Transcat Inc 10-Q for FY2027 Q2
Transcat Inc (TRNS)
10-Q
2026-11-03
For: 2026-09-26
View Original
Added on
November 03, 2026
About this 10-Q
Transcat Inc filed this 10-Q on November 3, 2026, covering the quarter ended September 26, 2026 (FY2027 Q2).
Transcat Inc now expects fiscal year 2027 Service organic revenue growth in the low double digits, up from a prior high single-digit outlook, alongside at least 100 bps of second-half Service gross margin expansion. AI summary
Headline figures
Quarter ended September 26, 2026, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $97.09M
- up 18.0% from $82.27M a year earlier
- Net income
- $2.41M
- up 90.1% from net income of $1.27M a year earlier
- Diluted EPS
- $0.25
- up 78.6% from $0.14 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-Q
(Mark one)
For the quarterly period ended: September 26, 2026
or
For the transition period from to________
Commission File Number: 000-03905
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||
(Address of principal executive offices) (Zip Code)
(585 ) 352-7777
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☑ Yes No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☑ Yes No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Accelerated filer ☐ | |||||
| Non-accelerated filer ☐ | |||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes No ☑
The number of shares of common stock, par value $0.50 per share, of the registrant outstanding as of October 30, 2026 was 9,404,846 .
| Page(s) | ||||||||
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TRANSCAT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts in Thousands, Except Per Share Amounts)
| Second Quarter Ended | Six Months Ended | ||||||||||||||||||||||
| September 26, 2026 | September 27, 2025 | September 26, 2026 | September 27, 2025 | ||||||||||||||||||||
| Service Revenue | $ | $ | $ | $ | |||||||||||||||||||
| Distribution Revenue | |||||||||||||||||||||||
| Total Revenue | |||||||||||||||||||||||
| Cost of Service Revenue | |||||||||||||||||||||||
| Cost of Distribution Revenue | |||||||||||||||||||||||
| Total Cost of Revenue | |||||||||||||||||||||||
| Gross Profit | |||||||||||||||||||||||
| Selling, Marketing and Warehouse Expenses | |||||||||||||||||||||||
| General and Administrative Expenses | |||||||||||||||||||||||
| Total Operating Expenses | |||||||||||||||||||||||
| Operating Income | |||||||||||||||||||||||
| Interest Expense | |||||||||||||||||||||||
| Interest Income | ( | ( | ( | ( | |||||||||||||||||||
| Other Expense | |||||||||||||||||||||||
| Total Interest and Other Expense, net | |||||||||||||||||||||||
| Income Before Provision for Income Taxes | |||||||||||||||||||||||
| Provision for Income Taxes | |||||||||||||||||||||||
| Net Income | $ | $ | $ | $ | |||||||||||||||||||
| Basic Earnings Per Share | $ | $ | $ | $ | |||||||||||||||||||
| Basic Average Shares Outstanding | |||||||||||||||||||||||
| Diluted Earnings Per Share | $ | $ | $ | $ | |||||||||||||||||||
| Diluted Average Shares Outstanding | |||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
1
TRANSCAT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollars in Thousands)
| Second Quarter Ended | Six Months Ended | ||||||||||||||||||||||
| September 26, 2026 | September 27, 2025 | September 26, 2026 | September 27, 2025 | ||||||||||||||||||||
| Net Income | $ | $ | $ | $ | |||||||||||||||||||
| Other Comprehensive Income: | |||||||||||||||||||||||
| Currency Translation Adjustment | ( | ( | |||||||||||||||||||||
Other, net of tax effects of $ | ( | ( | |||||||||||||||||||||
| Total Other Comprehensive (Loss)/Income | ( | ( | |||||||||||||||||||||
| Comprehensive Income | $ | $ | $ | $ | |||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
2
TRANSCAT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in Thousands, Except Share and Per Share Amounts)
| September 26, 2026 | March 28, 2026 | ||||||||||
| ASSETS | |||||||||||
| Current Assets: | |||||||||||
| Cash and Cash Equivalents | $ | $ | |||||||||
Accounts Receivable, less allowance for credit losses of $ | |||||||||||
| Other Receivables | |||||||||||
| Inventory | |||||||||||
| Prepaid Expenses and Other Current Assets | |||||||||||
| Total Current Assets | |||||||||||
| Property and Equipment, net | |||||||||||
| Goodwill | |||||||||||
| Intangible Assets, net | |||||||||||
| Right to Use Assets | |||||||||||
| Other Assets | |||||||||||
| Total Assets | $ | $ | |||||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||
| Current Liabilities: | |||||||||||
| Accounts Payable | $ | $ | |||||||||
| Accrued Compensation and Other Current Liabilities | |||||||||||
| Total Current Liabilities | |||||||||||
| Long-Term Debt | |||||||||||
| Deferred Tax Liabilities, net | |||||||||||
| Lease Liabilities | |||||||||||
| Other Liabilities | |||||||||||
| Total Liabilities | |||||||||||
| Commitments and Contingencies (Note 6) | |||||||||||
| Shareholders' Equity: | |||||||||||
Common Stock, par value $ | |||||||||||
| Capital in Excess of Par Value | |||||||||||
| Accumulated Other Comprehensive Loss | ( | ( | |||||||||
| Retained Earnings | |||||||||||
| Total Shareholders' Equity | |||||||||||
| Total Liabilities and Shareholders' Equity | $ | $ | |||||||||
See accompanying notes to condensed consolidated financial statements.
3
TRANSCAT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
| Six Months Ended | |||||||||||
| September 26, 2026 | September 27, 2025 | ||||||||||
| Cash Flows from Operating Activities: | |||||||||||
| Net Income | $ | $ | |||||||||
| Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: | |||||||||||
| Net Loss on Disposal of Property and Equipment | |||||||||||
| Noncash Lease Expense | |||||||||||
| Deferred Income Taxes | |||||||||||
| Depreciation and Amortization | |||||||||||
| Amortization of Deferred Financing Costs | |||||||||||
| Provision for Accounts Receivable and Inventory Reserves | |||||||||||
| Stock-Based Compensation Expense | |||||||||||
| Changes in Assets and Liabilities, net of acquisitions: | |||||||||||
| Accounts Receivable and Other Receivables | ( | ( | |||||||||
| Inventory | |||||||||||
| Prepaid Expenses and Other Assets | |||||||||||
| Accounts Payable | ( | ||||||||||
| Accrued Compensation and Other Current Liabilities | ( | ( | |||||||||
| Lease Liabilities | ( | ( | |||||||||
| Net Cash Provided by Operating Activities | |||||||||||
| Cash Flows from Investing Activities: | |||||||||||
| Purchase of Property and Equipment | ( | ( | |||||||||
| Business Acquisitions, net of Cash Acquired | ( | ( | |||||||||
| Net Cash Used in Investing Activities | ( | ( | |||||||||
| Cash Flows from Financing Activities: | |||||||||||
| Proceeds from Revolving Credit Facility, net of Lender Fees | |||||||||||
| Repayment of Revolving Credit Facility | ( | ( | |||||||||
| Repayments of Term Loan | ( | ||||||||||
| Payments of Deferred Financing Costs | ( | ||||||||||
| Issuance of Common Stock, net of Direct Costs | |||||||||||
| Repayment of Financing Leases | ( | ||||||||||
| Taxes Paid Related to Net Share Settlement of Equity Awards | ( | ( | |||||||||
| Net Cash Provided by Financing Activities | |||||||||||
| Effect of Exchange Rate Changes on Cash and Cash Equivalents | ( | ||||||||||
| Net Increase in Cash and Cash Equivalents | |||||||||||
| Cash and Cash Equivalents at Beginning of Period | |||||||||||
| Cash and Cash Equivalents at End of Period | $ | $ | |||||||||
4
TRANSCAT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
(Dollars in Thousands)
| Six Months Ended | |||||||||||
| September 26, 2026 | September 27, 2025 | ||||||||||
| Supplemental Disclosure of Cash Flow Activity: | |||||||||||
| Cash paid during the period for: | |||||||||||
| Interest, net | $ | $ | |||||||||
| Income Taxes, net | $ | $ | |||||||||
| Supplemental Disclosure of Non-Cash Investing and Financing Activities: | |||||||||||
| Common Stock Issued for Acquisition-Related Holdbacks | $ | $ | |||||||||
| Purchases of Property and Equipment in Accounts Payable | $ | $ | |||||||||
| Financing Lease Assets Obtained in Exchange for Finance Lease Liabilities | $ | $ | |||||||||
| Operating Lease Assets Obtained in Exchange for Operating Lease Liabilities | $ | $ | |||||||||
| Balance Sheet Reclassification of Inventory to Property and Equipment | $ | $ | |||||||||
| Balance Sheet Reclassification of Property and Equipment, net to Inventory | $ | $ | |||||||||
See accompanying notes to condensed consolidated financial statements.
