• Consolidated Revenue: $66.8 million, up 2% year-over-year.
• Organic Service Revenue: Declined 4% from the prior year third quarter.
• Distribution Revenue: $25.2 million, up 7% driven by strong product sales and rental growth.
• Gross Profit: $19.7 million, down 6% from prior year.
• Service Gross Profit: Declined 8% versus prior year.
• Distribution Gross Profit: $7.3 million, down 2% due to mix pressures.
• Net Income: $2.4 million, down $1 million from prior year.
• Diluted Earnings Per Share: $0.25, down $0.13.
• Adjusted Diluted Earnings Per Share: $0.45.
• Adjusted EBITDA: $7.9 million, down 13% from the same quarter in the prior year.
• Operating Cash Flow: Higher year-over-year.
• Capital Expenditures: $1.4 million higher than prior year.
• Total Net Debt: $40.8 million with a leverage ratio of 0.97x.
• Martin Calibration Acquisition: Acquired for $79 million, paid with $69 million in cash and $10 million in company stock.

• Warning! GuruFocus has detected 3 Warning Sign with TRNS.

Release Date: January 28, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Transcat Inc (NASDAQ:TRNS) reported a 2% increase in consolidated revenue to $66.8 million for the third quarter of fiscal 2025.
• The acquisition of Martin Calibration is expected to enhance Transcat's presence in key regions and complement its existing capabilities.
• Distribution revenue grew by 7% in the third quarter, driven by strong product sales and rental growth.
• The company has a strong pipeline of high-probability opportunities in its core calibration business.
• Transcat Inc (NASDAQ:TRNS) maintains a strong balance sheet with a leverage ratio of 0.97x and $39.5 million available from its credit facility.

Negative Points

• Organic service revenue declined by 4% from the prior year's third quarter.
• The Nexa Solutions channel continues to experience softness, impacting overall revenue growth.
• Extended December holiday closures led to a decline in core calibration service demand and rental revenue.
• Consolidated gross profit decreased by 6% from the prior year, with service gross profit declining by 8%.
• Net income for the third quarter was down by $1 million compared to the prior year, with diluted earnings per share decreasing by $0.13.

Q & A Highlights

Q: Can you explain the reasons behind the lowered full-year guidance despite the January pickup in business? A: Lee Rudow, President and CEO, explained that the December slowdown was confirmed with customers and business picked up in January. However, due to continued softness in the solutions channel and some order delays, they are conservatively adjusting guidance to mid-single-digit organic growth.

Q: What is the current visibility of the pipeline and expectations for next year? A: Lee Rudow stated that the core calibration pipeline is very strong, with some delays in high-probability opportunities. They expect improved solutions performance and a return to historical growth levels in fiscal 2026, particularly in the back half of the year.

Q: Has anything structurally changed that might affect your long-term growth targets? A: Lee Rudow assured that nothing structural has changed. The fundamentals remain strong, with recurring revenue streams and a sales engine that continues to improve. They expect to overcome recent softness and maintain strong performance.

Q: Can you provide an update on the Nexa-Transcat services and actions taken to improve the business? A: Lee Rudow mentioned that they are focusing on pipeline development and marketing involvement to improve the solutions business. Although it takes time, they expect the business to stabilize and grow in the next fiscal year.

Q: How do you expect service gross margins to trend in the coming quarters? A: Thomas Barbato, CFO, expects service gross margins to be flat year-over-year in Q4 and to grow in fiscal 2026 and beyond, as volume rebounds and productivity improves.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.