Transcat Q3 2026 Transcat Inc Earnings Call | AllMind AI Earnings | AllMind AI
Q3 2026 Transcat Inc Earnings Call
Speaker #1: Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press star zero, and a member of our team will be happy to help you.
Speaker #2: I can't even hear sheep.
Speaker #3: Can you stand by? Your meeting is about to begin. Good afternoon, ladies and gentlemen. Welcome to the Transcat third quarter fiscal year 2026 financial results conference call.
John Howe: Good afternoon, ladies and gentlemen. Welcome to the Transcat Third Quarter Fiscal Year 2026 Financial Results Conference Call. As a reminder, today's conference is being recorded. It is now my pleasure to introduce your host for today, Mr. John Howe, Senior Director of Financial Planning and Analysis. Please go ahead, sir.
Speaker #3: As a reminder, today's conference is being recorded. It is now my pleasure to introduce your host for today, Mr. John Howe, Senior Director of Financial Planning and Analysis.
Speaker #3: Please go ahead, sir.
John Howe: Thank you, Operator, and good afternoon, everyone. We appreciate your time and your interest in Transcat. With me here on the call today is our President and CEO, Lee Rudow, and our Chief Financial Officer, Tom Barbato. We will begin the call with some prepared remarks, and then we will open the call for questions. Our earnings release crossed the wire after markets closed this afternoon. Both the earnings release and the slide that we will reference during our prepared remarks can be found on our website, transcat.com, in the Investor Relations section.
Speaker #2: Thank you, Operator, and good afternoon, everyone. We appreciate your time and your interest in Transcat. With me here on the call today are our President and CEO, Lee Rudow, and our Chief Financial Officer, Tom Barbato.
John Howe: With me here on the call today is our President and CEO, Lee Rudow, and our Chief Financial Officer, Tom Barbato. We will begin the call with some prepared remarks, and then we will open the call for questions. Our earnings release crossed the wire after markets closed this afternoon. Both the earnings release and the slide that we will reference during our prepared remarks can be found on our website, transcat.com, in the Investor Relations section. 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 uncertainties, as well as other factors that could cause the actual results to differ materially from where we are today.
We will begin the call with some prepared remarks, and then we will open the call for questions. Our earnings release crossed the wire after markets closed this afternoon.
Speaker #2: Both the earnings release and the slide that we will reference during our prepared remarks can be found on our website, transcat.com, in the Investor Relations section.
John Howe: 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 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 in 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. 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.
Speaker #2: If you would, please refer to Slide 2. As you are aware, we may make forward-looking statements during a formal presentation and Q&A portion of this teleconference.
Speaker #2: These statements, applied to future events, 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.
Speaker #2: These factors are outlined in the news release, as well as in 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.
John Howe: These factors are outlined in the news release as well as in 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. 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. 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. We've provided reconciliations of non-GAAP to comparable GAAP measures in the tables accompanying the earnings release.
Speaker #2: 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.
Speaker #2: Please review our forward-looking statements in conjunction with these precautionary factors. Additionally, during today's call, we will discuss certain non-GAAP measures, which we believe will be useful in evaluating our performance.
John Howe: Please review our forward-looking statements in conjunction with these precautionary factors. 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. We've provided reconciliations of non-GAAP to comparable GAAP measures in the tables accompanying the earnings release. With that, I'll turn the call over to Lee.
Speaker #2: You should not consider the presentation of this additional information in isolation, or as a substitute for results prepared in accordance with GAAP. We've provided reconciliations of non-GAAP to comparable GAAP measures in the tables accompanying the earnings release. With that, I'll turn the call over to Lee.
John Howe: With that, I'll turn the call over to Lee. Okay. Thank you, John. Good morning, everyone. We appreciate you joining us on the call today. Transcat delivered strong performance across our entire business portfolio in Q3. Consolidated revenue was up 26% to $83.9 million, driven by double-digit revenue growth in both our distribution and service segments. Our organic service growth returned to more historic levels, growing 7%. Consolidated gross profit grew 28%, and gross margins expanded 60 basis points. Adjusted EBITDA grew $2.2 million, or 27.2%, in the quarter to $10.1 million. Our strong Q3 financial results were driven by four key factors. One, strong demand for our core calibration services in the highly regulated end markets we serve, including life science, aerospace and defense, and energy. Two, our unique value proposition and differentiated brand. Three, significant growth and positive mixed change in our instrument rental channel.
Lee Rudow: Okay. Thank you, John. Good morning, everyone. We appreciate you joining us on the call today. Transcat delivered strong performance across our entire business portfolio in Q3. Consolidated revenue was up 26% to $83.9 million, driven by double-digit revenue growth in both our distribution and service segments. Our organic service growth returned to more historic levels, growing 7%. Consolidated gross profit grew 28%, and gross margins expanded 60 basis points. Adjusted EBITDA grew $2.2 million, or 27.2%, in the quarter to $10.1 million. Our strong Q3 financial results were driven by four key factors. One, strong demand for our core calibration services in the highly regulated end markets we serve, including life science, aerospace and defense, and energy. Two, our unique value proposition and differentiated brand. Three, significant growth and positive mixed change in our instrument rental channel.
Speaker #3: Okay, thank you, John. Good morning, everyone. We appreciate you joining us on the call today. Transcat delivered strong performance across our entire business portfolio in the third quarter.
Speaker #3: Consolidated revenue was up 26% to $83.9 million, driven by double-digit revenue growth in both our segments. Our organic service growth returned to more historic levels, growing 7%.
Speaker #3: Consolidated gross profit grew 28%, and gross margins expanded 60 basis points. Adjusted EBITDA grew $2.2 million, or 27.2%, in the quarter, to $10.1 million.
Speaker #3: Our strong third-quarter financial results were driven by four key factors. One, strong demand for our core calibration services in the highly regulated end-markets we serve.
Speaker #3: Including life science, aerospace and defense, and energy. Two, our unique value proposition and differentiated brand. Three, significant growth and positive mix change in our instrument rental channel.
Speaker #3: And four, the strong performance by both our recently acquired companies, Martin Calibration and ESCO Calibration. The acquisitions expand Transcat's geographic footprint and technical capabilities.
John Howe: And four, the strong performance by both our recently acquired companies, Martin Calibration, and Essco Calibration. The acquisitions expand Transcat's geographic footprint and technical capabilities. We're working very closely with both companies to accelerate the capture of both sales and cost synergies. I wanted to take a moment and thank our entire Transcat team for their ability to execute well and drive meaningful growth despite what continues to be an uncertain geopolitical and policy environment. They're an impressive group. Turning to our service results in Q3, as I mentioned, organic growth grew 7% and contributed to an overall growth in our service segment of 29%. The quarter marked our 67th straight quarter of year-over-year growth, almost 17 years.
Lee Rudow: And four, the strong performance by both our recently acquired companies, Martin Calibration, and Essco Calibration. The acquisitions expand Transcat's geographic footprint and technical capabilities. We're working very closely with both companies to accelerate the capture of both sales and cost synergies. I wanted to take a moment and thank our entire Transcat team for their ability to execute well and drive meaningful growth despite what continues to be an uncertain geopolitical and policy environment. They're an impressive group. Turning to our service results in Q3, as I mentioned, organic growth grew 7% and contributed to an overall growth in our service segment of 29%. The quarter marked our 67th straight quarter of year-over-year growth, almost 17 years.
Speaker #3: We're working very closely with both companies to accelerate the capture of both sales and cost synergies. I wanted to take a moment and thank our entire Transcat team for their ability to execute well and drive meaningful growth, despite what continues to be an uncertain geopolitical and policy environment.
Speaker #3: Turning to our service results in the third quarter, as I mentioned, organic growth grew 7% and contributed to an overall growth in our service segment of 29%.
Speaker #3: The quarter marked our 67th straight quarter of year-over-year growth—almost 17 years. As we anticipated, and despite a fair amount of continued economic uncertainty, realization of service orders that were delayed in the first two quarters of our fiscal year began to trend positive in the third quarter.
