TRNS 10-K & 10-Q changes, risk factors and insider trading

The following disclosures reflect the Company’s beliefs and opinions as to factors that could materially and adversely affect the Company, our securities, or could cause actual results to differ materially from those expressed or implied in our forward-looking statements. References to past events are provided by way of example only and are not intended to be a complete listing or a representation as to whether or not such factors have occurred in the past or their likelihood of occurring in the future. You should carefully consider the following risks and all other information included in this report. The risks and uncertainties described below and elsewhere in this report are not the only ones facing our business, and we cannot predict every event and circumstance that may adversely affect our business. If any of the following risks were to actually occur, our business, financial condition or results of operations would likely suffer.

Adverse changes in economic and market conditions, including an ongoing inflationary environment,environment amid rising energy costs, or uncertainty about future market conditions, may result in increased costs of operations and negatively impact the credit and securities markets generally, which could have a material adverse effect on our results of operations and the market price of our common stock. Our results of operations and the implementation of our business strategy could be materially and adversely affected by general conditions in the U.S. and global economy, including financial and economic conditions that are outside of our control. We are subject to risks arising from adverse changes in general economic market conditions, including rising energy costs, supply chain delays or interruptions, labor shortages, wage pressures, the ongoing inflationary environment, changes in interest rates, geopolitical events, political instability, global health crises, including epidemics and pandemics, or interruptions and other force majeure events.

Inflation has persisted in the United States and globally due in part to geopolitical events, a rise in energy prices, and strong consumer demand. An inflationary environment can increase our cost of labor as well as our energy and other operating costs which may have a material adverse impact on our financial results. In addition, economic conditions could impact and reduce the number of customers who purchase our products or services if they implement cost saving measures as credit becomes more expensive or unavailable. Although interest rates may remain relatively high for a sustained period, inflation may continue or prices for goods and energy may rise as a result of geopolitical events or the imposition or threatened imposition of tariffs. Further, uncertainty resulting from interest rate policy, trade policy or changes to interest rates in the future could have a negative effect on the securities markets generally which may, in turn, have a material adverse effect on the market price of our common stock. Further, uncertainty about future economic conditions could negatively affect our current and prospective customers causing them to delay purchase of services or test and measurement instruments. Poor economic conditions could materially and adversely impact our business, financial condition, operating results and cash flows.

The industries in which we compete are highly competitive, and we may not be able to compete successfully. Within our Service segment, we provide calibration services and compete in an industry that is highly fragmented and is composed of companies ranging from internationally recognized and accredited corporations to non-accredited sole proprietors, resulting in a tremendous range of service levels and capabilities. Also, within our Service segment, we provide compliance services and compete in an industry that is composed of both small local and regional service providersproviders, integrated facilities management companies, and large multi-national companies who are also OEMs. Within our Service segment, some of our larger competitors may have broader service capabilities and may have greater name recognition than us. Some manufacturers of the products we sell may also offer calibration and compliance services for their products.

In each of the industries in which we compete, some of our competitors have greater financial and other resources than we do, which could allow them to compete more successfully. In the future, we may be unable to compete successfully and competitive pressures may reduce our sales.sales and margin profile.

Our Service segment has a concentration of customers in the life science and other FDA-regulated businesses, as well as the industrial manufacturing, aerospace, defense, energy and utilities industries. A number of our Service segment customers operate life science, pharmaceutical, biotechnology, medical device and other FDA-regulated businesses. Federal and state budget pressures and changes in grant allocation policies may result in lower funding for certain of our life science customers, which may cause those customers to delay or halt spending on capital-intensive projects.projects or make our competitors' offerings, like comprehensive facilities solutions, more attractive. We also serve the industrial manufacturing, energy and utilities, chemical manufacturing, aerospace and defense industries. In the oil and gas industry, customer demand for our services is sensitive to fluctuations in commodity prices, access to capital, and the regulatory environment, with less demand expected in a deregulatory environment. The concentration of our customer base affects our overall risk profile, since a significant portion of our customers would be similarly affected by changes in economic, political, regulatory, and other industry conditions. An abrupt or unforeseen change in conditions in these industries could adversely affect customer demand for our services, which could have a material adverse effect on our financial results.

Tariffs imposed or threatened by the United States and other countries, as well as changingChanging trade relations, including the imposition of tariffs, regional and international conflicts, and political conditions could have a material adverse effect on our business and results of operations. Changes in United States and foreign governments’ trade policies, as well as volatility caused by regional and international conflicts, such as the conflictconflicts in Iran and the Middle East and between Russia and Ukraine, Israel and Hamas, and the political climate in the United States, China, and Taiwan, have resulted in, and may continue to result in, economic volatility and coincide with tariffs on imports into and exports from the United States. For example, the United States has recently instituted or proposed changes in trade policies that include the negotiation or termination of trade agreements, the imposition of higher tariffs on imports into the United States, economic sanctions on individuals, corporations or countries, and other government regulations affecting trade between the United States and other countries. A number of other nations have proposed or instituted similar measures directed at trade with the United States in response. Tariffs on certain products and increasing energy costs can increase our costs of doing business. If we are unable to recover these costs, our profit margins may be negatively impacted. Similarly, if our customers are negatively impacted by increasing energy costs or the imposition or threatened imposition of tariffs, it may result in negative sentiment which may negatively impact demand for our products and services, which could negatively impact our results of operations. If our vendors or suppliers are unable to source products we purchase, our Distribution business may be negatively impacted. Diminished trade relations, conflicts between the United States and other countries,countries increasing energy costs, and any escalation of tariffs could have a material adverse effect on our financial performance and results of operations.

