Transcat Q1 2026 Earnings Report

Transcat EPS Results

• Actual EPS: $0.59
• Consensus EPS: $0.40
• Beat/Miss: Beat by +$0.19
• One Year Ago EPS: N/A

Transcat Revenue Results

• Actual Revenue: $76.42 million
• Expected Revenue: $72.28 million
• Beat/Miss: Beat by +$4.14 million
• YoY Revenue Growth: N/A

Transcat Announcement Details

• Quarter: Q1 2026
• Date: 8/6/2025
• Time: After Market Closes
• Conference Call Date: Thursday, August 7, 2025
• Conference Call Time: 11:00AM ET

Transcat (NASDAQ:TRNS) provides calibration and laboratory instrument services in the United States, Canada, and internationally. It operates through two segments: Service and Distribution. The Service segment offers calibration, repair, inspection, analytical qualification, preventative maintenance, consulting, and other related services. This segment also provides CalTrak, a proprietary document and asset management system that is used to manage the workflow of its calibration service centers and customers' assets; and Compliance, Control and Cost, an online customer portal that provides its customers with web-based asset management capability, as well as a safe and secure off-site archive of calibration and other service records. The Distribution segment sells and rents test, measurement, and control instruments for customers' test and measurement instrumentation needs, as well as value added services, such as calibration/certification of equipment purchase, equipment rental, used equipment for sale, and equipment kitting. This segment markets and sells its products through website, digital and print advertising, proactive outbound sales, and an inbound call center. The company provides services and products to highly regulated industries, principally life science, which includes companies in the pharmaceutical, biotechnology, medical device, and other FDA-regulated industries; and additional industries, including aerospace and defense industrial manufacturing, energy and utilities, and other industries that require accuracy in processes and confirmation of the capabilities of their equipment. Transcat, Inc. was incorporated in 1964 and is headquartered in Rochester, New York.

Transcat Q1 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Consolidated revenue rose 15% to $76.4 million in Q1, with adjusted EBITDA up 15%, driven by strong demand in calibration and rental services.
• Positive Sentiment: Distribution revenue jumped 19% to $27.3 million and gross profit grew 24%, with margins expanding to 35.2% thanks to a shift toward high-margin rentals.
• Positive Sentiment: Transcat acquired ESCO Calibration, a premier high-end electronics calibration lab serving life sciences and aerospace & defense, expecting swift integration and cost and sales synergies.
• Positive Sentiment: Closed a new five-year credit facility that nearly doubles capital resources, enhancing financial flexibility to support acquisitions and growth strategies.
• Negative Sentiment: First-quarter net income declined to $3.3 million, down $1.1 million year-over-year, reflecting higher interest expense and taxes.

Presentation

[Operator]

Greetings, and welcome to the Transcat Incorporated First Quarter Fiscal Year twenty twenty six Financial Results Call. As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, John Howe, Senior Director of Financial Planning and Analysis. Thank you. John, you may begin.

[John Howe, Senior Director - Finance at Transcat]

Thank you, operator, 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 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 yesterday.

[John Howe, Senior Director - Finance at Transcat]

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.

[John Howe, Senior Director - Finance at Transcat]

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.

[John Howe, Senior Director - Finance at Transcat]

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.

[Lee Rudow, President, CEO & Director at Transcat]

Thank you, John. Good morning, everyone. Thank you for joining us on the call today. I'll begin with a few key messages that highlight our first quarter performance in fiscal twenty twenty six. Our Q1 results yielded stronger than expected year over year revenue and adjusted EBITDA growth.

[Lee Rudow, President, CEO & Director at Transcat]

Consolidated revenue was up 15% to $76,400,000 The growth was primarily driven by consistent demand for our calibration and rental services. Adjusted EBITDA grew 15% as both service and distribution generated double digit revenue growth. Transcat's ability to deliver strong performance amidst a fair amount of economic uncertainty and volatility is a testament to the strength of our diversified portfolio. In addition, regulation along with the high cost of failure continues to drive demand for our calibration services with its associated recurring revenue streams. The team is very pleased with our strong start.