John Howe: As we anticipated, and despite a fair amount of continued economic uncertainty, realization of service orders that were delayed in Q1 and Q2 of our fiscal year began to trend positive in Q3. The trend was most evident in the highly regulated life science space and the aerospace and defense markets. Demand for Transcat services remains high, and we expect the growth momentum established in Q3 to continue through Q4 as we close out our fiscal year. Service margins declined in Q3, but that is not uncommon in periods when we are onboarding elevated levels of new customers. Depending on the size and the complexity of the new business, as we've seen in the past, we would expect productivity and cost to normalize over time.
Lee Rudow: As we anticipated, and despite a fair amount of continued economic uncertainty, realization of service orders that were delayed in Q1 and Q2 of our fiscal year began to trend positive in Q3. The trend was most evident in the highly regulated life science space and the aerospace and defense markets. Demand for Transcat services remains high, and we expect the growth momentum established in Q3 to continue through Q4 as we close out our fiscal year. Service margins declined in Q3, but that is not uncommon in periods when we are onboarding elevated levels of new customers. Depending on the size and the complexity of the new business, as we've seen in the past, we would expect productivity and cost to normalize over time.
Speaker #3: The trend was most evident in the highly regulated life science space and the aerospace and defense markets. Demand for Transcat services remains high, and we expect the growth momentum established in the third quarter to continue through the fourth quarter, as we close out our fiscal year.
Speaker #3: Service margins declined in the third quarter, but that is not uncommon in periods when we are onboarding elevated levels of new customers, depending on the size and the complexity of the new customers.
Speaker #3: Business, as we've seen in the past, we would expect productivity and cost to normalize over time. Overall, the service segment continues to have a substantial runway ahead for growth, both organically and through acquisition.
John Howe: Overall, the service segment continues to have a substantial runway ahead for growth, both organically and through acquisition. Throughout the last 10-plus years, we've demonstrated our ability to identify, acquire, integrate, and synergistically grow accretive acquisitions. This will continue to be an important element of our go-forward growth strategy. Turning to distribution in the third quarter, distribution revenue grew 20% from high demand in both rentals and product sales. Gross margin expanded 330 basis points versus prior year, driven primarily by an increase in the mix of higher margin rental revenue within the distribution segment. With that, I'll turn things over to Tom for a more detailed look at our third-quarter financial results. Thanks, Lee. I'll start on slide 4, the earnings deck, which provides detail regarding our revenue on a consolidated basis and by segment for the third quarter of fiscal 2026.
Lee Rudow: Overall, the service segment continues to have a substantial runway ahead for growth, both organically and through acquisition. Throughout the last 10-plus years, we've demonstrated our ability to identify, acquire, integrate, and synergistically grow accretive acquisitions. This will continue to be an important element of our go-forward growth strategy. Turning to distribution in the third quarter, distribution revenue grew 20% from high demand in both rentals and product sales. Gross margin expanded 330 basis points versus prior year, driven primarily by an increase in the mix of higher margin rental revenue within the distribution segment. With that, I'll turn things over to Tom for a more detailed look at our third-quarter financial results.
Speaker #3: Throughout the last 10-plus years, we've demonstrated our ability to identify, acquire, integrate, and synergistically grow accretive acquisitions. This will continue to be an important element of our go-forward growth strategy.
Speaker #3: Turning to distribution in the third quarter, distribution revenue grew 20% from high demand in both rentals and product sales. Gross margin expanded 330 basis points versus prior year, driven primarily by an increase in the mix of higher-margin rental revenue within the distribution segment.
Speaker #3: With that, I'll turn things over to Tom for a more detailed look at our third-quarter financial results.
Tom Barbato: Thanks, Lee. I'll start on slide 4, the earnings deck, which provides detail regarding our revenue on a consolidated basis and by segment for the third quarter of fiscal 2026. Third-quarter consolidated revenue of $83.9 million was up 26% versus the prior year as both segments grew double digits. Looking at it by segment, service revenue grew 29% with organic revenue growth of 7%, and the balance of the growth resulted from Martin Calibration and Essco Calibration acquisitions.
Speaker #2: Thanks, Lee. I'll start on Slide 4 of the earnings deck, which provides detail regarding our revenue on a consolidated basis. In Q3 2026, consolidated revenue of $83.9 million was up 26% versus the prior year, and both segments grew double digits.
John Howe: Third-quarter consolidated revenue of $83.9 million was up 26% versus the prior year as both segments grew double digits. Looking at it by segment, service revenue grew 29% with organic revenue growth of 7%, and the balance of the growth resulted from Martin Calibration and Essco Calibration acquisitions. Turning to distribution, revenue of $30.2 million grew 20%, driven by strong performance in both traditional product sales and rentals. Turning to slide 5, our consolidated gross profit for the second quarter of $25.3 million was up 28% from the prior year. Service gross profit increased 25% from the prior year. We continue to leverage higher levels of technician productivity in our differentiated value proposition, but service gross margins historically lag as we incur startup costs related to the onboarding of new customers.
Speaker #2: Looking at it by segment, service revenue grew 29%, with organic revenue growth of 7%. The balance of the growth was the result of the Martin Calibration and ESCO Calibration acquisitions.
Tom Barbato: Turning to distribution, revenue of $30.2 million grew 20%, driven by strong performance in both traditional product sales and rentals. Turning to slide 5, our consolidated gross profit for the second quarter of $25.3 million was up 28% from the prior year. Service gross profit increased 25% from the prior year. We continue to leverage higher levels of technician productivity in our differentiated value proposition, but service gross margins historically lag as we incur startup costs related to the onboarding of new customers.
Speaker #2: Revenue of $30.2 million. Turning to Distribution, grew 20%, driven by strong performance in both traditional product sales and rentals. Turning to Slide, second quarter revenue of $25.3 million was up 28% from the prior year.
Speaker #2: Service gross profit increased 25% from the prior year. We continue to leverage higher levels of technician productivity and our differentiated value proposition. But service gross margins historically lag as we incur startup costs related to the onboarding of new customers.
Speaker #2: Distribution segment gross profit of $9.8 million was up 34%, with 330 basis points of gross margin expansion. Margin rental driven by growth in the higher channel.
John Howe: Distribution segment gross profit of $9.8 million was up 34% with 330 basis points of gross margin expansion, driven by growth in the higher margin rental channel. Turning to slide 6, Q3 net loss of $1.1 million decreased versus prior year, driven by higher amortization expense related to both the Martin and Essco Calibration acquisitions, the two largest in Transcat's history, as well as higher levels of interest expense and one-time charges related to the execution of the CEO succession plan. Our search committee is evaluating both internal and external candidates for our next CEO, and the process is nearing completion. In addition, we report adjusted diluted earnings per share to normalize for the impact of upfront and ongoing acquisition-related costs, as well as costs that are not directly tied to ongoing operations. Q3 adjusted diluted earnings per share was $0.26.
Tom Barbato: Distribution segment gross profit of $9.8 million was up 34% with 330 basis points of gross margin expansion, driven by growth in the higher margin rental channel. Turning to slide 6, Q3 net loss of $1.1 million decreased versus prior year, driven by higher amortization expense related to both the Martin and Essco Calibration acquisitions, the two largest in Transcat's history, as well as higher levels of interest expense and one-time charges related to the execution of the CEO succession plan. Our search committee is evaluating both internal and external candidates for our next CEO, and the process is nearing completion. In addition, we report adjusted diluted earnings per share to normalize for the impact of upfront and ongoing acquisition-related costs, as well as costs that are not directly tied to ongoing operations. Q3 adjusted diluted earnings per share was $0.26.
Speaker #2: Q3 net turning to Slide, loss of $1.1 million decreased versus prior year, driven by higher amortization expense related to both the Martin and ESCO Calibration acquisitions.
Speaker #2: The two largest in Transcat's history, as well as higher levels of interest expense and one-time charges related to the execution of the CEO succession plan.