We may not successfully integrate business acquisitions. We have a historical track record of completing acquisitions, including acquisitions within our core business segments and in new and adjacent markets. In fiscal 2026 and 2025, we completed the two acquisitions during fiscal year 2025 and threelargest acquisitions duringin fiscalour year 2024.history. We have a robust and diverse acquisition pipeline and may complete additional acquisitions in the future. If we fail to accurately assess and successfully integrate any recent or future business acquisitions,acquisitions particularly as they grow in size and complexity, we may not achieve the anticipated benefits, which could result in lower revenues, unanticipated operating expenses, reduced profitability and dilution of our book value per share. Successfully integrating acquisitions involves many challenges, including:

If the integration of any or all of our acquisitions or future acquisitions is not successful, it could have a material adverse impact on our financial condition, operating results and stock price.

Cybersecurity incidents could adversely affect our business by causing a disruption to our operations, a compromise or corruption of our confidential information and/or damage to our business relationships, all of which could negatively impact our business, results of operations or financial condition. We rely extensively on information technology (“IT”) systems, some of which are provided by third parties, to support our business activities, including for orders and the storage, processing and transmission of our electronic, business-related, information assets used in or necessary to conduct business. The data we store and process may include customer payment information, personal information concerning our employees, confidential financial information and other types of sensitive business-related information. Numerous and evolving cybersecurity threats pose potential risks to the security of our IT systems, networks and services, as well as the confidentiality, availability and integrity of our data. Some of our office personnel work in remote environments which may exacerbate various cybersecurity risks to our business, including an increased risk of phishing and other social engineering attacks, and an increased risk of unauthorized dissemination of sensitive personal, proprietary or other confidential information. Global cybersecurity threats can range from uncoordinated individual attempts to gain unauthorized access to our IT systems to sophisticated and targeted measures known as advanced persistent threats. The techniques used in these attacks change frequently and may be difficult to detect for periods of time and we may face difficulties in anticipating and implementing adequate preventative measures. While we employ comprehensive measures to prevent, detect, address and mitigate these threats (including access controls, data encryption, vulnerability assessments, management training, continuous monitoring of our IT networks and systems and maintenance of backup and protective systems), cybersecurity incidents, depending on their nature and scope, could potentially result in the misappropriation, destruction, corruption or unavailability of critical data or proprietary information and the disruption of business operations. The potential consequences of a material cybersecurity incident include reputational damage, compromised employee, customer, or third-party information, litigation with third parties, regulatory actions, and increased cybersecurity protection and remediation costs, which in turn could adversely affect our business and results of operations. We maintain insurance intended to cover certain cybersecurity events, but such insurance may not cover all risks and losses that we experience. In addition, the laws and regulations governing security of data on IT systems and otherwise held by companies isare evolving and adding layers of complexity in the form of new requirements and increasing costs of attempting to protect IT systems and data and complying with new cybersecurity regulations.

Our revenue and ability to achieve our stated corporate objectives depends on our senior management and our ability to retain recruit, train and retain quality employees. Our success is dependent on our senior management and our ability to attract, retain and motivate qualified personnel, especially skilled service technicians. Competition for senior management is intense, and we may not be successful in attracting and retaining key personnel. Qualified skilled service technicianstechnicians, operations management and leadership, and sales representatives are in high demand and are subject to competing offers. The ability to meet our laborlabor, management, and leadership needs while controlling costs associated with hiring and training new employees is subject to external factors such as unemployment levels, prevailingcurrent market salary and wage ratesrates, and the availableavailability laborof poolskilled technicians in locations where we operate. The loss of services of any member of our senior management team or key employees, and the inability to attract and retain other qualified personnel, especially skilled service technicians, could affect our ability to achieve our stated corporate objectives and could adversely impact our business and results of operations.

