards to expectation of high-single-digit growth or services. with the CABE. and Michael Erickson.

Speaker Change: Next question a minute kind of go back to what.

Speaker Change: Greg's dance around with.

Speaker Change: I listened to the.

Speaker Change: The prepared remarks, and the commentary that you in your slide deck.

Speaker Change: Discussion with regards to expected expectation of high single digit growth for services.

Speaker Change: Okay.

Speaker Change: Once it's once the macro environment excuse me I apologize.

Edward Jackson: The macro environment normalizes, you know, is there is that just, you know, boilerplate? I'm just we're just being conservative because.

Speaker Change: The macro environment normalizes.

Speaker Change: Or is that just you know boilerplate I'm, just we're just being conservative because you know it could be yours, you know as you're kind of rolling through the spring as you've seen some.

Edward Jackson: Dior's, you know, as you're kind of been rolling through, you know, the spring is, have you seen, you know, some disruptions, maybe turmoil within the business that gives you pause, you know, where you you've actually seen, you know, When you're thinking about how you're going to lay out that growth that you're expecting that the things will calm down and you're going to see you may stronger back part of the fiscal year.

Speaker Change: Disruption maybe turmoil within the business that gives you pause.

Speaker Change: You've actually seen you know essentially.

Speaker Change: Okay.

Speaker Change: April.

Speaker Change: Over the last few months, we've seen you know things like that just be a little more turbulent.

Speaker Change: When you're thinking about how youre going to lay out that growth that you're expecting that things will calm down and you're going to see maybe.

Stronger.

Speaker Change: Part of the fiscal year.

Lee Rudow: Yeah, I mean, this is Lee, of course. And I think a lot of what you said, you know, I would agree with in the way you said it. I think that the bigger overall, but yes, there's short term volatility, short term disruption. You know, there are some customers that are going to, you know, delay some work and we will call them push outs, you know, into the second quarter from the first or even into the third or the fourth. That's going to happen. This is a pretty unusual environment. But, you know, what we're focused on and we've always been focused on is our value proposition, the way we approach the market and the quality of our services that we offer.

Speaker Change: Yeah, I mean I.

Speaker Change: This is Lee of course, and I think a lot of what you said, yeah I would agree with and the way you said it I think the bigger overall, but yes, they're short term volatility short term disruption you know there are some customers that are going to you know they'll delay some work and we will call them push outs you know into.

The second quarter from the first orders even into the third or the fourth that's going to happen. This is a pretty unusual environment, but what we're focused on and we've always been focused on is our value proposition and the way we approach the market and the quality of our services that we offer and it's very very strong in fact, I would say that entering this year and through.

Lee Rudow: And it's very, very strong. In fact, I would say that entering this year and through the year, our ability to sell calibration services, to satisfy our customers, the type of data we're getting from our technology, the type of structuring we're doing on how we approach the customer, these are all getting better. I mean, there's process improvement opportunities we've been talking about. We don't just say that because it's sort of boilerplate. We say it because we're focused on it. And I expect this company to get better and to be better and to have stronger sales in the future than even in the past.

Speaker Change: Through the year, our ability to sell calibration services to satisfy our customers that type of data, we're getting from our technology. The type of structuring we're doing on how we approach. The customer. These are all getting better I mean, there's process improvement opportunities. We've been talking about we don't just say that.

Speaker Change: Because it's sort of boiler plate, we say it because we're focused on it and I expect this company to get better and to be better and to have stronger sales in the future than even in the past now all bets are off over the next quarter or two and I'm not going to you know.

Lee Rudow: Now, all bets are off for the next quarter or two. And I'm not going to, you know, you know, pretend that I know every possible outcome. But I will tell you with high level confidence that the things we're doing are the right things for the business. Our value proposition is second to none. I like what we're doing on the leadership front. I like what we're doing on the sales front. The pipelines look good. And I expect this business to perform well once we get over some of the volatility. And so, yeah, nothing has changed. And if anything has changed, I see a bright future that could get better.

Speaker Change: Pretend that I know every possible outcome, but I will tell you with high level of confidence.

Speaker Change: The things we're doing are the right things for the business our value proposition is second to none I like what we're doing on the leadership front I like what we're doing on the sales front. The pipelines look good and I expect this business to perform well once we get over some of the volatility and so yeah. Nothing has changed and if anything has changed I see a bright future that could get better and I'll just leave it.

