TRNS - Earnings call transcript Q3 2025

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Operator

Greetings, and welcome to Transcat, Inc.

Third Quarter Fiscal Year 2025 Financial Results. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Mr. Tom Barbato. Thank you may begin.

Thomas Barbato

good and operator, you, morning, everyone. Thank your appreciate time and Transcat. in interest your We on is: Mike call CEO, me the With here today and Chief Lee our our Operating Officer, West. Rudow; and President

call with it open the We will -- begin some remarks, we up and questions. for prepared call will then the

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

If X. you to Slide would, please refer

actual you aware, the to subject apply future portion teleconference. we As the are forward-looking from to with differ we the the statements as are as the statements results as to formal are of risks may by These in outlined other during the where and These to make factors news -- which are release Q&A our uncertainties future presentation in company SEC. as factors well materially could filed today. and events, this that well documents cause

these or find our undertake the of in factors. whether the any this with forward-looking except website the about contained statements future as regularly information as post well new publicly as company website a events on can to update obligation at of required sec.gov. SEC's law. precautionary those call, no statements Please conjunction forward-looking where We in we result by information, as otherwise, or You review correct on our

will performance. will useful our be during discuss non-GAAP believe we in today's certain Additionally, call, measures, we which evaluating

over substitute earnings GAAP in Lee. non-GAAP for provided information measures this with reconciliations compared call the a the of to turn release. With consider results as tables in GAAP. should the accordance not I'll the You of or We've additional that, presentation prepared to accompanying in isolation

Lee Rudow

Tom. quarter Thank $XX.X revenue us. Good third million. morning, you X% consolidated XXXX you, up everyone. joining Fiscal for was to Thank

end closures drove of holiday In for back affected and staffing up is about of Christmas ramped reduced midweek facility it new talked quarter, team continue was core incoming through the meet the to channel the volume that we the send December equipment year solution through this the The reduced from softness the expectations. We holiday of the finish many our third current and the in quarter. that This in getting service work equipment demand the expectations would up we an not X revenue What the to the in the in difficult December, the prior shutdowns. holiday manufacturing demand year. half X% contributed the calibration. declined extended of channel incoming closures manufacturing organic line. levels and did the calibration and front customers calendar were extended continues largely development quarter NEXA month. view, Essentially, end production which following with calibration of fiscal service However, our November, to year. Last Solutions In intensified back makes of anticipate that a decline line in through December, end that our to focused ways. be on deals third October service pipeline and across discovered was in and in to

in in $XX very California. rich to medical Calibration. and the in leverage perspective, science. million, calibrations This So From December. Stepping demand we a a Service advanced a labs anticipate January solutions. and Martin as current and expect, quality service on life the that and quarterly Minneapolis, Martin Arizona related for the by Milwaukee; area pent-up bolt-on relies a facilities our is deal our XX, operational device With December picked are Martin from Angeles, the Chicago and get from and lab services as region complementary. a L.A. strong infrastructure one December heavily as more with Martin to on on the Arizona the expertise Minneapolis, that this dimensional capabilities satisfies revenue ability requirements. close in combining timing are acquired a including of We're pressure represents Transcat contributed well and would of of to electrical is temperature, proximity. From with the X side very an presence all performance, and Los the brings annual as level revenues business. in our very ideal we and And done a Tempe, mechanical strategic side away an of companies Midwest, perspective, capabilities acquisition the match gives result shortfall. excited Martin's than Martin flagship the moment as significantly higher Transcat's on up

and we returns a Transcat. coveted to off addition So the cost as opportunity. The early we work is expect would over this acquisitions, process to the work expect we leveraging in ---Martin service both exciting the integration great with of -- to maximize synergies on drive you expanded time combined capabilities by and start bolt-on to growth

quarter mix The an a Revenue before change December, decline margins. And quarter. demand third distribution as the due to Transcat channel Rental of service In closure segment Services that decline in things in Turning Distribution. our Core however, of impacted grew turn that X% similar customers, -- Tom, excellent revenue consistently I distribution team in channel. to our period. experienced negatively has delivered in to Rental want Calibration the I our many a the over out results extended point the extended over December resulted to in

have and of We productivity. growth record driving demonstrated a track

for and prepared are a a encountered currently working of strong the is new softness high And we've primarily opportunities. XXXX, pertains have as the the to From fiscal we overcome pipeline channel strong very year-over-year Calibration probability last quarters, close in this near-term of Solutions a to challenges couple the channel. team we XXXX. services fiscal of perspective, Our Traditional out we

detailed turn I'll with So quarter Tom financial a more the third at results. for that, things to look over