The profitability of our Service segment, including the Transcat Solutions business,segment depends in part on the prices we are able to charge for our services. The prices we charge for our services, including the Transcat Solutions business, are affected by a number of factors, including:

We rely on our CalTrak®, Application Plus (our enterprise resource planning system (“ERP”)) and other management information systems for inventory management, distribution, workflow, accounting and other functions. If our CalTrak®, Application Plus or other management information systems fail to adequately perform these functions, experience an interruption in their operation or a security breach, our business and results of operations could be adversely affected. The efficient operation of our business depends on our management information systems. We rely on our CalTrak®, IndySoft, Application Plus (our enterprise resource planning system ("ERP")) and other management information systems to effectively manage accounting and financial functions, customer service, warehouse management, order entry, order fulfillment, inventory replenishment, documentation, asset management, and workflow. Our management information systems are vulnerable to damage or interruption from computer viruses or hackers, natural or man-made disasters, vandalism, terrorist attacks, power loss, or other computer systems, internet, telecommunications or data network failures.failures among other potential threats. Any such interruptions to our management information systems could disrupt our business and could result in decreased revenues, increased overhead costs, increased labor costs to mitigate system interruption downtime, excess inventory or product shortages, causing our business and results of operations to suffer. In addition, our management information systems are vulnerable to security breaches. Our security measures or those of our third-party service providers may fail to detect or prevent such security breaches. Security breaches could result in the unauthorized publication of our confidential business or proprietary information, the unauthorized release of customer, vendor, or employee data and payment information, the violation of privacy or other laws, and the exposure to litigation, any of which could harm our business and results of operations.

Our future success may be affected by our current and future indebtedness. Under our credit agreement, as of March 29,28, 2025,2026, we owed $32.7$99.9 million to our secured creditor, acreditors, commercial bank, including $1.8 million borrowedbanks, under a $15.0$150.0 million termcredit loan to fund acquisitions and provide additional working capital.facility. We may borrow additional funds in the future to support our growth and working capital needs. We are required to meet financial tests on a quarterly basis and comply with other covenants customary in secured financings. Although we believe that we will continue to comply with such covenants, if we do not remain in compliance with such covenants, our lender may demand immediate repayment of amounts outstanding. Furthermore, we are dependent on credit from manufacturers of our products to fund our inventory purchases. If our debt burden increases to high levels, such manufacturers may restrict our credit. Our cash requirements will depend on numerous factors, including the rate of growth of our revenues, the timing and levels of products purchased, payment terms, and credit limits from manufacturers, the timing and level of our accounts receivable collections and our ability to manage our business profitably. Our ability to satisfy our existing obligations, whether or not under our secured credit facility, will depend upon our future operating performance, which may be impacted by prevailing economic conditions and financial, business, and other factors described in this report, many of which are beyond our control.

We face risks associated with foreign currency rate fluctuations. We currently transact a portion of our business in foreign currencies, namely the Canadian dollar and the Euro. During fiscal years 20252026 and 2024,2025, approximatelyless than 10% of our total revenues were denominated in Canadian dollars and Euros. Conducting business in currencies other than U.S. dollars subjects us to fluctuations in currency exchange rates that could have a negative impact on our reported operating results. Fluctuations in the value of the U.S. dollar relative to the Canadian dollar and the Euro impact our revenues, cost of revenues and operating margins and result in foreign currency transaction gains and losses. During fiscal year 2025,2026, the value of the U.S. dollar relative to one Canadian dollar and to one Euro ranged from 1.341.35 to 1.451.44 and from 0.890.83 to 0.98,0.93, respectively. As a result of the SCM acquisition, a Costa Rican entity, we will also be exposed to currency exchange rate risk related to Colones starting in fiscal year 2027.

Our inability to adequately enforce and protect our intellectual property or defend against assertions of infringement could prevent or restrict our ability to compete. We rely on intellectual property in order to maintain a competitive advantage. Our inability to defend against the unauthorized use of these assets could have an adverse effect on our ability to compete in the calibration market and results of operations and financial condition. Litigation may be necessary to protect our intellectual property rights or defend against claims of infringement. This litigation could result in significant costs and divert our management’s focus away from operations.operations, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

Hurricanes, other adverse weather events, national or regional catastrophes or natural disasters could negatively affect the local economies we serve or disrupt our operations, which could have an adverse effect on our business or results of operations. Our market areas include the Gulf Coast and Mid-Atlantic regions of the United States, and Puerto Rico, which are susceptible to hurricanes, and the Western United States, which is susceptible to wildfires. Such weather events and natural disasters can disrupt our operations, result in damage to our properties and negatively affect the local economies in which we operate. Future hurricanes, extreme weather events and natural disasters could result in damage to certain of our facilities and the equipment located at such facilities, or equipment on rent with customers in those areas. Even if our properties suffer no direct damage from such events, the operations of our customers could be disrupted, and our supply chain could be impacted. In addition, climate change could lead to an increase in intensity or occurrence of hurricanes or other adverse weather events, including severe winter storms. Future occurrences of these events, as well as regional or national catastrophes or natural disasters, and their effects may adversely impact our business or results of operations.