Speaker #2: Our search committee is evaluating both internal and external candidates for our next CEO, and the process is nearing completion. In addition, we report adjusted diluted earnings per share to normalize for the impact of upfront and ongoing acquisition-related costs.
Speaker #2: As well as costs that are not directly tied to ongoing operations. Q3 adjusted diluted earnings per share was $0.26. Flipping to Slide 7, where we show our adjusted EBITDA and adjusted EBITDA, which is non-GAAP, to gauge the performance margin.
John Howe: Flipping to slide 7, 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, this metric becomes even more important to highlight as it does adjust for one-time deal-related transaction costs, as well as increased levels of non-cash expenses that will hit our income statement from acquisition purchase accounting. Q3 consolidated adjusted EBITDA of $10.1 million increased 27% from the same quarter in the prior year with 10 basis points of margin expansion. As always, a reconciliation of adjusted EBITDA to operating income and net income can be found in the supplemental section of this presentation.
Tom Barbato: Flipping to slide 7, 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, this metric becomes even more important to highlight as it does adjust for one-time deal-related transaction costs, as well as increased levels of non-cash expenses that will hit our income statement from acquisition purchase accounting. Q3 consolidated adjusted EBITDA of $10.1 million increased 27% from the same quarter in the prior year with 10 basis points of margin expansion. As always, a reconciliation of adjusted EBITDA to operating income and net income can be found in the supplemental section of this presentation.
Speaker #2: We use adjusted EBITDA for 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, this metric becomes even more important to highlight, as it does adjust for one-time deal-related transaction costs.
Speaker #2: As well as increased levels of non-cash expenses that will hit our income statement from acquisition purchase accounting. Third-quarter consolidated adjusted EBITDA of $10.1 million increased 20%, 27% from the same quarter in the prior year, with 10 basis points of margin expansion.
Speaker #2: As always, a reconciliation of adjusted EBITDA to operating income and net income can be found in the supplemental section of this presentation. Moving to Slide 8, operating cash flow was slightly lower versus prior year, as net cash from operations increased but was offset by higher capital expenditures.
John Howe: Moving to slide 8, operating cash flow was slightly lower versus prior year as net cash from operations increased but was offset by higher capital expenditures. CapEx is in line with expectations and continues to be centered around service segment capabilities, rental pool assets, technology, and future growth projects. Slide 9 highlights our strong balance sheet. At quarter end, we had total debt of $99.9 million, $50.1 million available for borrowing under the secured revolving credit facility, and a leverage ratio of 2x. The growth in adjusted EBITDA and associated margin enabled Transcat to continue a sequential reduction in our leverage ratio. We believe we are well positioned to grow both organically and through acquisition. Lastly, our 10-Q was filed today after the market closed. With that, I'll turn it back to you, Lee. Okay. Thank you, Tom.
Tom Barbato: Moving to slide 8, operating cash flow was slightly lower versus prior year as net cash from operations increased but was offset by higher capital expenditures. CapEx is in line with expectations and continues to be centered around service segment capabilities, rental pool assets, technology, and future growth projects. Slide 9 highlights our strong balance sheet. At quarter end, we had total debt of $99.9 million, $50.1 million available for borrowing under the secured revolving credit facility, and a leverage ratio of 2x. The growth in adjusted EBITDA and associated margin enabled Transcat to continue a sequential reduction in our leverage ratio. We believe we are well positioned to grow both organically and through acquisition. Lastly, our 10-Q was filed today after the market closed. With that, I'll turn it back to you, Lee. Okay. Thank you, Tom.
Speaker #2: CapEx is in line with expectations and continues to be centered around service segment capabilities, rental pool assets, technology, and future growth projects. Slide 9 highlights our strong balance sheet.
Speaker #2: At quarter end, we had total debt of $99.9 million, $50.1 million available for borrowing under the secured revolving credit facility, and a leverage ratio of 2x.
Speaker #2: The growth in adjusted EBITDA and associated margin enabled Transcat to continue a sequential reduction in our leverage ratio. We believe we are well positioned to grow both organically and through acquisition.
Speaker #2: Lastly, our 10-Q was filed today after the market closed. With that, I'll turn it back to
Speaker #2: you, Lee. Okay.
Speaker #1: Thank you, Tom. In the third quarter, we returned to more historic organic service growth levels by achieving 7% growth, and we are off to a good start in the fourth quarter as we continue to experience an increased level of customer activity, strong retention, and realization of new business.
John Howe: In Q3, we returned to more historic organic service growth levels by achieving 7% growth, and we are off to a good start in Q4 as we continue to experience an increased level of customer activity, strong retention, and realization of new business. For these reasons, we reaffirm our Q4 organic service revenue growth expectations to be in the high single-digit range. As fiscal 2026 comes to a close, we anticipate our results for the year will once again be a testament to our resilience and our differentiated business model that is anchored by recurring revenue streams driven by both regulation and the high cost of failure. We maintain a strong and stable balance sheet that supports our demonstrated growth strategy, our ability to acquire and integrate companies that increase our geographic footprint and capabilities, or just bolt on to existing infrastructure.
Lee Rudow: In Q3, we returned to more historic organic service growth levels by achieving 7% growth, and we are off to a good start in Q4 as we continue to experience an increased level of customer activity, strong retention, and realization of new business. For these reasons, we reaffirm our Q4 organic service revenue growth expectations to be in the high single-digit range. As fiscal 2026 comes to a close, we anticipate our results for the year will once again be a testament to our resilience and our differentiated business model that is anchored by recurring revenue streams driven by both regulation and the high cost of failure. We maintain a strong and stable balance sheet that supports our demonstrated growth strategy, our ability to acquire and integrate companies that increase our geographic footprint and capabilities, or just bolt on to existing infrastructure.
Speaker #1: For these reasons, we reaffirm our fourth quarter organic service revenue growth expectations to be in the high single-digit range. As fiscal 2026 comes to a close, we anticipate our results for the year will once again be a testament to our resilience.
Speaker #1: And our differentiated business model is anchored by recurring revenue streams, driven by both regulation and the high cost of failure. We maintain a strong and stable balance sheet that supports our demonstrated growth strategy, our ability to acquire and integrate companies that increase our geographic footprint and capabilities, or just bolt on to existing infrastructure.
Speaker #1: This drives both consistent value and synergistic growth opportunities. We have a strong acquisition pipeline that will enable opportunities to expand our addressable markets and increase market share.
John Howe: This drives both consistent value and synergistic growth opportunities. We have a strong acquisition pipeline that will enable opportunities to expand our addressable markets and increase market share. Over the past couple of years, we've invested in leadership, technology, and overall process improvement. We are well positioned for the age of AI as our data sets are much improved and already contributing to incremental business insights that make Transcat a very difficult company to compete with. We believe our investments are and will continue to drive differentiation for Transcat and foster our ability to continue to generate sustainable long-term value for our shareholders. With that, operator, we can open the line for questions. Certainly. Thank you, sir. Ladies and gentlemen, at this time, if you do have any questions, please press star one at this time.
Lee Rudow: This drives both consistent value and synergistic growth opportunities. We have a strong acquisition pipeline that will enable opportunities to expand our addressable markets and increase market share. Over the past couple of years, we've invested in leadership, technology, and overall process improvement. We are well positioned for the age of AI as our data sets are much improved and already contributing to incremental business insights that make Transcat a very difficult company to compete with. We believe our investments are and will continue to drive differentiation for Transcat and foster our ability to continue to generate sustainable long-term value for our shareholders. With that, operator, we can open the line for questions.
Speaker #1: Over the past couple of years, we've invested in leadership, technology, and overall process improvement. We are well positioned for the age of AI, as our datasets are much improved and already contributing to incremental business insights.
Speaker #1: That makes Transcat a very difficult company to compete with. We believe our investments are and will continue to drive differentiation for Transcat and foster our ability to generate sustainable, long-term value for our shareholders.
Speaker #1: With that, operator, we can open the line for questions.
Speaker #1: questions. Certainly.
