Transcat(TRNS) - 2025 Q1 - Quarterly Results

Company Overview and Highlights Transcat reported strong Q1 FY25 results with significant gross margin and EBITDA growth, driven by service productivity, distribution rentals, and strategic acquisitions, reinforcing its position as a leading provider in highly regulated industries First Quarter Fiscal 2025 Highlights Transcat reported strong first quarter fiscal year 2025 results, characterized by significant gross margin expansion and EBITDA growth. This performance was driven by increased Service productivity, growth in Distribution segment rentals, and successful integration of acquired companies - Consolidated Gross Profit grew 21.1% on double-digit Revenue growth[18] - Consolidated adjusted EBITDA grew 20.4% with margins expanding 130 basis points[2] - Distribution gross margins expanded 620 basis points on strength of rentals[2] - Service gross margins expanded 150 basis points on organic growth of 6.4% and improved productivity[18] CEO Commentary CEO Lee D. Rudow expressed satisfaction with the strong Q1 results, attributing success to increased Service productivity, Distribution segment rental growth, consistent demand in highly regulated markets, successful acquisitions, and expanded offerings. He highlighted the company's differentiated value proposition, execution of automation, and productivity enhancements, noting the strategic acquisition of Becnel Rental Tools for its high-margin rental portfolio and cross-selling opportunities - Consolidated revenue was up 10% driven by consistent demand in highly regulated end markets, successful integration of acquired companies, and widened breadth of offerings[2] - Adjusted EBITDA grew 20% and margins expanded driven by a differentiated value proposition and outstanding execution of automation and productivity enhancements[2] - The acquisition of Becnel Rental Tools differentiates the higher margin rental portfolio and has provided opportunities for cross-selling of Transcat's products and services[19] - Expects another year of organic Service revenue growth in the high single-digit to low double-digit range and gross margin expansion, with automation and productivity improvements as key enablers[8] About Transcat Transcat, Inc. is a leading provider of accredited calibration, reliability, and related services, primarily serving highly regulated industries such as Life Science, aerospace, defense, and energy. The company also operates as a value-added distributor of professional-grade test, measurement, and control instrumentation. Its strategy focuses on leveraging its brand and comprehensive offerings to drive organic growth and expand its market through strategic acquisitions and capability investments - Transcat is a leading provider of accredited calibration, reliability, maintenance optimization, quality and compliance, validation, CMMS, and pipette services[41] - The company focuses on providing best-in-class services and products to highly regulated industries, particularly Life Science, aerospace and defense, and energy and utilities[41] - Transcat operates 29 Calibration Service Centers and 21 imbedded customer-site locations across the United States, Puerto Rico, Canada, and Ireland[41] - The company's strategy is to leverage its strong brand and unique value proposition to drive organic sales growth and expand its addressable calibration market through acquisitions and capability investments[12] Consolidated Financial Results Transcat achieved robust Q1 FY25 consolidated financial performance, with total revenue increasing 10.1% to $66.7 million, gross profit up 21.1%, and adjusted diluted EPS rising 30.8%, despite higher operating expenses from acquisitions and sales growth Key Financial Metrics For Q1 FY25, Transcat's consolidated revenue increased 10.1% to $66.7 million. Gross profit grew 21.1% to $22.7 million, with gross margin expanding 310 basis points. Net income per diluted share rose 26.3% to $0.48, and Adjusted Diluted EPS increased 30.8% to $0.68 Consolidated Financial Performance (FY25 Q1 vs FY24 Q1) | Metric | FY25 Q1 ($ in thousands) | FY24 Q1 ($ in thousands) | Change ($) | Change (%) | | :-------------------------- | :----------------------- | :----------------------- | :--------- | :--------- | | Service Revenue | 43,778 | 39,853 | 3,925 | 9.8% | | Distribution Sales Revenue | 22,929 | 20,745 | 2,184 | 10.5% | | Total Revenue | 66,707 | 60,598 | 6,109 | 10.1% | | Gross Profit | 22,655 | 18,710 | 3,945 | 21.1% | | Gross Margin | 