[Lee Rudow, President, CEO & Director at Transcat]

And as we've previously talked about, we expect performance to continue to get stronger as the fiscal twenty twenty six year progresses. Looking a little closer at the Service segment for the first quarter, we recorded our sixty fifth straight quarter of year over year Service revenue growth. Martin Calibration had another strong quarter, their second quarter as part of the Transcat portfolio. Our integrated Transcat and Martin sales teams captured revenue synergies throughout the Midwest region, where we now have a strong presence with Martin's flagship calibration lab. Overall service revenue grew 12% and was in line with our expectations.

[Lee Rudow, President, CEO & Director at Transcat]

Total organic service growth, not including Transcat Solutions, was 2%. The balance of the total service revenue growth came from our combined effort with Martin to drive year over year growth. We believe current new service sales activity levels are supportive of organic growth in historic range of high single digits as the year progresses. On August 5, Transcat acquired ESCO Calibration. This is a deal we've worked on for over ten years and very similar to Martin, represents Transcat's ability to acquire the best of the best within the fragmented calibration services market.

[Lee Rudow, President, CEO & Director at Transcat]

ESCO is the premier provider of specialized high end electronic calibrations. While they primarily service New England's large concentration of highly regulated life science and aerospace and defense manufacturers, they service various other pockets of work throughout the country as one of the very few primary electronics calibration standards labs. ESCO is second to none in terms of quality of their operation. They've consistently invested in state of the art calibration capabilities to support both the aerospace and defense and life science industries. Their technical expertise and dedication to customer service is among the best we've ever seen.

[Lee Rudow, President, CEO & Director at Transcat]

And now they are a Transcat company. Believe me when I say they are difficult to compete with, and we're excited to join our talented teams together. They are a perfect fit for Transcat. Integration will be swift and we expect to achieve both sales and cost synergies as we integrate and leverage our combined forces. Turning to distribution, the heart of our distribution strategy is to be a strong differentiator by generating leads to foster consistent organic service growth.

[Lee Rudow, President, CEO & Director at Transcat]

The unique combination of products, rentals and services continues to amplify the overall Transcat brand. Our first quarter distribution results, driven by our unique suite of rental services, were outstanding. Distribution revenue grew 19% in the quarter and totaled $27,300,000 Distribution gross profits grew 24% as gross margins expanded 130 basis points to 35.2%. The margin growth reflected the continued positive change in mix towards the high margin rentals within the Distribution segment. Our balance sheet remains strong.

[Lee Rudow, President, CEO & Director at Transcat]

We recently closed a five year credit facility that nearly doubles Transcat's capital resources and provides ample capacity to execute our proven acquisition and growth strategies. Overall, Transcat's first quarter results were strong despite the economic volatility. We are pleased to be off to a fast start in fiscal twenty twenty six. With that, I'll turn things over to Tom for a more detailed look at the first quarter financial performance.

[Thomas Barbato, CFO at Transcat]

Thanks, Lee. I'll start on slide five of the earnings deck, which provides detail regarding our revenue on a consolidated basis and by segment for the 2026. First quarter consolidated revenue of $76,400,000 was up 15% versus prior year as both segments grew double digits. Looking at it by segment, service revenue grew 12% despite economic volatility that was in line with expectations. Turning to distribution, revenue of $27,300,000 grew 19%, primarily due to the strong performance from the higher margin rental business.

[Thomas Barbato, CFO at Transcat]

Turning to slide six, our consolidated gross profit for the first quarter of twenty five point eight million dollars was up 14% from the prior year. Service gross profit increased 9% versus the prior year. We continue to leverage higher levels of technician productivity in our differentiated value proposition. The Distribution segment gross profit of 9,600,000 was up 24% with 130 basis points of gross margin expansion to a record 35.2%, driven by the higher margin rental mix. Turning to slide July net income of $3,300,000 decreased 1,100,000 versus prior year, driven by higher interest expense and taxes.

[Thomas Barbato, CFO at Transcat]

Diluted earnings per share came in at $0.35 We report adjusted diluted earnings per share as well to normalize for the impact of upfront and ongoing acquisition related costs. Q1 adjusted diluted earnings per share was $0.59 Flipping to Slide eight, 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's 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 level of non cash expenses that will hit our income statement from acquisition purchase accounting. First quarter consolidated adjusted EBITDA of $11,800,000 increased 15% from the same quarter in the prior year with 10 basis points of margin expansion.