Lee Rudow: I'll just leave it at that. You know, I'm not going to put numbers around it. I just like the direction we're going. And I like who we are and what we're doing. And so I look out much further than the next quarter or two. I like what I see. I'd be concerned if you didn't look longer than a quarter.

Speaker Change: With that.

Speaker Change: I think I put numbers around it I just like the direction, we're going and I like it I like who we are and what we're doing and so I look out much further than the next quarter or two.

Speaker Change: I like what I see.

Speaker Change: Well I'd be concerned if you didnt look longer than a quarter or two.

Edward Jackson: I'm going to ask one more question. I do have I do have more, but I'm going to let other people ask and then if they don't get asked.

Speaker Change: I'm going to ask one more question I do have I do have more but I'm going to let other people ask them that if they don't get asked I'll circle back.

Lee Rudow: So the next question is just kind of on, you know, Transcat solutions or the Nixa business, you know, it's been an area that, you know, you've repairing. you know, rebuilding, if you would, could you talk a little bit about where things stand? of your world. Yeah, sure, I will. And there are two goals with NEXA coming off of some of the problems, you know, we call it solutions now.

Speaker Change: The next question is just talking about.

Speaker Change: Transcept solutions are not the mix of business.

Speaker Change: An area that you've been.

Speaker Change: Yeah.

Speaker Change: Repairing.

Speaker Change: Rebuilding if you would.

Speaker Change: Could you talk a little bit about where things stand with that portion of your world.

Kind of how to think about it or.

Speaker Change: Yes.

Speaker Change: Yeah sure I will and there are two goals with nex coming off of some of the the the problems you know we call. It solutions now and the change from Nexus solutions is important because it's a change in how we view the business and so there's there's two pieces to it one is sales. So we have integrated we are integrating.

Lee Rudow: And the change from NEXA solutions is important, because it's a change in how we view the business. And so there's there's two pieces to it. One is sales. So we have integrated, we are integrating, we put a lot of work into making sure that every salesperson in this company understands the value proposition around solutions. And every salesperson is capitalizing on the opportunities they encounter relative to the solutions channel. And that was not in place before. It doesn't happen overnight. But I think we get better every day. So I'm fairly pleased with the process, the progress we've made in terms of the recognition of how to sell, when to sell and why to sell solutions.

Speaker Change: We put a lot of work into making sure that every sales person in this company understands the value proposition around solutions and at every sales person is capitalizing on the opportunities they encounter a relative to the solutions channel and that was not in place before it doesn't happen overnight, but I think we get better every day so unfairly please.

Speaker Change: With the process the progress we've made in terms of the recognition of how to sell when to sell and why to sell solutions that I wouldn't have said that a year ago I don't think I would've said it six months ago, but I like the progress we've made on the operations front, we see total integration where solutions is not only stands on its own two feet of chat.

Lee Rudow: That I would not have said that a year ago, I don't think I would have said it six months ago. But I like the progress we've made. On the operations front, we see total integration, where solutions is not only stands on its own two feet, as a channel, you know, small channel, but that it's a means to an end. And it's a means to an end.

Speaker Change: Oh, you know small channel, but that it's a means to an N and its a means to an end and we say a lot here at transplant internally all roads lead to calibration when we're in front of a customer and we're trying to solve problems for them on their database on their reliability. If you will looking at their intervals. It all leads to a calibration discussion and so.

Lee Rudow: And we say a lot here at TransCat internally, all roads lead to calibration. When we're in front of a customer, and we're trying to solve problems for them on their database, on their reliability, if you will, looking at their intervals, it all leads to a calibration discussion. And so we see it as a means to an end solution and in and of itself. And it's an important distinction. Sales understands this, operations understands this is important part of, you know, making TransCat a better company. So I'm pleased with the progress, we'll continue to stabilize it. And eventually, the growth that we see in that area will contribute to our overall organic growth and service.

Speaker Change: We see it as a means to an end solution and in and of itself and that's an important distinction sales understands. This operations understands. This is an important part of of making transfer had a better company. So I'm pleased with the progress will continue to stabilize it and eventually the growth that we see in that area will contribute to our overall organic growth in service.

Edward Jackson: Okay, I'm going to step aside and I might jump back in later.

