Fiscal 2023 Q2 Financial Results | --- | --- | --- | |-------|----------------------------------------|-------| | | | | | | Lee D. Rudow | | | | President and CEO | | | | Mark A. Doheny Chief Operating Officer | | | | Tom L. Barbato Chief Financial Officer | | | | | | Safe Harbor Statement This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact and thus are subject to ri ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _______________ FORM 10-Q ☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended: June 25, 2022 or ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (585) 352-7777 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: For the transition period from to Commission File Number ...

Transcat Inc (NASDAQ:TRNS) Q1 2023 Earnings Conference Call August 2, 2022 11:00 AM ET Company Participants Tom Barbato - SVP of Finance Lee Rudow - President, CEO and Director Mark Doheny - VP of Finance, CFO and Treasurer Conference Call Participants Greg Palm - Craig-Hallum Capital Group Scott Buck - H.C. Wainwright Gerry Sweeney - ROTH Capital Operator Greetings, and welcome to Transcat, Inc. First Quarter 2023 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is ...

PART I [Business Overview](index=4&type=section&id=Item%201.%20Business) Transcat, Inc. is a leading distributor of accredited calibration services, enterprise asset management services, and professional test, measurement, and control instruments, primarily serving highly regulated industries like life sciences. The company operates through its Service and Distribution segments, focusing on expanding capabilities and market reach through organic growth and strategic acquisitions [Business Overview](index=4&type=section&id=BUSINESS%20OVERVIEW) Transcat operates through its Service and Distribution segments, providing calibration services, enterprise asset management, and test and measurement instruments to highly regulated industries such as life sciences, aerospace, and energy, with **20-25%** of customers utilizing both segments - Transcat operates through two main segments, Service and Distribution, serving approximately **30,000** customers, with **20% to 25%** utilizing both segments' services[15](index=15&type=chunk) - The Service segment provides calibration, repair, inspection, analytical qualification, preventive maintenance, consulting, and related services, primarily managed through proprietary asset management system CalTrak® and customer portal C3®[16](index=16&type=chunk)[46](index=46&type=chunk)[47](index=47&type=chunk) - The Distribution segment sells and leases over **150,000** test, measurement, and control instruments from approximately **500** leading brands worldwide, offering value-added services like pre-sale calibration[21](index=21&type=chunk) - The company focuses on highly regulated industries, including life sciences (pharmaceutical, biotechnology, medical devices), FAA-regulated aerospace and defense manufacturing, and energy and utilities[14](index=14&type=chunk) [Company Strategy](index=6&type=section&id=OUR%20STRATEGY) Transcat's strategy leverages its complementary Service and Distribution segments to enhance productivity and operational efficiency through its 'Operational Excellence' program, aiming for double-digit revenue growth via organic expansion and strategic acquisitions, particularly in the Service segment, while diversifying the Distribution segment - The company's strategy leverages the complementary nature of its Service and Distribution segments to create customer value and build competitive barriers[26](index=26&type=chunk) - The 'Operational Excellence' program enhances productivity and operational efficiency through technology, automation, and process improvements, while providing training and career development opportunities for employees[27](index=27&type=chunk) - The Service segment's growth strategy aims for double-digit revenue growth through organic expansion (market share capture, outsourcing internal calibration labs) and acquisitions (geographic expansion, increased capabilities, infrastructure utilization)[28](index=28&type=chunk)[29](index=29&type=chunk)[30](index=30&type=chunk) - The Distribution segment's strategy is to be a leading test and measurement equipment distributor and rental source, offering cross-selling opportunities and differentiating through rentals and used equipment sales to mitigate price competition[31](index=31&type=chunk)[32](index=32&type=chunk) - In FY2022, three acquisitions were completed: Tangent Labs, LLC, Cal OpEx Limited (NEXA), and Upstate Metrology Inc.; in FY2021, BioTek Services, Inc. was acquired, primarily to expand the Service segment's geographic reach and capabilities[34](index=34&type=chunk)[35](index=35&type=chunk) [Business Segments](index=8&type=section&id=SEGMENTS) Transcat's business segments include Service and Distribution, with the Service segment offering accredited calibration and asset management services centered on quality and proprietary software, while the Distribution segment sells and leases test and measurement instruments, differentiated by value-added services and multi-channel marketing [Service Segment](index=8&type=section&id=Service%20Segment) The Service segment provides calibration, repair, inspection, consulting, and enterprise asset management services primarily to regulated industries, with all calibration centers ISO/IEC **17025:2017** accredited and utilizing proprietary software like CalTrak® and C3® for comprehensive asset management solutions - The Service segment provides calibration, repair, inspection, analytical qualification, preventive maintenance, consulting, and other related services, as well as enterprise asset management solutions[16](index=16&type=chunk)[42](index=42&type=chunk)[44](index=44&type=chunk) - All calibration service centers are ISO/IEC **17025:2017** accredited, forming a cornerstone of the company's quality program and providing consistent, uniform service to customers[20](index=20&type=chunk)[54](index=54&type=chunk) - The company performs approximately **800,000** calibrations annually, with about **13% to 15%** of services outsourced to third-party vendors for specialized needs[39](index=39&type=chunk) - Proprietary asset management software CalTrak® and C3® are validated to U.S. Federal Regulations **21 CFR Part 820.75** and **21 CFR Part 11**, providing customers with online access to asset management and calibration