5
TRANSCAT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Amounts in Thousands, Except Par Value Amounts)
(Unaudited)
Common Stock Issued $ | Capital In Excess of Par Value | Accumulated Other Comprehensive (Loss) | Retained Earnings | Total | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance as of March 28, 2026 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
| Issuance of Common Stock | - | - | |||||||||||||||||||||||||||||||||
| Shares withheld for employee taxes on vesting of stock awards | ( | ( | ( | - | ( | ( | |||||||||||||||||||||||||||||
| Stock-Based Compensation | - | - | - | - | |||||||||||||||||||||||||||||||
| Other Comprehensive Loss | - | - | - | ( | - | ( | |||||||||||||||||||||||||||||
| Net Income | - | - | - | - | |||||||||||||||||||||||||||||||
| Balance as of June 27, 2026 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
| Issuance of Common Stock | — | — | |||||||||||||||||||||||||||||||||
| Shares withheld for employee taxes on vesting of stock awards | ( | ( | ( | - | ( | ( | |||||||||||||||||||||||||||||
| Stock-Based Compensation | - | - | - | - | |||||||||||||||||||||||||||||||
| Other Comprehensive Income | - | - | - | - | |||||||||||||||||||||||||||||||
| Net Income | - | - | - | - | |||||||||||||||||||||||||||||||
| Balance as of September 26, 2026 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
Common Stock Issued $ | Capital In Excess of Par Value | Accumulated Other Comprehensive (Loss) | Retained Earnings | Total | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance as of March 29, 2025 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
| Issuance of Common Stock | - | - | |||||||||||||||||||||||||||||||||
| Shares withheld for employee taxes on vesting of stock awards | - | - | - | ||||||||||||||||||||||||||||||||
| Stock-Based Compensation | - | - | - | - | |||||||||||||||||||||||||||||||
| Other Comprehensive Income | - | - | - | - | |||||||||||||||||||||||||||||||
| Net Income | - | - | - | - | |||||||||||||||||||||||||||||||
| Balance as of June 28, 2025 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
| Issuance of Common Stock | - | - | |||||||||||||||||||||||||||||||||
| Shares withheld for employee taxes on vesting of stock awards | - | - | ( | - | ( | ( | |||||||||||||||||||||||||||||
| Stock-Based Compensation | - | - | - | - | |||||||||||||||||||||||||||||||
| Other Comprehensive Loss | - | - | - | ( | - | ( | |||||||||||||||||||||||||||||
| Net Income | - | - | - | - | |||||||||||||||||||||||||||||||
| Balance as of September 27, 2025 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
6
TRANSCAT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1– GENERAL
Description of Business: Transcat, Inc. (“Transcat,” “we,” “us,” “our” or the “Company”) is a leading provider of accredited calibration services, cost control and optimization services, and distribution and rental of value-added professional grade handheld test, measurement and control instrumentation. The Company is focused on providing services and products to highly regulated industries, particularly the life sciences industry, which includes pharmaceutical, biotechnology, medical device and other FDA-regulated businesses. Additional industries served include industrial manufacturing; energy and utilities, including oil and gas; chemical manufacturing; FAA-regulated businesses, including aerospace and defense and other industries that require accuracy in their processes, confirmation of the capabilities of their equipment, and for which the risk of failure is very costly.
Basis of Presentation: Transcat’s unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, the Condensed Consolidated Financial Statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of the Company’s management, all adjustments considered necessary for a fair presentation (consisting of normal recurring adjustments) have been included. The results for the interim periods are not necessarily indicative of what the results will be for the fiscal year. The accompanying Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements as of and for the fiscal year ended March 28, 2026 (“fiscal year 2026”) contained in the Company’s Annual Report on Form 10-K for fiscal year 2026 filed with the SEC.
Use of Estimates: The preparation of Transcat’s Condensed Consolidated Financial Statements in accordance with GAAP requires that the Company make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions are used for, but not limited to, revenue recognition, estimated lives of intangible assets, fair value of the Company's reporting units, income taxes, and the valuation of assets acquired, liabilities assumed and consideration transferred in business acquisitions. Future events and their effects cannot be predicted with certainty; accordingly, accounting estimates require the exercise of judgment. The accounting estimates used in the preparation of the Condensed Consolidated Financial Statements may change as new events occur, as more experience is acquired, as additional information is obtained and as the operating environment changes. Actual results could differ from those estimates. Such changes and refinements in estimation methodologies are reflected in reported results of operations in the period in which the changes are made and, if material, their effects are disclosed in the Notes to the Condensed Consolidated Financial Statements.
Cash and Cash Equivalents: Cash equivalents consist of highly liquid investments with an original maturity, when purchased, of three months or less and are stated at cost, which approximates fair value.
7
A summary of changes in the Company’s allowance for credit losses is as follows (amounts in thousands):
| Six Months Ended | |||||||||||
| September 26, 2026 | September 27, 2025 | ||||||||||
Allowance for Credit Losses, Beginning Balance | $ | ( | $ | ( | |||||||
Provision for Credit Losses | ( | ( | |||||||||
Other (a) | ( | ( | |||||||||
Write-offs, net of Recoveries | |||||||||||
Effect of Foreign Exchange on Allowance for Credit losses | ( | ||||||||||
Allowance for Credit Losses, Ending Balance | $ | ( | $ | ( | |||||||
(a) Represents allowance for credit losses on acquired accounts receivable | |||||||||||
A summary of changes in the Company’s goodwill is as follows (amounts in thousands):
| Goodwill | |||||||||||||||||
| Distribution | Service | Total | |||||||||||||||
| Net Book Value as of March 28, 2026 | $ | $ | $ | ||||||||||||||
| Additions | |||||||||||||||||
| Measurement Period Adjustments | ( | ( | ( | ||||||||||||||
| Currency Translation Adjustments | ( | ( | ( | ||||||||||||||
| Net Book Value as of September 26, 2026 | $ | $ | $ | ||||||||||||||
8
The gross carrying amount and accumulated amortization of Transcat's acquired identifiable intangible assets as of September 26, 2026 were as follows (in thousands):
| Gross Carrying Amount | Accumulated Amortization | Total | |||||||||||||||
| Customer Base | $ | $ | ( | $ | |||||||||||||
| Covenant not to Compete | ( | ||||||||||||||||
| Tradenames/Trademarks | ( | ||||||||||||||||
| Other | ( | ||||||||||||||||
| Intangible Assets, net | $ | $ | ( | $ | |||||||||||||
The gross carrying amount and accumulated amortization of Transcat's acquired identifiable intangible assets as of March 28, 2026 were as follows (in thousands):
| Gross Carrying Amount | Accumulated Amortization | Total | |||||||||||||||
| Customer Base | $ | $ | ( | $ | |||||||||||||
| Covenant not to Compete | ( | ||||||||||||||||
| Tradenames/Trademarks | ( | ||||||||||||||||
| Other | ( | ||||||||||||||||
| Intangible Assets, net | $ | $ | ( | $ | |||||||||||||
Amortization expense relating to intangible assets is expected to be (amounts in thousands):
| Fiscal Year | Amount | ||||
Six months remaining in 2027 | $ | ||||
2028 | |||||
2029 | |||||
2030 | |||||
2031 | |||||
Thereafter | |||||
Total | $ | ||||
Amortization expense relating to intangible assets was $3.5 million and $7.0 million in the three and six months ended September 26, 2026, respectively. Amortization expense relating to intangible assets was $3.5 million and $6.3 million in the three and six months ended September 27, 2025, respectively, and is recorded in Selling, Marketing and Warehouse Expenses in the Company's Condensed Consolidated Statements of Income.
9
Other Liabilities: A summary of other current and non-current liabilities is as follows (amounts in thousands):
| (Unaudited) | (Audited) | ||||||||||
| September 26, 2026 | March 28, 2026 | ||||||||||
| Current Liabilities: | |||||||||||
| Accrued Payroll and Employee Benefits | $ | $ | |||||||||
| Accrued Incentives | |||||||||||
| Current Portion of Lease Liabilities - Operating | |||||||||||
| Current Portion of Lease Liabilities - Financing | |||||||||||
| Accrued Acquisition Holdbacks | |||||||||||
| Accrued Sales Tax | |||||||||||
| Other Current Liabilities | |||||||||||
| Accrued Compensation and Other Current Liabilities | $ | $ | |||||||||
| Non-Current Liabilities: | |||||||||||
| Postretirement Benefit Obligation | $ | $ | |||||||||
| Other Liabilities | $ | $ | |||||||||
Revenue Recognition: The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers. The Company generates revenue from distribution product sales, equipment rental arrangements, and service offerings.
For rental and certain service arrangements that extend across reporting periods, the Company records unbilled revenue or deferred revenue, as applicable, to reflect revenue recognized in advance of or subsequent to billing. Deferred revenue, unbilled revenue, and deferred contract costs recorded on the Company’s Condensed Consolidated Balance Sheets as of September 26, 2026 and March 28, 2026 were immaterial. Revenue recognized during the six months ended September 26, 2026 from performance obligations satisfied in prior periods was immaterial.
The application of ASC 606 requires management to exercise judgment in identifying performance obligations, determining whether such obligations are satisfied at a point in time or over time, and estimating transaction prices. These judgments primarily relate to product shipment terms, service completion criteria, and the determination of the appropriate pattern of revenue recognition for rental and managed service arrangements.
Estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting periods was $9.1 million and $7.5 million as of September 26, 2026 and September 27, 2025, respectively. These are expected to be recognized revenue in one year or less. As of September 26, 2026, the Company had a de minimis amount of unsatisfied performance obligations for contracts with an original expected duration of greater than one year. Accordingly, the Company has elected to not disclose information about remaining performance obligations for long-term arrangements.
See Note 4 for disaggregated revenue information related to the Company's segments and geographical data.
The following table presents a summary of the Company's net sales by revenue recognition method as a percentage of total net sales:
| % of Total Net Sales | % of Total Net Sales | ||||||||||||||||||||||
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| September 26, 2026 | September 27, 2025 | September 26, 2026 | September 27, 2025 | ||||||||||||||||||||
| Point-in-Time | % | % | % | % | |||||||||||||||||||
| Over Time - Output Method | % | % | % | % | |||||||||||||||||||
| Total | % | % | % | % | |||||||||||||||||||
10
Earnings Per Share: Basic earnings per share of the Company's common stock, par value $0.50 per share ("common stock"), are computed based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share of common stock reflect the assumed conversion of stock options, unvested restricted stock units using the treasury stock method and contingent consideration classified as equity in periods in which they have a dilutive effect. In computing the per share effect of assumed conversion, proceeds received from the exercise of options and unvested restricted stock units are considered to have been used to purchase shares of common stock at the average market prices during the period, and the resulting net additional shares of common stock are included in the calculation of average shares of common stock outstanding.