We may be involved in legal proceedings from time to time arising from the operation of our business and, as such, we could incur substantial judgments, fines, legal fees, or other costs. From time to time, we may be the subject of complaints or litigation from customers, employees, vendors, or other third parties for various actions. We also may be involved in litigation involving claims related to breach of contract, tortious conduct, employment and labor law matters, and others. The damages sought against us in these matters could be substantial.substantial and an adverse outcome in litigation could have a material adverse effect on how we operate our business. Although we maintain liability insurance for certain legal claims, if one or more of the claims were to greatly exceed our insurance coverage limits or if our insurance policies do not cover a claim, our expenses could increase significantly and management’s focus could be diverted away from our operations, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

We expect that our quarterly results of operations will fluctuate.fluctuate, Such fluctuationswhich could cause our stock price to decline. A large portion of our expenses for our Service segment, including expenses for facilities, equipment and personnel are relatively fixed. Accordingly, if revenues decline or do not grow as we anticipate, we may not be able to correspondingly reduce our expenses in any particular quarter. Our quarterly revenues and operating results have fluctuated in the past and are likely to do so in the future. Historically, our fiscal third and fourth quarters have been stronger than our fiscal first and second quarters due to industrial operating cycles. Fluctuations in industrial demand for products we sell and services we provide could cause our revenues and operating results to fluctuate. Project-based service revenue is similarly subject to fluctuation due to longer sales cycles and factors beyond our control, such as customer financial constraints, the regulatory environment, and changes in economic, political, and industry conditions, which can create challenges in forecasting our revenue. If our operating results in some quarters fail to meet the expectations of stock market analysts and investors, our stock price may decline.

Tax rates applicable to us may change. Tax legislation initiatives could adversely affect our net earnings and tax liabilities. We are subject to the tax laws and regulations of the United States federal, state and local governments, as well as foreign jurisdictions. From time to time, various legislative initiatives may be enacted that could adversely affect our tax positions. Tax laws and regulations are extremely complex and subject to varying interpretations. The Tax Cuts and Jobs Act of 2017 made broad and complex changes to the U.S. tax code, such as reducing the Federal corporate income tax rate from 35% to 21%. Any additional modifications to key aspects of the tax code could materially affect our tax obligations and negatively impact our effective tax rate. Although we believe that our tax positions are sound and consistent with applicable laws, regulations and existing precedent, there can be no assurance that our tax positions will not be challenged by relevant tax authorities or that we would be successful in any such challenge.

Changes in accounting standards, legal requirements and the Nasdaq Global Market listing standards, or our ability to comply with any existing requirements or standards, could adversely affect our operating results. ExtensiveCompliance reformswith the rules, regulations and standards relating to public company financial reporting, corporate governance and ethics, the Nasdaq Global Market listing standards and oversight of the accounting profession have been implemented over the past several years and continue to evolve. Compliance with these rules, regulations and standards that have resulted from such reforms has increased our accounting and legal costs and has requiredrequires significant management time and attention. In the event that additional rules, regulations or standards are implemented or any of the existing rules, regulations or standards to which we are subject undergoes additional material modification, we could be forced to spend significant financial and management resources to ensure our continued compliance, which could have an adverse effect on our results of operations. For example, the additional reporting requirements relating to tracking greenhouse gas emissions and other climate-related disclosure from various U.S. states and foreign jurisdictions could significantly increase our accounting, consulting and legal expenses. Should we be or become unable to comply with any of such rules, regulations and standards, as they presently exist or as they may exist in the future, our results of operations could be adversely affected and the market price of our common stock could decline.

Our international operations expose us to legal and regulatory risks, which could have a material effect on our business. Our international operations are governed by various United States laws and regulations, including the Foreign Corrupt Practices Act (“FCPA”), and other foreign anti-bribery laws. The FCPA and similar anti-corruption laws generally prohibitsprohibit companies and their intermediaries from making improper payments to foreign government officials for the purpose of obtaining or retaining business. Because of our international operations, we are subject to the anti-bribery laws of non-US jurisdictions where we operate. Any alleged or actual violations of these or other relevant regulations may subject us to government scrutiny, severe criminal or civil sanctions and other liabilities and could negatively affect our business, reputation, operating results and financial condition.

Our Service segment revenue growth was 7.0%19.7% for fiscal year 20252026 from fiscal year 2024.2025. This increase was primarily due to the acquisitions of MartinEssco and Becnel.Martin. Acquired revenue, which represents revenue generated from acquisitions completedfor aftertwelve months subsequent to the endacquisition of the prior year,date, was $10.4$30.9 million. Service Segment revenue was also impacted by the number of weeks. Fiscal year 2025 had 52 weeks, while fiscal year 2024 had 53 weeks. When adjusted for the 52/53 week impact, organic service revenue increased by 2.7%. The Service segment gross margin decreased by 4090 basis points. Service segment gross margin decreases were primarily due to smallcosts associated with new customer wins and lower than expected levels of organic revenue increases offset by decreased marginsgrowth in the Transcatfirst Solutionshalf business.of the fiscal year, which rebounded in the second half of the year.

In fiscal year 2025,2026, Distribution segment sales increased by 7.8%.18.2%. This increase in sales primarily due to rentals of $7.5 million, product sales of $10.2 million, including contributions from the acquisitionMartin and Essco acquisitions of Becnel$4.4 and increases in traditional rental products.million.

The Distribution segment gross margin in fiscal year 20252026 increased by 20320 basis points. The increase in segment gross margin was primarily due to increased margins from rental revenue, which now includes Becnel,revenue and a favorable mix of higher margin products sold.