records[46](index=46&type=chunk)[47](index=47&type=chunk) [Distribution Segment](index=11&type=section&id=Distribution%20Segment) The Distribution segment globally sells and leases professional-grade test, measurement, and control instruments, offering value-added services such as pre-sale calibration, equipment rental, and used equipment sales, striving to be a one-stop solution provider through multi-channel marketing and technical support - The Distribution segment sells and leases over **150,000** test, measurement, and control instruments from approximately **500** leading brands worldwide[21](index=21&type=chunk) - Value-added services include pre-sale calibration/certification, equipment rental, used equipment sales, and equipment kitting to meet customer needs and reduce downtime[21](index=21&type=chunk)[60](index=60&type=chunk)[62](index=62&type=chunk) - Multi-channel marketing and sales are conducted through websites, inside sales teams, print and digital marketing materials, and industry-specific websites such as www.pipettes.com[21](index=21&type=chunk)[64](index=64&type=chunk) - In FY2022, the top ten suppliers accounted for approximately **64%** of total distribution sales; supply chain disruptions led to increased lead times and a growing backlog of orders[70](index=70&type=chunk) Distribution Segment Backlog Status | Metric | March 26, 2022 (million dollars) | March 27, 2021 (million dollars) | | :----------------------- | :----------------------- | :----------------------- | | Total Backlog Orders | 7.7 | 6.3 | | Backlog Orders | 6.4 | 4.9 | [Customer Service and Support](index=13&type=section&id=CUSTOMER%20SERVICE%20AND%20SUPPORT) Transcat provides multi-channel customer support through business development, outbound sales, account management, and inbound sales/customer service teams, continuously monitoring service quality via customer surveys, call monitoring, and daily reports - Customers can place orders via mail, phone (**1-800-828-1470**), email (sales@transcat.com), online (www.transcat.com), or fax[83](index=83&type=chunk) - Customer service quality is monitored through customer surveys, call monitoring, and daily statistical reports[75](index=75&type=chunk) [Export Sales Information](index=14&type=section&id=INFORMATION%20REGARDING%20EXPORT%20SALES) Export sales accounted for approximately **10%** of total revenue in FY2022 and FY2021, primarily denominated in Canadian dollars and Euros, exposing the company to international operating risks such as exchange rate fluctuations and trade restrictions - Export sales accounted for approximately **10%** of total revenue in FY2022 and FY2021[77](index=77&type=chunk) - In FY2022, approximately **81%** of export sales were denominated in Canadian dollars, **11%** in Euros, and **8%** in U.S. dollars[77](index=77&type=chunk) - International operations face risks such as trade or foreign exchange restrictions, increased tariffs, exchange rate fluctuations, and political instability[77](index=77&type=chunk) [Information Systems](index=14&type=section&id=INFORMATION%20SYSTEMS) Transcat utilizes Infor's Application Plus as its enterprise software solution, integrated with SalesForce.com CRM, and employs proprietary CalTrak® and C3® systems for documentation and asset management to support calibration services - The company uses Infor's Application Plus as its enterprise software solution, managing business functions such as customer service, warehouse management, inventory management, financial management, customer relationship management, and business intelligence[78](index=78&type=chunk) - SalesForce.com's CRM software is fully integrated with the Infor enterprise software[78](index=78&type=chunk) - Proprietary documentation and asset management system CalTrak® manages calibration service center workflows and customer assets, with C3® providing web-based asset management and access to service records for customers[79](index=79&type=chunk) [Intellectual Property](index=14&type=section&id=INTELLECTUAL%20PROPERTY) Transcat owns federally registered trademarks including Transcat®, CalTrak®, C3®, and Procision®, along with several internet domain names, all critical intellectual property that the company plans to renew as needed - The company owns federally registered trademarks including Transcat®, CalTrak®, C3®, and Procision®, with CalTrak® also registered in Canada and Puerto Rico[80](index=80&type=chunk) - The company owns internet domain names such as www.transcat.com, www.transcat.ca, and pipettes.com[81](index=81&type=chunk) - Changes in domain name regulations could prevent the company from maintaining or obtaining comparable domain names, thereby harming the business[81](index=81&type=chunk) [Seasonality](index=14&type=section&id=SEASONALITY) Transcat's business exhibits seasonality, with the third and fourth fiscal quarters typically stronger than the first and second, primarily influenced by the operating cycles of industrial sector customers - Historical data indicates that the company's third and fourth fiscal quarters are typically stronger than the first and second[82](index=82&type=chunk) - The Distribution segment performs strongest in the third fiscal quarter, while the Service segment performs strongest in the fourth fiscal quarter[82](index=82&type=chunk) [Fiscal Year](index=15&type=section&id=FISCAL%20YEAR) Transcat operates on a **52/53-week** fiscal year, ending on the last Saturday in March, with FY2022, FY2021, and FY2023 all comprising **52** weeks - The company operates on a **52/5

Transcat, Inc. (NASDAQ:TRNS) Q4 2022 Earnings Conference Call May 24, 2022 11:00 AM ET Company Participants Thomas Barbato - Senior Vice President of Finance Lee Rudow - President and Chief Executive Officer Mark Doheny - Vice President and Chief Financial Officer Conference Call Participants Gerard Sweeney - ROTH Capital Partners, LLC Gregory Palm - Craig-Hallum Capital Group LLC Mitra Ramgopal - Sidoti & Company, LLC Operator Greetings, and welcome to Transcat Incorporated Fourth Quarter and Full Fiscal Y ...

Fiscal 2022 Q4 Financial Results | --- | --- | |----------------------------------------|-------| | | | | Lee D. Rudow President and CEO | | | Mark A. Doheny Chief Financial Officer | | | | | Safe Harbor Statement This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact and thus are subject to risks, uncertainties and assumptions. Forward-looking statements are identified ...