For the second quarters of fiscal years 2027 and 2026, the net additional common stock equivalents had a $0.01 and $— effect on the calculation of diluted earnings per share, respectively. For the first six months of fiscal years 2027 and 2026, the net additional common stock equivalents had a $— and $0.01 effect on the calculation of diluted earnings per share, respectively. The average shares outstanding used to compute basic and diluted earnings per share are as follows (amounts in thousands):
| Second Quarter Ended | Six Months Ended | ||||||||||||||||||||||
| September 26, 2026 | September 27, 2025 | September 26, 2026 | September 27, 2025 | ||||||||||||||||||||
| Average Shares Outstanding – Basic | |||||||||||||||||||||||
| Effect of Dilutive Common Stock Equivalents | |||||||||||||||||||||||
| Average Shares Outstanding – Diluted | |||||||||||||||||||||||
| Anti-dilutive Common Stock Securities | |||||||||||||||||||||||
Recent Accounting Guidance Not Yet Adopted:
In November 2024, the FASB issued ASU 2024-03 “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses” which requires public entities to disclose specified information about certain costs and expenses. ASU 2024-03 is effective for annual reporting periods beginning in fiscal 2028, and interim reporting periods beginning after December 15, 2027, with early adoption permitted. The Company continues to assess the impact the ASU will have on its financial statement disclosures.
NOTE 2– LONG-TERM DEBT
In April 2026, the Company borrowed $13.0 million under the Credit Facility for the acquisitions of SCM Metrology and Laboratories S.A. and SCM Metrologia Honduras, S.A. (together, "SCM"). In June 2026, the Company repaid $2.5 million. In August 2026, the Company borrowed $6.5 million for the acquisition of Southeastern Biomedical Associates, LLC ("Southeastern").
As of September 26, 2026, $150.0 million was available for borrowing, subject to covenant restrictions, under the Credit Facility, of which $116.9 million was outstanding.
Interest and Other Costs: The Company’s weighted average interest rate for the revolving credit facility for the three months ended September 26, 2026 was 5.2 %.
11
Covenants: The Company was in compliance with all financial covenants and requirements during and as of the six months ended September 26, 2026.
12
NOTE 3– STOCK-BASED COMPENSATION
Restricted Stock Units:
The following table summarizes the non-vested restricted stock units outstanding as of September 26, 2026 (in thousands, except per unit data):
| Number Of RSUs | Weighted Average Grant Date Fair Value | ||||||||||
| Outstanding as of March 28, 2026 | $ | ||||||||||
| Granted | $ | ||||||||||
| Vested | $ | ||||||||||
| Forfeited | $ | ||||||||||
| Outstanding as of September 26, 2026 | $ | ||||||||||
Total expense relating to restricted stock units, based on grant date fair value and the achievement criteria, was $2.2 million and $4.2 million for the three and six months ended September 26, 2026, respectively. The expense related to restricted stock units for the three and six months ended September 27, 2025 was $1.8 million and $2.5 million, respectively. As of September 26, 2026, unearned compensation, to be recognized over the grants’ respective service periods, totaled $12.8 million based on estimated achievement levels as of September 26, 2026. If the maximum performance levels were achieved, the unearned compensation could be as much as $14.8 million.
Stock Options: There were no stock option grants for the first six months of fiscal year 2027. The following weighted-average assumptions were used to value options granted during the first six months of fiscal year 2026:
| Second Quarter Ended | Six Months Ended | ||||||||||
| September 27, 2025 | September 27, 2025 | ||||||||||
| Risk-Free Interest Rate | % | % | |||||||||
| Volatility Factor | % | % | |||||||||
| Expected Term (in Years) | |||||||||||
| Annual Dividend Rate | % | % | |||||||||
The expense related to all stock option awards was less than $0.1 million and $0.1 million for the three and six months ended September 26, 2026, respectively. Total expense related to all stock option awards for the three and six months ended September 27, 2025 was $0.2 million and $0.4 million, respectively.
13
The following table summarizes the Company’s options as of and for the first six months ended September 26, 2026 (in thousands, except price per option data and years):
| Number Of Options | Weighted Average Exercise Price Per Option | Weighted Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value | ||||||||||||||||||||
| Outstanding as of March 28, 2026 | $ | ||||||||||||||||||||||
| Granted | $ | ||||||||||||||||||||||
| Exercised | ( | $ | |||||||||||||||||||||
| Forfeited | ( | $ | |||||||||||||||||||||
| Expired | ( | $ | |||||||||||||||||||||
| Outstanding as of September 26, 2026 | $ | $ | |||||||||||||||||||||
| Exercisable as of September 26, 2026 | $ | $ | |||||||||||||||||||||
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the second quarter of fiscal year 2027 and the exercise price, multiplied by the number of in-the-money stock options) that would have been received by the option holders had all holders exercised their options on September 26, 2026. The amount of aggregate intrinsic value will change based on the fair market value of the Company’s common stock.
NOTE 4– SEGMENT INFORMATION
Transcat has two reportable segments: Service and Distribution. Through its Service segment, the Company offers calibration, repair, inspection, analytical qualifications, preventative maintenance, consulting and other related services. Through its Distribution segment, the Company sells and rents national and proprietary brand instruments to customers globally. There are no intersegment revenues.
The CODM does not review assets or other balance sheet information in evaluating the results of the Company's segments, and therefore, such information is not presented.
14
| Three Months Ended September 26, 2026: | |||||||||||||||||
| Distribution | Service | Total | |||||||||||||||
| Revenue | $ | $ | $ | ||||||||||||||
| Less Significant Segment Expenses | |||||||||||||||||
| Cost of Revenue | |||||||||||||||||
| Selling, Marketing & Warehouse Expenses | |||||||||||||||||
| General and Administrative Expenses | |||||||||||||||||
| Operating Income | $ | $ | $ | ||||||||||||||
| Reconciliation of Segment Operating Income to Income Before Taxes | |||||||||||||||||
| Interest Expense | |||||||||||||||||
| Interest Income | ( | ||||||||||||||||
| Other Expense | |||||||||||||||||
| Income Before Provision For Income Taxes | $ | ||||||||||||||||
Capital Expenditures (1) | $ | $ | |||||||||||||||
| Depreciation and Amortization | $ | $ | |||||||||||||||
| Six Months Ended September 26, 2026: | |||||||||||||||||
| Distribution | Service | Total | |||||||||||||||
| Revenue | $ | $ | $ | ||||||||||||||
| Less Significant Segment Expenses | |||||||||||||||||
| Cost of Revenue | |||||||||||||||||
| Selling, Marketing & Warehouse Expenses | |||||||||||||||||
| General and Administrative Expenses | |||||||||||||||||
| Operating Income | $ | $ | $ | ||||||||||||||
| Reconciliation of Segment Operating Income to Income Before Taxes | |||||||||||||||||
| Interest Expense | |||||||||||||||||
| Interest Income | ( | ||||||||||||||||
| Other (Income) Expense | |||||||||||||||||
| Income (Loss) Before Provision For Income Taxes | $ | ||||||||||||||||
Capital Expenditures (1) | $ | $ | |||||||||||||||
| Depreciation and Amortization | $ | $ | |||||||||||||||
15
| Three Months Ended September 27, 2025: | |||||||||||||||||
| Distribution | Service | Total | |||||||||||||||
| Revenue | $ | $ | $ | ||||||||||||||
| Less Significant Segment Expenses | |||||||||||||||||
| Cost of Revenue | |||||||||||||||||
| Selling, Marketing & Warehouse Expenses | |||||||||||||||||
| General and Administrative Expenses | |||||||||||||||||
| Operating Income | $ | $ | $ | ||||||||||||||
| Reconciliation of Segment Operating Income to Income Before Taxes | |||||||||||||||||
| Interest Expense | |||||||||||||||||
| Interest Income | ( | ||||||||||||||||
| Other Expense | |||||||||||||||||
| Income Before Provision For Income Taxes | $ | ||||||||||||||||
Capital Expenditures (1) | $ | $ | |||||||||||||||
| Depreciation and Amortization | $ | $ | |||||||||||||||
| Six Months Ended September 27, 2025: | |||||||||||||||||
| Distribution | Service | Total | |||||||||||||||
| Revenue | $ | $ | $ | ||||||||||||||
| Less Significant Segment Expenses | |||||||||||||||||
| Cost of Revenue | |||||||||||||||||
| Selling, Marketing & Warehouse Expenses | |||||||||||||||||
| General and Administrative Expenses | |||||||||||||||||
| Operating Income | $ | $ | $ | ||||||||||||||
| Reconciliation of Segment Operating Income to Income Before Taxes | |||||||||||||||||
| Interest Expense | |||||||||||||||||
| Interest Income | ( | ||||||||||||||||
| Other Expense | |||||||||||||||||
| Income Before Provision For Income Taxes | $ | ||||||||||||||||
Capital Expenditures (1) | $ | $ | |||||||||||||||
| Depreciation and Amortization | $ | $ | |||||||||||||||
(1) Capital expenditures by segment may differ from the cash flow statement due to unpaid invoices at quarter end.
The following tables present geographic data for the first six months of fiscal year 2027 and fiscal year 2026 (dollars in thousands):
| Second Quarter Ended | Six Months Ended | ||||||||||||||||||||||
| September 26, 2026 | September 27, 2025 | September 26, 2026 | September 27, 2025 | ||||||||||||||||||||
Revenue (1): | |||||||||||||||||||||||
United States (2) | $ | $ | $ | $ | |||||||||||||||||||
| Canada | |||||||||||||||||||||||
| Other International | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
16
| September 26, 2026 | March 28, 2026 | ||||||||||
| Property and Equipment: | |||||||||||
United States (2) | $ | $ | |||||||||
| Canada | |||||||||||
| Other International | |||||||||||
| Total | $ | $ | |||||||||
(1)Revenues are attributed to the countries based on the destination of a product shipment or the location where service is rendered.
(2)United States includes Puerto Rico.
NOTE 5– BUSINESS ACQUISITIONS
Southeastern Biomedical Associates: Effective August 31, 2026, the Company acquired 100 % of the membership units of Southeastern. Southeastern is a privately-held company that provides calibration, repair, preventive maintenance, electrical safety inspection, and documentation and regulatory compliance services to hospital networks and healthcare facilities throughout and beyond the southeastern United States. In addition, the ISO/IEC 17025 and ISO 9001 certified company sells biomedical equipment, patient-ready accessories and equipment parts, and assists customers with equipment acquisition and asset liquidation. The acquisition price of approximately $12.8 million was paid in cash and is subject to customary adjustments and holdback provisions. The purchase price was financed by a draw on the Credit Facility and cash on hand.