Thomas Barbato

for consolidated Slide of start Thanks, and basis I'll earnings detail website, fiscal deck Lee. on XXXX. our posted of by our the on third on quarter the a revenue which segment provides regarding X

Third driven revenue quarter by year, up distribution. X% was growth in million $XX.X versus of consolidated prior

at offset by acquisitions. decline by growth Service X.X% revenue it Looking grew was from slightly, organic segment,

As anticipated Lee NEXA mentioned, impacted channel. unexpected the revenue was sites negatively Transcat closures Service decline by holiday well customer the the our in Solutions at December as extended as year-over-year

strong Revenue Distribution. product X%, million driven to and Turning sales $XX.X by growth. rental of grew

to X. Turning Slide

Service consolidated prior $XX.X million second profit declined of was prior X% for Our year. versus profit the from gross year. gross X% quarter down

to could caused profit headwinds pressured levels. was revenue Continued Distribution lower as by third leverage were quarter the margins from gross not higher segment levels of organic the $X.X productivity million of offset X% mix. due in technician down

per performance to believe our diluted We Slide QX diluted we it our $X.XX. at where and earnings best our well to share non-GAAP income operating adjusted use down and and adjusted performance business, We QX of EBITDA report came X, impacts the $X.XX, which to Turning prior to was per for year. million upfront share share Slide is cash. $X.X million of X. because margin. EBITDA, $X.XX. Flipping gauge we was adjusted to show per adjusted as generate measures ability down EBITDA $X adjusted ongoing normalize Diluted acquisition-related in net costs. earnings versus earnings of the

this does highlight on statement As metric becomes we as of execute acquisition our it purchase costs as important noncash for transaction the onetime from strategy, even acquisition continue accounting. well hit more increased to expenses income that adjust as will level to deal-related our

extended of EBITDA million adjusted year $X.X quarter as from consolidated EBITDA. quarter softness in the impacted third solutions quarter revenue The and down was holiday expected the negatively December closures same the prior third XX%

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

X. expenditures with -- At than both million year-over-year. flow QX, $XX cash a in fiscal Operating $XX.X million in ratio center in $XX of in and paid total credit growth acquired strong spend $XX and operating debt Slide year prior X cash sheet. Martin to had assets, projects. quarter million line rental I to in our and continue of we flow expectations. Slide higher free around balance pool highlights previously were Service Moving leverage and from was capabilities, capital as announced, for $X.X we million X.XXx. with future available The cash QX facility segment higher technology our were combination and as had We end, company net million $XX.X Calibration of previously million stock.

to Lastly, on our we Form turn that, Lee. X. to back you, it With expect XX-Q I'll February file

Lee Rudow

Okay. Thanks, Tom.

XX be down the fourth to revenue service for expect we mid-single adjusted once week to in in week the wind fiscal quarter, organic -- XXrd fiscal XXXX digits As low- the XXXX. we

our -- looking ahead. Relative softness to business, building in Solutions year believe I by primarily performance. We be Core and service to by ready channel below in both our a line organic we the our strong with is in our fiscal XXXX our are pipeline earlier, fiscal Of as driven negatively XXXX. that XXXX. course, have forward but fiscal expectations. as in softness embark we growth the will Solutions certainly to performance organic momentum, on Calibration We're get historical the it's impacted rates mentioned And driven improved that in growth more

sensible year addressable improving line believe over ability shared both the that, will markets. and to productivity have together, of process questions. service vision, initiatives, Calibration. our leverage, fiscal my opportunities by capitalize value productivity cost and service focus our sold the operating We're ahead. And for lower expect SG&A them. other We driven full growth integration Working over to the achieve years, the improvement, which our continue for and numerous includes of the organic and and We service goals and cash goods with we vision expansion still inherent on proposition, you strong open Rob, on gains. I for for excited industry-leading company the to Martin operating time, can we in of strong growth flow automation

Operator

[Operator Instructions] from Craig-Hallum. Greg comes first Palm with question Our

Greg Palm

I start, to guess, wanted the near-term I with outlook.