Fiscal 2022 Q3 Financial Results | --- | --- | --- | |-------------------------|-------|-------| | | | | | Lee D. Rudow | | | | President and CEO | | | | Mark A. Doheny | | | | Chief Financial Officer | | | | | | | Safe Harbor Statement This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact and thus are subject to risks, uncertainties and assumptions. Forward-looking st ...

PART I. FINANCIAL INFORMATION [**ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS**](index=3&type=section&id=ITEM%201.%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) Presents unaudited consolidated financial statements and notes for Q3 and 9M FY22, detailing operations, policies, and acquisitions [**Consolidated Statements of Income**](index=3&type=section&id=Consolidated%20Statements%20of%20Income) | Metric (in Thousands) | Q3 FY22 (Dec 25, 2021) | Q3 FY21 (Dec 26, 2020) | 9M FY22 (Dec 25, 2021) | 9M FY21 (Dec 26, 2020) | | :-------------------- | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | Service Revenue | $30,237 | $24,776 | $87,338 | $72,297 | | Distribution Sales | $20,665 | $19,286 | $61,741 | $52,276 | | Total Revenue | $50,902 | $44,062 | $149,079 | $124,573 | | Gross Profit | $13,636 | $11,245 | $41,767 | $32,148 | | Operating Income | $2,361 | $2,519 | $9,628 | $6,561 | | Net Income | $1,629 | $1,761 | $8,332 | $4,583 | | Basic EPS | $0.22 | $0.24 | $1.11 | $0.62 | | Diluted EPS | $0.21 | $0.23 | $1.10 | $0.61 | [**Consolidated Statements of Comprehensive Income**](index=4&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) | Metric (in Thousands) | Q3 FY22 (Dec 25, 2021) | Q3 FY21 (Dec 26, 2020) | 9M FY22 (Dec 25, 2021) | 9M FY21 (Dec 26, 2020) | | :-------------------- | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | Net Income | $1,629 | $1,761 | $8,332 | $4,583 | | Currency Translation Adjustment | ($233) | $251 | ($314) | $505 | | Other, net of tax effects | $18 | $21 | $48 | $95 | | Total Other Comprehensive (Loss) Income | ($215) | $272 | ($266) | $600 | | Comprehensive Income | $1,414 | $2,033 | $8,066 | $5,183 | [**Consolidated Balance Sheets**](index=5&type=section&id=Consolidated%20Balance%20Sheets) | Metric (in Thousands) | Dec 25, 2021 | Mar 27, 2021 | | :-------------------- | :----------- | :----------- | | Cash | $2,779 | $560 | | Accounts Receivable, net | $34,702 | $33,950 | | Inventory, net | $13,868 | $11,636 | | Total Current Assets | $57,549 | $48,928 | | Property and Equipment, net | $23,781 | $22,203 | | Goodwill | $59,133 | $43,272 | | Intangible Assets, net | $11,503 | $7,513 | | Total Assets | $161,600 | $132,116 | | Total Current Liabilities | $24,619 | $25,142 | | Long-Term Debt | $38,616 | $17,494 | | Total Liabilities | $78,702 | $57,038 | | Total Shareholders' Equity | $82,898 | $75,078 | [**Consolidated Statements of Cash Flows**](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) | Metric (in Thousands) | 9M FY22 (Dec 25, 2021) | 9M FY21 (Dec 26, 2020) | | :-------------------- | :--------------------- | :--------------------- | | Net Cash Provided by Operating Activities | $12,378 | $15,647 | | Net Cash Used in Investing Activities | ($26,759) | ($7,742) | | Net Cash Provided by (Used in) Financing Activities | $16,900 | ($6,619) | | Net Increase in Cash | $2,219 | $535 | | Cash at End of Period | $2,779 | $1,034 | [**Consolidated Statements of Shareholders' Equity**](index=7&type=section&id=Consolidated%20Statements%20of%20Shareholders'%20Equity) | Metric (in Thousands) | Balance as of March 27, 2021 | Balance as of December 25, 2021 | | :-------------------- | :--------------------------- | :------------------------------ | | Common Stock, $0.50 Par Value | $3,729 | $3,760 | | Capital in Excess of Par Value | $19,287 | $23,452 | | Accumulated Other Comprehensive Loss | ($451) | ($717) | | Retained Earnings | $52,513 | $56,403 | | Total Shareholders' Equity | $75,078 | $82,898 | [**Notes to Consolidated Financial Statements**](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) [**NOTE 1 – GENERAL**](index=9&type=section&id=NOTE%201%20%E2%80%93%20GENERAL) Details Transcat's business, key accounting policies, and confirms no material impact from ASU 2016-13 on credit losses - Transcat, Inc. is a **leading provider** of accredited calibration and laboratory instrument services and a value-added distributor of professional grade test, measurement and control instrumentation, focusing on highly regulated industries like life science[23](index=23&type=chunk) | Metric (in Thousands) | 9M FY22 (Dec 25, 2021) | 9M FY21 (Dec 26, 2020) | | :-------------------- | :--------------------- | :--------------------- | | Non-cash stock-based compensation expense | $1,700 | $900 | - The company uses short-term foreign exchange forward contracts to reduce risk from Canadian dollar fluctuations, recognizing net changes in fair value as a component of other expense[30](index=30&type=chunk) | Metric (in Thousands) | Dec 25, 2021 | Mar 27, 2021 | | :-------------------- | :----------- | :----------- | | Goodwill | $59,133 | $43,272 | | Intangible Assets | $11,503 | $7,513 | | Goodwill Additions | $15,980 | - | | Intangible Assets Additions | $6,690 | - | | Intangible Assets Amortization | ($2,696) | - | - The adoption of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), is **not expected to have a material impact** on consolidated financial statements, as credit losses from trade receivables have not historically been significant[34](index=34&type=chunk) [**NOTE 2 – LONG-TERM DEBT**](index=11&type=section&id=NOTE%202%20%E2%80%93%20LONG-TERM%20DEBT) Details the 2021 Credit Agreement, increasing revolving credit and acquisition limits, and confirming covenant compliance - The **2021 Credit Agreement increased the revolving credit commitment from $40.0 million to $80.0 million and extended its term to June 2026**[36](index=36&type=chunk) - **Permitted acquisitions aggregate purchase price increased from $1.0 million to $65.0 million for the current fiscal year, with an additional $40.0 million for UK/EU businesses**[36](index=36&type=chunk) - **Restricted payments for share repurchases and dividends increased to $25.0 million in aggregate and $10.0 million in any single fiscal year**[37](index=37&type=chunk) - The **LIBOR floor was reduced from 1.0% to 0.25%**, and the **fixed interest rate on the $15.0 million term loan was reduced from 4.15% to 3.90%**[37](index=37&type=chunk) | Debt Type (in Thousands) | Outstanding as of Dec 25, 2021 | | :----------------------- | :----------------------------- | | Revolving Credit Facility | $31,700 | | 2018 Term Loan | $9,100 | - The company was **in compliance with all loan covenants**, with a **leverage ratio of 1.47** at December 25, 2021, compared to **0.94** at March 27, 2021[43](index=43&type=chunk) [**NOTE 3 – STOCK-BASED COMPENSATION**](index=13&type=section&id=NOTE%203%20%E2%80%93%20STOCK-BASED%20COMPENSATION) Outlines the 2021 Stock Incentive Plan, restricted stock units, options, and related compensation expense and tax benefits - As of December 25, 2021, **0.7 million shares of common stock were available for future grant** under the 2021 Plan[46](index=46&type=chunk) | Metric (in Thousands) | 9M FY22 (Dec 25, 2021) | 9M FY21 (Dec 26, 2020) | | :-------------------- | :--------------------- | :--------------------- | | Discrete tax benefits related to share-based compensation | $1,700 | $300 | | Metric (in Thousands) | 9M FY22 (Dec 25, 2021) | 9M FY21 (Dec 26, 2020) | | :-------------------- | :--------------------- | :--------------------- | | Expense relating to restricted stock units | $1,200 | $700 | | Unearned compensation for restricted stock units (as of Dec 25, 2021) | $2,400 | - | | Metric (in Thousands) | 9M FY22 (Dec 25, 2021) | 9M FY21 (Dec 26, 2020) | | :-------------------- | :--------------------- | :--------------------- | | Expense related to stock options | $400 | $100 | | Aggregate intrinsic value of stock options exercised | $6,900 | $300 | | Cash received from exercise of options | $1,000 | $400 | [**NOTE 4 – SEGMENT INFORMATION**](index=14&type=section&id=NOTE%204%20%E2%80%93%20SEGMENT%20INFORMATION) Provides disaggregated financial data for Service and Distribution segments, including revenue, gross profit, and operating income | Metric (in Thousands) | Q3 FY22 (Dec 25, 2021) | Q3 FY21 (Dec 26, 2020) | 9M FY22 (Dec 25, 2021) | 9M FY21 (Dec 26, 2020) | | :-------------------- | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | **Revenue:** | | | | | | Service | $30,237 | $24,776 | $87,338 | $72,297 | | Distribution | $20,665 | $19,286 | $61,741 | $52,276 | | Total | $50,902 | $44,062 | $149,079 | $124,573 | | **Gross Profit:** | | | | | | Service | $8,983 | $6,915 | $27,447 | $20,884 | | Distribution | $4,653 | $4,330 | $14,320 | $11,264 | | Total | $13,636 | $11,245 | $41,767 | $32,148 | | **Operating Expenses:** | | | | | | Service | $7,322 | $4,959 | $20,165 | $14,822 | | Distribution | $3,953 | $3,767 | $11,974 | $10,765 | | Total | $11,275 | $8,726 | $32,139 | $25,587 | | **Operating Income:** | | | | | | Service | $1,661 | $1,956 | $7,282 | $6,062 | | Distribution | $700 | $563 | $2,346 | $499 | | Total | $2,361 | $2,519 | $9,628 | $6,561 | [**NOTE 5 – BUSINESS ACQUISITIONS**](index=16&type=section&id=NOTE%205%20%E2%80%93%20BUSINESS%20ACQUISITIONS) Details recent business acquisitions, including purchase prices, allocations, strategic rationale, and pro forma results - Transcat acquired Tangent Labs, LLC for approximately **$9.0 million** in cash on December 31, 2021, **expanding its local calibration capabilities** in attractive geographies[57](index=57&type=chunk)[58](index=58&type=chunk) - Transcat acquired NEXA Enterprise Asset Management for approximately **$26.2 million** (**$23.9 million** cash, **$2.4 million** stock) on August 31, 2021, **enhancing Service capabilities globally**[60](index=60&type=chunk)[62](index=62&type=chunk) NEXA Preliminary Purchase Price Allocation (in Thousands): | Asset/Liability | Amount | | :-------------- | :----- | | Goodwill | $15,497 | | Intangible Assets – Customer Base & Contracts | $5,600 | | Intangible Assets – Backlog | $490 | | Intangible Assets – Covenant Not to