Operator: Certainly. Thank you, sir. Ladies and gentlemen, at this time, if you do have any questions, please press star one at this time. If you find your question has been addressed, you may remove yourself from the queue by pressing star two. Once again, that's star one for questions. We go first this afternoon to Greg Palm of Craig-Hallum. Greg, please go ahead. Your line is open.
Speaker #2: Thank you, sir. Ladies and gentlemen, at this time, if you do have any questions, please press star one at this time. If you find your question has been addressed, you may remove yourself from the queue by pressing star two.
John Howe: If you find your question has been addressed, you may remove yourself from the queue by pressing star two. Once again, that's star one for questions. We go first this afternoon to Greg Palm of Craig-Hallum. Greg, please go ahead. Your line is open. Yeah. Thanks. Congrats on getting back to that high single-digit revenue growth in the quarter for service segment. Maybe starting there, it'd be nice if you could just maybe sort of break out the buckets the various drivers that enabled you to return to that growth. Sounded like it was just sort of a ramp-up of everything you've been talking about, but I'm not sure if there was anything specific you wanted to highlight. No, Greg. I mean, I think as we talked about in the past, some of these decisions had been delayed.
Speaker #2: Once again, that's star one for questions. We'll go first this afternoon to Greg Palm of Craig Hallum. Greg, please go ahead. Your line is open.
Speaker #2: open. Yeah.
Greg Palm: Yeah. Thanks. Congrats on getting back to that high single-digit revenue growth in the quarter for service segment. Maybe starting there, it'd be nice if you could just maybe sort of break out the buckets the various drivers that enabled you to return to that growth. Sounded like it was just sort of a ramp-up of everything you've been talking about, but I'm not sure if there was anything specific you wanted to highlight.
Speaker #3: Thanks. Congrats on getting back to that high single-digit revenue growth in the quarter for the service segment. Maybe starting there, it'd be nice if you could just maybe sort of bucket out the various drivers that enabled you to return to that growth.
Speaker #3: It sounded like it was just sort of a ramp-up of everything you've been talking about, but I'm not sure if there was anything specific you wanted to highlight.
Speaker #4: No, Greg. I mean, I think as we talked about in the past, some of these decisions had been delayed. We had, kind of coming into the quarter, we had some in-kind paper in some cases, and we knew that those would ramp throughout the quarter.
Tom Barbato: No, Greg. I mean, I think as we talked about in the past, some of these decisions had been delayed. We had kind of coming into the quarter, we had some income paper in some cases, and we knew that those would ramp throughout the quarter. There were other deals we anticipated would come to fruition, and they did. So we feel good about the performance. I think we did what we said we were going to do, and we expect, as Lee mentioned in his prepared remarks, that'll continue into Q4.
John Howe: We had kind of coming into the quarter, we had some income paper in some cases, and we knew that those would ramp throughout the quarter. There were other deals we anticipated would come to fruition, and they did. So we feel good about the performance. I think we did what we said we were going to do, and we expect, as Lee mentioned in his prepared remarks, that'll continue into Q4. Okay. And these startup costs, which I know you've incurred in the past, so that's nothing new, but are you able to quantify how big of a headwind that was? I don't know if it was related to CBL specifically or something different.
Speaker #4: There were other deals we anticipated would come to fruition, and they did. So we feel good about the performance. I think we did what we said we were going to do, and we expect, as Lee mentioned in his prepared remarks, that it'll continue into—
Speaker #4: Q4. Okay.
Greg Palm: Okay. And these startup costs, which I know you've incurred in the past, so that's nothing new, but are you able to quantify how big of a headwind that was? I don't know if it was related to CBL specifically or something different. Just from a timeline or what we should expect in the near term, when does all that stuff start to normalize, or I guess when does the new business wins fall off and those just become normalized going forward?
Speaker #3: And these startup costs, which I know you've incurred in the past, so that's nothing new, but are you able to—I don't know if it was related to CBL specifically or something different.
Speaker #3: And just from a timeline, or what we should expect in the near term, when does all that stuff start to normalize—or, I guess, when do the new business wins fall off and just become normalized going forward?
John Howe: Just from a timeline or what we should expect in the near term, when does all that stuff start to normalize, or I guess when does the new business wins fall off and those just become normalized going forward? Yeah. I mean, we're not talking huge dollars. I would just say you could do some simple math and look at the difference between where we were and if we were flat or slightly accretive from a margin standpoint, right? It's not huge numbers, but it's just the reality of onboarding new customers. For us, the most important thing is to make sure that as we start these new partnerships, that we get off to a good start. We're doing things right. We're treating the customers right, and we're doing everything we can to start a good relationship.
Speaker #3: forward? Yeah.
Tom Barbato: Yeah. I mean, we're not talking huge dollars. I would just say you could do some simple math and look at the difference between where we were and if we were flat or slightly accretive from a margin standpoint, right? It's not huge numbers, but it's just the reality of onboarding new customers. For us, the most important thing is to make sure that as we start these new partnerships, that we get off to a good start. We're doing things right. We're treating the customers right, and we're doing everything we can to start a good relationship.
Speaker #4: I mean, we're not talking huge dollars. I would just say you could do some simple math and look at the difference between where we were and if we were flat or slightly accretive from a margin standpoint, right?
Speaker #4: It's not huge numbers, but it's just the reality of onboarding new customers, and for us, the most important thing is to make sure that as we start these new partnerships, we get off to a good start.
Speaker #4: We're doing things right. We're treating the customers right, and we're doing everything we can to start a good relationship. And there's an often case where there's a reason why these customers are moving to Transcat, right?
John Howe: In many cases, there's a reason why these customers are moving to Transcat, right? They want things done right. They want things done with a higher level of quality, and that's our focus, and making sure we get off to the right start. Greg, I would add to that, the way we view some of these large customers and really all of our customers, some of them have a real high lifetime value. So making sure they get off to the right start is a priority for us. Sometimes there's some costs associated with that that just go away over a couple of quarters. You mentioned CBLs. We saw that in the past, right? So this is not dissimilar. Okay. Lastly, distribution was another, obviously, really strong quarter of revenue growth.
Tom Barbato: In many cases, there's a reason why these customers are moving to Transcat, right? They want things done right. They want things done with a higher level of quality, and that's our focus, and making sure we get off to the right start.
Speaker #4: They want things done right. They want things done with a higher level of quality, and that's our focus. And making sure we get off to the right
Speaker #4: start. And Greg, I
Lee Rudow: Greg, I would add to that, the way we view some of these large customers and really all of our customers, some of them have a real high lifetime value. So making sure they get off to the right start is a priority for us. Sometimes there's some costs associated with that that just go away over a couple of quarters. You mentioned CBLs. We saw that in the past, right? So this is not dissimilar.
Speaker #1: I would add to that. The way we view some of these large customers—and really all of our customers—is that some of them have a really high lifetime value.
Speaker #1: And so making sure they get off to the right start is a priority for us. And sometimes there's some costs associated with that that just go away over a couple of quarters.
Speaker #1: And you mentioned CBLs. We saw that in the past, right? So this is not—
Speaker #1: dissimilar. Okay.
Greg Palm: Okay. Lastly, distribution was another, obviously, really strong quarter of revenue growth. Can you maybe talk to us a little bit about what you're doing there in the AI, the data center/power gen markets? And then just broadly speaking, is there a longer-term opportunity on the calibration services segment, again, longer term?
Speaker #3: And then, lastly, Distribution was another obviously really strong quarter of revenue growth. Can you maybe talk to us a little bit about what you’re doing there in the AI, the data center/power gen markets, and then just broadly speaking, is there a longer-term Services segment?
Speaker #3: And then lastly, distribution was another, obviously, really strong quarter of revenue growth. Can you maybe talk to us a little bit about what you're doing there in the AI, the data center/power gen markets, and then just broadly speaking, is there a longer-term opportunity on the calibration again?