I the So around of some holidays. the timing understand

things and full you took -- down You still the guide. still like in picked January, up but sounds it year

to if just guide curious from it just expect come to timing, slipping December but did. I'm wouldn't So down, you that was January, it things

relative So we what's talking incremental weakness about months of of deferral? more guess, a is were sort there to Or of kind here what I ago? X the

Lee Rudow

as Yes. can this is maybe some Lee. So start color I'll Tom and well. add

to of after and spoke We December. in slowdown. many slowness the our had the during customers we So

So numbers. business was and has January, in that very we that that -- gotten of some made back. we that, busy taking took so generally impacted place kind of confirmed The the

the -- Just has looking the some there's that back things even we're to at relative some of impact, Solutions' just at been close guidance. being the with orders been April, full QX, and speaking. we're confident we're in QX, delays generally will we we'll range the in at year, maybe impact, end year that it for fiscal be there And growth, but organic expect the high mid-single-digit looking close in into in in some early continued -- just conservative probability

Greg Palm

Yes.

And for growth. kind of were maybe on color pipeline Okay. give can kind a back and about you talking you this really into quarter, year? us little visibility returning tie I the confidently in bit to think just high more the organic expectations Last of next single-digit

is understandably bit helpful. any be commentary a the on closures, so. some But the comments think I around timing just that visibility vague, more would of pipeline, little pretty

Lee Rudow

core our very strong. Right calibration now, pipeline Yes. is

confirmation, I terms probably verbal as yes, timing. and big seen according go good. we've with couple which these going So We're this to for it, to where example, ever as going of is strong we're about opportunities, to proceed a gotten There's it's Transcat. have

if these But And our arms delays going which our exactly to reasons are get has variety start. jobs trying there's delayed, when strong. around affected guidance, softer We kind of like. some you can of pipeline into a generally some very the them have to those have of speaking, is of been of like why get this. some And some you

we're these into we're matter happen. and QX. the we I think year to always of But good we I for a come pretty about things course, particularly vague level when that it's feel into come for stand and next that the about we -- feeling And when the in little most fruition, the -- point. And of about timing. activity we good talk important where that's half, they we're about year, us, to of the going back pretty Greg, doesn't to fruition, some talk think seeing. But as a have

that strong. the a to we levels combine I shouldn't when not There's So business think at pretty year, lot changed. more reason believe And no macros the sales. appear terms to and solutions improving that look the has throughout historic be pipeline next of be with activities, to in we we back

Greg Palm

Got it.

growth it's of my was demonstrated on kind making going this this -- low else. be ahead final of for a understand nothing couple historically, recently. But to to law, and as sure whether organic you you've double-digit sort you gives or structural targets? ] just those of of that that level profile there's something single-digit, next about match And hesitancy But that nothing or numbers the we've has [ handful next high business of the over question Okay. sort of thinking, changed, ability Service large look anything in hiccups and you've your talked years,