34.0% | 30.9% | | 310 bps | | Operating Income | 5,099 | 4,640 | 459 | 9.9% | | Operating Margin | 7.6% | 7.7% | | (10) bps | | Net Income | 4,408 | 2,949 | 1,459 | 49.5% | | Net Margin | 6.6% | 4.9% | | 170 bps | | Adjusted EBITDA* | 10,212 | 8,481 | 1,731 | 20.4% | | Adjusted EBITDA* Margin | 15.3% | 14.0% | | 130 bps | | Diluted EPS | 0.48 | 0.38 | 0.10 | 26.3% | | Adjusted Diluted EPS* | 0.68 | 0.52 | 0.16 | 30.8% | Operating Expenses Total operating expenses for Q1 FY25 increased by $3.5 million, or 24.8%, to $17.6 million. This increase was primarily driven by incremental expenses from acquired businesses, including stock-based compensation, and higher incentive-based employee costs due to sales growth - Operating expenses were $17.6 million, an increase of $3.5 million, or 24.8%, driven by incremental expenses from acquired businesses (including stock-based compensation expense) and higher incentive-based employee costs due to sales growth[3] Consolidated Operating Expenses (FY25 Q1 vs FY24 Q1) | Expense Category | FY25 Q1 ($ in thousands) | FY24 Q1 ($ in thousands) | Change ($) | Change (%) | | :-------------------------------- | :----------------------- | :----------------------- | :--------- | :--------- | | Selling, Marketing & Warehouse Expenses | 7,801 | 6,469 | 1,332 | 20.6% | | General and Administrative Expenses | 9,755 | 7,601 | 2,154 | 28.3% | Segment Performance Both Service and Distribution segments demonstrated strong Q1 FY25 performance, with Service revenue growing 9.8% and gross margin expanding 150 bps, while Distribution sales increased 10.5% and gross margin significantly expanded by 620 bps due to rental strength Service Segment The Service segment delivered strong first quarter results, with revenue increasing 9.8% to $43.8 million, including $1.3 million from acquisitions. Organic revenue growth was 6.4%, driven by robust end-market demand and market share gains. The segment's gross margin expanded 150 basis points to 34.0% due to continued productivity improvements - Service segment revenue was $43.8 million, an increase of $3.9 million or 9.8%, including $1.3 million of incremental revenue from acquisitions[4] - Organic revenue growth for the Service segment was 6.4%, driven by strong end-market demand and continued market share gains[4] - The Service segment gross margin was 34.0%, an increase of 150 basis points from prior year primarily due to continued productivity improvements[4] Service Segment Performance (FY25 Q1 vs FY24 Q1) | Metric | FY25 Q1 ($ in thousands) | FY24 Q1 ($ in thousands) | Change ($) | Change (%) | | :-------------------------- | :----------------------- | :----------------------- | :--------- | :--------- | | Service Revenue | 43,778 | 39,853 | 3,925 | 9.8% | | Gross Profit | 14,883 | 12,971 | 1,912 | 14.7% | | Gross Margin | 34.0% | 32.5% | | 150 bps | | Operating Income | 4,090 | 3,192 | 898 | 28.1% | | Operating Margin | 9.3% | 8.0% | | 130 bps | | Adjusted EBITDA* | 6,964 | 6,232 | 732 | 11.7% | | Adjusted EBITDA* Margin | 15.9% | 15.6% | | 30 bps | Distribution Segment The Distribution segment demonstrated continued margin improvement in Q1 FY25, with sales increasing 10.5% to $22.9 million, driven by growth in the Rental business and acquisitions. The segment's gross margin significantly expanded by 620 basis points to 33.9%, primarily due to a favorable sales mix and strength in the Rentals business - Distribution sales were $22.9 million, an increase of $2.2 million or 10.5%, driven by growth in the Rental business including acquisitions[23] - Distribution segment gross margin was 33.9%, an increase of 620 basis points due to a favorable sales mix driven by strength in the Rentals business[23] Distribution Segment Performance (FY25 Q1 vs FY24 Q1) | Metric | FY25 Q1 ($ in thousands) | FY24 Q1 ($ in thousands) | Change ($) | Change (%) | | :-------------------------- | :----------------------- | :----------------------- | :--------- | :--------- | | Distribution Sales | 22,929 | 20,745 | 2,184 | 10.5% | | Gross Profit | 7,772 | 5,739 | 2,033 | 35.4% | | Gross Margin | 33.9% | 27.7% | | 620 bps | | Operating Income | 1,009 | 1,448 | (439) | (30.3)% | | Operating Margin | 4.4% | 7.0% | | (260) bps | | Adjusted EBITDA* | 3,248 | 2,249 | 999 | 44.4% | | Adjusted EBITDA* Margin | 14.2% | 10.8% | | 340 bps | Financial Position and Cash Flow As of June 29, 2024, Transcat maintained a strong financial position with $22.7 million in cash, $80.0 million available credit, and reduced total debt, while operating