[Thomas Barbato, CFO at Transcat]

Distribution EBITDA increased 49% driven by growth in rentals. 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 nine, operating cash flow was lower versus prior year related to timing of certain working capital items. Q1 capital expenditures were $900,000 higher than prior year and continue to be centered around service segment capabilities, rental pool assets, technology and future growth projects. The spend was in line with expectations.

[Thomas Barbato, CFO at Transcat]

Slide 10 highlights our strong balance sheet. At the end of the quarter, we had total net debt of $32,500,000 with a leverage ratio of 0.82x. Just after quarter end, we closed a new five year syndicated secured credit facility led by M and T Bank and includes additional lenders Wells Fargo and Bank of America. This facility with America's top lenders nearly doubles our access to available capital and provides significant financial flexibility. Our existing revolver and term debt was paid off as part of this transaction.

[Thomas Barbato, CFO at Transcat]

Lastly, we filed our 10 Q yesterday after the market closed. With that, I'll turn it back to you, Lee.

[Lee Rudow, President, CEO & Director at Transcat]

Thanks, Tom. The macro environment continues to be a challenge, but our diversified portfolio of products and services, along with our ability to acquire top tier calibration providers that expand both our geographic footprint and capabilities, have solidified our strong financial profile and differentiated Transcat from the competition. We expect to progressively improve our service organic revenue growth during the fiscal year. And as I stated earlier, barring any further economic deterioration, we anticipate a return to high single digit organic service revenue growth in the 2026. Acquisitions will continue to be important to fortify our core calibration business as well as expand our addressable markets where it makes sense.

[Lee Rudow, President, CEO & Director at Transcat]

We'll continue to leverage continuous process improvement and automation as key drivers of future service margin expansion. Likewise, we expect distribution margins to benefit over time as our rental channel continues to be a higher percentage of the distribution revenue mix. And as always, we focus on generating sustainable long term value for our shareholders. Our leadership team has never been more talented and capable, and we are well positioned to deliver strong results as our strategy continues to be differentiated and defendable. With that, operator, we can open the line for questions.

[Operator]

And our first question comes from Greg Palm with Craig Hallum. Please go ahead.

[Greg Palm, Senior Research Analyst at Craig-Hallum Capital Group LLC]

Yes. Good morning. And congrats on the quarter and the recent acquisition.

[Lee Rudow, President, CEO & Director at Transcat]

Thanks, Greg.

[Thomas Barbato, CFO at Transcat]

Thanks, Greg.

[Greg Palm, Senior Research Analyst at Craig-Hallum Capital Group LLC]

Starting with the results, what really stood out was distribution. So maybe a two parter, but how much of that or I guess was any of that related to sort of pull in revenue getting ahead of any kind of tariff related impacts and just kind of visibility levels going forward, kind of what you're seeing so far in fiscal Q2? Any a little bit more color would be great.

[Thomas Barbato, CFO at Transcat]

Hey, Greg, it's Tom. I'll just say that distribution, we continue to see consistent demand, both on the kind of core distribution side as well as rentals. I think it's indicative of something more than just kind of a pull in due to tariffs. So I'll just kind of leave it at that, but demand continues to be consistent for us.

[Greg Palm, Senior Research Analyst at Craig-Hallum Capital Group LLC]

And in any specific part of that segment end markets that drove the strength? Just in light of the significant outperformance relative sort of prior quarters? And maybe also if you can hit on the gross margin, was it skewed more towards rentals? Is that why we saw such a big jump in margins relative to the last few quarters as well?

[Thomas Barbato, CFO at Transcat]

Yes. I mean, rentals had a really nice quarter. And that anytime we see rental growth like we saw in Q1, we're going to see margins expand. Now that being said, we shouldn't expect 35% plus going forward, but we should expect meaningful year over year growth in distribution margins as we progress through the year.

[Lee Rudow, President, CEO & Director at Transcat]

But I do think over time, Greg, and not next quarter, which is I think what Tom was alluding to, but over time, if you look forward a year or two or even beyond, again, rentals continues to grow, we anticipate it will because it's strategic for us and that's where we allocate capital as it grows, the margins are going to continue to grow. So that mix is is sort of a short term, midterm, and long term play, and will continue through time. And, you know, that that's that's it's strategic for us.