Compete | $600 | | Cash | $3,732 | | Accounts Receivable | $2,434 | | Non-Current Assets | $38 | | Current Liabilities | ($453) | | Deferred Tax Liability | ($1,706) | | **Total Purchase Price** | **$26,232** | - Transcat acquired Upstate Metrology Inc. for approximately **$0.9 million** on April 29, 2021, **leveraging existing operating infrastructure**[65](index=65&type=chunk)[67](index=67&type=chunk) Upstate Metrology Purchase Price Allocation (in Thousands): | Asset/Liability | Amount | | :-------------- | :----- | | Goodwill | $483 | | Current Assets | $189 | | Non-Current Assets | $270 | | Current Liabilities | ($11) | | **Total Purchase Price** | **$931** | - Transcat acquired BioTek Services, Inc. for approximately **$3.5 million** on December 16, 2020, **expanding pipette calibration services in the life science sector**[68](index=68&type=chunk)[70](index=70&type=chunk) BioTek Purchase Price Allocation (in Thousands): | Asset/Liability | Amount | | :-------------- | :----- | | Goodwill | $1,063 | | Intangible Assets – Customer Base & Contracts | $1,930 | | Intangible Assets – Covenant Not to Compete | $100 | | Current Assets | $406 | | Non-Current Assets | $8 | | **Total Purchase Price** | **$3,507** | Unaudited Pro Forma Results (in Thousands, except per share): | Metric | Q4 FY21 (Dec 26, 2020) | 9M FY22 (Dec 25, 2021) | 9M FY21 (Dec 26, 2020) | | :----- | :--------------------- | :--------------------- | :--------------------- | | Total Revenue | $47,384 | $153,011 | $131,096 | | Net Income | $3,129 | $8,943 | $5,998 | | Basic EPS | $0.42 | $1.19 | $0.81 | | Diluted EPS | $0.41 | $1.18 | $0.80 | [**ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**](index=19&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management's discussion of financial condition and results for Q3 and 9M FY22, covering revenue, expenses, and liquidity [**Forward-Looking Statements**](index=19&type=section&id=Forward-Looking%20Statements) - The report contains forward-looking statements subject to risks and uncertainties, including the **impact of COVID-19, competition, cybersecurity, employee retention, operating result fluctuations, and acquisition integration**[75](index=75&type=chunk) [**Critical Accounting Policies and Estimates**](index=19&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - There have been **no material changes to critical accounting policies and estimates** from the information provided in the Annual Report on Form 10-K for the fiscal year ended March 27, 2021[76](index=76&type=chunk) [**RESULTS OF OPERATIONS**](index=19&type=section&id=RESULTS%20OF%20OPERATIONS) [**Executive Summary**](index=19&type=section&id=Executive%20Summary) Transcat's Q3 FY22 revenue grew **15.5%** to **$50.9 million** from strong Service and Distribution, with Adjusted EBITDA up **19.8%** | Metric (in Millions) | Q3 FY22 (Dec 25, 2021) | Q3 FY21 (Dec 26, 2020) | Change ($M) | Change (%) | | :------------------- | :--------------------- | :--------------------- | :---------- | :--------- | | Consolidated Revenue | $50.9 | $44.1 | $6.8 | 15.5% | | Gross Profit | $13.6 | $11.2 | $2.4 | 21.3% | | Gross Margin | 26.8% | 25.5% | 1.3 pp | | | Total Operating Expenses | $11.3 | $8.7 | $2.6 | 29.2% | | Operating Income | $2.4 | $2.5 | ($0.1) | (4.0%) | | Net Income | $1.6 | $1.8 | ($0.2) | (7.5%) | [**Third Quarter Ended December 25, 2021 Compared to Third Quarter Ended December 26, 2020**](index=20&type=section&id=Third%20Quarter%20Ended%20December%2025,%202021%20Compared%20to%20Third%20Quarter%20Ended%20December%2026,%202020) Q3 FY22 revenue grew **15.5%** to **$50.9 million** from strong Service and Distribution, with Adjusted EBITDA up **19.8%** [**Revenue**](index=20&type=section&id=Revenue_Q3) | Revenue (in Thousands) | Q3 FY22 (Dec 25, 2021) | Q3 FY21 (Dec 26, 2020) | Change ($) | Change (%) | | :--------------------- | :--------------------- | :--------------------- | :--------- | :--------- | | Service | $30,237 | $24,776 | $5,461 | 22.0% | | Distribution | $20,665 | $19,286 | $1,379 | 7.2% | | Total | $50,902 | $44,062 | $6,840 | 15.5% | - **Service revenue growth included $2.9 million from acquisitions and 10.2% organic revenue growth**[83](index=83&type=chunk) Service Revenue Growth (YoY %): | Quarter | FY22 Q3 | FY22 Q2 | FY22 Q1 | FY21 Q4 | FY21 Q3 | FY21 Q2 | FY21 Q1 | | :------ | :------ | :------ | :------ | :------ | :------ | :------ | :------ | | Growth | 22.0% | 20.3% | 20.0% | 15.8% | 12.2% | 4.5% | 2.5% | Trailing Twelve-Month Service Revenue (in Thousands): | Quarter | FY22 Q3 | FY22 Q2 | FY22 Q1 | FY21 Q4 | FY21 Q3 | FY21 Q2 | FY21 Q1 | | :------ | :------ | :------ | :------ | :------ | :------ | :------ | :------ | | Revenue | $116,315 | $110,854 | $105,864 | $101,274 | $97,225 | $94,624 | $93,572 | | Growth | 19.5% | 17.1% | 13.1% | 8.9% | 5.4% | 4.3% | 7.4% | Distribution Sales Growth (Decline) (YoY %): | Quarter | FY22 Q3 | FY22 Q2 | FY22 Q1 | FY21 Q4 | FY21 Q3 | FY21 Q2 | FY21 Q1 | | :------ | :------ | :------ | :------ | :------ | :------ | :------ | :------ | | Growth | 7.2% | 22.2% | 