Speaker Change: Okay, I'm going to step aside and I'll jump back in later thanks.

Speaker Change: Yeah.

Scott Buck: Our next question is from Scott Buck with H.C. Wainwright. Hi, good morning, guys. Thanks for taking my questions.

Scott Buck: Our next question is from Scott Buck with H C. Wainwright. Please proceed.

Scott Buck: Hi, Good morning, guys. Thanks for taking my my question, but I'm curious you've been integrating automation now for a few quarters, how much juice is there left to squeeze out of that.

Scott Buck: Lee, I'm curious, you've been integrating automation now for a few quarters. How much juice is there left to squeeze out of that? It's a great question. I mean, we started, you know, probably what, three, four years ago, we said we were in the first inning. I appreciate the question. I think it's an important one. We are proud. We've made so much progress. I'm really proud of the team. And it's contributed to, you know, some of the margin improvement without question. And I would characterize where we are, Scott, today is around the fourth or fifth inning.

Scott Buck: It's a great question I mean, we started you know would probably what three or four years ago. We said we were in the first inning I. Appreciate the question I think it's an important one we are proud we have made so much progress that I'm really proud of the team and it has contributed to some of the margin improvement without question and I would.

Scott Buck: Characterize where we are Scott today is around the fourth or fifth inning, I mean, I feel like we're in the midpoint, maybe not quite maybe just under the midpoint. So maybe fourth inning is probably better than fifth we've got a lot of work to do it's arduous it's slow it's hard but when you do it and you get it done if its coding you've got it.

Lee Rudow: I mean, I feel like we're in the midpoint, maybe not quite, maybe just under the midpoint. So maybe fourth inning is probably better than fifth. We got a lot of work to do. It's arduous. It's slow. It's hard. But when you do it and you get it done, it's coding. You've got it. It theoretically lasts forever and you move on to the next one. So we've invested a lot of time and effort and money. I think it's a differentiator for us. And when we talk about getting consistently into mid height, single digits and beyond that, it's a big, important component of that progress.

Scott Buck: It theoretically last forever and you move onto the next one so we've invested a lot of time and effort and money I think it is a differentiator for us and when we talk about getting consistently in the mid high single digits and beyond that it's a big important component of that progress and so yeah, let's let's call. It the fourth inning with one out.

Lee Rudow: And so, yeah, let's let's call it the fourth inning with one out. How about that? That's helpful and great to hear. There's some more room there.

Scott Buck: That.

Scott Buck: [laughter], Yeah, that's helpful and great to hear there's a some some more room there.

Lee Rudow: Second, can you remind us in a more challenging macro environment, the mechanics of distribution? I mean, do you see customers put off? go the rental route instead to save some of their own capex or What are the mechanics on that side of the business in a more challenging macro environment? I think the short answer is yes, you do see that. We're not seeing it right now. And I think. The reason may be, and this is not a definitive answer, but our gut tells us, we're not seeing it right now, because we all know this is a challenging environment.

Scott Buck: Second can you remind us in a more challenging macro environment.

Speaker Change: Mechanics of distribution I mean, do you see customers put off.

Scott Buck: Sales in.

Scott Buck: So the rental route instead to save some of their own capex or.

Scott Buck: What are the mechanics on that side of the business in a in a more challenging macro environment.

Scott Buck: I think the short answer is yes, you do see that.

Scott Buck: We're not seeing it right now and I think.

Scott Buck: The reason may be and this is not a definitive answer but our gut tells us we're not seeing it right now because we all know this is a challenging environment. So why is in distribution.

Lee Rudow: So why isn't distribution, you know, feeling more pressure. We think it might be people trying to get ahead of tariffs, you know, so people are ordering equipment now at price levels that they anticipate are lower than they're going to be in the near future. So even though the long or the midterm outlook or distribution may not be as favorable, just in theory, we're not seeing that because I think this tariff, the macros driven by tariffs are different than macros driven by more of a long-term recession-oriented environment. So I think that's the reason why we're not seeing it because normally you would expect distribution sales to be at the front, the tip of the sphere, and to be declining and to feel some headwinds that we're not feeling today, but that we might feel as soon as we kind of get over the tariff hump where the orders have been placed.

Scott Buck: Hmm.

