Earnings call transcript: Transcat Q4 2025 beats EPS, stock surges 18%

Transcat Inc. (TRNS) reported its fiscal Q4 2025 earnings, surpassing analyst expectations with an EPS of $0.68, compared to the forecasted $0.65. The company’s revenue also exceeded projections, coming in at $77.13 million against a forecast of $76.67 million. Following the announcement, Transcat’s stock surged by 18.08%, reflecting investor confidence in the company’s strategic direction and financial health. According to InvestingPro data, the company, currently valued at $892.41 million, is trading above its Fair Value, with analysts setting price targets between $85 and $130.

Key Takeaways

• Transcat’s EPS and revenue both beat analyst expectations.
• The stock price rose by 18.08% post-earnings announcement.
• Strategic acquisition of Martin Calibration for $25 million.
• Continued focus on automation and service integration.
• Macroeconomic uncertainties and tariffs remain a concern.

Company Performance

Transcat demonstrated solid performance in fiscal 2025, with consolidated revenue growing by 7% to $278.4 million. Service revenue increased by 7%, while distribution revenue rose by 8%. The company also reported an 18% increase in operating cash flow, indicating strong operational efficiency. InvestingPro analysis reveals strong financial health with a GOOD overall score and healthy liquidity, as current assets exceed short-term obligations by 2.42x. However, Q4 net income and EPS saw a decline compared to the previous year, highlighting some challenges in the quarter.

Financial Highlights

• Revenue: $278.4 million, up 7% year-over-year.
• Service revenue: $181.4 million, up 7%.
• Distribution revenue: $97 million, up 8%.
• Q4 net income: $4.5 million, down from $6.9 million.
• Q4 diluted EPS: $0.48, down from $0.77.
• Full year net income: $14.5 million, up 6%.

Earnings vs. Forecast

Transcat’s actual EPS of $0.68 exceeded the forecasted $0.65 by $0.03, marking a positive surprise. Revenue also surpassed expectations by $0.46 million, reinforcing the company’s ability to outperform market projections.

Market Reaction

Following the earnings release, Transcat’s stock price surged by 18.08%, reflecting a strong positive reaction from investors. This increase positions the stock well within its 52-week high of $147.12, indicating renewed investor confidence and optimism about the company’s future growth prospects. InvestingPro subscribers have access to 10+ additional exclusive insights about TRNS, including detailed analysis of its valuation multiples and growth metrics. Get the complete picture with InvestingPro’s comprehensive research report, part of its coverage of 1,400+ US stocks.

Outlook & Guidance

Looking forward, Transcat expects high single-digit organic growth in its services segment and anticipates a normalization of the macroeconomic environment. The company plans to invest $14-16 million in net capital expenditures for fiscal 2026 and remains focused on strategic acquisitions to drive long-term growth.

Executive Commentary

CEO Lee Rudow emphasized the company’s disciplined approach to capital allocation and its commitment to delivering profitable growth. He stated, "We have a proven track record of delivering profitable growth and being disciplined capital allocators," and expressed optimism about the company’s future, noting, "We see a bright future that could get better."

Risks and Challenges

• Macroeconomic uncertainties could impact growth.
• Tariffs may create procurement volatility.
• Decline in Q4 net income and EPS compared to the previous year.
• Challenges in the Transcat Solutions business require attention.
• Market fragmentation could affect M&A strategy.

Q&A

During the earnings call, analysts inquired about the impact of tariffs on distribution and the potential of automation initiatives. The company also addressed its M&A strategy and the challenges faced by the Transcat Solutions business, providing insights into its strategic priorities and operational focus.

Full transcript - Transcat Inc (TRNS) Q4 2025:

Conference Operator: Greetings, welcome to Transcat Inc. Fourth Quarter and Full Fiscal Year twenty twenty five Financial Results Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tom Barbato, Chief Financial Officer. Thank you, Tom.

You may begin.

Tom Barbato, Chief Financial Officer, Transcat Inc.: Thank you, Sherry, and good morning, 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 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. If you would please refer to Slide two, as you are aware, we may make forward looking statements during the formal presentation and Q and 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. 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 compared GAAP measures in the tables accompanying the earnings release.

With that, I’ll turn the call

Lee Rudow, President and CEO, Transcat Inc.: over to Lee. Thank you, Tom. Good morning, everyone. Thank you for joining us on the call today. The fiscal twenty twenty five consolidated revenue was up 7% to $278,400,000 on continued consistent demand for both our services and products.