27.0% | (4.6%) | (8.6%) | (6.6%) | (20.3%) | Total Pending Product Shipments (in Thousands): | Quarter | FY22 Q3 (Dec 25, 2021) | FY21 Q3 (Dec 26, 2020) | Change ($) | | :------ | :--------------------- | :--------------------- | :--------- | | Amount | $8,854 | $5,533 | $3,321 | | % Backorders | 81.3% | 79.3% | | [**Gross Profit**](index=22&type=section&id=Gross_Profit_Q3) | Gross Profit (in Thousands) | Q3 FY22 (Dec 25, 2021) | Q3 FY21 (Dec 26, 2020) | Change ($) | Change (%) | | :-------------------------- | :--------------------- | :--------------------- | :--------- | :--------- | | Service | $8,983 | $6,915 | $2,068 | 29.9% | | Distribution | $4,653 | $4,330 | $323 | 7.5% | | Total | $13,636 | $11,245 | $2,391 | 21.3% | - Total gross margin expanded by **130 basis points** to **26.8%** in Q3 FY22, driven by **operating leverage and accretive gross margins from recent acquisitions**[90](index=90&type=chunk)[91](index=91&type=chunk) Service Gross Margin (% of Service Revenue): | Quarter | FY22 Q3 | FY22 Q2 | FY22 Q1 | FY21 Q4 | FY21 Q3 | FY21 Q2 | FY21 Q1 | | :------ | :------ | :------ | :------ | :------ | :------ | :------ | :------ | | Margin | 29.7% | 32.9% | 31.8% | 33.9% | 27.9% | 32.2% | 26.4% | Distribution Gross Margin (% of Distribution Sales): | Quarter | FY22 Q3 | FY22 Q2 | FY22 Q1 | FY21 Q4 | FY21 Q3 | FY21 Q2 | FY21 Q1 | | :------ | :------ | :------ | :------ | :------ | :------ | :------ | :------ | | Margin | 22.5% | 23.5% | 23.6% | 21.0% | 22.5% | 21.1% | 21.0% | [**Operating Expenses**](index=23&type=section&id=Operating_Expenses_Q3) | Operating Expenses (in Thousands) | Q3 FY22 (Dec 25, 2021) | Q3 FY21 (Dec 26, 2020) | Change ($) | Change (%) | | :-------------------------------- | :--------------------- | :--------------------- | :--------- | :--------- | | Selling, Marketing and Warehouse | $5,051 | $4,675 | $376 | 8.0% | | General and Administrative | $6,224 | $4,051 | $2,173 | 53.6% | | Total | $11,275 | $8,726 | $2,549 | 29.2% | - Increase in operating expenses was due to **higher performance-based sales incentives, direct marketing costs, one-time transaction expenses from acquisitions, incremental expenses from acquired companies, increased payroll, and technology investments**[94](index=94&type=chunk) [**Provision for Income Taxes**](index=23&type=section&id=Provision_for_Income_Taxes_Q3) | Provision for Income Taxes (in Thousands) | Q3 FY22 (Dec 25, 2021) | Q3 FY21 (Dec 26, 2020) | Change ($) | Change (%) | | :---------------------------------------- | :--------------------- | :--------------------- | :--------- | :--------- | | Amount | $596 | $539 | $57 | 10.6% | - Effective tax rates were **26.8%** for Q3 FY22 and **23.4%** for Q3 FY21, with the increase **due to higher non-deductible expenses**[95](index=95&type=chunk) - Expected total fiscal year 2022 effective tax rate is approximately **14% to 15%**[96](index=96&type=chunk) [**Net Income**](index=23&type=section&id=Net_Income_Q3) | Net Income (in Thousands) | Q3 FY22 (Dec 25, 2021) | Q3 FY21 (Dec 26, 2020) | Change ($) | Change (%) | | :------------------------ | :--------------------- | :--------------------- | :--------- | :--------- | | Amount | $1,629 | $1,761 | ($132) | (7.5%) | - Net income decreased **primarily due to lower operating income and a higher provision for income taxes**[97](index=97&type=chunk) [**Adjusted EBITDA**](index=24&type=section&id=Adjusted_EBITDA_Q3) | Adjusted EBITDA (in Thousands) | Q3 FY22 (Dec 25, 2021) | Q3 FY21 (Dec 26, 2020) | Change ($) | Change (%) | | :----------------------------- | :--------------------- | :--------------------- | :--------- | :--------- | | Amount | $5,466 | $4,562 | $904 | 19.8% | - Adjusted EBITDA as a percentage of revenue increased to **10.7%** for Q3 FY22 from **10.4%** for Q3 FY21[100](index=100&type=chunk) - The increase in Adjusted EBITDA was **primarily driven by increases in depreciation and amortization expense and non-cash stock compensation expense, offsetting lower net income**[100](index=100&type=chunk) [**Nine Months Ended December 25, 2021 Compared to Nine Months Ended December 26, 2020**](index=24&type=section&id=Nine%20Months%20Ended%20December%2025,%202021%20Compared%20to%20Nine%20Months%20Ended%20December%2026,%202020) 9M FY22 revenue increased **19.7%** to **$149.1 million**, net income surged **81.8%**, and Adjusted EBITDA rose **40.5%** [**Revenue**](index=24&type=section&id=Revenue_9M) | Revenue (in Thousands) | 9M FY22 (Dec 25, 2021) | 9M FY21 (Dec 26, 2020) | Change ($) | Change (%) | | :--------------------- | :--------------------- | :--------------------- | :--------- | :--------- | | Service | $87,338 | $72,297 | $15,041 | 20.8% | | Distribution | $61,741 | $52,276 | $9,465 | 18.1% | | Total | $149,079 | $124,573 | $24,506 | 19.7% | - **Service revenue increase included $5.3 million of incremental revenue from acquisitions**[102](index=102&type=chunk) - **Distribution sales increase was due to increased orders and an easier comparison to the prior year, which was adversely impacted by COVID-19**[103](index=103&type=chunk) [**Gross