Scott Buck: Sealing more pressure, we think it might be people trying to get ahead of tariffs. So people are ordering equipment now at price levels that they anticipate are lower than they are going to be in the near future. So even though the long or the mid term outlook or distribution may not be as favorable just in theory, we're not seeing that because I think there's tariffs the them.

Scott Buck: Macros, driven by tariffs or different than macro driven by more of a long term recession oriented environment. So I think that's the reason why we're not seeing it because normally you would expect distribution sales to be at the front the tip of the sphere and to be declining in the feel some headwinds that were not feeling today, but then we.

Scott Buck: I feel as soon as we kind of get over the tariff hump, where the orders had been placed.

Lee Rudow: higher costs are hitting the market and then you will see distribution maybe later in the year. But this is speculation. This is what we're thinking. Great. I mean, that makes a ton of sense.

Higher costs are are are are hitting the market and then you will see distribution maybe later in the year, but this is speculation this is what we're thinking.

Lee Rudow: Great that I mean that makes a ton of sense and then last one Lee.

Lee Rudow: And then last one, Lee, the business query looks, you know, fairly different than it did three or four years ago. Has the M&A criteria changed at all, just given the uh you know scale and scope of the business today versus uh you know maybe 2020 or 2021. I think... I think we have, we spent a lot of time on our M&A plan and there are You know, there's hundreds of small companies. You know, it's very it's still a fragmented industry. So in general, much of the narrative is the same. There's more P.E. involvement in our space.

Lee Rudow: The business square it looks as though you know fairly different than it did three or four years ago as the M&A criteria changed at all just given the.

Lee Rudow: Our scale and scope of the business today versus maybe 'twenty 'twenty or 2021.

Lee Rudow: I think I.

Lee Rudow: I think we have we spent a lot of time on our M&A plan and there are.

Lee Rudow: There's hundreds of small companies.

Lee Rudow: Yes, it's very it's still a fragmented industry. So in general much of the narratives. The same there's more P involvement in our space you know that the training. We're a public company Trans Cat has had outstanding performance for a really long time really consistent we got a great model and of course PS attracted to that so we've seen more private equity.

Lee Rudow: You know that the where public company Transcat has had outstanding performance for a really long time, really consistent. We got a great model. And of course, P.E. is attracted to that. So we've seen more private equity scoop up some small companies. But in almost every case. And there's a few exceptions, but not many. It's companies that we took a pass on, you know, for good reason, you know, from our perspective. So, you know, there are companies being acquired and, you know, the field, the pond is getting a little bit smaller. But I still think there's a lot of work to be done on the more desirable regionals like Martin, for example.

Lee Rudow: Scoop up some small companies, but in almost every case in.

Lee Rudow: In there there's a few exceptions, but not many it's companies that we took a pass on for good reason.

Lee Rudow: From our perspective. So so you know there are companies being acquired and you know the the field upon is getting a little bit smaller, but I still think there's a lot of work to be done on the when the more desirable regionals like Martin for example, and there's still enough fragmentation that we have a plan and we should be able to execute it so I.

Lee Rudow: And there's still enough fragmentation that we have a plan and we should be able to execute it. So I think it's yes, it's changed a little bit. Everything changes, but but not to some extent where I would say our acquisition plan has changed or our outlook or expectations to get important synergistic deals done. I still see a pretty good opportunity for that.

Lee Rudow: I think it's yes, it's changed a little bit everything changes, but but not to some extent, where I would say our acquisition plan has changed or outlook or expectations to get important synergistic deals done I still see.

Lee Rudow: A pretty good opportunity for that.

Scott Buck: Great.

Scott Buck: Well, I appreciate the added color, guys, and congrats on the quarter. All right, Scott.

Speaker Change: Great well I appreciate the added color guys and congrats on the quarter.

Scott Buck: All right Scott. Thank you thanks for the questions.

Edward Jackson: Our next question is a follow-up from Ted Jackson with North. Great, thanks again. I got two follow ups. The first going into kind of the distribution and rental and maybe if you get a more color of what you're seeing within the rental market. I know you don't break it out in terms of the size, but we'll kind of continue to take a bigger chunk of the line item as we go forward. And then, you know, now that it's become such a more important part of your business. How do you see rental performing in a more challenged market?

Ted Jackson: Our next question is a follow up from Ted Jackson with Northland Securities. Please proceed.

Ted Jackson: Great. Thanks again.