cash flow increased to $8.9 million despite significant investing activities Balance Sheet Overview As of June 29, 2024, Transcat maintained a strong financial position with $22.7 million in cash and cash equivalents and $80.0 million available under its secured revolving credit facility. Total debt decreased to $3.6 million from $4.2 million, leading to a lower leverage ratio of 0.08. Total assets increased to $323.7 million Cash and Liquidity (as of June 29, 2024) | Metric | Amount ($ in thousands) | | :-------------------------------- | :---------------------- | | Cash and Cash Equivalents | 22,657 | | Available Revolving Credit Facility | 80,000 | | Total Debt | 3,580 | | Leverage Ratio | 0.08 | - Total Assets increased to $323.652 million as of June 29, 2024, from $287.552 million as of March 30, 2024[44] - Total Liabilities decreased to $61.364 million as of June 29, 2024, from $62.383 million as of March 30, 2024[32] - Total Shareholders' Equity increased to $262.288 million as of June 29, 2024, from $225.169 million as of March 30, 2024[32] Cash Flow Activities Net cash provided by operating activities for the three months ended June 29, 2024, was $8.9 million, an increase from $7.5 million in the prior year. Net cash used in investing activities decreased to $4.1 million, despite significant business acquisitions. Net cash used in financing activities increased to $1.9 million, primarily due to common stock repurchases Cash Flow Summary (Three Months Ended June 29, 2024 vs June 24, 2023) | Activity | June 29, 2024 ($ in thousands) | June 24, 2023 ($ in thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net Cash Provided by Operating Activities | 8,924 | 7,536 | | Net Cash Used in Investing Activities | (4,094) | (5,636) | | Net Cash Used in Financing Activities | (1,935) | (859) | | Net Increase in Cash and Cash Equivalents | 3,011 | 618 | | Cash and Cash Equivalents at End of Period | 22,657 | 2,149 | - Business acquisitions, net of cash acquired, amounted to $15.953 million for the three months ended June 29, 2024[33] - Sales of marketable securities generated $15.533 million in Q1 FY25[33] Outlook and Strategy Transcat anticipates continued strong performance in fiscal 2025, projecting high single-digit to low double-digit organic Service revenue growth and ongoing gross margin expansion, driven by leveraging its brand, comprehensive services, and strategic acquisitions Fiscal 2025 Outlook Transcat anticipates continued strong performance in fiscal 2025, projecting high single-digit to low double-digit range organic Service revenue growth, normalized for the extra week in fiscal 2024. The company also expects ongoing gross margin expansion and an income tax rate ranging between 24% and 26% - Transcat expects another year of organic Service revenue growth in the high single-digit to low double-digit range when normalized for the extra week in fiscal 2024[8] - Gross margin expansion is expected to continue, with automation of calibration processes and overall productivity improvements being key enablers[8] - The company expects its income tax rate to range between 24% and 26% in fiscal 2025[25] Company Strategy Transcat's strategy is centered on leveraging its strong brand, comprehensive service capabilities, enterprise asset management, and leading distribution platform to drive organic sales growth. The company also aims to expand its addressable calibration market through strategic, accretive acquisitions and capability investments, with a sharp focus on integration to achieve synergistic growth - Transcat's strategy is to leverage its strong brand and unique value proposition, including comprehensive instrument service capabilities, enterprise asset management, and a leading distribution platform, to drive organic sales growth[12] - The company will expand its addressable calibration market through acquisitions and capability investments, focusing on integration to drive synergistic growth opportunities[12][8] - Transcat believes its unique value proposition drives a sustainable competitive advantage in highly regulated markets, particularly Life Science, Aerospace, and Defense, along with a growing Rentals business[8] Non-GAAP Financial Measures Reconciliation This section provides reconciliations for non-GAAP measures, including Adjusted EBITDA and Adjusted Diluted EPS, which are used to evaluate core operating performance by excluding non-cash and non-recurring items Adjusted EBITDA Reconciliation Adjusted EBITDA is presented as a non-GAAP