Profit**](index=25&type=section&id=Gross_Profit_9M) | Gross Profit (in Thousands) | 9M FY22 (Dec 25, 2021) | 9M FY21 (Dec 26, 2020) | Change ($) | Change (%) | | :-------------------------- | :--------------------- | :--------------------- | :--------- | :--------- | | Service | $27,447 | $20,884 | $6,563 | 31.4% | | Distribution | $14,320 | $11,264 | $3,056 | 27.1% | | Total | $41,767 | $32,148 | $9,619 | 29.9% | - Total gross margin for the first nine months of fiscal year 2022 was **28.0%**, a **220 basis points** increase compared to **25.8%** in the prior year[104](index=104&type=chunk) - Increase in gross margin was **primarily due to operating leverage on fixed costs, accretive margins from recent acquisitions, strong technician productivity in Service, and a favorable product mix in Distribution**[104](index=104&type=chunk) [**Operating Expenses**](index=25&type=section&id=Operating_Expenses_9M) | Operating Expenses (in Thousands) | 9M FY22 (Dec 25, 2021) | 9M FY21 (Dec 26, 2020) | Change ($) | Change (%) | | :-------------------------------- | :--------------------- | :--------------------- | :--------- | :--------- | | Selling, Marketing and Warehouse | $15,022 | $13,040 | $1,982 | 15.2% | | General and Administrative | $17,117 | $12,547 | $4,570 | 36.4% | | Total | $32,139 | $25,587 | $6,552 | 25.6% | - Increase in general and administrative expenses includes **$0.9 million** of one-time transaction related expenses from business acquisitions, **incremental expenses from acquired companies, increased payroll, and technology investments**[105](index=105&type=chunk) [**Provision for Income Taxes**](index=25&type=section&id=Provision_for_Income_Taxes_9M) | Provision for Income Taxes (in Thousands) | 9M FY22 (Dec 25, 2021) | 9M FY21 (Dec 26, 2020) | Change ($) | Change (%) | | :---------------------------------------- | :--------------------- | :--------------------- | :--------- | :--------- | | Amount | $715 | $1,199 | ($484) | (40.4%) | - Effective tax rates were **7.9%** for 9M FY22 and **20.7%** for 9M FY21, with the decrease **due to increased discrete tax benefits from share-based compensation activity** (**$1.7 million** in FY22 vs. **$300 thousand** in FY21)[107](index=107&type=chunk) [**Net Income**](index=26&type=section&id=Net_Income_9M) | Net Income (in Thousands) | 9M FY22 (Dec 25, 2021) | 9M FY21 (Dec 26, 2020) | Change ($) | Change (%) | | :------------------------ | :--------------------- | :--------------------- | :--------- | :--------- | | Amount | $8,332 | $4,583 | $3,749 | 81.8% | - The year-over-year increase in net income was **due to higher operating income and lower provision for income taxes**[108](index=108&type=chunk) [**Adjusted EBITDA**](index=26&type=section&id=Adjusted_EBITDA_9M) | Adjusted EBITDA (in Thousands) | 9M FY22 (Dec 25, 2021) | 9M FY21 (Dec 26, 2020) | Change ($) | Change (%) | | :----------------------------- | :--------------------- | :--------------------- | :--------- | :--------- | | Amount | $18,655 | $13,273 | $5,382 | 40.5% | - Adjusted EBITDA as a percentage of revenue was **12.5%** for 9M FY22, up from **10.7%** for 9M FY21[112](index=112&type=chunk) - The increase in Adjusted EBITDA was **primarily driven by the increase in net income, depreciation and amortization expense, non-cash stock compensation expense, and acquisition transaction expenses**[112](index=112&type=chunk) [**LIQUIDITY AND CAPITAL RESOURCES**](index=27&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) Transcat expects to meet liquidity needs via operations and credit facility, which was expanded, while cash flows reflect acquisitions - Foreseeable liquidity and capital resource requirements are **expected to be met through anticipated cash flows from operations and borrowings from the $80.0 million revolving credit facility**[113](index=113&type=chunk)[115](index=115&type=chunk) - The **2021 Credit Agreement increased the revolving credit commitment to $80.0 million, expanded permitted acquisition limits to $65.0 million (current fiscal year) plus $40.0 million for UK/EU businesses, and increased restricted payments for share repurchases/dividends**[115](index=115&type=chunk)[116](index=116&type=chunk) - As of December 25, 2021, **$31.7 million** was outstanding on the revolving credit facility and **$9.1 million** on the 2018 Term Loan[119](index=119&type=chunk)[120](index=120&type=chunk) - The company was **in compliance with all loan covenants**, with a **leverage ratio of 1.47** at December 25, 2021[121](index=121&type=chunk) | Cash Flows (in Thousands) | 9M FY22 (Dec 25, 2021) | 9M FY21 (Dec 26, 2020) | | :------------------------ | :--------------------- | :--------------------- | | Operating Activities | $12,378 | $15,647 | | Investing Activities | ($26,759) | ($7,742) | | Financing Activities | $16,900 | ($6,619) | - Net cash provided by operating activities **decreased due to changes in net working capital**, **including increases in accounts receivable and inventory, and decreases in accrued compensation and income taxes payable**[124](index=124&type=chunk)[128](index=128&type=chunk) - Investing