The Company has preliminarily estimated fair values for the assets purchased and liabilities assumed as of the date of the acquisition. These amounts are considered preliminary as the Company is completing the analysis needed to settle working capital and the valuations required to allocate the purchase price. The primary assets acquired include goodwill of $7.0 million and Customer Base and Contracts of $5.0 million, which are expected to be deductible for income tax purposes. Customer Base and Contracts will be amortized over 13 years. Goodwill and intangible assets related to the Southeastern acquisition have been allocated to both of the Company's segments: 66 % to Service and 34 % to Distribution.
SCM: Effective April 9, 2026, the Company acquired 100 % of the equity associated with SCM, a privately-held calibration services provider, based in Costa Rica to advance the Company's strategy to grow alongside customers in high-growth, highly regulated markets. The acquisition price of approximately $12.8 million was paid in cash and is subject to customary adjustments and holdback provisions. The purchase price was primarily financed by a draw on the Credit Facility.
The Company has preliminarily estimated fair values for the assets purchased and liabilities assumed as of the date of the acquisition. These amounts are considered preliminary as the Company is completing the analysis needed to settle working capital and the valuations required to allocate the purchase price. During the second quarter of fiscal 2027, the Company recorded a measurement period adjustment that decreased goodwill by $0.1 million, primarily due to an increase in the preliminary fair value assigned to acquired net assets based on information obtained during the measurement period. The primary assets acquired include goodwill of $8.9 million and Customer Base and Contracts of $4.0 million, which will not be deductible for income tax purposes. Customer Base and Contracts will be amortized over 14 years. Goodwill and intangible assets related to the SCM acquisition have been allocated to both of the Company's segments: 70 % to Service and 30 % to Distribution.
Essco: Effective August 5, 2025, the Company acquired 100 % of the membership units of Essco Calibration Laboratory, LLC (“Essco”), a privately-held calibration services corporation located in the Boston Metro area that is ISO 17025 certified. This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that expand the Company’s geographic reach and the depth and breadth of the Company’s service capabilities.
The Essco goodwill is primarily attributable to the workforce acquired, as well as operational synergies and other intangibles that do not qualify for separate recognition. The goodwill and intangible assets related to the Essco acquisition have been allocated to the Service segment. Intangible assets related to the Essco acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful lives of up to 15 years and are deductible for tax purposes. Amortization of goodwill related to the Essco acquisition is deductible for income tax purposes.
The Essco Customer Base & Contracts intangible asset was calculated using the MPEEM (Multi-Period Excess Earnings Method) under the Income approach and adjusting for the cash flow benefit of tax amortization of purchased intangibles.
17
The fair value was determined to be $34.0 million and was assigned a useful life of 15 years. The Essco Trademarks and Tradenames intangible asset was calculated using the Relief-From-Royalty Method, which is a variant of the income approach and the market approach, and adjusting for the cash flow benefit of tax amortization of purchased intangibles. The fair value was determined to be $2.7 million and was assigned a useful life of seven years . The weighted average useful life of acquired intangible assets acquired is 14 years.
The total purchase price for Essco is $85.4 million. As of September 26, 2026, $0.9 million remains unpaid and is reflected in accrued compensation and other current liabilities in the Condensed Consolidated Balance Sheets.
The Company estimated fair values for the assets purchased and liabilities assumed as of the date of the acquisition. The following is a summary of the final purchase price allocation, in the aggregate, to the fair value of Essco's assets and liabilities acquired on August 5, 2025 (in thousands):
| Goodwill | $ | |||||||
| Intangible Asset – Customer Base & Contracts | ||||||||
| Intangible Asset – Trademarks and Tradenames | ||||||||
| Plus: | Cash and Cash Equivalents | |||||||
| Accounts Receivable, Net | ||||||||
| Property and Equipment, Net | ||||||||
| Right To Use Assets | ||||||||
| Prepaid Expenses and Other Current Assets | ||||||||
| Other Assets | ||||||||
| Less: | Current Liabilities | ( | ||||||
| Lease Liabilities | ( | |||||||
| Total Purchase Price | $ | |||||||
Certain of the Company’s acquisition agreements include provisions for contingent consideration and other holdback amounts. The Company accrues for contingent consideration and holdback provisions based on the estimated fair value at the date of acquisition and at subsequent remeasurement dates, as applicable. During the second quarter of fiscal year 2027, the Company issued approximately 17,000 shares to settle a holdback with Axiom Test Equipment. As of September 26, 2026, no contingent consideration and $0.9 million of other holdback amounts were unpaid and are reflected in Accrued Compensation and Other Current Liabilities on the Condensed Consolidated Balance Sheets.
During the three and six months ended September 26, 2026, acquisition costs were $0.5 million and $1.1 million, respectively, and during the three and six months ended September 27, 2025, acquisition costs were $0.5 million and $0.5 million, respectively, and were recorded as incurred as general and administrative expenses in the Condensed Consolidated Statements of Income.
NOTE 6– COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company may have pending claims and legal proceedings. The Company maintains accrued expense balances for the estimated amounts of legal costs expected to be billed related to any significant matter. In the opinion of management, based on information available at this time, there are no current claims and proceedings that would have a material adverse effect on the consolidated financial statements. However, the outcomes of such legal claims and proceedings are subject to inherent uncertainties and there exists the possibility that the ultimate resolution of any matter could have a material adverse impact on the Company's financial position and results of operations in the period in which any such effect is recorded.
18
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements. This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to expectations, estimates, beliefs, assumptions and predictions of future events and are identified by words such as “anticipate,” “believes,” “continue,” “estimates,” “expects,” “focus,” “growth,” “intend,” “plans,” “potential,” “projects,” “outlook,” “seek,” “should,” “strategy,” “target,” “could,” “can,” “may,” “will,” “would,” and other similar words. Forward-looking statements are not statements of historical fact and thus are subject to risks, uncertainties and other factors that could cause actual results to differ materially from historical results or those expressed in such forward-looking statements. You should evaluate forward-looking statements in light of important risk factors and uncertainties that may affect our operating and financial results and our ability to achieve our financial objectives. These factors include, but are not limited to, general economic conditions applicable to our business, inflationary impacts and changes in interest rates, the highly competitive nature of the industries in which we compete and in the nature of our two business segments, the concentration of Service segment customers in the life science and other FDA-regulated businesses as well as the industrial manufacturing, aerospace, defense, energy and utilities industries, the significant competition we face in our Distribution segment, any impairment of our goodwill or intangible assets, tariffs and changing trade relations, regional and international conflicts and political conditions, negative publicity and other reputational harm, our ability to successfully complete and integrate business acquisitions, potential unexpected liabilities associated with companies we acquire, cybersecurity risks, the risk of significant disruptions in our information technology systems, our ability to recruit, train and retain quality employees, skilled technicians and senior management, fluctuations in our operating results, our ability to achieve or maintain adequate utilization and pricing rates for our technical service providers, the prices we are able to charge for our services in our Service segment, our ability to adapt our technology, reliance on our enterprise resource planning system, technology updates, supply chain delays, disruptions or product shortages, the risks related to current and future indebtedness, foreign currency rate fluctuations, risks related to protecting our intellectual property, geopolitical events, adverse weather events or other catastrophes, natural disasters or widespread public health crises, involvement in legal proceedings, the volatility of our stock price, the relatively low trading volume of our common stock, the material weaknesses in our internal control over financial reporting, changes in tax rates, changes in accounting standards, legal requirements and listing standards, and legal and regulatory risks related to our international operations. These risk factors and uncertainties are more fully described by us under the heading “Risk Factors” in our reports filed with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the fiscal year ended March 28, 2026. You should not place undue reliance on our forward-looking statements, which speak only as of the date they are made. Except as required by law, we undertake no obligation to update, correct or publicly announce any revisions to any of the forward-looking statements contained in this report, whether as a result of new information, future events or otherwise.
CRITICAL ACCOUNTING ESTIMATES
There have been no material changes to our critical accounting policies and estimates from the information provided in our Annual Report on Form 10-K for the fiscal year ended March 28, 2026.
RESULTS OF OPERATIONS
Executive Summary
During our second quarter of fiscal year 2027, we had consolidated revenue of $97.1 million. This represented an increase of $14.8 million or 18.0% versus the second quarter of fiscal year 2026. This increase was primarily due to acquisitions, service organic revenue growth (a non-GAAP measure) and a $2.9 million increase in distribution revenue. Acquired revenue, which represents revenue generated from acquisitions for twelve months subsequent to the acquisition date, was $5.5 million. Service revenue increased by 22.6% and service organic revenue increased by 15.8% versus the second quarter of fiscal year 2026. Service organic revenue increased as a result of high customer retention and continued strong demand. See "Non-GAAP Financial Measures" below for a description and reconciliation of the non-GAAP measure. See Note 5 – “Business Acquisitions” to our unaudited consolidated financial statements in this report for more information about the impact of our acquisitions.
Our second quarter of fiscal year 2027 gross profit was $32.6 million. This was an increase of $5.9 million or 21.9% versus the second quarter of fiscal year 2026. Consolidated gross margin was 33.6%, an increase of 110 basis points when compared to the second quarter of fiscal year 2026. The increase in gross profit percentage was primarily due to strong organic service revenue growth and service mix when compared to the prior year period.
19
Total operating expenses were $27.6 million in the second quarter of fiscal year 2027, an increase of $4.3 million or 18.7% when compared to the prior fiscal year second quarter. As a percentage of total revenue, operating expenses were 28.4% in the second quarter of fiscal year 2027 and 28.3% in the second quarter of fiscal year 2026. Operating income was $5.0 million, an increase of $1.5 million, or 43.6% and operating margin increased from 4.3% in the second quarter of fiscal year 2026 to 5.2% in the second quarter of fiscal year 2027.
Net income was $2.4 million in the second quarter of fiscal year 2027 versus net income of $1.3 million in the second quarter of fiscal year 2026. The increase was primarily due to a $5.9 million increase in gross profit that was mostly offset by a $4.3 million increase in operating expenses, including an increase in amortization of acquisition-related intangible assets, stock-based compensation, and executive transition costs.