InitiativesOur implementedfocus withinremains this segment includeon adding new in-demand vendors and product lines, expanding the number of SKUs that we offer with and without pre-shipment calibration and offering equipment rental and used equipment options. Management believes this diversification strategy will mitigate the impact that any particular industry or sector will have on the overall performance of this segment as well as help to further differentiate us from our competitors going forward.

Financial Overview. A discussion regarding our financial condition and results of operations for the fiscal year ended March 30,29, 20242025 and year-to-year comparisons between fiscal year 20242025 and fiscal year ended March 25,30, 20232024 ("fiscal year 20232024"), which are not included in this Form 10-K, can be found under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended March 30,29, 20242025 and are incorporated by reference herein.

Total revenue for fiscal year 20252026 was $278.4$331.9 million. This represented an increase of $18.9$53.5 million or 7.3%19.2% versus total revenue of $259.5$278.4 million for fiscal year 2024.2025. This increase was primarily due to recently completed acquisitions, and increased rental sales, whichsubcontracted includesthird-party incrementalvendor revenuesales fromand anproduct/equipment acquisition completed in fiscal year 2025.sales.

Operating expenses were $95.0 million, or 28.6% of total revenue, in fiscal year 2026 compared with $71.6 million, or 25.7% of total revenue, in fiscal year 20252025. comparedOperating withincome $64.0was $13.3 million, or 24.7%4.0% of total revenue, in fiscal year 2024.2026 Operatingcompared income waswith $17.9 million, or 6.4% of total revenue, in fiscal year 2025 compared with $19.8 million, or 7.6% of total revenue, in fiscal year 2024.2025. The year-over-year increase in selling, marketing and warehouse expenses was primarily due to increasedamortization expensesexpense of $5.3 million related to recent acquisitions, especially$3.1 acquisitionmillion relateddue amortizationto expense,employee andcompensation, higherincluding incentive-based employee costs due to higher sales. The year-over-year increase in general and administrative expenses was due to incremental expenses from acquired businesses (including stock expense of $3.8 million), increased payroll costs forof new$5.9 employeesmillion, executive transition costs of $1.7 million and continued investments in technology.technology of $1.1 million.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Intangible assets, namely customer base and covenants not to compete, represent an allocation of purchase price to identifiable intangible assets of an acquired business. These intangible assets are amortized over their estimated useful lives and are reviewed for impairment if and when indicators are present. Intangible assets, net of accumulated amortization, were $77.7 million as of March 28, 2026.

Service revenue, which accounted for 65.2%65.4% and 65.3%65.2% of our total revenue in fiscal years 20252026 and 2024,2025, respectively, increased $11.9$35.8 million, or 7.0%19.7% from fiscal year 20242025 to fiscal year 2025.2026. This year-over-year increase included $10.4$30.9 million of incremental revenue from the acquisitions of BecnelEssco and Martin. It also included service organic revenue growth of 2.7% when adjusted for the 52/53 week impact,3.0%, which was driven by continued market share gains,gains. offsetService by comparatively lowerorganic revenue fromis thea Transcatnon-GAAP Solutionsmeasure. business.See "Non-GAAP Financial Measures” below.

The growth in fiscal year 20252026 and fiscal year 20242025 reflected both organic growth and acquisitions. The growth in Service segment revenue in fiscal year 2026 includes revenue from Essco and Martin. The growth in Service segment revenue in fiscal year 2025 includes revenue from Becnel and Martin. The growth in Service segment revenue in fiscal year 2024 includes revenue from TIC-MS and SteriQual. The lowerhigher growth percentages in fiscal year 20252026 are due to lowerhigher acquisition and organic revenue growth compared to fiscal year 2024.2025.

Our Distribution sales accounted for 34.8%34.6% and 34.7%34.8% of our total revenue in fiscal years 20252026 and 2024,2025, respectively. Distribution sales increased $7.0$17.7 million, or 7.8%18.2% in fiscal year 20252026 compared to fiscal year 2024.2025. This year-over-year increase is primarily due to $7.2$7.5 million of incremental revenue from rentals and $10.2 million of higher distribution sales orders, including $4.4 million from the acquisitions of BecnelEssco and Martin offset by slower demand for our non-rental products. The change in fiscal year 2024 versus fiscal year 2023 was due to incremental revenue from the acquisition of Axiom offset by slower demand for our non-rental products.Martin. Our fiscal years 20252026 and 20242025 Distribution sales growth in relation to prior fiscal year quarter comparisons were as follows:

Our total pending product shipments decreasedincreased $1.8$3.9 million, or 34.7%,118.6%, at the end of fiscal year 20252026 compared to the end of fiscal year 2024.2025. Backorders at the end of fiscal year 20252026 were $2.7$6.3 million, compared to $4.5$2.7 million at the end of fiscal year 2024.2025. The year-over-year decreaseincrease in pending product shipments and backorders was adue resultto oflonger improvedlead fulfillment of existing orders.times.

