Transcat(TRNS) - 2022 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements This section presents the unaudited consolidated financial statements for the first quarter ended June 26, 2021, compared to the same period in 2020 Consolidated Statements of Income Transcat reported significant Q1 FY2022 growth, with total revenue up 22.8% and net income surging over 360% Consolidated Statements of Income (Q1 FY2022 vs Q1 FY2021) | Metric | Q1 Ended June 26, 2021 (In Thousands) | Q1 Ended June 27, 2020 (In Thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Total Revenue | $47,790 | $38,904 | +22.8% | | Service Revenue | $27,557 | $22,967 | +20.0% | | Distribution Sales | $20,233 | $15,937 | +27.0% | | Gross Profit | $13,520 | $9,409 | +43.7% | | Operating Income | $3,689 | $964 | +282.7% | | Net Income | $3,688 | $798 | +362.2% | | Diluted EPS | $0.49 | $0.11 | +345.5% | Consolidated Balance Sheets As of June 26, 2021, Transcat's balance sheet showed a slight decrease in total assets, a reduction in liabilities, and an increase in shareholders' equity Key Balance Sheet Items (As of June 26, 2021) | Account | June 26, 2021 (In Thousands) | March 27, 2021 (In Thousands) | | :--- | :--- | :--- | | Total Assets | $131,139 | $132,116 | | Total Current Assets | $48,739 | $48,928 | | Goodwill | $43,904 | $43,272 | | Total Liabilities | $54,432 | $57,038 | | Long-Term Debt | $20,107 | $17,494 | | Total Shareholders' Equity | $76,707 | $75,078 | Consolidated Statements of Cash Flows Net cash from operating activities decreased in Q1 FY2022 due to working capital changes, while investing activities used cash for property and an acquisition Cash Flow Summary (Q1 FY2022 vs Q1 FY2021) | Activity | Q1 Ended June 26, 2021 (In Thousands) | Q1 Ended June 27, 2020 (In Thousands) | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $2,055 | $4,042 | | Net Cash Used in Investing Activities | ($2,134) | ($1,261) | | Net Cash Used in Financing Activities | ($43) | ($2,721) | | Net Decrease in Cash | ($306) | ($133) | Notes to Consolidated Financial Statements These notes detail the company's business, accounting policies, debt amendments, stock compensation, segment performance, and recent acquisitions - On July 7, 2021, the company entered into a new credit agreement that increased the revolving credit commitment from $40.0 million to $80.0 million and extended the term to June 2026[32][33] - The Service segment's operating income more than doubled to $3.0 million from $1.1 million year-over-year, while the Distribution segment's operating income turned positive at $0.7 million from a loss of $0.2 million[52] - Effective April 29, 2021, Transcat acquired Upstate Metrology for a total purchase price of approximately $0.9 million, with the goodwill allocated to the Service segment[54][56] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong Q1 FY2022 performance to economic rebound, with significant revenue growth, gross margin expansion, and increased borrowing capacity - Consolidated revenue for Q1 FY2022 increased 22.8% to $47.8 million compared to the prior year, driven by economic rebound and lower customer demand in the prior year due to the COVID-19 pandemic[66] - Gross margin increased by 410 basis points to 28.3% due to operating leverage in the Service segment and a favorable product mix in the Distribution segment[67] - Adjusted EBITDA for Q1 FY2022 was $6.1 million, a 75.2% increase from $3.5 million in the prior-year quarter[88] Results of Operations Q1 FY2022 saw strong revenue growth in both segments, significant gross margin expansion, and improved operating margin due to expense management Segment Revenue Growth (Q1 FY2022 vs Q1 FY2021) | Segment | Q1 FY2022 Revenue (in thousands) | Q1 FY2021 Revenue (in thousands) | YoY Growth | | :--- | :--- | :--- | :--- | | Service | $27,557 | $22,967 | 20.0% | | Distribution | $20,233 | $15,937 | 27.0% | | Total | $47,790 | $38,904 | 22.8% | Segment Gross Margin (Q1 FY2022 vs Q1 FY2021) | Segment | Q1 FY2022 Gross Margin | Q1 FY2021 Gross Margin | Basis Point Change | | :--- | :--- | :--- | :--- | | Service | 31.8% | 26.4% | +540 bps | | Distribution | 23.6% | 21.0% | +260 bps | | Total | 28.3% | 24.2% | +410 bps | Liquidity and Capital Resources The company enhanced financial flexibility with a new credit agreement, increasing borrowing capacity, despite a decrease in net cash from operations - Entered into a Second Amended and Restated Credit Facility Agreement on July 7, 2021, increasing the revolving credit commitment from $40.0 million to $80.0 million and extending the term to June 2026[91][92] - As of June 26, 2021, the company had $12.1 million outstanding on its revolving credit facility and $10.0 million outstanding on its term loan[96][97] - Net cash provided by operations decreased from $4.0 million to $2.1 million in Q1 FY2022, primarily due to changes in net working capital, including a $3.1 million decrease in accrued compensation and other liabilities[102] Outlook Management anticipates continued strong organic growth for Q2 FY2022, with revised tax rate expectations and projected capital expenditures - For Q2 FY2022, Service organic growth is expected to be similar to Q1, while Distribution sales are expected to see high teens growth[108][109] - The estimated effective tax rate for fiscal year 2022 has been revised down to a range of 16% to 18%[110] - Total capital expenditures for fiscal year 2022 are anticipated to be between $7.5 million and $8.5 million[111] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's primary market risks are interest rate fluctuations and foreign currency exposure, mitigated by hedging strategies - A 1% change in interest rates would result in an approximate $0.1 million change in annual interest expense[112] - Approximately 10% of total revenues are denominated in Canadian dollars The company utilizes short-term foreign exchange forward contracts to reduce currency risk[114][115] Item 4. Controls and Procedures The company's disclosure controls and procedures were deemed effective, with no material changes in internal control over financial reporting - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of June 26, 2021[116][117] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[118] PART II. OTHER INFORMATION Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q1 FY2022, the company repurchased 62,191 shares of common stock, primarily to cover employee tax-withholding obligations Issuer Purchases of Equity Securities (Q1 FY2022) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | 03/28/21 - 04/24/21 | 279 | $49.08 | | 04/25/21 - 05/22/21 | 61,912 | $54.35 | | 05/23/21 - 06/26/21 | - | - | | Total | 62,191 | $54.33 | - The repurchased shares were withheld to cover employee tax-withholding obligations upon the vesting of restricted stock units and stock option exercises under the company's 2003 Incentive Plan[120] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q report, including certifications and XBRL data files - Lists exhibits filed with the report, including the Second Amended and Restated Credit Facility Agreement, CEO/CFO certifications (Sections 302 and 906), and XBRL data files[122]