Lee Rudow

hasn't other Still, very Still have had time of double perspective, get in mid-single-digit to that a There's better. Absolutely quarter not. you a things I long engine, and can be always quarter. take over has growth digits, we been can high you tweaks We're process on differently. a competition There things. And after bit changed. is which or keep market broader make. on of doing a of always the couple have processes perspective. that's in little make that still We're any regulation. sales We've -- continues And implement in to to revenue or all There's that taking expected. quarter mean from by perspective, when quarters opposed position. recurring sales low a better. even you to the technology we as after our been noticed the you're driven streams. to lot is very, those able growth we've working to Nothing that business really good anything that's just that share have the a

same to But would anything team, even the the me a strong from You and can't fundamentals performance over same, that company. we believing expect I really and this the good we plan. today really game good have term that every the point way. are that. we long win from midterm, expect The a can't stop

a expect we into So the good and going it. supports pipeline the year year

see. we'll So

but and the part, most XXX%, quarters and a that to know the to that fundamentals, addressed. we over of got never need changed, just couple we the I identified we You be -- of and like for nothing areas has get softness, have

we So the good year. upcoming pretty feel about

Operator

Our Northland is next question from with Ted Jackson Securities.

Edward Jackson

questions. of list a got I

that be? and of kind of the with of update NEXA of the far you an to are regards you've where and want maybe with so taken kind Services actions that kind start get put back Let's left it to Transcat the actions to kind that business

Lee Rudow

Yes.

we're to be X in a So business business. from for our to to figuratively at the of that also, There's look business, the Solutions solutions sit table the calibration you tracks perspective, something Calibration we're a growth is business. of and win goals. there's a differentiator. for X with stand-alone Solutions expectations. helps that organic at our suite and a get it's us or that Calibration their Those as They're lot Their when because terms -- benefit they also are make complete some accomplish customers affordable business in and Services trying Ted, services has business service to ways business offers our cases, our and literally profitable One the in more and about from has ecosystem the new talking X grow. that business

a around needed nature business different quarters. these So our quarter Unfortunately, a team to We're sell the is doing better It it involved. we takes have things. not and needed X. few needed you're just in to development turn or of like to and way that business. We going a the just marketing pipeline all

but relatively we fiscal and to time. right will we're stable business, track we small fact say, year I going improved pipeline get it concerned not I'm to all The we back business, on And a overly is That's still in work the needed So better a of we things. It's it. than it today. be was an to the earlier, think growth better. it that when and think with doing expect be, kind next it. we'll discovered that I'm on

Edward Jackson

shifting Okay. rebound gross be how service expecting there. and I the Then next in fourth that was impact kind think since some some to and about forward 'XX, to quarter into give to third And kind to was would questions. lowest see would we carry a a know on volume service But margins can of us model year? view you your you it for just more expect of next over fiscal the quarter quarter of Like margins, big we're 'XX. what

Thomas Barbato

Yes.

talked we've then expect and fiscal be we models, as kind of to be through line grow gone and 'XX would to year-over-year, kind into Ted, flat to think, more look as and QX of in I beyond. of I continue kind

Edward Jackson

then over distribution. shifting And to

see 'XX, -- mean, the that it but -- you an was kind think it can said a little of maybe update front? a 'XX? rental Becnel do with 'XX regards stuff, And quarter recovery was then provide I fourth expected we did we did that of to You about and quarter. last bit some some on I of How of from get out we know, recovery you a loss, like that the

Thomas Barbato

Yes. Yes.

the rentals take growth in And standpoint, past certainly rentals half in have from see right? would see the think as -- I there December. XX% And there than continues, towards me achieve. should slowdown some there. Becnel we sequentially we we from back that certainly, better certainly to then we rentals, we've bigger should that be was it didn't better the see pieces, and So a a growing right? a being of we I be in distribution versus side QX we QX, that threshold said, and in that referenced in the is sequentially on about we above mix then XX% let -- that mix been -- that -- if if ahead, talked better to So feel as margin consistently in certainly look the Lee we're from we able QX. expect as as one QX towards

Edward Jackson

Okay. done come something think assets into acquisition pro amortization to earlier thought. just just when think forma intangible train your your we else come about will margin. I costs wanted on How of quarter the my it should hit I'll head. And lost earnings should answer a of I forma back, about my maybe FY on large-sized -- on within and pro How you've -- how 'XX? we earnings, about acquisition. fourth the for deal pretty also and then

Thomas Barbato

with with know on I Why talked of I we when think I the don't right that the up you via about acquisition, after that, numbers I you I now, e-mail. follow the don't model in up but have front update, had follow Ted. me could but done we