20
SECOND QUARTER ENDED SEPTEMBER 26, 2026 COMPARED TO SECOND QUARTER ENDED SEPTEMBER 27, 2025:
The following table presents, for the quarters ended September 26, 2026 and September 27, 2025, the components of our Condensed Consolidated Statements of Income:
| (Unaudited) | |||||||||||||||||||||||||||||||||||
| Second Quarter | Change | ||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | September 26, | September 27, | |||||||||||||||||||||||||||||||||
| 2026 | % | 2025 | % | $ | % | ||||||||||||||||||||||||||||||
| As a Percentage of Total Revenue: | |||||||||||||||||||||||||||||||||||
| Service Revenue | $ | 64,770 | 66.7 | % | $ | 52,836 | 64.2 | % | $ | 11,934 | 22.6 | % | |||||||||||||||||||||||
| Distribution Revenue | 32,320 | 33.3 | % | 29,436 | 35.8 | % | 2,884 | 9.8 | % | ||||||||||||||||||||||||||
| Total Revenue | 97,090 | 100.0 | % | $ | 82,272 | 100.0 | % | $ | 14,818 | 18.0 | % | ||||||||||||||||||||||||
| Gross Profit Percentage: | |||||||||||||||||||||||||||||||||||
| Service Gross Profit | $ | 22,272 | 34.4 | % | $ | 16,993 | 32.2 | % | $ | 5,279 | 31.1 | % | |||||||||||||||||||||||
| Distribution Gross Profit | 10,358 | 32.0 | % | 9,769 | 33.2 | % | 589 | 6.0 | % | ||||||||||||||||||||||||||
| Total Gross Profit | 32,630 | 33.6 | % | $ | 26,762 | 32.5 | % | $ | 5,868 | 21.9 | % | ||||||||||||||||||||||||
| Selling, Marketing and Warehouse Expenses | $ | 11,751 | 12.1 | % | $ | 10,627 | 12.9 | % | $ | 1,124 | 10.6 | % | |||||||||||||||||||||||
| General and Administrative Expenses | 15,846 | 16.3 | % | 12,630 | 15.4 | % | 3,216 | 25.5 | % | ||||||||||||||||||||||||||
| Total Operating Expenses | $ | 27,597 | 28.4 | % | $ | 23,257 | 28.3 | % | $ | 4,340 | 18.7 | % | |||||||||||||||||||||||
| Operating Income | $ | 5,033 | 5.2 | % | $ | 3,505 | 4.3 | % | $ | 1,528 | 43.6 | % | |||||||||||||||||||||||
| Interest and Other Expense, net | $ | 1,853 | 1.9 | % | $ | 1,476 | 1.8 | % | $ | 377 | 25.5 | % | |||||||||||||||||||||||
| Income Before Provision for Income Taxes | $ | 3,180 | 3.3 | % | $ | 2,029 | 2.5 | % | $ | 1,151 | 56.7 | % | |||||||||||||||||||||||
| Provision for Income Taxes | $ | 767 | 0.8 | % | $ | 760 | 0.9 | % | $ | 7 | 0.9 | % | |||||||||||||||||||||||
| Net Income | $ | 2,413 | 2.5 | % | $ | 1,269 | 1.5 | % | $ | 1,144 | 90.1 | % | |||||||||||||||||||||||
Revenue:
Total revenue was $97.1 million, an increase of $14.8 million, or 18.0%, in our fiscal year 2027 second quarter compared to the prior fiscal year second quarter.
21
Service revenue, which accounted for 66.7% and 64.2% of our total revenue in the second quarter of fiscal years 2027 and 2026, respectively, increased $11.9 million, or 22.6%, from the second quarter of fiscal year 2026 to the second quarter of fiscal year 2027. This year-over-year increase included $3.5 million of incremental service revenue from the acquisitions of Essco, SCM and Southeastern. Service organic revenue increased 15.8% over the prior year period primarily due to high customer retention and continued strong demand in life sciences, aerospace and defense, and other regulated end markets.
Our fiscal years 2027 and 2026 Service revenue growth, in relation to prior fiscal year quarter comparisons, was as follows:
| FY 2027 | FY 2026 | |||||||||||||||||||||||||||||||
| Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | |||||||||||||||||||||||||||
| Service Revenue Growth | 22.6 | % | 27.3 | % | 18.4 | % | 29.1 | % | 19.9 | % | 12.3 | % | ||||||||||||||||||||
Within any fiscal year, while we add new customers, we also have customers from the prior fiscal year whose service orders may not repeat for any number of factors. Among those factors are variations in the timing of periodic calibrations and other services, customer capital expenditures and customer outsourcing decisions. Because the timing of Service segment orders can vary on a quarter-to-quarter basis, we believe trailing twelve-month information provides a better indication of the progress of this segment.
The following table presents the trailing twelve-month Service segment revenue for the first and second quarters of fiscal year 2027 and each quarter in fiscal year 2026 as well as the trailing twelve-month revenue growth as a comparison to that of the prior fiscal year period:
| FY 2027 | FY 2026 | |||||||||||||||||||||||||||||||
| Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | |||||||||||||||||||||||||||
| Trailing Twelve-Month: | ||||||||||||||||||||||||||||||||
| Service Revenue | $ | 242,557 | $ | 230,624 | $ | 217,209 | $ | 207,565 | $ | 195,548 | $ | 186,794 | ||||||||||||||||||||
| Service Revenue Growth | 24.0 | % | 23.5 | % | 19.7 | % | 17.8 | % | 11.0 | % | 7.7 | % | ||||||||||||||||||||
Our strategy has been to focus our investments in the core electrical, temperature, pressure, physical/dimensional and radio frequency/microwave calibration disciplines. We expect to subcontract approximately 13% to 16% of our Service revenue to third-party vendors for calibration beyond our chosen scope of capabilities. We continually evaluate our outsourcing needs and make capital investments, as deemed necessary, to add more in-house capabilities and reduce the need for third-party vendors. Capability expansion through business acquisitions is another way that we seek to reduce the need for outsourcing. The following table presents the source of our Service revenue, and the percentage of Service revenue derived from each source for the first two quarters of fiscal year 2027 and for each quarter during fiscal year 2026:
| FY2027 | FY 2026 | |||||||||||||||||||||||||||||||
| Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | |||||||||||||||||||||||||||
| Percent of Service Revenue: | ||||||||||||||||||||||||||||||||
| In-House | 83.0 | % | 83.6 | % | 84.4 | % | 84.5 | % | 85.8 | % | 85.6 | % | ||||||||||||||||||||
| Outsourced | 15.6 | % | 15.0 | % | 14.2 | % | 14.0 | % | 12.9 | % | 13.2 | % | ||||||||||||||||||||
| Freight Billed to Customers | 1.4 | % | 1.4 | % | 1.4 | % | 1.5 | % | 1.3 | % | 1.2 | % | ||||||||||||||||||||
| 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||||||||||
Our Distribution revenue accounted for 33.3% of our total revenue in the second quarter of fiscal year 2027 and 35.8% of our total revenue in the second quarter of fiscal year 2026. During the second quarter of fiscal year 2027, Distribution segment revenue was $32.3 million, which was an increase of $2.9 million or 9.8%, and included $2.0 million of revenue from acquisitions. This increase was primarily due to continued strength in rentals and product sales.
22
The following table presents the quarterly historical trend of Distribution revenue in fiscal years 2027 and 2026 compared to the prior year fiscal quarter:
| FY 2027 | FY 2026 | |||||||||||||||||||||||||||||||
| Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | |||||||||||||||||||||||||||
| Distribution Revenue Growth | 9.8 | % | 11.4 | % | 10.5 | % | 19.8 | % | 24.0 | % | 19.0 | % | ||||||||||||||||||||
Distribution revenue includes orders for instruments that we routinely stock in our inventory, customized products, and other products ordered less frequently, which we do not stock. Product backorders are the total dollar value of orders received for which revenue has not yet been recognized. Pending product shipments are primarily backorders, but also include products that are requested to be calibrated in our service centers prior to shipment, orders required by the customer to be shipped complete or at a future date, and other orders awaiting final credit or management review prior to shipment. Management uses pending product shipments and backorders as measures of our future business performance and financial performance within the distribution segment.
The following table presents our total pending product shipments and the percentage of total pending product shipments that were backorders at the end of the first and second quarter of fiscal year 2027 and each quarter of fiscal year 2026:
| FY 2027 | FY 2026 | |||||||||||||||||||||||||||||||
| Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | |||||||||||||||||||||||||||
| Total Pending Product Shipments | $ | 9,149 | $ | 6,678 | $ | 7,251 | $ | 6,346 | $ | 7,510 | $ | 4,182 | ||||||||||||||||||||
| % of Pending Product | ||||||||||||||||||||||||||||||||
| Shipments that were Backorders | 86.0 | % | 84.1 | % | 86.4 | % | 84.2 | % | 89.7 | % | 85.8 | % | ||||||||||||||||||||
Our total pending product shipments at the end of the second quarter of fiscal year 2027 were $9.1 million, an increase of $1.6 million versus the end of the second quarter of fiscal year 2026 and an increase of $1.9 million since March 28, 2026. The increase compared to the second quarter of the prior year is primarily due to longer lead times.
Gross Profit:
Total gross profit for the second quarter of fiscal year 2027 was $32.6 million, an increase of $5.9 million or 21.9% versus the second quarter of fiscal year 2026. Total gross margin was 33.6% in the second quarter of fiscal year 2027, up from 32.5% in the second quarter of fiscal year 2026, a 1.1% increase.
Service gross profit in the second quarter of fiscal year 2027 increased $5.3 million, or 31.1%, from the second quarter of fiscal year 2026. Service gross margin was 34.4% in the second quarter of fiscal year 2027, an increase of 2.2% compared to 32.2% in the second quarter of fiscal year 2026. This increase in Service gross margin primarily resulted from inherent operating leverage, a focus on operational excellence and maturing of new customer relationships.