Total gross profit in fiscal year 20252026 was $89.5$108.3 million compared to $83.8$89.5 million in fiscal year 2024,2025, an increase of $5.6$18.9 million or 6.7%.21.1%. As a percentage of total revenue, total gross margin was 32.6% in fiscal year 2026 compared to 32.1% in fiscal year 2025 compared to 32.3% in fiscal year 2024,2025, a 2050 basis point decrease.increase.

Service gross profit was $60.7$70.5 million, an increase of $3.4$9.9 million, or 5.9%,16.3%, from fiscal year 20242025 to fiscal year 2025.2026. Our annual and quarterly Service segment gross margins are a function of several factors. Our organic Service revenue growth provides some incremental gross margin growth by leveraging certain fixed costs of this segment. The mix of services provided to customers may also affect gross margins in any given period.period, in addition to the volume of throughput. Service gross margin decreased by 4090 basis points in fiscal year 20252026 versus fiscal year 2024.2025. This decrease in service gross margin in fiscal year 20252026 was the result of lowercosts revenueassociated with new customer wins and grosslower marginsthan fromexpected Transcatlevels Solutions.of organic growth in the first half of the fiscal year, which rebounded in the second half of the year.

Distribution segment gross margin increased 20320 basis points in fiscal year 20252026 compared to fiscal year 2024.2025. The increase in the Distribution segment gross margin was primarily due to increased margins from rental revenue, which now includes Becnelrevenue and a favorable mix of higher margin products sold.

Total operating expenses were $95.0 million in fiscal year 2026 compared to $71.6 million in fiscal year 2025 compared to $64.0 million in fiscal year 2024.2025. This represented an increase of $7.6$23.5 million, or 11.8%,32.8%, compared to fiscal year 2024.2025. As a percentage of total revenue, operating expenses increased 100290 basis points from 24.7% in fiscal year 2024 to 25.7% in fiscal year 2025.2025 to 28.6% in fiscal year 2026. The year-over-year increase in selling, marketing and warehouse expenses is due to increased expenses related to recent acquisitions, especially acquisition related amortization expense, and higher incentive-basedpayroll related employee costs due to higher sales.costs. The increase in general and administrative expenses includes incremental expenses related to acquired companies,companies (including stock based compensation), increased payroll costs, executive transition costs for new employees and continued investments in technology.

Our effective tax rate for fiscal years 20252026 and 20242025 was 20.8%32.7% and 26.0%,20.8%, respectively. The decreaseincrease in effective tax rate is due to the timing of our discrete items in relation to the timing of our pre-tax net income and due to tax expense recognized in fiscal year 20242026 associated with executive compensation limitations that resulted from share-based awards. 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. The discrete benefitsitems related to share-based compensation activity in fiscal years 20252026 and 20242025 were $1.3$0.1 million tax expense and $0.6$1.1 million,million tax benefit, respectively. 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 for fiscal year 20252026 increaseddecreased by $0.9$9.1 million or 6.4%63.0% compared to fiscal year 2024.2025. As a percentage of revenue, net income was 1.6% in fiscal year 2026, down from 5.2% in fiscal year 2025, down from 5.3% in fiscal year 2024.2025. The year-over-year increasedecrease in net income was primarily due to lower operating income, offset by lower interest expense, netincome and higher otherinterest incomeexpense. relatedThe interest expense increased due to thehigher saleoutstanding ofdebt assetsbalances. relatedThe debt was incurred to ourfund Unitedthe ScaleEssco division.acquisition.

In addition to reporting net income, a GAAP measure, we present Adjusted EBITDA (earnings before interest, income taxes, depreciation and amortization, non-cash stock compensation expense, acquisition related transaction expenses, contingentexecutive consideration,transition costs, and certain other expenses), which is a non-GAAP measure. Our management believes Adjusted EBITDA is an important measure of our operating performance because it allows management, investors and others to evaluate and compare the performance of our core operations from period to period by removing the impact of the capital structure (interest), tangible and intangible asset base (depreciation and amortization), taxes, stock-based compensation expense and other items, which is not always commensurate with the reporting period in which it is included. As such, our management uses Adjusted EBITDA as a measure of performance when evaluating our business segments and as a basis for planning and forecasting. Adjusted EBITDA is also commonly used by rating agencies, lenders and other parties to evaluate our credit worthiness.

During fiscal year 2025,2026, Adjusted EBITDA was $39.7$48.7 million, an increase of $1.1$9.0 million or 2.9%22.7% compared to fiscal year 2024.2025. As a percentage of revenue, Adjusted EBITDA was 14.7% during fiscal year 2026 versus 14.3% during fiscal year 2025 versus 14.9% during fiscal year 2024,2025, a 6040 basis point decrease.increase. The dollar increase in Adjusted EBITDA during fiscal year 20252026 was primarily driven by increasesincreased in depreciation and amortization expense offset by lower operating income and lower noncash stock compensation.revenue.