John Howe: Can you maybe talk to us a little bit about what you're doing there in the AI, the data center/power gen markets? And then just broadly speaking, is there a longer-term opportunity on the calibration services segment, again, longer term? Yeah. I mean, I think what are we doing? I mean, I think we're executing very well on the distribution side, both on the traditional equipment sale side as well as rentals. And as we've talked about also, we made a conscious effort 18 or 24 months ago to really invest fairly heavily in rentals for products used in, I'll just say, the power generation, power conditioning, power management space, which aligns very well not only with data centers but EV charging needs and that sort of thing. And it's really serving us well. I think from a product sales standpoint, we're positioned well to support those same end markets.
Speaker #3: longer-term? Yeah.
Lee Rudow: Yeah. I mean, I think what are we doing? I mean, I think we're executing very well on the distribution side, both on the traditional equipment sale side as well as rentals. And as we've talked about also, we made a conscious effort 18 or 24 months ago to really invest fairly heavily in rentals for products used in, I'll just say, the power generation, power conditioning, power management space, which aligns very well not only with data centers but EV charging needs and that sort of thing. And it's really serving us well. I think from a product sales standpoint, we're positioned well to support those same end markets.
Speaker #4: I mean, I think what are we doing? I mean, I think we're executing very well on the distribution side, both on the traditional equipment sales, side as well as rentals.
Speaker #4: And, as we've talked about, we also made a conscious effort 18 or 24 months ago to really invest fairly heavily in rentals. For products used in—I'll just say—the power generation, power conditioning, power management space, which aligns very well not only with data centers, but EV charging needs and that sort of thing.
Speaker #4: And it's really serving us well. I think from a product sales standpoint, we're positioned well to support those same end markets. And there absolutely are recurring calibration opportunities that are and will continue to come along with those end markets.
John Howe: And there absolutely are recurring calibration opportunities that are and will continue to come along with those end markets. So I think it's an area we're excited for. I mean, it's a I mean, you read about it every day in the news, right? So I think the fact that we've got alignment and we're kind of going aggressively after the business is an opportunity for us. Okay. All right. Appreciate the color. Thanks. Thank you, Greg. Take care. Thank you. We go next now to Max Michaelis at Lake Street Capital Markets. Max, please go ahead. Your line is open. Hey, guys. Thanks for taking my question. I want to go back to the service growth. Congratulations on returning to high single-digit growth at 7%. We look at Q4 2026.
Lee Rudow: And there absolutely are recurring calibration opportunities that are and will continue to come along with those end markets. So I think it's an area we're excited for. I mean, it's a I mean, you read about it every day in the news, right? So I think the fact that we've got alignment and we're kind of going aggressively after the business is an opportunity for us.
Speaker #4: So I think it's an area where we're excited for. I mean, it's a—I mean, you read about it every day in the news, right?
Speaker #4: So I think the fact that we've got alignment and we're kind of going aggressively after that business is an opportunity for us.
Greg Palm: Okay. All right. Appreciate the color. Thanks.
Speaker #3: Okay. All right. Appreciate the color. Thanks.
Lee Rudow: Thank you, Greg.
Speaker #4: Thank
Speaker #1: Take
Speaker #1: care.
Tom Barbato: Take care.
Operator: Thank you. We go next now to Max Michaelis at Lake Street Capital Markets. Max, please go ahead. Your line is open.
Speaker #2: Thank you. We’ll go next to you, Greg. To Max Michaelis at Lake Street Capital Markets, Max, please go ahead. Your line is open.
Max Michaelis: Hey, guys. Thanks for taking my question. I want to go back to the service growth. Congratulations on returning to high single-digit growth at 7%. We look at Q4 2026. Do you expect to see an acceleration, things to get better from the 7%, or should we expect to kind of be in the same sort of range? And then when we think about beyond next quarter, how are the conversations been with customers around new business, I guess, going out into fiscal year 2027?
Speaker #5: Hey, guys. Thanks for taking my question. I want to go back to the service growth. Congratulations on returning to high single-digit growth at 7%.
Speaker #5: We've looked at Q4 2026. Do you expect to see an acceleration—things to get better from the 7%—or should we expect to kind of be in the same sort of range?
John Howe: Do you expect to see an acceleration, things to get better from the 7%, or should we expect to kind of be in the same sort of range? And then when we think about beyond next quarter, how are the conversations been with customers around new business, I guess, going out into fiscal year 2027? Yeah. Max, it's Tom. So I would just say that we're committed to the high single-digit guidance that we've provided for Q4. I think when you look at Q4 and you look at last year was a really strong Q4 for us as well, right? So we're kind of building off a big number, right? And we're comfortable in that high single-digit range. When we look beyond Q4, we're not giving any specific guidance at this point, but we'll just say that our new business pipeline continues to be strong.
Speaker #5: And then, when we think about beyond next quarter, how have the conversations been with customers around new business, I guess, going out into fiscal year '27?
Tom Barbato: Yeah. Max, it's Tom. So I would just say that we're committed to the high single-digit guidance that we've provided for Q4. I think when you look at Q4 and you look at last year was a really strong Q4 for us as well, right? So we're kind of building off a big number, right? And we're comfortable in that high single-digit range. When we look beyond Q4, we're not giving any specific guidance at this point, but we'll just say that our new business pipeline continues to be strong.
Speaker #4: Yeah, Max, it's Tom. So I would just say that we're committed to the high single-digit guidance that we've provided for Q4. I think when you look at Q4, and you look at last year, it was a really strong Q4 for us as well, right?
Speaker #4: So we're kind of building off a big number, right? And we're comfortable in that high single-digit range. When we look beyond Q4, we're not giving any specific guidance at this point, but we'll just say that our pipeline, our new business pipeline, continues to be strong.
Speaker #4: And we like where we're positioned. And we think we've got the pipeline to support continued growth going
John Howe: And we like where we're positioned, and we think we've got the pipeline to support continued growth going forward. Okay. That makes sense. And then I guess maybe around M&A, what are you seeing in the space? And maybe could we expect to see sort of I guess remind us where sort of the geographic locations you guys are looking to get into, and kind of maybe where you're at and sort of the progress there? Yeah. So the gaps that we always talk about, right? At this point, there's four. This time last year, 18 months ago, they would have been six, right? And we filled some of those holes. But Northern California is an area we want to be. Dallas, we'd love to be in the Atlanta area. And then the Mid-Atlantic, that kind of Baltimore area is a void for us.
Tom Barbato: And we like where we're positioned, and we think we've got the pipeline to support continued growth going forward.
Speaker #4: forward. Okay.
Max Michaelis: Okay. That makes sense. And then I guess maybe around M&A, what are you seeing in the space? And maybe could we expect to see sort of I guess remind us where sort of the geographic locations you guys are looking to get into, and kind of maybe where you're at and sort of the progress there?
Speaker #3: That makes sense. And then I guess maybe around M&A, what are you seeing in the space? And maybe could we expect to see—sort of, I guess, remind us where the geographic locations you guys are looking to get into, and kind of maybe where you're at in sort of the—
Speaker #3: progress there? Yeah.
Tom Barbato: Yeah. So the gaps that we always talk about, right? At this point, there's four. This time last year, 18 months ago, they would have been six, right? And we filled some of those holes. But Northern California is an area we want to be. Dallas, we'd love to be in the Atlanta area. And then the Mid-Atlantic, that kind of Baltimore area is a void for us.
Speaker #4: So the gaps that we always talk about, right, at this point, there’s four. This time last year—18 months ago—they would have been six, right?
Speaker #4: But we filled some of those holes. But Northern California is an area we want to be. Dallas, we'd love to be in. The Atlanta area.
Speaker #4: And then the Mid-Atlantic, kind of Baltimore area is a void for us. We're able to service it from other locations, but there's enough business there that we'd like to physically be there.
John Howe: We're able to service it from other locations, but there's enough business there that we'd like to physically be there. And then there's other opportunities to follow our customers, right? And we're always looking at that. And whether it's potentially, we've recently expanded our presence in Ireland, right? And that's going very well for us. There could be other potential opportunities in Europe. There could be other potential opportunities, as an example, in North America or Central America to just make sure that we're properly servicing and we have the locations to service our existing customer base properly, so. Okay. And then just the last one for me is around gross margin. I know you mentioned in the last question about startup costs isn't something you've dealt with in the past.