Ted Jackson: I've got two follow ups, the first going into kind of the distribution that rental and many people could get more color on what youre seeing within the rental market I know you don't break it out in terms of the size, but they're all tied up.

Ted Jackson: To take a bigger chunk of.

Ted Jackson: The line item as we go forward and then you know now that it's become.

Such a more important part of your business, how do you see rental performing in a more challenging macroeconomic environment.

Thomas Barbato: You know, it's kind of a, it could be something that could do well and you would see the equipment. You know, we haven't seen that pullback in distribution yet. I think we are seeing a little bit of an uptick in rentals. And, you know, we would expect that, you know, the longer, you know, things remain kind of in this uncertain environment that, you know, that would be a benefit. But, you know, we have we've had and we continue to have, you know. you know, expectations for the rental business to grow, you know, kind of in line with our historical trends on the services business, you know, high single digits, and, you know, we're making the investments that we need to, to, to kind of ensure that growth will continue not only in, you know, making investments in our asset pool, but also, you know, making investments in, in people to help enable that.

Ted Jackson: You know it's kind of.

Ted Jackson: It could be something that could.

Ted Jackson: Well you.

Ted Jackson: You would see the equipment distribution side, maybe weaker but perhaps the rental market strong yeah. That's my first question, Yeah, Yeah, and I think that that's it.

Speaker Change: Kind of gets back to Lee's comments earlier right is that you know in this in a time of uncertainty like this we would've expected you know kind of a pullback in core distribution.

Ted Jackson: And and and.

Ted Jackson: You know maybe rentals to to pick up the pace because of.

Ted Jackson: Restrictions on Capex, but.

Ted Jackson: We haven't seen that pullback in distribution, yet I think we are seeing a little bit of an uptick in rentals and you know we would expect that you know the longer you know things remain kind of in this uncertain environment that you know that would be a benefit but you know we have where we've had and we continue to have.

Ted Jackson: You know.

Ted Jackson: Expectations for the rental business to grow you know kind of in line with our historical trends on the services business you know high single digits.

Ted Jackson: And you know, we're making the investments that we need to to to kind of ensure that growth will continue and not only in may.

Ted Jackson: Making investments in our asset pool, but also making investments in people to help enable that.

Thomas Barbato: And but in some ways, I mean, given that it's Tiger, you know, generally a better margin revenue stream than actually. be a case to where, you know, even though you might see some softness in distribution, you might pick it up, you know, at the... Gross profit level is with a big shift towards rentals and a fair way to For sure, for sure.

Ted Jackson: Mhm and put in some ways I mean, given that it's you.

Ted Jackson: You know generally better barge and revenue stream than actual distributions.

Ted Jackson: Could be a case, where you know even though you might see some softness in distribution he might pick it up.

Ted Jackson: <unk>.

Yep.

Ted Jackson: Gross profit level with a mix shift towards rental is a fair way to kind of think about it.

Speaker Change: For sure for sure and I think that you know as we as we look forward I mean, assuming that you know it plays out the way you described Ted then you know I think we will definitely be in a position, where we can or we should be in a position I should say where we.

Thomas Barbato: And I think, you know, as we look forward, I mean, assuming that, you know, it plays out the way you described, Ted, then, you know, I think we will definitely be in a position where we can, or we should be in a position, I should say, where, you know, we can just consistently see distribution margins north of 30.

Ted Jackson: We can just consistently see distribution margins north of 30%.

Lee Rudow: And then my last question is actually one that's hopefully a little bit more fun, but I liked the commentary with regards to, you know, the impact of automation improving some of your margin structure.

Speaker Change: And then my last question was actually one that's hopefully a little bit more fun, but I liked the commentary with regards to you know the impact of automation and improving some of your margin structure.

Ted Jackson: You've made an acquisition a number of lending.

Lee Rudow: made the acquisition. It was something that we used to talk about quite a bit. maybe a little discussion about, you know, what are some of the things you've done on the automation front that have allowed you to. on your business and kind of where you see that going. I think there's two parts to automation. One is the technical side, and that is just coding, right? Taking a known standard with electronic outputs and writing code so it can talk to the unit under test, is how we would describe it internally. And that's just blocking and tackling on the coding front.

Speaker Change: It was something that we used to talk about quite a bit.

Speaker Change: Too much so maybe a little discussion about what are some of the things you've done all the information so I'm thinking of allowed you to draw.

