管理層發言
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.
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 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 2. 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. 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 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 the third quarter. 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 third quarter financial results were driven by 4 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 mix change in our instrument rental channel; 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'd like 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 are an impressive group. 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%. 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 2 quarters of our fiscal year began to trend positive in the third quarter. 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. 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 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. So for 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 the 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 of 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 the result of the 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 and our differentiated value proposition. The service gross margins historically lagged as we incur startup costs related to the onboarding of new customers. Distribution segment gross profit of $9.8 million was up 34% with 330 basis points 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 2 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 reported 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. 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. Third quarter 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. 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. 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. 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 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 colitis or just bolt on to existing infrastructure. 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.
分析師問答
We'll go first this afternoon to Greg Palm of Craig-Hallum. Greg.
Congrats on getting back to that high single-digit revenue growth in the quarter for the segment, maybe starting there, it would be nice if you could just maybe sort of bucket out 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, we had some of these decisions have 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 will continue into Q4.
Okay. And the start-up 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? 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 does the new business wins fall off and those just become normalized going forward?
Yes, I mean we're not discussing significant amounts. You can easily calculate the difference between our previous position and a scenario where we were flat or slightly improved in terms of margins. The figures aren't large, but they reflect the reality of bringing on new customers. For us, the most crucial aspect is ensuring that as we initiate these new partnerships, we start strong; we need to do things correctly. We're committed to treating our customers well and making every effort to establish a solid relationship. Often, there's a reason these customers choose Transcat; they expect things to be done properly and with a higher standard of quality, and that remains our priority—making sure we begin on the right foot.
And 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. And so making sure they get off to the right start is a priority for us. And sometimes, there are some costs associated with that, that just go away over a couple of quarters. And then you mentioned CBLs, we saw that in the past, right? So this is not dissimilar.
Okay. 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 services segment, again, longer term?
Yes, I believe we are executing very well on the distribution front, both in traditional equipment sales and rentals. As we've mentioned, we made a deliberate decision 18 to 24 months ago to invest significantly in rentals for products used in power generation, power conditioning, and power management. This aligns nicely with data centers and EV charging needs, and it's proving beneficial for us. From a product sales perspective, we are well-positioned to support those cement markets, and there are definitely recurring calibration opportunities arising from these end markets. We are excited about this area.
We go next now to Max Michaelis at Lake Street Capital Markets.
I want to go back to the service growth. Congratulations on returning to high single-digit growth at 7%. When you 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 have the conversations been with customers around new business, I guess, going out into fiscal year '27?
Yes, Max, it's Tom. I want to reiterate our commitment to the high single-digit guidance we've provided for Q4. Last year’s Q4 was also very strong for us, so we are building off a significant number and feel confident in that high single-digit range. As for beyond Q4, we are not giving specific guidance at this time, but I can mention that our new business pipeline remains robust. We are pleased with our positioning and believe we have the pipeline to support ongoing growth in the future.
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.
Yes, there are currently four gaps we are focusing on. Last year, there were six. We have addressed some of those gaps, but we are particularly interested in expanding into Northern California, Dallas, and the Atlanta area, as well as the Mid-Atlantic region around Baltimore. While we can service these areas from other locations, there is enough demand that we want a physical presence. Additionally, we seek opportunities to follow our customers, and we are always exploring those options. Recently, we have successfully expanded in Ireland, and there may be potential opportunities in Europe, North America, or Central America to ensure we can properly support our existing customer base.
Okay. And then just the last one for me is around gross margin. I know you mentioned in the last question about sort of cost 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 incurred this quarter in sort of preparation for the new business in the next quarter? Are we going to see similar gross margins probably from the Service segment next quarter?
Yes, our gross margins in Q4 are typically the highest of the year. For instance, last year in Q4, we achieved 36.2% margins. However, we did incur startup costs this quarter due to the revenue growth. We expect to onboard new customers next quarter. As mentioned in our prepared remarks, this will normalize, and we're not looking at years for this adjustment—it's about normalizing over the next few quarters and experiencing margin expansion.
We go next now to Ted Jackson of Northland.
Congratulations on a strong quarter. I have a couple of questions for you. First, I'd like to discuss the longer-term outlook. If you consider the next few years, there have been significant changes in administration-driven spending. In the realm of Life Sciences, which is your primary focus, there seems to be considerable momentum in U.S. pharmaceutical manufacturing. For instance, Lilly plans to invest $30 billion in manufacturing facilities across several states, while AstraZeneca has pledged $50 billion, and Amgen is also looking to establish new sites in the Midwest and along the Atlantic Coast. This all suggests a substantial boost for you in the coming years. How should long-term investors view this situation, and how do you assess and navigate these developments? Additionally, from a revenue standpoint, once a new plant—like the one Lilly is establishing in Pennsylvania—is operational, what potential revenue opportunities would there be for a company like Transcat? My second question is somewhat similar but pertains to defense spending. They are projecting $1.5 trillion in spending for next year, with major contractors like Lockheed, RTX, and Northrop expecting around 30% increases in their capital expenditures. Could you provide insights regarding the aerospace and defense sectors?
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 space 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 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. No question. 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 are 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, and onshoring is good. 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 the overflow work. We could 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. That's a highly regulated space, which means it's a good space for Transcat.
Yes. 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? 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.
Your business has consistently demonstrated impressive growth over more than 60 quarters, achieving an organic growth rate of around 7% annually. Given this consistent growth, do you think current developments could lead you to reassess your expectations for future organic growth? Is it possible that by the end of the decade, Transcat's organic growth rate could increase due to ongoing investments and new projects coming online?
I see two perspectives on this. Firstly, over the past decade, we've averaged around 8% growth, and while we’ve had some quarters with double-digit growth, it's not out of reach for us. I anticipate we will experience fluctuations in growth rates. We're currently comfortable aiming for high single-digit growth, as it aligns better with our performance than exceeding that consistently. There have been instances where we haven't met our expectations. It's also important to remember that we're a larger company now; when we began in 2011, our valuation was $30 million, and today it stands at approximately $230 million. Growing from a larger base poses its own challenges. However, both Tom and I, along with our management team, believe we can regularly achieve high single-digit growth as we consider our strategic planning, both organic and inorganic. All the factors you're mentioning are part of this assessment.
Okay, my final question is about the CEO search. You mentioned a charge related to it. Can you provide any insight into whether we can expect to see the conclusion of your efforts this quarter? Will we have some clarity by the time you report your fourth quarter?
I think that's a reasonable expectation.
Okay. 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.
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 concluding remarks.
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.
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.