[Greg Palm, Senior Research Analyst at Craig-Hallum Capital Group LLC]

Yeah. Okay. And then I just wanted to spend a minute on ESCO. I don't know if this is a fair question, but maybe kind of hoping to kind of compare in contrast to Martin just knowing it's a similar revenue EBITDA margin profile. That's Martin's obviously been a great acquisition, highly accretive, but what's similar, what's different, can it be a home run like Martin has been so far?

[Lee Rudow, President, CEO & Director at Transcat]

Right. It it can be, and we and we anticipate and expect it will be. The companies are are similar in terms of size, earnings, sort of dominance, if you will. I'm I'm a little reluctant to use that word, but, you know, their strength within a region. One of the differences is that, when you look at ESCO, you're looking at a high end electronics lab.

[Lee Rudow, President, CEO & Director at Transcat]

And these are very, very rare. There's only a few standards level electronic labs in the country. We happen to be one of them. They're a second one, but you can count them on one hand. And so they've invested a lot of money to high end electronics, which lends itself to the highly regulated markets, which we serve.

[Lee Rudow, President, CEO & Director at Transcat]

When you look at Martin, their strength is in dimensional and mechanical measurements, which is very different. And they have a strength there that, you know, definitely, resonates well within medical device, for example. When you think of Minneapolis, think of, you know, Medtronic and Boston Science, St. Jude. And so they have different suites of services.

[Lee Rudow, President, CEO & Director at Transcat]

Now they overlap, you know, if there was a Venn diagram, I would say 30%, 40% overlap, but their specialties are different. And so, we're going to leverage that difference within the regions with which with where they operate. And so I think they're similar but different and the difference is important to us.

[Greg Palm, Senior Research Analyst at Craig-Hallum Capital Group LLC]

Yeah. Okay. All right. Well, looking forward to see how things progress there. Thanks for all the color.

[Lee Rudow, President, CEO & Director at Transcat]

Thanks for the call.

[Operator]

Thank you. We'll take our next question from Max McAllis with Lake Street Markets. Please go ahead.

[Max Michaelis, Equity Research Associate at Lake Street Capital Markets]

Hey guys, thanks for taking my question and congrats on the quarter. I just want to start out with the ESCO acquisition. How would you characterize their growth rate? I mean, would you put it into the service segment of TransCanada, the high single digit growth? Or how would you characterize that, I guess?

[Lee Rudow, President, CEO & Director at Transcat]

I think I would characterize it similar to ours. They're a very high quality company. I've watched them grow for, I mean, many, many years fairly consistently. And you what what ultimately drives the growth is investment in your company, sales, marketing capabilities. They've done that consistently.

[Lee Rudow, President, CEO & Director at Transcat]

They've done a really nice job. And investment in people. Investment in people. It's all part of it. And and even even during our discussions and negotiations, I mean, the people part was really important to them, and that fit like a glove with our value proposition, the way we approach business.

[Lee Rudow, President, CEO & Director at Transcat]

So, yeah, that all you need all those things together, Max, to get the growth over time, and they've they've done a lot of really good things, and and and they've been they've definitely generated consistent growth over time.

[Max Michaelis, Equity Research Associate at Lake Street Capital Markets]

Awesome. Perfect. Hey, we shift to the 2026 expectations. When we talk about high single digit organic revenue growth in the second half, I mean, what does that imply for the Transcat Solutions business? I mean, is the other side of the or is the other parts of the service business going to be growing high single digits, maybe low double digits, then Transcat is going to be still declining?

[Max Michaelis, Equity Research Associate at Lake Street Capital Markets]

Or how do you expect that to kind of shake out throughout the rest of the year?

[Lee Rudow, President, CEO & Director at Transcat]

Yeah, it implies stabilization in part in the solutions business, which was our goal. I mean, solutions business, it's an important differentiator for us. When we go to an organic service business and we include the attributes of that channel for us, those suite of services, it makes us a better company. It makes our value proposition better. It resonates with our customers.