measure to provide insight into core operating performance by excluding non-operating and non-cash items such as interest, income taxes, depreciation, amortization, non-cash stock compensation, and acquisition-related transaction expenses. For Q1 FY25, consolidated Adjusted EBITDA was $10.2 million, representing a 20.4% increase year-over-year - Adjusted EBITDA is defined as earnings before interest, income taxes, depreciation and amortization, non-cash stock compensation expense, acquisition related transaction expenses, non-cash loss on sale of building and restructuring expense[40] - This non-GAAP measure allows evaluation and comparison of core operations by removing the impact of capital structure, asset base, taxes, stock-based compensation, and other non-recurring items[40] Consolidated Adjusted EBITDA (FY25 Q1 vs FY24 Q1) | Metric | FY25 Q1 ($ in thousands) | FY24 Q1 ($ in thousands) | Change ($) | Change (%) | | :---------------- | :----------------------- | :----------------------- | :--------- | :--------- | | Adjusted EBITDA | 10,212 | 8,481 | 1,731 | 20.4% | | Adjusted EBITDA Margin | 15.3% | 14.0% | | 130 bps | Segment Adjusted EBITDA (FY25 Q1) | Segment | Adjusted EBITDA ($ in thousands) | | :---------------- | :----------------------------- | | Service | 6,964 | | Distribution | 3,248 | Adjusted Diluted EPS Reconciliation Adjusted Diluted EPS is a non-GAAP measure that adjusts net income for acquisition-related amortization, transaction expenses, stock-based compensation, and backlog amortization, then divides by diluted shares outstanding. For Q1 FY25, Adjusted Diluted EPS was $0.68, representing a 30.8% increase compared to $0.52 in Q1 FY24 - Adjusted Diluted Earnings Per Share is a non-GAAP measure calculated as net income plus acquisition related amortization expense, acquisition related transaction expenses, acquisition related stock-based compensation, acquisition amortization of backlog and restructuring expense; divided by the average diluted shares outstanding[27] - This measure provides a basis for comparing business operations by excluding items not indicative of core operating performance[27] Diluted EPS vs. Adjusted Diluted EPS (FY25 Q1 vs FY24 Q1) | Metric | FY25 Q1 | FY24 Q1 | Change | Change (%) | | :---------------------- | :------ | :------ | :----- | :--------- | | Diluted Earnings Per Share | $0.48 | $0.38 | $0.10 | 26.3% | | Adjusted Diluted Earnings Per Share | $0.68 | $0.52 | $0.16 | 30.8% | - Adjusted Net Income for FY25 Q1 was $6.239 million[36] Additional Information This section provides details on the Q1 FY25 webcast and conference call, a safe harbor statement regarding forward-looking information, and investor contact details Webcast and Conference Call Transcat hosted a conference call and webcast on Tuesday, July 30, 2024, at 11:00 a.m. ET, to discuss Q1 financial and operating results, strategy, and outlook. A telephonic replay and webcast replay are available for those who missed the live event - A conference call and webcast were hosted on Tuesday, July 30, 2024, at 11:00 a.m. ET[26] - Access to the webcast replay and a transcript is available at **www.transcat.com/investor-relations**[9](index=9&type=chunk) - A telephonic replay was available from 2:00 p.m. ET on the day of the call through Tuesday, August 6, 2024, by dialing (412) 317-6671 and entering conference ID 13747789[9] Safe Harbor Statement The news release includes forward-looking statements that are subject to various risks, uncertainties, and assumptions. These statements pertain to future operating performance, revenue, profit margins, acquisitions, and market conditions. Readers are advised against undue reliance on these statements, which are valid only as of their original date, and the company disclaims any obligation to update them unless legally required - Forward-looking statements are not historical facts and are subject to risks, uncertainties, and assumptions[13] - These statements address future operating performance, revenue, profit margins, acquisitions, and market conditions[13] - Undue reliance should not be placed on forward-looking statements, which speak only as of the date they are made[13] - The company disclaims any obligation to update, correct, or publicly announce revisions to forward-looking statements, except as required by law[13] Contact Information Contact details for investor relations are provided for Tom Barbato - Contact Person: Tom Barbato[30] - Phone: (585) 505-6530[30] - Email: Thomas.Barbato@transcat.com[30]