Edward Jackson

Yes. checking. Then capital. I'm working just over double shifting to

payables were working up, some for all next up, on that you of us kind capital the Your give turns going them receivables see a were kind with inventories down, the of few view kind levers Can what's those of how followed, of were on out stuff. quarters? you all playing and

Thomas Barbato

move a receivable, And standpoint. business. we're growth, we in consistent inventory the from on think these along that I made since of the we've bigger of as Well, beginning the think the with part kind we inventory had an improvements on revenue. just we've should year, receivable goes -- bring levels with businesses, bringing accounts focused right, year and I all is mean you've the see been I on We've bringing that. seen accounts on the growth a of right,

those I that saw in time, inorganic of numbers acquisition growth over we've we've kind we've But and the flex capital on the addition Martin seen working coming that you -- based think accordingly So organic from December. experienced.

Operator

Martin comes Oppenheimer. Our next from Yang question with

Martin Yang

uniform question those quarter And described on Distribution based you reason performing patterns? are attribute distribution. you segments on Services? this First same weakness X Would for the those seasonal the how in to

Lee Rudow

way the the call to, channel impacted as earnings business What part the Rental Calibration we was of of Distribution, rental that in Martin, that part was services. script the as referred same the the

is the -- demand weighted you course, changes So mix a referring what heavier the as we're have to. And in in as core it's say lower we that, lowered the particularly rentals has towards to that to in as decrease becomes half. that that of overall the rentals saw heavier throughout distribution, month, was margins. the quarter, which -- back mix, That's

volume. So it both margin, which is on an significant, has in impact but also

effect so Rentals the the in that to that's was is. December, Distribution. it And that So similar month in service saw of you yes,

Martin Yang

Got you tell overall we on at rental growth versus year-over-year for then about distribution when a it. us And nonrental? basis, the look respective can rate

Thomas Barbato

on that expect said what expect Martin, similar So we've plays goal, to trajectory slowly what I business historically, been we couple -- over right? to what still the of years. That's distribution And to the of rate Service, of our over we grow said what the digits. here Service, decline kind like a then past And we kind of kind it at Rental -- with core we've we've think, single time. kind and of the and high historically seen we out is that's

Martin Yang

it. give the patterns year you other surprises Got comment question certain of or time on that past any there happened December? other in December. what could every like seasonal next your quarter regarding is Is the My

Lee Rudow

for are bit March. higher patterns stronger There Typically, some January Martin, patterns seem not in little I in our which rentals certain third are mean services volume distribution, through typically, repeat, there in business. to is And a really. is fourth quarter, year-over-year. is quarter. Not our the core that distribution,

which I you a people in I think past. holiday for as have whatever saw think again, when year, what don't we Wednesday, the a It's exactly on know happened you much never just react. reason, how this

and extend it's maybe land having and the on know pattern, -- things so don't it's XX people holiday that a an down Wednesday, shut a anomaly, maybe then so being forth. and on So yet. But week to days

aren't it not a typically, pattern but modeling either of there So patterns a been a if I'm a -- I that. this we've way, sure terms this don't doing like one-off, caught time, bit guard or forecasting. of off us little is and in long know and

to that's answer. I best way So guess the

Operator

the question-and-answer have closing over We comments. session. call the management turn now end like to reached I'd of to the back for

Lee Rudow

Lee, Transcat. all continued interest you your us Okay. in today. thank joining This is and the appreciate on for call We

be Growth We XXth attending XX. Oppenheimer is Annual Emerging which Conference, the will February

So free for sign us everybody attending any us, who free those meeting of our for again you we'll to are feel you're on results. in check be us call maybe conference, to contact time. and to the on and after Otherwise, up QX conference, a time after that speaking

us. again So you. Thanks thank for care. joining Take

Operator

conference. today's concludes This

your You thank time, may disconnect lines participation. and your at for this we you

Transcat (TRNS) 28 Jan 252025 Q3 Earnings call transcript