[Lee Rudow, President, CEO & Director at Transcat]

So we're going to continue to drive that. Our goal this year was stabilization and we're making good progress towards that goal. And that's all that's part of the story when we think about high single digits in the back half of the year. That's a contributing factor. In addition to the activity levels we see now and quoting levels, the win rates, you know, it all it all works together.

[Lee Rudow, President, CEO & Director at Transcat]

But yes, solutions is a part of it, and, we expect it to be, you know, stable in the back half of the year.

[Max Michaelis, Equity Research Associate at Lake Street Capital Markets]

Awesome. Thanks for taking my questions, guys.

[Lee Rudow, President, CEO & Director at Transcat]

Yeah. Thank you. Thanks.

[Operator]

Thank you. We'll take our next question from Martin Yang with Oppenheimer. Please go ahead.

[Martin Yang, Senior Analyst at Oppenheimer & Co. Inc.]

Hi. Thanks for taking my question. First, a few questions ESCO sales. Can you maybe give us more context on the timing? What helped to push the deal forward?

[Martin Yang, Senior Analyst at Oppenheimer & Co. Inc.]

Is it do they have an incentivized seller on the Board or in management? You know, what helped you finalize the deal?

[Lee Rudow, President, CEO & Director at Transcat]

So, you know, the deal was finalized because I think the the owner of the company, you know, just reached a point in his career where, you know, he had accomplished his goals, and he was there it was originally a family business, and they've been running it for between forty and fifty years. And I think, you know, we've always stayed in close contact with them, Martin. We've we, you know, we have dinners together and we talk often and it was, you know, just a matter of time. And I think he reached a point in his career where he saw that the best benefit for his people, and again, we talked about the importance of training and development as very he's very passionate about that. And he had it just reached a time when he just felt like going forward, he wanted to focus on other things in the back half of of his life, and and Transcat was the one partner.

[Lee Rudow, President, CEO & Director at Transcat]

He's told me this time and time again that was gonna perpetuate what he created and that was gonna take care of his people and develop them and and and make the company better. So it it all worked together, and it was a matter of time. So, you know, we're really pleased.

[Martin Yang, Senior Analyst at Oppenheimer & Co. Inc.]

Got it. And then within ESCO's business, is there any rental or distribution components? Or is it all services, calibration services?

[Thomas Barbato, CFO at Transcat]

Very, very little. Very little. It's primarily all core calibration services.

[Martin Yang, Senior Analyst at Oppenheimer & Co. Inc.]

Got it. And then can you comment on maybe core distribution versus rental? Is core distribution still decline on a year over year basis? Any is there any divergence of the growth rate between rental and corporate distribution?

[Thomas Barbato, CFO at Transcat]

We saw growth in both core distribution and rentals in the quarter, both parts of that segment performed well. And as I mentioned earlier in response to Greg's questions, we continue to see consistent demand on both sides of that segment as well into Q2.

[Martin Yang, Senior Analyst at Oppenheimer & Co. Inc.]

But if we take a longer term view, do you think is there any updated thought on core distribution? Is it a moderately declining business stable? Or do you see potential for it to start growing again?

[Lee Rudow, President, CEO & Director at Transcat]

No. Our our view, Martin, is is consistent with with with our past view, and that is our strategy is to grow services, because the recurring revenue streams driven by regulation. Rentals is also part of our core strategy to continue to grow that, allocate capital. When it comes to core distribution, we what we wanna do is we wanna maintain it. It's gonna get less capital investment because over the long term, the returns aren't as high as we'd like them to be and it and the opportunity isn't as great as the other areas.

[Lee Rudow, President, CEO & Director at Transcat]

But we do think it's important. It is a differentiator, and we want to maintain it at its current levels. If it were over the long term to decrease a few points here and there, that's fine, because that would reflect our capital allocation. That's what we would expect. It's doing really well right now, but it's not gonna change our view on its strategic value.

[Lee Rudow, President, CEO & Director at Transcat]

Its strategic value is to support our service growth over time, because that differentiates us, and we're going keep doing that. And that's where we see that business going.

[Martin Yang, Senior Analyst at Oppenheimer & Co. Inc.]

Got it. Last question for me on your confidence level for the return to high single digit organic growth. Maybe if I ask you to reg the relevant factors that build that confidence, how important is the stabilization of Transcat Solutions in that equation? And what are the other factors that gave you the confidence?