Service revenue grew 7% to $181,400,000 driven by strength in our core calibration business. Distribution revenue grew 8% to $97,000,000 on continued growth in our rental platform. Operating cash flow for the full fiscal twenty twenty five year was a record $38,600,000 a year over year increase of 18%. Additionally, on December 9, we acquired the coveted Martin Calibration, the largest acquisition in Transcat’s history. Martin is a very profitable, well run company with over $25,000,000 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. 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 streams. 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 fifty third 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. 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 segments. With that, I’ll turn things over to Tom for a more detailed look at our Q4 and full year financial performance.

Tom Barbato, Chief Financial Officer, Transcat Inc.: 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 $77,100,000 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 $52,000,000 which included $6,800,000 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 fifty third week and excluding Transcat Solutions.

Turning to Distribution. Revenue of $25,100,000 was up 4% versus the prior year. We continue to see growth in the rental channel. Finally, on a full year basis, the consolidated revenue total consolidated revenue was $278,400,000 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 seven percent.

On a full year basis, Service revenue benefited by $10,400,000 resulting from acquisition. Distribution segment revenue grew 8% driven by rentals. Turning to slide five, our consolidated gross profit for the fourth quarter of ’20 ’5 point ’9 million dollars was up 8% from the prior year, and our gross margin declined 30 basis points. 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.

The Distribution segment gross margin of 28.2% was down two ten basis points. For the full year, our consolidated gross profit increased 7% to $89,500,000 and our gross margin declined 20 basis points to 32.1. Our service gross margin 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 the segment benefited from the growth in the higher margin rental channel.

Tom Barbato, Chief Financial Officer, Transcat Inc.: Turning to Slide six. Q4 net income of $4,500,000 decreased from $6,900,000 in the prior year,

Tom Barbato, Chief Financial Officer, Transcat Inc.: and our diluted earnings per share decreased to $0.48 from $0.77 The prior year net income included a non cash profit increase of $2,400,000 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 $0.64 Lastly, full year net income increased 6% to $14,500,000 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, this metric becomes even more important to highlight as it does adjust for onetime deal related transaction costs as well as the increased levels of noncash expense that will hit our income statement from acquisition purchase accounting.

With that in mind, fourth quarter consolidated adjusted EBITDA of $12,700,000 was up 9% from the same quarter in the prior year, driven by growth of 16% in the Service segment. Q4 EBITDA margin of 16.5% was consistent with last year. Full year EBITDA of $39,700,000 which was up 3% compared to the prior year, driven by strength in the calibration business. 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 eight, operating free cash flow of $25,400,000 improved 31% versus the prior year.

Full year capital expenditures were consistent with the prior year and continued 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 twenty twenty six. We expect our net CapEx to be in the range of 14,000,000 to $16,000,000 Slide nine highlights our strong balance sheet. At year end, we had a total net debt of $31,000,000 with a leverage ratio of 0.7x. We had $49,000,000 available from our credit facility at quarter end.

Lastly, we expect to file our 10 ks on May 27. With that, I’ll turn it

Lee Rudow, President and CEO, Transcat Inc.: back to you, Lee. 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. 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 in 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. 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. We are now actively operating the proven Transcat sales playbook in the Solutions channel. And

Tom Barbato, Chief Financial Officer, Transcat Inc.: as

Lee Rudow, President and CEO, Transcat Inc.: 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 goals. 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, a future we feel is incredibly exciting. And with that, operator, you can open the call for questions. Thank

Conference Operator: A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Greg Palm with Craig Hallum Capital Group. Please proceed.

Greg Palm, Analyst, Craig Hallum Capital Group: Yes, good morning. Thanks for taking the questions and congrats on the results.

Tom Barbato, Chief Financial Officer, Transcat Inc.: Thanks, Greg. Thanks, Greg.

Greg Palm, Analyst, Craig Hallum Capital Group: Can we maybe just start with in terms of like the cadence thinking about 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, the last, call it, five, six weeks, any change versus what you saw back in February and March?

Lee Rudow, President and CEO, Transcat Inc.: I would characterize the fourth quarter, February, March, I would just include in my characterization as good, solid, kind of what we expected. 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. 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 and 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 to 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 with the volatility. So we’re pleased with the high single digit growth.

We think there’s probably more over time, but it’s going take a couple of quarters to get past the current volatility before we probably see it all.

Greg Palm, Analyst, Craig Hallum Capital Group: Yes, that’s fair. 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 still opportunities and things are shifting around timing wise, etcetera?

Lee Rudow, President and CEO, Transcat Inc.: Yes. I mean, we have a healthy pipeline currently of new opportunities we’re working on. We’ve had a number of 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 potentiality of it. But yeah, I mean, think, again, I’ve said this for many, many years and it’s difficult to look at any business, it’s difficult to look at our business every 90 days and get a full picture. It’s a regulated market, the recurring revenue streams, 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 if you go beyond quarter to quarter, look at the whole year, 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, These are things that are very difficult to determine given the current economic backdrop. I’m not we don’t have any concerns when we look beyond that.