Adjusted Net Income and Adjusted Diluted Earnings Per Share:

In addition to reporting Net Income and Diluted Earnings Per Share, a GAAP measure,measures, we present Adjusted Dilutednet Earnings Per Shareincome (net income plus acquisition related amortization expense, acquisition related transaction expenses, acquisition related stock-based compensation, contingentexecutive consideration,transition costs, and acquisition amortization of backlog;backlog, as applicable) and Adjusted diluted earnings per share (Adjusted net income divided by the average diluted shares outstanding during the period), which is aare non-GAAP measure.measures. Our management believes Adjusted Dilutednet Earningsincome Perand ShareAdjusted isdiluted anearnings per share are important measuremeasures of our operating performance because itthey providesprovide a basis for comparison of our business operations between current, past and future periods by excluding items that we do not believe are indicative of our core operating performance.

Adjusted Dilutednet Earningsincome Perand ShareAdjusted isdiluted earnings per share are not a measuremeasures of financial performance under GAAP and isare not calculated through the application of GAAP. As such, itthey should not be considered as a substitute or alternative for the GAAP measuremeasures of Net Income and Diluted Earnings Per Share and, therefore, should not be used in isolation of, but in conjunction with, the GAAP measure.measures. Adjusted Dilutednet Earningsincome Perand Share,Adjusted diluted earnings per share, as presented, may produce results that vary from the GAAP measuremeasures and may not be comparable to a similarly defined non-GAAP measuremeasures used by other companies.

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,” “intend,” “potential,” “outlook,” “seek,” “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 29,28, 2025.2026. 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.

During our thirdfirst quarter of fiscal year 2026,2027, we had consolidated revenue of $83.9$92.9 million. This represented an increase of $17.1$16.5 million or 25.6%21.6% versus the thirdfirst quarter of fiscal year 2025.2026. This increase was primarily due to acquisitions, service organic revenue growth (a non-GAAP measure) and a $5.0$3.1 million increase in distribution revenue. Acquired revenue, which represents revenue generated from acquisitions for twelve months subsequent to the acquisition date, was $9.8$6.9 million. Service organic revenue increased by 7.3%12.8% versus the thirdfirst quarter of fiscal year 2025.2026. 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 thirdfirst quarter of fiscal year 20262027 gross profit was $25.3$30.7 million. This was an increase of $5.6$4.9 million or 28.3%19.0% versus the thirdfirst quarter of fiscal year 2025.2026. Consolidated gross margin was 30.1%,33.1%, ana increasedecrease of 0.6%0.7% versus the thirdfirst quarter of fiscal year 2025.2026. This increasedecrease in gross profit percentage was primarily due to higherlower margins from the Distribution segment when compared to the prior year period.

Total operating expenses were $25.2$27.0 million in the thirdfirst quarter of fiscal year 2026,2027, an increase of $7.6$6.5 million or 43.2%31.9% when compared to the prior fiscal year thirdfirst quarter. Included in operating expenses during the thirdfirst quarter of fiscal year 20262027 were more than $2.5 million of incremental operating expenses fromrelated to the acquisitions of MartinSCM and Essco,Essco acquisitions, including customer base amortizationamortization, depreciation and acquisition-related costs, increased stock-based compensation and higherexecutive incentive-basedtransition employee costs due to higher sales.costs. As a percentage of total revenue, operating expenses were 30.0%29.1% in the thirdfirst quarter of fiscal year 2026,2027, up 3.7%2.3% from 26.3%26.8% in the thirdfirst quarter of fiscal year 2025.2026. Operating income was $0.1$3.7 million, a decrease of $2.0$1.6 million, or 95.8%30.3% and operating margin decreased from 3.1%7.0% in the thirdfirst quarter of fiscal year 20252026 to 0.1%4.0% in the thirdfirst quarter of fiscal year 2026.2027.

Net lossincome was $1.1$1.3 million in the thirdfirst quarter of fiscal year 20262027 versus net income of $2.4$3.3 million in the thirdfirst quarter of fiscal year 2025.2026. The decrease was primarily due to a $6.5 million increase in operating expenses, including an increase in amortization of acquisition-related intangible assets, stock-based compensation, CEOexecutive transition costs and interest expense. The increase in expenses was partially offset by a $4.9 million increase in gross profit.

The following table presents, for the thirdfirst quarter of fiscal year 20262027 and fiscal year 2025,2026, the components of our Condensed Consolidated Statements of Income:

ThirdTHREE QUARTERMONTHS ENDED DecemberJUNE 27, 20252026 COMPARED TO ThirdTHREE QUARTERMONTHS ENDED DecemberJUNE 28, 20242025 (dollars in thousands):

Total revenue was $83.9$92.9 million, an increase of $17.1$16.5 million, or 25.6%,21.6%, in our fiscal year 20262027 thirdfirst quarter compared to the prior fiscal year thirdfirst quarter.