[Lee Rudow, President, CEO & Director at Transcat]

Well, I mean, when you look at long term, you know, organic growth rates, you're looking number one at capabilities. What work can we do and where can we do it. And when you think about Martin and ESCO just as an example, since their recent acquisitions, every time you make an acquisition like that, you're creating a foundation that's going to foster higher organic growth in the future because you've got more capabilities in a region, and you're gonna be more competitive. So that's a factor. Our ongoing investment in process improvement, capabilities, improving turnaround times so that they're the industry best, that's also gonna improve organic growth rates, and it's gonna, improve customer satisfaction and retention, which is also a major component of organic growth rates.

[Lee Rudow, President, CEO & Director at Transcat]

Solutions is just one of those elements that on certain accounts and certain opportunities, that's going to give us a competitive advantage. On other accounts, it's not going be a factor. So it's just one of the many things we do over time to make us just a little bit better marginally in some places, significantly in others, and, it's all part of it. So at the end of the day, it's going to be capabilities, geography, service levels, retention, and the uniqueness of our value proposition. I think they all work together.

[Lee Rudow, President, CEO & Director at Transcat]

And our goal is to continue to get better in as many or each of those elements as we can over time.

[Martin Yang, Senior Analyst at Oppenheimer & Co. Inc.]

And I think our confidence kind of is somewhat dependent on kind of the macro kind of uncertainty in the trend that we're seeing on that front continuing and further erosion of it, right?

[Lee Rudow, President, CEO & Director at Transcat]

Mean, difficult macro environments, you may see organic growth in the mid single digits or the low single digits. But over time, if you go back over like the last five years, I think we're close to 8%. That's what we would expect things normalize. But you're always going to have the ebbs and flows of the economy, but it's still a really nice business model almost regardless.

[Martin Yang, Senior Analyst at Oppenheimer & Co. Inc.]

Got it. Thanks, Heath. Thanks, Tom. That's it for me.

[Operator]

Thank Our next question comes from Ted Jackson with Northland Securities. Please go ahead.

[Edward Jackson, MD & Senior Research Analyst at Northland Capital Markets]

Thanks. Good morning. Congratulations on the fabulous results.

[Thomas Barbato, CFO at Transcat]

Thanks, Ted.

[Edward Jackson, MD & Senior Research Analyst at Northland Capital Markets]

Thank you. So my first question to you guys. So the outperformance on rental distribution, think I know the answer to this from the previous questions and how you responded to them. But we should view the first quarter kind of the baseline and that, you know, you should it's not a anomaly that as we think about the go forward for rental distribution, it should continue to grow from that base. Like, say, you know, fall back to. The lack of a better term trend line in third quarter and then go from there.

[Lee Rudow, President, CEO & Director at Transcat]

Growth in rentals should not be viewed as an anomaly. I mean, it's part of our strategic plan to grow our rental business. Core distribution had a great quarter. And, of course, we like that.

[Lee Rudow, President, CEO & Director at Transcat]

But if core distribution kind of over time becomes sort of moderated by the fact that it's not strategic for us as in the same way that rentals and services, you would expect that to be, it may continue to have a terrific year, it may continue just to moderate and have an average year. But again, we allocate capital towards where we get the highest returns and that's going to be rentals and service. And so we would expect both those to grow. That's not an anomaly, type of growth that we have.

[Edward Jackson, MD & Senior Research Analyst at Northland Capital Markets]

But I'd be happy say, you've proven almost 20%, which is way above kind of the norm. So it sounds like, just making sure that I'm listening to and your answer. Secondly, with regards to growth and a return to high single digit growth, you're going to have a period of just, bluntly speaking, better comparables as you lap through all the issues that went on with Nexa and such. When we think about organic growth, you know, absent the acquisitions, then I I assume it would be fair to assume that as we roll through this year, that your growth rate, all else being equal would accelerate as the drag from Nexa phase. Is that a good way to think about it? Point eight, know I'm saying?

[Lee Rudow, President, CEO & Director at Transcat]

Yep, is correct.