John Howe: We're able to service it from other locations, but there's enough business there that we'd like to physically be there. And then there's other opportunities to follow our customers, right? And we're always looking at that. And whether it's potentially, we've recently expanded our presence in Ireland, right? And that's going very well for us. There could be other potential opportunities in Europe. There could be other potential opportunities, as an example, in North America or Central America to just make sure that we're properly servicing and we have the locations to service our existing customer base properly, so.
Speaker #4: And then there's when we talk about other—there's other opportunities to follow our customers, right? And we're always looking at that, and whether it's potentially—we've recently expanded our presence in Ireland, right?
Speaker #4: And that's going very well for us. There could be other potential opportunities in Europe. There could be other potential opportunities, as an example, in North America or Central America, to just make sure that we're properly servicing, and we have the locations to service our existing customer base properly, so.
Speaker #3: Okay, and then just the last one for me is around gross margin. I know you mentioned in the last question about startup costs not being something you've dealt with in the past, but if we look at next quarter—and I know you're taking on a lot of new business—are some of the costs that you incurred this quarter, in preparation for the new business in the next quarter, going to result in us seeing similar gross margins, probably from the service segment, next quarter?
Max Michaelis: Okay. And then just the last one for me is around gross margin. I know you mentioned in the last question about startup costs isn't something you've dealt with in the past. But if we look at next quarter, and I know you're taking on a lot of new business, is some of the costs you've incurred this quarter in sort of preparation for the new business in the next quarter, and we're going to see similar gross margins probably from the service segment next quarter?
John Howe: But if we look at next quarter, and I know you're taking on a lot of new business, is some of the costs you've incurred this quarter in sort of preparation for the new business in the next quarter, and we're going to see similar gross margins probably from the service segment next quarter? Yeah. I mean, I'll just say that our gross margins in Q4 are always the highest margins of the year, right? So as an example, last year in Q4, we were at 36.2% margins. But I would say that we incurred startup costs this quarter related to the revenue increase. I think there'll be new customers that onboard next quarter. But as we kind of said in our preparatory remarks, right? I mean, that'll normalize. We're not talking years out, right? We're talking normalizing over the next few quarters and seeing margin expansion. All right, guys.
Tom Barbato: Yeah. I mean, I'll just say that our gross margins in Q4 are always the highest margins of the year, right? So as an example, last year in Q4, we were at 36.2% margins. But I would say that we incurred startup costs this quarter related to the revenue increase. I think there'll be new customers that onboard next quarter. But as we kind of said in our preparatory remarks, right? I mean, that'll normalize. We're not talking years out, right? We're talking normalizing over the next few quarters and seeing margin expansion.
Speaker #4: Yeah, I mean, I'll just say that our gross margins in Q4 are always the highest margins of the year, right? So, as an example, last year in Q4, we were at 36.2% margins.
Speaker #4: But I would say that we incurred startup costs this quarter related to the revenue increase. I think there'll be new customers that onboard next quarter, but as we kind of said in our prepared remarks, right?
Speaker #4: I mean, that'll normalize. We're not talking years out, right? We're talking normalizing over the next few quarters and seeing margin.
Speaker #4: expansion. All right, guys.
Max Michaelis: All right, guys. Thanks for taking my question, Greg Palm.
Speaker #3: Thanks for taking my question. Great quarter.
John Howe: Thanks for taking my question, Greg Palm. Yep, Max. Thanks, Max. Thank you. Just a quick reminder, ladies and gentlemen, star one, please, for questions today. We go next now to Ted Jackson of Northland. Ted, please go ahead. Thanks very much. And I reiterate, congratulations on the quarter. You too. Thanks, Ted. I got two or three questions for you. I want to talk a little bit first about kind of the longer term. And if you think about going out a couple of years, there's a lot of shifts with regards to administration-driven spending.
Tom Barbato: Yep, Max. Thanks, Max.
Speaker #4: Yeah, thanks, Max.
Operator: Thank you. Just a quick reminder, ladies and gentlemen, star one, please, for questions today. We go next now to Ted Jackson of Northland. Ted, please go ahead.
Speaker #2: Thank you. Just a quick reminder, ladies and gentlemen, star one, please, for questions today. We go next now to Ted Jackson of Northland. Ted, please go ahead.
Ted Jackson: Thanks very much. And I reiterate, congratulations on the quarter. You too. Thanks, Ted. I got two or three questions for you. I want to talk a little bit first about kind of the longer term. And if you think about going out a couple of years, there's a lot of shifts with regards to administration-driven spending.
Speaker #6: Thanks very much. And I reiterate, congratulations on the quarter.
Speaker #4: Thanks, Ted.
Speaker #6: I’ve got two or three questions for you. First, I want to talk a little bit about the longer term, and if you think about going out a couple of years.
Speaker #6: There's a lot of shifts with regards to administrative-driven spending. So, if you think about life sciences, which is kind of your bread and butter, your core vertical, your favorite place to play, and you look at a lot of efforts to drive pharmaceutical manufacturing in the United States, you've seen Lilly is going to spend $30 billion to put manufacturing in Alabama, Pennsylvania, Texas, Virginia; AstraZeneca pledged $50 billion.
John Howe: So if you think about life sciences, which is kind of your bread and butter, your core vertical, your favorite place to play, and you look at a lot of efforts to drive pharmaceutical manufacturing in the United States, you've seen Lilly is going to spend $30 billion to put manufacturing in Alabama, Pennsylvania, Texas, Virginia, AstraZeneca pledge $50 billion, Amgen's talking about opening up new facilities in the Midwest and the Atlantic Seaboard. When I think and when I hear all this kind of stuff, it seems to me that this is a really substantial amount of wind in your sales as you look out, say, 5 years and beyond. So, I mean, how would an investor over the long term think about this stuff? How do you guys think about it and kind of handicap it?
Ted Jackson: So if you think about life sciences, which is kind of your bread and butter, your core vertical, your favorite place to play, and you look at a lot of efforts to drive pharmaceutical manufacturing in the United States, you've seen Lilly is going to spend $30 billion to put manufacturing in Alabama, Pennsylvania, Texas, Virginia, AstraZeneca pledge $50 billion, Amgen's talking about opening up new facilities in the Midwest and the Atlantic Seaboard. When I think and when I hear all this kind of stuff, it seems to me that this is a really substantial amount of wind in your sales as you look out, say, 5 years and beyond. So, I mean, how would an investor over the long term think about this stuff? How do you guys think about it and kind of handicap it?
Speaker #6: Amgen's talking about opening up new facilities in the Midwest and the Atlantic Seaboard. When I hear all this kind of stuff, it seems to me that this is a really substantial amount of wind in your sails as you look out, say, five years and beyond.
Speaker #6: And so, I mean, how would an investor over the long term think about this stuff? How do you guys think about it, and kind of handicap it?
Speaker #6: And then maybe in kind of perspective—and I know every manufacturing plant is different—but when you get into a new plant, say, like in the Wall Street Journal last week, one of the Lilly plants was decided in terms of where it was going to be in Pennsylvania.
John Howe: Then maybe in kind of perspective, and I know every manufacturing plant's different, but when you get into a new plant, say, in the Wall Street Journal last week, one of the Lilly plants was decided in terms of where it was going to be in Pennsylvania. Something like that. When it's built, what's the revenue opportunity for a company like Transcat when it happens? That's my first question. And actually, since I'm at it, there's a similar; my second question really is the same thing, but just on defense. It's a little less specific. But I mean, if you look at the defense spending, I mean, they're talking about $1.5 trillion of spending next year. And if you look at some of the major contractors like a Lockheed, an RTX, a Northrop, I mean, they're talking about 30% increases in their CapEx.