The following table presents the quarterly historical trend of our Service gross margin as a percent of Service revenue:
| FY 2027 | FY 2026 | |||||||||||||||||||||||||||||||
| Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | |||||||||||||||||||||||||||
| Service Gross Margin | 34.4 | % | 33.9 | % | 35.5 | % | 28.8 | % | 32.2 | % | 33.0 | % | ||||||||||||||||||||
Our Distribution gross margin includes net sales less the direct cost of inventory sold and the direct costs of equipment rental revenues, primarily depreciation expense for the fixed assets in our rental equipment pool, as well as the impact of rebates we receive from vendors, freight billed to customers, freight expenses and direct shipping costs. In general, our Distribution gross margin can vary based upon the mix of products sold.
The following table reflects the quarterly historical trend of our Distribution gross margin as a percent of Distribution revenue:
| FY 2027 | FY 2026 | |||||||||||||||||||||||||||||||
| Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | |||||||||||||||||||||||||||
| Distribution Gross Margin | 32.0 | % | 31.4 | % | 31.0 | % | 32.4 | % | 33.2 | % | 35.2 | % | ||||||||||||||||||||
23
Distribution segment gross margin was 32.0% in the second quarter of fiscal year 2027 versus 33.2% in the second quarter of fiscal year 2026, a decrease of 1.2%. The decrease in Distribution gross margin was primarily driven by lower-margin used equipment sales that enable reinvestment in our rental asset portfolio.
Operating Expenses:
Total operating expenses were $27.6 million in the second quarter of fiscal year 2027 versus $23.3 million during the second quarter of fiscal year 2026. The year-over-year increase in selling, marketing and warehouse expenses of $1.1 million, or 10.6%, is primarily due to increased expenses related to recent acquisitions, including acquisition-related amortization expense and payroll costs. The increase in general and administrative expenses is primarily due to an increase in stock-based compensation, executive transition costs, professional fees and increased payroll costs for new and acquired employees.
As a percentage of total revenue, operating expenses were 28.4% in the second quarter of fiscal year 2027 and 28.3% in the second quarter of fiscal year 2026, an increase of 0.1%.
Income Taxes:
Our effective tax rate for the second quarter of fiscal years 2027 and 2026 was 24.1% and 37.5%, respectively. The decrease in the effective tax rate compared to the prior year period is primarily attributable to discrete tax benefits related to stock compensation activity recognized during fiscal year 2027 and lower estimated permanent differences. Our provision for income taxes is affected by discrete items that may occur in any given period but are not consistent from year to year. We continue to evaluate our tax provision on a quarterly basis and adjust, as deemed necessary, our effective tax rate given changes in facts and circumstances expected in the future.
Net Income:
Net income for the second quarter of fiscal year 2027 increased $1.1 million or 90.1% versus the second quarter of fiscal year 2026. As a percentage of revenue, net income in the second quarter of fiscal year 2027 was 2.5%, and net income in the second quarter of fiscal year 2026 was 1.5%. The year-over-year increase in net income resulted from the changes outlined above.
Adjusted EBITDA:
Total Adjusted EBITDA, a non-GAAP measure, for the second quarter of fiscal year 2027 was $14.9 million, an increase of $2.8 million or 23.1% versus the second quarter of fiscal year 2026. See “Non-GAAP Financial Measures” below for a description of the non-GAAP measures we use and a reconciliation to the most directly comparable GAAP measures. As a percentage of revenue, Adjusted EBITDA slightly increased to 15.4% for the second quarter of fiscal year 2027 from 14.7% for the second quarter of fiscal year 2026.
24
SIX MONTHS ENDED SEPTEMBER 26, 2026 COMPARED TO SIX MONTHS ENDED SEPTEMBER 27, 2025
The following table presents, for the first six months of fiscal year 2027 and fiscal year 2026, the components of our Condensed Consolidated Statements of Income:
| (Unaudited) | |||||||||||||||||||||||||||||||||||
| Six Months Ended | Change | ||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | September 26, | September 27, | |||||||||||||||||||||||||||||||||
| 2026 | % | 2025 | % | $ | % | ||||||||||||||||||||||||||||||
| As a Percentage of Total Revenue: | |||||||||||||||||||||||||||||||||||
| Service Revenue | $ | 127,329 | 67.0 | % | $ | 101,980 | 64.3 | % | $ | 25,349 | 24.9 | % | |||||||||||||||||||||||
| Distribution Revenue | 62,706 | 33.0 | % | 56,716 | 35.7 | % | 5,990 | 10.6 | % | ||||||||||||||||||||||||||
| Total Revenue | $ | 190,035 | 100.0 | % | $ | 158,696 | 100.0 | % | $ | 31,339 | 19.7 | % | |||||||||||||||||||||||
| Gross Profit Percentage: | |||||||||||||||||||||||||||||||||||
| Service Gross Profit | $ | 43,450 | 34.1 | % | $ | 33,202 | 32.6 | % | $ | 10,248 | 30.9 | % | |||||||||||||||||||||||
| Distribution Gross Profit | 19,914 | 31.8 | % | 19,381 | 34.2 | % | 533 | 2.8 | % | ||||||||||||||||||||||||||
| Total Gross Profit | $ | 63,364 | 33.3 | % | $ | 52,583 | 33.1 | % | $ | 10,781 | 20.5 | % | |||||||||||||||||||||||
| Selling, Marketing and Warehouse Expenses | $ | 23,125 | 12.2 | % | $ | 20,142 | 12.7 | % | $ | 2,983 | 14.8 | % | |||||||||||||||||||||||
| General and Administrative Expenses | 31,487 | 16.6 | % | 23,598 | 14.9 | % | 7,889 | 33.4 | % | ||||||||||||||||||||||||||
| Total Operating Expenses | $ | 54,612 | 28.7 | % | $ | 43,740 | 27.6 | % | $ | 10,872 | 24.9 | % | |||||||||||||||||||||||
| Operating Income | $ | 8,752 | 4.6 | % | $ | 8,843 | 5.6 | % | $ | (91) | (1.0) | % | |||||||||||||||||||||||
| Interest and Other Expense, net | $ | 3,387 | 1.8 | % | $ | 2,249 | 1.4 | % | $ | 1,138 | 50.6 | % | |||||||||||||||||||||||
| Income Before Provision for Income Taxes | $ | 5,365 | 2.8 | % | $ | 6,594 | 4.2 | % | $ | (1,229) | (18.6) | % | |||||||||||||||||||||||
| Provision for Income Taxes | $ | 1,621 | 0.9 | % | $ | 2,064 | 1.3 | % | $ | (443) | (21.5) | % | |||||||||||||||||||||||
| Net Income | $ | 3,744 | 2.0 | % | $ | 4,530 | 2.9 | % | $ | (786) | (17.4) | % | |||||||||||||||||||||||
Total revenue was $190.0 million, an increase of $31.3 million, or 19.7%, in the first six months of fiscal year 2027 compared to the first six months of the prior fiscal year.
Service revenue, which accounted for 67.0% and 64.3% of our total revenue in the first six months of fiscal years 2027 and 2026, respectively, increased $25.3 million or 24.9% from the first six months of fiscal year 2026 to the first six months of fiscal year 2027. This year-over-year increase included $10.4 million in service revenue from the acquisitions of Essco, SCM and Southeastern. The remaining growth is attributable to high customer retention, continued strong demand in life sciences, aerospace & defense and other regulated end markets as well as growth in client-based labs and calibration services for biomedical customers.
Distribution revenue, which accounted for 33.0% and 35.7% of our total revenue in the first six months of fiscal years 2027 and 2026, respectively, increased $6.0 million or 10.6% from the first six months of fiscal year 2026 to the first six months of fiscal year 2027. This year-over-year increase included $2.7 million in revenue from the acquisitions of Essco, SCM, and Southeastern and revenue increases across all distribution channels.
25
Gross Profit:
Total gross profit for the first six months of fiscal year 2027 was $63.4 million, an increase of $10.8 million or 20.5% versus the first six months of fiscal year 2026. Total gross margin was 33.3% in the first six months of fiscal year 2027, slightly up from 33.1% in the first six months of fiscal year 2026, a 0.2% increase.
Service gross profit in the first six months of fiscal year 2027 increased $10.2 million, or 30.9%, from the first six months of fiscal year 2026. Service gross margin was 34.1% in the first six months of fiscal year 2027, a 1.5% increase versus 32.6% in the first six months of fiscal year 2026. The increase in Service gross margin primarily resulted from inherent operating leverage, a focus on operational excellence and maturing of new customer relationships as well as margin improvements from client-based labs and specialty revenue, including biomedical.
Distribution gross profit in the first six months of fiscal year 2027 increased $0.5 million, or 2.8%, from the first six months of fiscal year 2026. Distribution gross margin was 31.8% in the first six months of fiscal year 2027, a 2.4% decrease versus 34.2% in the first six months of fiscal year 2026. Distribution gross margin decline is primarily due to an unfavorable sales mix.
Operating Expenses:
Total operating expenses were $54.6 million in the first six months of fiscal year 2027 versus $43.7 million during the first six months of fiscal year 2026. The year-over-year increase in selling, marketing and warehouse expenses of $3.0 million is due to increased expenses related to recent acquisitions, primarily attributable to acquisition-related amortization expense and payroll-related costs. The increase in general and administrative expenses is primarily due to an increase payroll-related costs, including stock-based compensation.
As a percentage of total revenue, operating expenses were 28.7% in the first six months of fiscal year 2027 and 27.6% in the first six months of fiscal year 2026, an increase of 1.1%.
Income Taxes:
Our effective tax rate for the first six months of fiscal years 2027 and 2026 was 30.2% and 31.3%, respectively. The decrease in the effective tax rate is primarily attributable to lower estimated permanent differences and discrete tax benefits related to stock compensation activity recognized during fiscal 2027. Our provision for income taxes is affected by discrete items that may occur in any given period but are not consistent from year to year. We continue to evaluate our tax provision on a quarterly basis and adjust, as deemed necessary, our effective tax rate given changes in facts and circumstances expected in the future.
Net Income:
Net income for the first six months of fiscal year 2027 decreased $0.8 million or 17.4% versus the first six months of fiscal year 2026. As a percentage of revenue, net income was 2.0% in the first six months of fiscal year 2027, down from 2.9% in the first six months of fiscal year 2026. The year-over-year decrease in net income was primarily due to higher interest expense, net. The increase in interest expense is related to the borrowings for the Essco acquisition in the second quarter of fiscal year 2026 as well as SCM and Southeastern in fiscal year 2027.