[Edward Jackson, MD & Senior Research Analyst at Northland Capital Markets]

And would there be a case then given the acquisitions that as we get to the back half of this year, your reported growth rate should be well into double digits with, you know, you know, two really large acquisitions, you know, mean, I'm talking to services here really, but you sound going with this that you really are set up for some very, very good top line.

[Lee Rudow, President, CEO & Director at Transcat]

Correct.

[Edward Jackson, MD & Senior Research Analyst at Northland Capital Markets]

And then, okay. And then my last question is as we look at this fabulous new acquisition that you've done, would it follow, a similar seasonal cadence as your core services business as we think about putting that revenue into our models? Would we, you know, basically, you know, for conversations, say, take $22,000,000 and then layered in on top, like, on a on a pro rata basis to okay.

[Lee Rudow, President, CEO & Director at Transcat]

That's correct. I mean, all three of assumptions are are are are correct and on point. It'll follow the same cycles as our business. And, yeah, that you know, every I agree with what you said across the board.

[Edward Jackson, MD & Senior Research Analyst at Northland Capital Markets]

So and actually, I just forget. I have one more question. One was it's a little more fun. You know? And and so for all the fun that the world is having with Trump, you know, the government change in policies and idea of bringing manufacturing back.

[Edward Jackson, MD & Senior Research Analyst at Northland Capital Markets]

You know, one area that he's putting a lot of effort into is, you know, a lot of things with parts of reassuring of, you know, life sciences, pharmaceuticals in particular. I mean, and so I guess the question is, is are you seeing any activity that is driving the your customer base to expand operations in The US and would that be a tailwind for Transcat if we think out, you know, maybe not this year, but you should going over longer term that, you know, if they make more pharmaceuticals in the country, they start bringing them back. That be good for you and everything. I mean, is that true? And are there other areas?

[Edward Jackson, MD & Senior Research Analyst at Northland Capital Markets]

And are you seeing any kind of dialogue around it? That's my last question.

[Lee Rudow, President, CEO & Director at Transcat]

Look. I'll I'll be very clear. Any and all on shoring of manufacturing in The United States is good for Transcat, period. And the second part of your question is, you know, are we hearing, are we seeing signs or hearing any dialogue around that happening in it, you know, currently? And the answer is also yes.

[Lee Rudow, President, CEO & Director at Transcat]

And we've got we've got several companies that were we do a lot of business with United States, and we're definitely hearing, you know, we're we're gonna be opening x amount of facilities over the next five years. And, I mean, I can I can count several just off the top of my head? Now between that and them actually being up and running and creating opportunities for us on on you know, for our business, that's gonna take time, Ted, as you know. But but we are thinking about it. It is a good thing for us.

[Lee Rudow, President, CEO & Director at Transcat]

It's gonna help our business long term, and we're excited about it. But, you know, I don't wanna get too excited because we're not talking about tailwinds in this year. I mean, it could start next year and the year after, but, you know, it's something that we we absolutely are keeping our eye on. It's absolutely an opportunity for Transcat.

[Edward Jackson, MD & Senior Research Analyst at Northland Capital Markets]

Okay. Thanks for answering my questions. And again, on the quarter and the acquisition.

[Thomas Barbato, CFO at Transcat]

Thanks, Ted. Appreciate it.

[Operator]

Our next question comes from Scott Buck with H. C. Wainwright. Please go ahead.

[Scott Buck, MD & Senior Technology Analyst at H.C. Wainwright & Co., LLC]

Hi, good morning guys. Thanks for taking my questions. Lee, I'm curious first on ESCO, what kind of customer overlap is there with your the legacy Transcat business? Just trying to get my arms around what potential cross selling opportunities could look like.

[Lee Rudow, President, CEO & Director at Transcat]

Okay. As far as overlap, they're about five times larger ish than our facility and our revenue streams in that area. So we do run a Boston facility. And as far as capabilities go, we overlap in capabilities a lot. But we're doing about one fifth of business that they're doing.

[Lee Rudow, President, CEO & Director at Transcat]

I think we bring those operations together sooner rather than later. We leverage our strengths with their strengths. And, you know, we'll be better together. So that that's that's what I would say. As far as the region itself, together, we're gonna be very competitive.