Ted Jackson: Then maybe in kind of perspective, and I know every manufacturing plant's different, but when you get into a new plant, say, in the Wall Street Journal last week, one of the Lilly plants was decided in terms of where it was going to be in Pennsylvania. Something like that. When it's built, what's the revenue opportunity for a company like Transcat when it happens? That's my first question. And actually, since I'm at it, there's a similar; my second question really is the same thing, but just on defense. It's a little less specific. But I mean, if you look at the defense spending, I mean, they're talking about $1.5 trillion of spending next year. And if you look at some of the major contractors like a Lockheed, an RTX, a Northrop, I mean, they're talking about 30% increases in their CapEx.
Speaker #6: Something like that, when it’s built, what’s the revenue opportunity for a company like Transcat when it happens? That’s my first question. And actually, since I’m asking, my second question is really the same thing, but just on defense.
Speaker #6: It's a little less specific, but I mean, if you look at the defense spending, I mean, they're talking about $1.5 trillion of spending next year.
Speaker #6: And if you look at some of the major contractors like Lockheed and RTX and Northrop, I mean, they're talking about like 30% increases in their CapEx.
Speaker #6: So maybe a similar discussion with regards to aerospace and defense. That's my first question. Thanks.
John Howe: So maybe a similar discussion with regards to aerospace and defense. That's my first question. Thanks. Okay. Ted, this is Lee. So I'll take a shot at this, and certainly, Tom can fill in. But you're spot on. It's pretty simple for us. Any onshoring of manufacturing in the regulated business spaces is always going to be good for Transcat. So AstraZeneca, of course, they're on our radar. You mentioned Lilly. They're on our radar. This is good for us. And to the degree that it comes true, comes to fruition, and then over the next couple of years, we'll be ready, and we'll be working to gain that business, right? No question.
Ted Jackson: So maybe a similar discussion with regards to aerospace and defense. That's my first question. Thanks.
Speaker #4: Okay, Ted, this is Lee. So I'll take a shot at this, and certainly Tom can fill in. But you're spot on. It's pretty simple for us.
Lee Rudow: Okay. Ted, this is Lee. So I'll take a shot at this, and certainly, Tom can fill in. But you're spot on. It's pretty simple for us. Any onshoring of manufacturing in the regulated business spaces is always going to be good for Transcat. So AstraZeneca, of course, they're on our radar. You mentioned Lilly. They're on our radar. This is good for us. And to the degree that it comes true, comes to fruition, and then over the next couple of years, we'll be ready, and we'll be working to gain that business, right? No question.
Speaker #4: Any onshoring of manufacturing and the regulated business spaces is always going to be good for Transcat. So, AstraZeneca, of course, they're on our radar.
Speaker #4: You mentioned Lilly, they're on our radar. This is good for us. And to a degree, it comes true, comes to fruition. And then over the next couple of years, we'll be ready and we'll be working to gain that business, right?
Speaker #4: No question. And when you look at the life cycle of a project, a capital project, it kind of starts from the building of the actual physical plant all the way through to buying equipment, commissioning equipment, validating equipment, ultimately calibrating equipment for an upstart, and then calibrating equipment as time goes by on a regular basis.
John Howe: And when you look at the life cycle of a project, a capital project, it kind of starts from the building of the actual physical plant all the way through to buying equipment, commissioning equipment, validating equipment, ultimately calibrating equipment for an upstart, and then calibrating equipment as time goes by on a regular basis. There's probably a half a dozen phases. Transcat is capable of participating in most of those. Obviously, calibration is our bread and butter. We do commissioning and validation as well. And it's always on our radar to look for those opportunities. So we'll call them capital projects. So yes, we can participate. I think over time, as we expand our addressable markets, we'll be able to participate even more. But it's right down our wheelhouse for most of that work. And it is on our radar. It is on our radar, and onshoring is good.
Lee Rudow: And when you look at the life cycle of a project, a capital project, it kind of starts from the building of the actual physical plant all the way through to buying equipment, commissioning equipment, validating equipment, ultimately calibrating equipment for an upstart, and then calibrating equipment as time goes by on a regular basis. There's probably a half a dozen phases. Transcat is capable of participating in most of those. Obviously, calibration is our bread and butter. We do commissioning and validation as well. And it's always on our radar to look for those opportunities. So we'll call them capital projects. So yes, we can participate. I think over time, as we expand our addressable markets, we'll be able to participate even more. But it's right down our wheelhouse for most of that work. And it is on our radar. It is on our radar, and onshoring is good.
Speaker #4: There are probably half a dozen phases. Transcat is capable of participating in most of those. Obviously, calibration is our bread and butter. We do commissioning and validation as well.
Speaker #4: And it's always on our radar to look for those opportunities. So we'll call them capital projects. So, yes, we can participate. I think over time, as we expand our addressable markets, we'll be able to participate even more.
Speaker #4: But it's right down our wheelhouse for most of that work. And it is on our radar. It is on our radar, and onshoring is good.
Speaker #4: As far as defense, same basic story there, right? Like Lockheed, they have their own in-house—a lot of the defense contractors have calibration labs. And so, in that case, we’ll do their overflow work.
John Howe: As far as defense goes, same basic story there, right? A lot of the defense contractors like Lockheed have their own in-house calibration labs. And so in that case, we'll do their overflow work. We can do their standards. And occasionally, we actually do the work at any particular plant. But the more defense contracting work there is, the bigger the government gets from that perspective. That's a highly regulated space, which means it's a good space for Transcat. Yeah. And I think you specifically referenced their CapEx budgets and the increases in CapEx budgets. The more equipment that's out there, that's good for Transcat, right? And the ultimate kind of brass ring for us is that recurring revenue, right?
Lee Rudow: As far as defense goes, same basic story there, right? A lot of the defense contractors like Lockheed have their own in-house calibration labs. And so in that case, we'll do their overflow work. We can do their standards. And occasionally, we actually do the work at any particular plant. But the more defense contracting work there is, the bigger the government gets from that perspective. That's a highly regulated space, which means it's a good space for Transcat.
Speaker #4: We can do their standards. And occasionally, we actually do the work in any particular plant. But the more defense contracting work there is, the bigger the government gets from that perspective.
Speaker #4: Highly regulated space, which means that's a good space for Transcat. Yeah. And I think you specifically referenced their CapEx budgets and the increases in CapEx budgets.
Tom Barbato: Yeah. And I think you specifically referenced their CapEx budgets and the increases in CapEx budgets. The more equipment that's out there, that's good for Transcat, right? And the ultimate kind of brass ring for us is that recurring revenue, right?
Speaker #4: The more equipment that's out there, that's good for Transcat, right? And the ultimate kind of brass ring for us is that recurring revenue, right?
Speaker #4: So, we've got a broad offering—the broadest in the industry, right—that allows us to participate in all of those aspects of a new plant being built.
John Howe: So we've got a broad offering, the broadest in the industry, right, that allows us to participate in all of those aspects of a new plant being built. But the brass ring for us is clearly the recurring revenue streams. And that's the calibration work that takes place there. But the bread and butter business that you guys operated, I mean, you talk about it every quarter, 60+ quarters of growth. I mean, you have been able to grow your business organically. For conversation's sake, we'll just call it 7%, for years, which just says your business grows at 7%. When you see this kind of stuff happening, does it make you recalibrate what you think you could grow organically if it comes to pass?
Tom Barbato: So we've got a broad offering, the broadest in the industry, right, that allows us to participate in all of those aspects of a new plant being built. But the brass ring for us is clearly the recurring revenue streams. And that's the calibration work that takes place there.
Speaker #4: But the brass ring for us is clearly the recurring revenue streams. And that's the calibration work that takes place.
Speaker #4: there. But
Ted Jackson: But the bread and butter business that you guys operated, I mean, you talk about it every quarter, 60+ quarters of growth. I mean, you have been able to grow your business organically. For conversation's sake, we'll just call it 7%, for years, which just says your business grows at 7%. When you see this kind of stuff happening, does it make you recalibrate what you think you could grow organically if it comes to pass?