Non-GAAP Financial Measures
In addition to reporting service revenue, net income, diluted earnings per share and net cash provided by operating activities, which are U.S. generally accepted accounting principle ("GAAP") measures, we present service organic revenue, adjusted net income, adjusted EBITDA, adjusted diluted earnings per share and operating free cash flow, which are non-GAAP measures. Management uses these non-GAAP measures as indicators to better assess comparability between periods and as a basis for planning and forecasting because management believes these non-GAAP measures reflect our core business operations. These non-GAAP measures are not calculated through the application of U.S. GAAP and are not required forms of disclosure by the SEC. As such, they should not be considered a substitute for the corresponding GAAP measures and, therefore, they should not be used in isolation, but in conjunction with the GAAP measures. The use of any non-GAAP measure may produce results that vary from the GAAP measure and may not be comparable to a similarly defined non-GAAP measure used by other companies.
26
Service Organic Revenue
| Service Organic Revenue | |||||||||||||||||||||||
| Three Months Ended | |||||||||||||||||||||||
| September 26, | September 27, | Change | |||||||||||||||||||||
| (Dollars in thousands) | 2026 | 2025 | $ | % | |||||||||||||||||||
| Service Revenue | $ | 64,770 | $ | 52,836 | $ | 11,934 | 22.6 | % | |||||||||||||||
Less: Acquired Revenue (1) | (3,514) | - | |||||||||||||||||||||
| Less: Freight Billed to Customer | (881) | (706) | |||||||||||||||||||||
| Service Organic Revenue | $ | 60,375 | $ | 52,130 | $ | 8,245 | 15.8 | % | |||||||||||||||
(1) Defined as revenue generated by an acquired business for the twelve months after the closing of the acquisition.
Adjusted EBITDA
| Second Quarter Ended | Six Months Ended | |||||||||||||||||||
| (Dollars in thousands) | September 26, 2026 | September 27, 2025 | September 26, 2026 | September 27, 2025 | ||||||||||||||||
| Net Income | $ | 2,413 | $ | 1,269 | $ | 3,744 | $ | 4,530 | ||||||||||||
| Interest Expense, Net | 1,584 | 1,264 | 3,152 | 1,704 | ||||||||||||||||
| Tax Provision | 767 | 760 | 1,621 | 2,064 | ||||||||||||||||
| Depreciation & Amortization | 6,889 | 6,487 | 13,803 | 12,092 | ||||||||||||||||
Executive Transition Costs (1) | 568 | - | 1,304 | - | ||||||||||||||||
Transaction Expenses (2) | 472 | 496 | 1,100 | 524 | ||||||||||||||||
| Non-cash Stock Compensation | 2,216 | 1,839 | 4,194 | 2,969 | ||||||||||||||||
| Adjusted EBITDA | $ | 14,909 | $ | 12,115 | $ | 28,918 | $ | 23,883 | ||||||||||||
(1) Costs incurred in connection with the CEO transition plan.
(2) Expenses incurred in connection with acquisitions.
27
Adjusted Net Income and Diluted Earnings Per Share
| Second Quarter Ended | Six Months Ended | |||||||||||||||||||
| (Dollars in thousands except per share data) | September 26, 2026 | September 27, 2025 | September 26, 2026 | September 27, 2025 | ||||||||||||||||
| Net Income | $ | 2,413 | $ | 1,269 | $ | 3,744 | $ | 4,530 | ||||||||||||
| Amortization Expense | 3,602 | 3,461 | 7,201 | 6,305 | ||||||||||||||||
Executive Transition Costs (1) | 568 | - | 1,304 | - | ||||||||||||||||
Transaction Expenses (2) | 472 | 496 | 1,100 | 524 | ||||||||||||||||
Acquisition Stock Expense (3) | 197 | 226 | 383 | 371 | ||||||||||||||||
| Income Tax Effect | (1,166) | (1,297) | (3,016) | (2,051) | ||||||||||||||||
| Adjusted Net Income | 6,086 | 4,155 | 10,716 | 9,679 | ||||||||||||||||
| Diluted Average Shares Outstanding | 9,547 | 9,399 | 9,470 | 9,392 | ||||||||||||||||
| Diluted Earnings Per Share – GAAP | $ | 0.25 | $ | 0.14 | $ | 0.40 | $ | 0.48 | ||||||||||||
| Amortization Expense | 0.38 | 0.37 | 0.76 | 0.67 | ||||||||||||||||
Executive Transition Costs (1) | 0.06 | - | 0.14 | - | ||||||||||||||||
Transaction Expenses (2) | 0.05 | 0.05 | 0.11 | 0.06 | ||||||||||||||||
Acquisition Stock Expense (3) | 0.02 | 0.02 | 0.04 | 0.04 | ||||||||||||||||
| Income Tax Effect | (0.12) | (0.14) | (0.32) | (0.22) | ||||||||||||||||
| Adjusted Diluted Earnings Per Share | $ | 0.64 | $ | 0.44 | $ | 1.13 | $ | 1.03 | ||||||||||||
(1) Costs incurred in connection with the CEO transition plan.
(2) Expenses incurred in connection with acquisitions.
(3) Stock compensation expense incurred that is related to grants to employees that were acquired with recent acquisitions.
| Operating Free Cash Flow | |||||||||||
| Six Months Ended | |||||||||||
| (Dollars in thousands) | September 26 | September 27 | |||||||||
| 2026 | 2025 | ||||||||||
| Net cash provided by operations | $ | 18,965 | $ | 16,504 | |||||||
| Capital Expenditures | (8,070) | (9,030) | |||||||||
| Operating Free Cash Flow | $ | 10,895 | $ | 7,474 | |||||||
LIQUIDITY AND CAPITAL RESOURCES
We expect that foreseeable liquidity and capital resource requirements will be met through cash and cash equivalents, anticipated cash flows from operations and borrowings from our revolving credit facility. We believe that these sources of financing will be adequate to meet our future requirements including anticipated operating expenses, capital expenditures, interest payments on our long-term debt, and planned business acquisitions. To the extent that we do not satisfy our liquidity requirements through cash and cash equivalents, anticipated cash flows from operations and borrowings from our revolving credit facility, we intend to satisfy such requirements through proceeds from the issuance of common stock.
On July 29, 2025, we entered into a Credit Agreement (the “Credit Agreement”) with a group of three lenders establishing a new five-year $150.0 million secured revolving credit facility (the “Credit Facility”). Borrowing options under the Credit Facility include: (i) a revolving loan option; (ii) a swingline loan option; and (iii) letters of credit, each of which is provided on a committed basis.
28
Under the Credit Agreement, we can use up to $50.0 million for acquisitions in any single fiscal year. In addition, we are permitted to make restricted payments up to $25.0 million in the aggregate over the term of the Credit Facility and up to $10.0 million in any single fiscal year to repurchase shares and pay dividends.
As of September 26, 2026, up to $150.0 million is available for borrowing, subject to covenant restrictions, under the Credit Facility, of which, $116.9 million was outstanding. During the first six months of fiscal year 2027, we used approximately $19.5 million, drawn from the Credit Facility, for business acquisitions and repaid $2.5 million.
Most borrowings under the Credit Facility bear interest, at our election, at a fixed base rate or the daily simple SOFR rate, plus a margin. Any swingline loan will bear interest at the fixed base rate plus a margin. The applicable margin is based on our then-current leverage ratio. The applicable margin ranges from 0.00% to 0.75% for base rate loans and 1.00% to 1.75% for SOFR loans. We pay a commitment fee based on the daily unused amount under the Credit Facility multiplied by the applicable margin, which ranges from 0.10% to 0.20%.
The Credit Agreement has certain financial covenants with which we must comply. The leverage ratio covenant under the Credit Agreement requires us to maintain our ratio of outstanding indebtedness to consolidated EBITDA to be no greater than 3.00 to 1.00, provided that we may temporarily increase the leverage ratio covenant if we complete a material permitted acquisition under the terms of the Credit Agreement. The Company's leverage ratio, as defined in the Credit Agreement, was 2.18 on September 26, 2026, compared with 2.03 on March 28, 2026. We must also maintain a fixed charge coverage ratio of no less than 1.20 to 1.00. We were in compliance with all loan covenants and requirements of the Credit Agreement during the first six months of fiscal year 2027.
Cash Flows: The following table is a summary of our Condensed Consolidated Statements of Cash Flows (dollars in thousands):
| Six Months Ended | |||||||||||
| September 26, 2026 | September 27, 2025 | ||||||||||
| Cash Provided by (Used in): | |||||||||||
| Operating Activities | $ | 18,965 | $ | 16,504 | |||||||
| Investing Activities | $ | (33,948) | $ | (91,556) | |||||||
| Financing Activities | $ | 15,790 | $ | 79,194 | |||||||
Operating Activities: Net cash provided by operating activities was $19.0 million during the first six months of fiscal year 2027 compared to $16.5 million of net cash provided by operating activities during the first six months of fiscal year 2026. The significant working capital fluctuations were as follows:
*Receivables: Accounts receivable and other receivables increased $6.0 million during the first six months of fiscal year 2027, inclusive of $1.4 million of accounts receivable acquired during the period. During the first six months of fiscal year 2026, accounts receivable and other receivables increased $3.6 million inclusive of $2.9 million of accounts receivable acquired during the period. The year-over-year variation reflects the Company's growth and is impacted by changes in the timing of collections. The following table illustrates our “days sales outstanding” as of September 26, 2026 and March 28, 2026 (dollars in thousands):
| September 26, 2026 | March 28, 2026 | ||||||||||
| Net Sales, for the last two fiscal months | $ | 70,818 | $ | 66,622 | |||||||
| Accounts Receivable, net | $ | 70,287 | $ | 65,170 | |||||||
| Days Sales Outstanding | 63 | 59 | |||||||||
*Inventory: Inventory increased $1.2 million during the first six months of fiscal year 2027, inclusive of $1.2 million of inventory acquired during the period. During the first six months of fiscal year 2026, inventory decreased $1.4 million. Our inventory strategy includes making appropriate large quantity, high dollar purchases with key manufacturers for various reasons, including maximizing on-hand availability of key products,
29
expanding the number of SKUs stocked in anticipation of customer demand, reducing backorders for products with long lead times and optimizing vendor purchase and sales volume discounts. As a result, inventory levels may vary from quarter-to-quarter based on the timing of these large orders in relation to our quarter end. Any decreases in inventory are primarily due to the timing of shipments relative to strategic inventory purchases during the periods.