Greg Palm, Analyst, Craig Hallum Capital Group: Fair enough. Okay. And then just on distribution, I’m just curious, just given some of the tariff announcements, from a procurement standpoint, just remind us kind of where that sits? And maybe more importantly, are you seeing any kind of changes in behavior from customers, ala, 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.

Lee Rudow, President and CEO, Transcat Inc.: Right now, if I look at the current environment we’re working in, distribution has held up really well. And and what I mean by that is, you know, we’re getting a fair amount of of orders and volume in, but it’s hard to determine even even a little bit of an uptick. So it’s hard to determine whether people are getting ahead of some tariffs. So some momentum is the 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, tells you something else. 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 kind of 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.

Greg Palm, Analyst, Craig Hallum Capital Group: But to be clear, when you’re talking about uptick, are you talking like current quarter, like quarter to date? Or are you putting Yes. I’m just saying

Lee Rudow, President and CEO, Transcat Inc.: currently, yes. The current read is distribution is holding up well.

Greg Palm, Analyst, Craig Hallum Capital Group: Yeah. Okay. Alright. I will leave it there. Thanks.

Lee Rudow, President and CEO, Transcat Inc.: You got it. Thanks, Greg. Thanks,

Conference Operator: Our next question is from Ted Jackson with Northland Securities. Please proceed.

Tom Barbato, Chief Financial Officer, Transcat Inc.: Oh, great. Thanks for taking my questions. Thanks, Ed. So my first question, you did a really nice job with regards to expense control on the OpEx side. And I was kind of curious, what were the levers you pulled in there and how would we think about those line items as we put together our estimates for ’26?

Tom Barbato, Chief Financial Officer, Transcat Inc.: Yeah, I think, obviously it’s something that we focus on regularly Ted, and always trying to make sure that our costs are aligned with the levels of revenue we’re seeing and also aligned with some of what we’re seeing from the economic backdrop here, right? So some of it is delayed hires, some of it is just good cost management And we’ll continue to do that. Mean, the hiring front, you can only do that for so long, right? Because we want to make sure that we have the right teams in place to deliver our long term plan. So but we’ll continue to focus on costs, we’ll continue to make good decisions.

And as we go into this year, would expect some nominal increases and you know, there would be some items that kind of return, I’ll just say, 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 our expectations that we would see an uptick in some of those lines. But, where we can be focused on cost savings and being very cost conscious, we absolutely will.

Tom Barbato, Chief Financial Officer, Transcat Inc.: Well, was impressive. Next question, I’m gonna kind of go back to what Greg was dancing around with. When I listened to the prepared remarks and the commentary that’s in your slide deck, discussion with regards to expectation of high single digit growth for services with the caveat that once the macro environment excuse me, the macro environment normalizes, is that just boilerplate? I’m just we’re just being conservative because it could be yours. As you’re kind of been rolling through the spring, have you seen some disruption, maybe turmoil within the business that gives you pause where you’ve actually seen since we’ve kind of rolled into April and now we’re in May the last two months, we’ve seen things kind of just be a little more turbulent and when you’re thinking about how you’re going to lay out that growth that you’re expecting that things will come down and you’re going to see maybe a stronger back part of the fiscal year than the front part of fiscal This

Lee Rudow, President and CEO, Transcat Inc.: is Lee of course and I think a lot of what you said, I would agree with and the way you said it. I think the bigger overall, 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, what we’re focused on, what 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. 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. Now all bets are off over the next quarter or two and I’m not going to, 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, nothing has changed.

And if anything has changed, I see a bright future that could get better. I’ll just leave it at that. Know, we you know, I’m not going put numbers around it. I just like the direction we’re going. And I like 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.

Tom Barbato, Chief Financial Officer, Transcat Inc.: I’d be concerned if you didn’t look longer than a quarter or two. I’m going ask one more question. Do have more, but I’m going to let other people ask and then if they don’t get asked, I’ll circle back. So the next question is just kind of on Transcat Solutions or the Nixa business. It’s been an area that you’ve been repairing, rebuilding if you would.

Could you talk a little bit about where things stand with that portion of your world and kind of how to think about it for the next.

Lee Rudow, President and CEO, Transcat Inc.: Yeah. Sure. I will. And there are two goals with Nexa coming off of some of the problems. We call it solutions now.

And the change from Nexa Solutions is important because it’s a change in how we view the business. And so 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 that 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 progress we’ve made in terms of the recognition of how to sell, when to sell, and why to sell solutions. 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, 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 an important part of 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 in service.

Tom Barbato, Chief Financial Officer, Transcat Inc.: Okay. I’m going to step aside and I’ll jump back in later. Thanks.