Speaker Change: Return on your.

Speaker Change: On your business and kind of where you see that.

Speaker Change: Thanks.

Speaker Change: I think I think there's two parts to automation.

Speaker Change: One is the technical side and that is just coding right, taking a known standard with electronic outputs and writing code. So it can talk to the unit under test is how we would describe it internally and that's just blocking and tackling on the coding front I don't think there's any magic to it it's identifying where the opportunities are and then it's getting.

Lee Rudow: I don't think there's any magic to it. It's identifying where the opportunities are, and then it's getting, you know, what are the resources, how much capital are you going to allocate towards this initiative? You know, we're a public company, so everything's balanced, right? You want to go up and to the right. You can't, you know, you just have to balance, you know, expectations and funding for, you know, even important initiatives like automation, so we're doing that. And then the back half of it is, okay, now you've got this code written, Ted, what are you going to do with it?

Speaker Change: What are the resources how much capital you can allocate towards this initiative you know we're a public company. So everything's balanced right you want to go up into the right. You can't you know you just have to balance expectations and funding for you know even important initiatives like automation. So we're doing that and then the back half of it is okay. Now you've got this code written Ted what are you going to do with it.

Lee Rudow: And how are you going to execute? You know, part of the execution is getting the code written, so you have automation, but probably equal to or more important is getting it into your 33 operations throughout primarily North America. Of course, we have an opportunity, a lab in Ireland as well. But getting that code disseminated and every technician in every place to be using it, because once they recognize the value of this, right, in theory, you could be doing two calibrations at once. You need to get some multiplier. So I think you write the code, you determine where that opportunity exists, and then you've got to get that code disseminated and into your operation on a consistent basis.

Speaker Change: How are you going to execute part of the execution is getting the code right and so you have automation, but probably equal to or more important is getting it into your thirty-three operations throughout primarily North America of course, we have an opportunity on a lab in Ireland as well, but getting that code disseminated and every technician in every place to be using it because.

Speaker Change: They recognize the value of this right in theory, you could be doing two calibrations that once you get some multiplier. So I think you're right. The code you determine where that opportunity exists and then you've got to get that code disseminated and into your operations on a consistent basis. The incentives have to be in place to do that the leadership has to be in place to do that the day to day management has to be in place in <unk>.

Lee Rudow: The incentives have to be in place to do that. The leadership has to be in place to do that. The day-to-day management has to be in place. And when you do it, and to the degree that you do it well, you will see margin gain. And so, you know, it's kind of two different stories going on at the same time. Okay.

Speaker Change: When you do it and to degree that you do it well you will see margin gain and so you know it's kind of a yeah.

Speaker Change: Yes, two different stories going on at the same time.

Speaker Change: Okay. Thanks, very much guys.

Lee Rudow: Thanks very much, guys. Thanks, I appreciate the question.

Speaker Change: Thank God I appreciate the question.

Operator: There are no further questions at this time.

Speaker Change: There are no further questions at this time I would like to turn the call back over to Kelly for closing comments.

Thomas Barbato: I would like to turn the call back over. Okay.

Thomas Barbato: Well, thank you all for joining us on the call today. We appreciate it.

Kelly: Okay, well. Thank you all for joining us on the call today. We appreciate it we will be attending the upcoming twenty-second annual Craig Hallum Institutional Investor Conference, which is in Minneapolis on the 28th So we hope to see you. There. We appreciate everyone's continued interest in trans cat and feel free to check check in with us really anytime.

Thomas Barbato: We will be attending the upcoming 22nd annual Craig Hallam Institutional Investor Conference, which is in Minneapolis on the 28th. So we hope to see you there. We appreciate everyone's continued interest in Transcat and feel free to check in with us really anytime.

Thomas Barbato: We look forward to talking to you guys again after the first quarter. So thanks again for participating. Thank you.

Kelly: We look forward to talking to you guys again after the first quarter. So thanks again for participating.

Operator: This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.

Kelly: This will conclude today's conference you may disconnect your lines at this time and thank you for your participation.

Kelly: Okay.

Okay.

Kelly: Yeah.

Kelly: Yeah.

Kelly:

Kelly: [music].

Kelly: Okay.

Yeah.

Kelly: Yeah.

Kelly: Okay.

Kelly: Yeah.

Kelly: Yeah.

Yeah.