*Accounts Payable: Changes in accounts payable may or may not correlate with changes in inventory balances at any given quarter end due to the timing of vendor payments for inventory, as well as the timing of payments for outsourced Service vendors. Accounts payable increased $3.2 million during the first six months of fiscal year 2027, inclusive of $0.3 million assumed in an acquisition during the period. Accounts payable decreased $1.6 million during the first six months of fiscal year 2026 inclusive of $0.2 million assumed in acquisition during the period. The variances are largely due to the timing of inventory purchases, capital expenditures and other payments in the respective periods.
*Accrued Compensation and Other Current Liabilities: Accrued compensation and other current liabilities include, among other things, amounts paid to employees for non-equity performance-based compensation. At the end of any particular period, the amounts accrued for such compensation may vary due to many factors including changes in expected performance levels, the performance measurement period, and timing of payments to employees. During the first six months of fiscal year 2027, accrued compensation and other current liabilities decreased by $3.9 million, inclusive of $0.7 million of accrued compensation and other current liabilities related to current year acquisitions. During the first six months of fiscal year 2026, accrued compensation and other current liabilities increased by $4.5 million inclusive of $3.2 million of accrued compensation and other current liabilities assumed during the period. The decreases in accrued payroll and incentives are largely due to the annual payment of incentive-based compensation.
Investing Activities: During the first six months of fiscal years 2027 and 2026, we invested $8.1 million and $9.0 million, respectively, in capital expenditures that was used primarily for customer-driven expansion of Service segment capabilities and our rental business.
During the first six months of fiscal year 2027, we used $25.9 million for business acquisitions.
Financing Activities: During the first six months of fiscal year 2027, proceeds, net of repayments, from our revolving Credit Facility were $17.0 million.
During the first six months of fiscal year 2026, proceeds, net of repayments, from our revolving Credit Facility was $81.0 million. In addition, we used $1.8 million for scheduled repayments of our term loan.
OUTLOOK
The second quarter of fiscal year 2027 marked the 70th consecutive quarter of Service revenue growth. Continued strength in the calibration business drove double-digit Service revenue growth, double-digit Service organic revenue* growth and Service gross margin expansion. Distribution revenue grew 10% during the second quarter, fueled by continued strength in rentals and product sales.
Looking ahead, we remain optimistic about the Service segment’s momentum, supported by high customer retention, conversion of new business wins into revenue, and continued strong demand in life sciences, aerospace and defense, and the other regulated end markets we serve. For the full fiscal year 2027, assuming the broader economic environment remains stable, we now expect Service organic revenue growth in the low double digits, up from our prior outlook of high single digits, along with Service gross margin expansion. We expect year-over-year Service gross margin expansion of at least 100 bps in the second half, driven by our teams’ continuous improvement focus across three key areas: business mix, Lean operating principles, and technology/AI initiatives.
We expect our income tax rate to range between 28% and 30% for full fiscal year 2027. This estimate includes federal, various state, and international income taxes and reflects the discrete tax accounting associated with share-based payment awards.
Over the next three to five years, the Company expects highly fragmented, large market opportunities to highlight a path to $500 million revenue and top-tier margins. We believe we'll continue to gain market share with consistent strong organic
30
growth and operational excellence. Growth in rentals is expected to increase to low double digits over time. Acquisitions that strengthen our fundamental value proposition will continue to be an important component of our go-forward strategy. We plan to expand margins by improving customer-facing processes, deploying Lean Six Sigma tools, optimizing business mix and pricing, and applying AI to enhance productivity.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATES
Our exposure to changes in interest rates results from our borrowing activities. In the event interest rates were to move by 1%, our yearly interest expense would increase or decrease by approximately $1.1 million assuming our borrowing levels at September 26, 2026 remained constant. As of September 26, 2026, $150.0 million was available for borrowing, under the Credit Facility, of which $116.9 million was outstanding.
Under the Credit Agreement, effective as of July 29, 2025, at our option, we are permitted to borrow from the Credit Facility at a fixed base rate or the variable daily simple SOFR plus a margin. Any swingline loan will bear interest at the fixed base rate plus a margin. The applicable margin is based on our then-current leverage ratio. The applicable margin ranges from 0.00% to 0.75% for base rate loans and 1.00% to 1.75% for SOFR loans. Our weighted average interest rate for the second quarter of fiscal year 2027 for the Credit Facility was 5.2%.
FOREIGN CURRENCY
Approximately 94% and 90% of our total revenues for the first six months of fiscal year 2027 and 2026, respectively, were denominated in U.S. dollars, with the remainder primarily denominated in Canadian dollars and Euros. A 10% change in the value of the Canadian dollar to the U.S. dollar and the Euro to the U.S. dollar would impact our revenue by less than 1%. We monitor the relationship between the U.S. dollar and the relevant non-U.S. currencies on a monthly basis and adjust sales prices for products and services sold in non-U.S. currencies as we believe to be appropriate.
ITEM 4. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures as of September 26, 2026, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934.
Because of the material weaknesses in internal control over financial reporting described in Item 9A, "Controls and Procedures," of our Annual Report on Form 10-K for the year ended March 28, 2026, management concluded that our disclosure controls and procedures were not effective as of September 26, 2026.
Notwithstanding the identified material weaknesses, management believes that the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, the Company's financial condition, results of operations and cash flows for the periods presented.
Changes in Internal Control over Financial Reporting. During the quarter ended September 26, 2026, the Company's internal controls over financial reporting included those inherited from the Essco acquisition, which have been evaluated by management and supplemented where deemed appropriate. In addition, as previously reported in the Form 10-K for the year ended March 28, 2026, management developed a remediation plan to address the material weaknesses in the Company's internal control over financial reporting. During the quarter ended September 26, 2026, the Company continued remediation activities, including those described in the Form 10-K for the year ended March 28, 2026. These remediation activities were ongoing as of September 26, 2026, and had not fully remediated the material weaknesses as of that date. Except as described herein, there were no changes in the Company's internal control over financial reporting during the quarter ended September 26, 2026 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II. OTHER
ITEM 5. OTHER INFORMATION
On November 2, 2026, the Company’s compensation committee approved the Company’s entry into agreements for severance upon a change in control using the Company’s previously approved form (the “Agreement”) with the Company’s Chief Human Resources Officer and Chief Information Officer providing for 12 months of base salary, bonus
31
(at greater of target or amounts accrued), benefits and vesting of certain equity awards, only after both (i) a change in control (as defined in the Agreement) and (ii) a qualifying termination under the Agreement.
ITEM 6. EXHIBITS
INDEX TO EXHIBITS
| Exhibit No. | Description | ||||||||||||||||
| (31) | Rule 13a-14(a)/15d-14(a) Certifications | ||||||||||||||||
| 31.1* | |||||||||||||||||
| 31.2* | |||||||||||||||||
| (32) | Section 1350 Certifications | ||||||||||||||||
| 32.1** | |||||||||||||||||
| (101) | Interactive Data File | ||||||||||||||||
| 101.INS* Inline XBRL Instance Document | |||||||||||||||||
| 101.SCH* Inline XBRL Taxonomy Extension Schema Document | |||||||||||||||||
| 101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||||||||||||||
| 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document | |||||||||||||||||
| 101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document | |||||||||||||||||
| 101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||||||||||||||||
| (104) | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | ||||||||||||||||
*Exhibit filed with this report.
**Exhibit furnished with this report.
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| TRANSCAT, INC. | |||||
Date: November 3, 2026 | /s/ Jaime A. Irick | ||||
| Jaime A. Irick | |||||
| Director, President and Chief Executive Officer (Principal Executive Officer) | |||||
Date: November 3, 2026 | /s/ Thomas L. Barbato | ||||
| Thomas L. Barbato | |||||
| Senior Vice President of Finance and Chief Financial Officer (Principal Financial Officer) | |||||
33
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jaime A. Irick, President and Chief Executive Officer of Transcat, Inc., certify that:
1.I have reviewed this quarterly report on Form 10-Q of Transcat, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 3, 2026 | /s/ Jaime A. Irick | |||||||
| Jaime A. Irick | ||||||||
President and Chief Executive Officer (Principal Executive Officer) | ||||||||
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Thomas L. Barbato, Senior Vice President of Finance and Chief Financial Officer of Transcat, Inc., certify that:
1.I have reviewed this quarterly report on Form 10-Q of Transcat, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 3, 2026 | /s/ Thomas L. Barbato | |||||||
| Thomas L. Barbato | ||||||||
| Senior Vice President of Finance and Chief Financial Officer (Principal Financial Officer) | ||||||||
Exhibit 32.1
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this quarterly report on Form 10-Q of Transcat, Inc., Jaime A. Irick, the Chief Executive Officer of Transcat, Inc. and Thomas L. Barbato, the Chief Financial Officer of Transcat, Inc. certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of their knowledge, that:
1.This quarterly report on Form 10-Q for the second quarter ended September 26, 2026 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.The information contained in this quarterly report on Form 10-Q for the second quarter ended September 26, 2026 fairly presents, in all material respects, the financial condition and results of operations of Transcat, Inc.
Date: November 3, 2026 | /s/ Jaime A. Irick | |||||||
| Jaime A. Irick | ||||||||
President and Chief Executive Officer (Principal Executive Officer) | ||||||||
Date: November 3, 2026 | /s/ Thomas L. Barbato | |||||||
| Thomas L. Barbato | ||||||||
Senior Vice President of Finance and Chief Financial Officer (Principal Financial Officer) | ||||||||
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to Transcat, Inc. and will be retained by Transcat, Inc. and furnished to the SEC or its staff upon request.