Lee Rudow, President and CEO, Transcat Inc.: Thanks, Ted.

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

Scott Buck, Analyst, H.C. Wainwright: Hi, good morning guys. Thanks for taking my questions. 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?

Lee Rudow, President and CEO, Transcat Inc.: 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. Think it’s an important one.

We are proud we have made so much progress that I’m I’m really proud of the team, and it’s contributed to, some of the margin improvement without question. And I would 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 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 like 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 high single digits and beyond that, it’s a big important component, you know, of that progress. And so, yeah. Let’s let’s call it the fourth inning with one out.

How about that?

Scott Buck, Analyst, H.C. Wainwright: That that’s helpful and great to hear there’s, some some more room there. Second, can you remind us in a more challenging macro environment, the mechanics of distribution? I mean, you see customers put off sales and 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?

Lee Rudow, President and CEO, Transcat Inc.: 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. So why isn’t distribution, you know, feeling 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’re going to be in the near future. So even though the long or the midterm outlook of 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 spear 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. 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.

Scott Buck, Analyst, H.C. Wainwright: Great. I mean, that makes a ton of sense. And then last one, Lee. The business query looks, know, fairly different than it did three or four years ago. Has the M and A criteria changed at all just given the, you know, scale and and scope of the business today versus, you know, maybe 2020 or 2021?

Lee Rudow, President and CEO, Transcat Inc.: I think I think we have we spent a lot of time on our m and 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 PE involvement in our space.

You know, the the the we’re a public company. Transcat has had outstanding performance for a really long time, really consistent. We got a great model. And of course, PE 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 for good reason, from our perspective.

So there are companies being acquired and the field, the pond is getting a little bit smaller, but I still think there’s a lot of work to be done 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. 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.

Scott Buck, Analyst, H.C. Wainwright: Great. Well, I appreciate the added color, guys, and congrats on the quarter.

Tom Barbato, Chief Financial Officer, Transcat Inc.: All right, Scott. Thanks for

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

Tom Barbato, Chief Financial Officer, Transcat Inc.: Great. Thanks again. I got two follow ups. The first going into, kind of the distribution and rental. And maybe if you could 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 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? I I would think that it’s kind of a, it could be something that could do well and you would see the equipment distribution side maybe be weaker but perhaps some rental market is stronger. That’s my first question.

Tom Barbato, Chief Financial Officer, Transcat Inc.: And I think, Ted, that it kind of gets back to Lee’s comment earlier, right, is that in a time of uncertainty like this, we would have expected kind of a pullback in core distribution and maybe rentals to pick up the pace because of restrictions on CapEx. But 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, the longer things remain kind of in this uncertain environment that would be a benefit. But we’ve had and we continue to have expectations for the rental business to grow kind of in line with our historical trends on the services business, high single digits. And we’re making the investments that we need to kind of ensure that growth will continue, not only in making investments in our asset pool, but also making investments in people to help enable that.

Tom Barbato, Chief Financial Officer, Transcat Inc.: But in some ways, I mean, that it’s, you’ve targeted, generally a better margin revenue stream than actual distribution. Mean, it could be a case to where, even though you might see some softness in distribution, you might pick it up at the gross profit level just with a mix shift towards rentals and a fair way to kind of think about it. For

Tom Barbato, Chief Financial Officer, Transcat Inc.: sure, for sure. And I think as we look forward, assuming that it plays out the way you described Ted, then I think we will definitely be in a position where we can or we should be in a position I should say where we consistently see distribution margins north of 30%.

Tom Barbato, Chief Financial Officer, Transcat Inc.: And then my last question is actually one that’s hopefully a little bit more fun, but I liked the commentary with regards to the impact of automation improving some of your margin structure. And I know that you know, you made that acquisition in Ireland and, you know, it’s it was something that we used to talk about quite a bit. I haven’t too much. So 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 drive, you know, a better return on your on your business and kinda where you see that going? Very open ended.

Thanks.

Lee Rudow, President and CEO, Transcat Inc.: I think 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.

I 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 we can allocate towards this initiative. You know, we’re a public company, so everything is balanced, right? You want to go up into 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? And how are you going 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, 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 and you 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. 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 a two different stories going on at the same time.

Tom Barbato, Chief Financial Officer, Transcat Inc.: Okay. Thanks very much, guys.

Lee Rudow, President and CEO, Transcat Inc.: Thanks. I appreciate the question.

Conference Operator: There are no further questions at this time. I would like to turn the call back over to Cleef to leave for closing comments.

Lee Rudow, President and CEO, Transcat Inc.: 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 twenty eighth. 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. We look forward to talking to you guys again after the first quarter. So thanks again for participating.

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

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