[Lee Rudow, President, CEO & Director at Transcat]

You know, it's it's hard for me to even visualize why we wouldn't continue to grow and and win where and when we want to. So I don't wanna be overconfident, but we're in that position. And so and then, you know, you wanna expand. I mean, I when I look at ESCO, they are very strong. But what they don't have that we have is capital.

[Lee Rudow, President, CEO & Director at Transcat]

And so, you know, we're a public company, and we know how to allocate capital. So if we could leverage their strengths, their expertise, their standards lab, and feed them with capital so that we can capitalize on the opportunities we have together, that's what's going to be unique. And as good and as strong as they are, they're still a small privately held company and now they join forces with us. And together, I think, you know, I like the prospects. So that's what we're excited about.

[Scott Buck, MD & Senior Technology Analyst at H.C. Wainwright & Co., LLC]

Great. That's helpful. And then I'm curious, the company obviously has grown meaningfully over the last few years. Where are you in terms of kind of industry market share? And are there opportunities to shift pricing higher with your current kind of market position?

[Lee Rudow, President, CEO & Director at Transcat]

Well, it's difficult to come up with market share because there's just not a lot of good public information, Scott, around that. So I guess it's a certain degree we don't know. Now there's a lot of in house lab. As far as opportunities for growth, about a third of the market roughly are in house calibration labs. And for those kind of labs, we do their overflow work, we do their standards work and we supplement their labor during certain times.

[Lee Rudow, President, CEO & Director at Transcat]

But there's always an opportunity with every one of those labs to outsource them. We call them CBLs, client based labs. So, we're going to continue to go after that market. Our value proposition around that market is very strong. I can't think of a single competitor that has a strength around outsourcing in house labs like we do.

[Lee Rudow, President, CEO & Director at Transcat]

So we're going to continue as a big opportunity there over time. You've got the OEM business, You got original equipment manufacturers, the key sites, the Agilent, the Tektronix, you've got these companies, Roddy Schwartz and they can do their own cows of their products. But if you go into an average plant and there's a thousand or 10,000 instruments and you and they're managing a 100 vendors, Transcat come in and do it all. So our value proposition is very strong in terms of, you know, competing against individual OEMs within a plant. And then you got the third party market, which is where we are, where ESCO was, where Martin is.

[Lee Rudow, President, CEO & Director at Transcat]

And, that's still a, you know, a very big market. Obviously, our market share is increasing as we make these big acquisitions. But but we've got we've got a pretty good runway ahead of us, and, you know, we're gonna make sure we do the best we can.

[Scott Buck, MD & Senior Technology Analyst at H.C. Wainwright & Co., LLC]

Great. Appreciate the added color guys. Congrats Appreciate again on the

[Lee Rudow, President, CEO & Director at Transcat]

that. Thank you.

[Operator]

That concludes our question and answer session. I would now like to turn it back over to Lee Redrow for closing remarks.

[Lee Rudow, President, CEO & Director at Transcat]

Okay. Well, thank you all for joining us on the call today. Relative to IR, we're going to be busy. On August 12, we'll be attending the Oppenheimer Technology Conference and participating in a fireside chat format with Q and A. On September 18, we'll be attending the DA Davidson conference in Nashville.

[Lee Rudow, President, CEO & Director at Transcat]

That's new for us. On November 17, we'll be attending the Raymond James conference in Sonoma, California. It's also new for us. And, you know, for any of you who are attending any these conferences, feel free to check-in on us or really reach out to us anytime. Tom and I make ourselves available.

[Lee Rudow, President, CEO & Director at Transcat]

We appreciate everybody's interest in Transcat and, joining us on the call today. Take care.

[Operator]

Thank you. And this does conclude today's program. We thank you for your participation. You may disconnect at any time.

Participants

Executives

• John Howe, Senior Director - Finance
• Lee Rudow, President, CEO & Director
• Thomas Barbato, CFO

Analysts

• Greg Palm, Senior Research Analyst at Craig-Hallum Capital Group LLC
• Max Michaelis, Equity Research Associate at Lake Street Capital Markets
• Martin Yang, Senior Analyst at Oppenheimer & Co. Inc.
• Edward Jackson, MD & Senior Research Analyst at Northland Capital Markets
• Scott Buck, MD & Senior Technology Analyst at H.C. Wainwright & Co., LLC