Speaker #6: Like the bread-and-butter business that you guys operated—I mean, you talk about it every quarter—60-plus quarters of growth. I mean, you have been able to grow your business organically, for conversation's sake.
Speaker #6: We'll just call it 7%. For years, it just says your business grows at 7%. When you see this kind of stuff happening, does it make you recalibrate what you think you could grow organically if it comes to pass?
Speaker #6: I mean, is there a case to be made that as we get towards the end of the decade, the organic growth rate for Transcat might tick up because you're seeing all this investment and—it’s like, there's, I don't know, like a pig in the python as these things are coming online?
John Howe: I mean, is there a case to be made that we get towards the end of the decade, and the organic growth rate for Transcat might tick up because you're seeing all this investment and all the as there's, I don't know, a pig in the python as these things are coming online? Well, I mean, there's two ways I look at that. One is to say, even over the past 10 years, and maybe we've averaged 8% growth over the last 5, there are quarters, and there have been quarters when we have double-digit growth. So that's not impossible for us to do that. And I would expect that you're going to see that at different points. We're comfortable in the high single-digit range because it just makes sense for us. And that's where we are more consistently in that range than above that.
Ted Jackson: I mean, is there a case to be made that we get towards the end of the decade, and the organic growth rate for Transcat might tick up because you're seeing all this investment and all the as there's, I don't know, a pig in the python as these things are coming online?
Lee Rudow: Well, I mean, there's two ways I look at that. One is to say, even over the past 10 years, and maybe we've averaged 8% growth over the last 5, there are quarters, and there have been quarters when we have double-digit growth. So that's not impossible for us to do that. And I would expect that you're going to see that at different points. We're comfortable in the high single-digit range because it just makes sense for us. And that's where we are more consistently in that range than above that.
Speaker #4: Well, I mean, there are two ways I look at that. One is to say, even over the past 10 years—and maybe we've averaged 8% growth over the last five—there are quarters, and there have been quarters, when we have double-digit growth.
Speaker #4: So that's not impossible for us to do that. And I would expect that you're going to see that at different points. We're comfortable in the high single-digit range because it just makes sense for us.
Speaker #4: And that's where we are more consistently in that range than above that. We have quarters when we're not when we don't meet our goals.
John Howe: We have quarters when we're not, when we don't meet our goals. And remember also, I mean, we're a bigger company today. When we started in 2011, I think we had $30 million of calibration, but it stays $230 million or in that range. And so the number gets bigger. And obviously, to grow on a larger base or larger number is a challenge too. But I think Tom and I and the entire management team, when we look at our strategic planning, organic and inorganically, we're thinking to ourselves, "We don't see a reason why we can't get in the high single-digit range on a pretty darn consistent basis." So I think it includes all the variables that you're mentioning. Okay. And then just my final question for you is just jumping over to the CEO search. You put a charge in it.
Lee Rudow: We have quarters when we're not, when we don't meet our goals. And remember also, I mean, we're a bigger company today. When we started in 2011, I think we had $30 million of calibration, but it stays $230 million or in that range. And so the number gets bigger. And obviously, to grow on a larger base or larger number is a challenge too. But I think Tom and I and the entire management team, when we look at our strategic planning, organic and inorganically, we're thinking to ourselves, "We don't see a reason why we can't get in the high single-digit range on a pretty darn consistent basis." So I think it includes all the variables that you're mentioning.
Speaker #4: And remember also, I mean, we're a bigger company today. When we started, in 2011, I think we had $30 million of calibration business. Today, it's $230 million, in that range.
Speaker #4: And so the number gets bigger. And obviously, to grow on a larger base or a larger number is a challenge too. But I think Tom and I, and the entire management team, when we look at our strategic planning, organically and inorganically, we're thinking to ourselves, we don't see a reason why we can't get into the high single-digit range on a pretty darn consistent basis.
Speaker #4: So I think it includes all the variables that you're mentioning.
Ted Jackson: Okay. And then just my final question for you is just jumping over to the CEO search. You put a charge in it. Could you just kind of is it fair to expect to see the conclusion of your efforts during this quarter? Would we have some clarity by the time you report your fourth quarter?
Speaker #6: Okay. And then just my final question for you is just jumping over to the CEO search. You put a charge in it. You're could you just kind of is it fair to expect to see the conclusion of your efforts during this quarter?
John Howe: Could you just kind of is it fair to expect to see the conclusion of your efforts during this quarter? Would we have some clarity by the time you report your fourth quarter? I think that's a reasonable expectation. Okay. And then will there be, given the charge, which was a new line item within the pro forma earnings, will we see additional one-time expenses associated with that search in the fourth quarter? There will be some additional expenses in the fourth quarter, yes. Okay. Okay. I'll let other people take over. Thanks very much for answering my questions. And congratulations. All right, Ted. Take care. Thank you. And gentlemen, it appears we have no further questions this afternoon. I'd like to turn the conference back to you, Mr. Howe, for any closing or concluding remarks. Thank you all for joining us for today's call.
Speaker #6: Would we have some clarity by the time you report your fourth?
Speaker #4: I think that's a reasonable expectation.
Lee Rudow: I think that's a reasonable expectation.
Ted Jackson: Okay. And then will there be, given the charge, which was a new line item within the pro forma earnings, will we see additional one-time expenses associated with that search in the fourth quarter?
Speaker #6: Okay. And then, will there be—given the charge, which was a new line item within the pro forma earnings—will we see additional one-time expenses associated with that search in the fourth quarter?
Tom Barbato: There will be some additional expenses in the fourth quarter, yes.
Speaker #4: There will be some
Speaker #4: Additional expenses in the fourth quarter? Quarter, yes.
Ted Jackson: Okay. Okay. I'll let other people take over. Thanks very much for answering my questions. And congratulations.
Speaker #6: Okay. Okay. I'll let other people take over. Thanks very much for
Speaker #6: Congratulations. All right.
Tom Barbato: All right, Ted.
Speaker #4: care. Appreciate it. Take
Lee Rudow: Take care.
Speaker #6: care.
Operator: Thank you. And gentlemen, it appears we have no further questions this afternoon. I'd like to turn the conference back to you, Mr. Howe, for any closing or concluding remarks.
Speaker #1: we have no further questions. This afternoon, I'd like to turn the conference back to you, Mr. Howe, for any Thank you. And gentlemen, it appears Take closing or concluding
Speaker #1: remarks.
Ted Jackson: Thank you all for joining us for today's call. We look forward to sharing more on our story at upcoming investor events, including facility tours, institutional investor conferences, and non-deal roadshows across key cities throughout the United States in the spring of 2026. If we were unable to answer any of your questions, please reach out to our IR firm, MZ Group, who would be more than happy to assist. Thanks again for your interest.
Speaker #4: Thank you all for
Speaker #4: Thank you for joining us for today's call. We look forward to sharing more of our story at upcoming investor events, including facility tours, institutional investor conferences, and non-deal roadshows across key cities throughout the United States in the spring of 2026.
John Howe: We look forward to sharing more on our story at upcoming investor events, including facility tours, institutional investor conferences, and non-deal roadshows across key cities throughout the United States in the spring of 2026. If we were unable to answer any of your questions, please reach out to our IR firm, MZ Group, who would be more than happy to assist. Thanks again for your interest. Thank you, gentlemen. Again, that will conclude today's Transcat third-quarter fiscal year 2026 financial results call. Again, thank you so much for joining us, everyone. We wish you all a great day. Goodbye.
Speaker #4: If we were unable to answer any of your questions, please reach out to our IR firm, MZ Group, who would be more than happy to assist.
Speaker #4: Thanks again for your
Speaker #4: interest. Thank
Operator: Thank you, gentlemen. Again, that will conclude today's Transcat third-quarter fiscal year 2026 financial results call. Again, thank you so much for joining us, everyone. We wish you all a great day. Goodbye.
Speaker #1: you, gentlemen. Again, that will conclude today's Transcat third-quarter fiscal year 2026 financial results call. Again, thank you so much for joining us, everyone. We wish you all a great day.