Service revenue, which accounted for 64.0%67.3% and 62.3%64.3% of our total revenue in the thirdfirst quarter of fiscal years 20262027 and 2025,2026, respectively, increased $12.1$13.4 million or 29.1%27.3% from the thirdfirst quarter of fiscal year 20252027 to the thirdfirst quarter of fiscal year 2026 despite economic volatility.2026. This year-over-year increase included $9.0$6.9 million of incremental service revenue from the acquisitions of MartinEssco and Essco.SCM. OrganicService organic revenue increased 7.3%12.8% over the prior year period primarily due to successfulgrowth integrationin ofclient-based historical acquisitionslabs and consistentcalibration demandservices infor highlybiomedical regulated end markets.customers.

The following table presents the trailing twelve-month Service segment revenue for the first,first second and third quartersquarter of fiscal year 20262027 and each quarter in fiscal year 20252026 as well as the trailing twelve-month revenue growth as a comparison to that of the prior fiscal year period:

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 15% 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,first second and third quartersquarter of fiscal year 20262027 and for each quarter during fiscal year 20252026:

Our Distribution revenue accounted for 36.0%32.7% of our total revenue in the thirdfirst quarter of fiscal year 20262027 and 37.7%35.7% of our total revenue in the thirdfirst quarter of fiscal year 2025.2026. During the thirdfirst quarter of fiscal year 2026,2027, Distribution segment revenue was $30.2$30.4 million which was an increase of $5.0$3.1 million or 19.8%.11.4%. This increase was primarily due to incrementalcontinued traditionalstrength rentalin revenuerentals and higherproduct revenue from our non-rental products.sales.

The Distribution segment revenue increase for the thirdfirst quarter of fiscal year 2027 versus the first quarter of fiscal year 2026 versus the third quarter of fiscal year 2025 was primarily due to ahigher favorablerevenue salesfrom mixour drivennon-rental by rental revenue.products.

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, second and thirdfirst quarter of fiscal year 20262027 and each quarter of fiscal year 20252026:

Total gross profit for the thirdfirst quarter of fiscal year 20262027 was $25.3$30.7 million, an increase of $5.6$4.9 million or 28.3%19.0% versus the thirdfirst quarter of fiscal year 2025.2026. Total gross margin was 30.1%33.1% in the thirdfirst quarter of fiscal year 2027, down from 33.8% in the first quarter of fiscal year 2026, up from 29.5% in the third quarter of fiscal year 2025, a 0.6%0.7% increase.decrease.

Distribution segment gross margin was 32.4%31.4% in the thirdfirst quarter of fiscal year 20262027 versus 29.1%35.2% in the thirdfirst quarter of fiscal year 2025,2026, ana increasedecrease of 3.3%.3.8%. The increasedecrease in Distribution gross margin was primarily due to aan favorableincrease in product sales mixrelative drivento byrental rentals.sales during the period.

Total operating expenses were $25.2$27.0 million in the thirdfirst quarter of fiscal year 20262027 versus $17.6$20.5 million during the thirdfirst quarter of fiscal year 2025.2026. The year-over-year increase in selling, marketing and warehouse expenses 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 costscosts, professional fees and increased payroll costs for new and acquired employees.

As a percentage of total revenue, operating expenses were 30.0%29.1% in the thirdfirst quarter of fiscal year 20262027 and 26.3%26.8% in the thirdfirst quarter of fiscal year 2025,2026, an increase of 3.7%.2.3%.

Our effective tax rate for the thirdfirst quarter of fiscal years 20262027 and 20252026 was (23.5)%39.1% and 24.7%,28.6%, respectively. The decreaseincrease in effective tax rate compared to the prior year period is primarily duerelated to adiscrete nettax lossexpenses for thestock period.awards, a decrease in stock compensation-related windfall benefits, and nondeductible expenses. 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. The discrete benefits related to share-based compensation activity in the third quarter of fiscal years 2026 and 2025 were an expense of less than $0.1 million and a benefit of $0.1 million, respectively. 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 (Loss) Income:

Total Adjusted EBITDA, a non-GAAP measure, for the thirdfirst quarter of fiscal year 20262027 was $10.1$14.0 million, an increase of $2.2 million or 27.2%18.6% versus the thirdfirst quarter of fiscal year 2025.2026. 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 increasedslightly decreased to 12.0%15.0% for the thirdfirst quarter of fiscal year 20262027 from 11.9%15.4% for the thirdfirst quarter of fiscal year 2025. The increase in Adjusted EBITDA during the third quarter of fiscal year 2026 was primarily driven by depreciation and amortization expense, non-cash stock compensation, interest expense and executive transition costs.2026.

ServiceIn 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 growthrevenue, isadjusted notnet 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 measurebasis offor financial performance under GAAPplanning and isforecasting because management believes these non-GAAP measures reflect our core business operations. These non-GAAP measures are not calculated through the application of GAAP.U.S. GAAP and are not required forms of disclosure by the SEC. As such, itthey should not be considered as a substitute or alternative for the corresponding GAAP measure of net incomemeasures and, therefore, they should not be used in isolation of,isolation, but in conjunction with,with the GAAP measure.measures. ServiceThe organicuse growth,of asany presented,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.

Adjusted Net Income and Diluted Earnings Per Share