activities included **$5.9 million** in **capital expenditures and $20.9 million for business acquisitions** in 9M FY22[126](index=126&type=chunk)[127](index=127&type=chunk) - Financing activities in 9M FY22 included **$22.8 million borrowed from the revolving credit facility, $1.4 million from common stock issuance, and $5.6 million for share repurchases to cover employee tax obligations**[128](index=128&type=chunk) [**OUTLOOK**](index=30&type=section&id=OUTLOOK) Q4 FY22 outlook projects high-teens Service revenue growth, high single-digit Distribution growth, and a **14-15%** full-year tax rate - For Q4 FY22, **Service revenue growth is expected to be in the high-teens**, with **Service gross margin in the range of 35%**[130](index=130&type=chunk) - **Distribution revenue is expected to grow in the high single-digits** in Q4 FY22[130](index=130&type=chunk) - **Total operating expenses in Q4 FY22 are expected to increase approximately $0.5 million sequentially** from Q3, including expenses from the Tangent Labs acquisition[130](index=130&type=chunk) - The **expected income tax rate for full fiscal year 2022 is between 14% and 15%**[131](index=131&type=chunk) [**ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**](index=30&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) Discusses exposure to interest rate and foreign currency risks, quantifying potential impacts and mitigation strategies [**Interest Rates**](index=30&type=section&id=INTEREST%20RATES) - A **1%** change in interest rates would **impact yearly interest expense by approximately $0.2 million**, assuming constant average borrowing levels[132](index=132&type=chunk) - As of December 25, 2021, **$31.7 million** was outstanding on the **$80.0 million** revolving credit facility, and **$9.1 million** on the **$15.0 million** (original principal) 2018 Term Loan[132](index=132&type=chunk) - The revolving credit facility's interest rate ranged from **1.0% to 2.2%** during the first nine months of fiscal year 2022, while the 2018 Term Loan accrued at a fixed rate of **3.90%** for subsequent periods after Q1 FY22[133](index=133&type=chunk) [**Foreign Currency**](index=30&type=section&id=FOREIGN%20CURRENCY) - **Approximately 90% of total revenues** for the first nine months of fiscal years 2022 and 2021 were **denominated in U.S. dollars**, with the **remainder in Canadian dollars and Euros**[134](index=134&type=chunk) - A **10%** change in the value of the Canadian dollar or Euro against the U.S. dollar would **impact revenue by approximately 1%**[134](index=134&type=chunk) - The company **uses short-term foreign exchange forward contracts to mitigate risk** from Canadian dollar fluctuations, with a **notional amount of $2.6 million outstanding** as of December 25, 2021[135](index=135&type=chunk)[136](index=136&type=chunk) [**ITEM 4. CONTROLS AND PROCEDURES**](index=31&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) This section confirms the effectiveness of Transcat's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the third fiscal quarter of 2022 [**Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures**](index=31&type=section&id=Conclusion%20Regarding%20the%20Effectiveness%20of%20Disclosure%20Controls%20and%20Procedures) - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were **effective as of December 25, 2021**[137](index=137&type=chunk) [**Changes in Internal Control over Financial Reporting**](index=31&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) - There has been **no change in internal control over financial reporting** during the third fiscal quarter of 2022 that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting[138](index=138&type=chunk) PART II. OTHER INFORMATION [**ITEM 6. EXHIBITS**](index=32&type=section&id=ITEM%206.%20EXHIBITS) Lists exhibits filed with Form 10-Q, including SOX certifications and XBRL data - **Key exhibits include** the Membership Unit Purchase Agreement, CEO and CFO certifications (Section 302 and 906 of Sarbanes-Oxley Act), and XBRL Interactive Data Files[141](index=141&type=chunk) [**SIGNATURES**](index=33&type=section&id=SIGNATURES) Contains the duly authorized signatures of Transcat, Inc.'s CEO and CFO, affirming the report's filing

Transcat, Inc. (NASDAQ:TRNS) Q3 2022 Earnings Conference Call February 2, 2022 11:00 AM ET Company Participants Lee Rudow – President and Chief Executive Officer Mark Doheny – Chief Financial Officer Conference Call Participants Gregory Palm – Craig-Hallum Capital Group Scott Buck – H.C. Wainwright Mitra Ramgopal – Sidoti Operator Greetings, and welcome to the Transcat Incorporated Third Quarter Fiscal Year 2022 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A b ...

December 8, 2021 Sidoti Virtual Conference | --- | --- | --- | |-------------------|-------------------------|--------------| | | | | | | | | | Lee D. Rudow | | | | President and CEO | | | | Mark A. Doheny | | | | | Chief Financial Officer | | | | | | | | | | | | | | | | | | | | | | | | | Nasdaq: TRNS | Safe Harbor Statement This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of histor ...