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Transcat Reports Record First Quarter Results on 23% Revenue Growth and Solid Gross Margin Expansion

ROCHESTER, N.Y.–(BUSINESS WIRE)–Transcat, Inc. (Nasdaq: TRNS) (“Transcat” or the “Company”), a leading provider of accredited calibration, repair, inspection and laboratory instrument services and value-added distributor of professional grade handheld test, measurement and control instrumentation, today reported financial results for its first quarter ended June 26, 2021 (the “first quarter”) of fiscal year 2022, which ends March 26, 2022 (“fiscal 2022”). Results include the previously reported acquisitions of Bio Tek Services, Inc. (“Bio Tek”) effective December 16, 2020 and Upstate Metrology (“Upstate”) effective April 29, 2021.

“The start to our fiscal year 2022 was very strong and allowed us to achieve record first quarter revenue, gross margin, operating income and EBITDA,” commented Lee D. Rudow, President and CEO. “Our Service segment continued to perform at a high level, growing revenue 20% and increasing gross margin 540 basis points from the prior-year period. We reported 16.6% organic revenue growth as our highly-regulated end markets, including life sciences, remained strong, and we compared against a COVID-19 impacted prior year quarter. Our gross margin improvement was driven by operating leverage on our fixed costs from the strong organic growth and to a lesser degree continued strong technician productivity”

“We were also pleased with the sequential improvement in our Distribution business, with first quarter revenue increasing 27% on improving order trends and an easier comparison against a prior-year period that was significantly impacted by the onset of the COVID-19 pandemic. Overall, our Service segment performance drove first quarter consolidated operating income of $3.7 million, exceeding our expectations and increasing $2.7 million from prior year.”

Mr. Rudow added, “Cash flow from operations in the first quarter was in line with our expectations and our balance sheet remains strong. We recently announced an amendment to our credit facility which favorably updates certain terms and increases our available revolving line of credit from $40 million to $80 million to support future growth investments and a robust acquisition pipeline.”

First Quarter Fiscal 2022 Review

(Results are compared with the first quarter of the fiscal year ended March 27, 2021 (“fiscal 2021”))

($ in thousands)

 

 

 

 

Change

FY22 Q1

 

FY21 Q1

 

$’s

 

%

Service Revenue

$ 27,557

 

$ 22,967

 

$ 4,590

 

20.0%

Distribution Sales

20,233

 

15,937

 

4,296

 

27.0%

Revenue

$ 47,790

 

$ 38,904

 

$ 8,886

 

22.8%

Gross Profit

$ 13,520

 

$ 9,409

 

$ 4,111

 

43.7%

Gross Margin

28.3%

 

24.2%

 

 

 

 

 

 

 

 

 

 

 

Operating Income

$ 3,689

 

$ 964

 

$ 2,725

 

282.7%

Operating Margin

7.7%

 

2.5%

 

 

 

Net Income

$ 3,688

 

$ 798

 

$ 2,890

 

362.2%

Net Margin

7.7%

 

2.1%

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA*

$ 6,110

 

$ 3,488

 

$ 2,622

 

75.2%

Adjusted EBITDA* Margin

12.8%

 

9.0%

 

 

 

 

*See Note 1 on page 4 for a description of this non-GAAP financial measure and page 9 for the Adjusted EBITDA Reconciliation table.

Consolidated revenue increased 22.8% to $47.8 million. Consolidated gross profit was $13.5 million, an increase of $4.1 million, or 43.7%, while gross margin expanded 410 basis points due to strong performance in both the Service and Distribution segments. Operating expenses increased $1.4 million, or 16.4%, driven by incremental expenses from acquired businesses, investments in technology and higher performance-related employee costs. Net income per diluted share increased to $0.49 from $0.11.

Service segment delivers record first quarter results

Represents the accredited calibration, repair, inspection and laboratory instrument services business

(58% of total revenue for the first quarter of fiscal 2021).

($ in thousands)

 

 

 

 

Change

FY22 Q1

 

FY21 Q1

 

$’s

 

%

 

 

 

 

 

 

 

 

Service Segment Revenue

$ 27,557

$ 22,967

$ 4,590

20.0%

Gross Profit

$ 8,752

$ 6,069

$ 2,683

44.2%

Gross Margin

31.8%

26.4%

 

Operating Income

$ 2,974

$ 1,129

$ 1,845

163.5%

Operating Margin

10.8%

4.9%

 

 

 

 

 

 

 

 

Adjusted EBITDA*

$ 4,721

 

$ 2,863

 

$ 1,858

 

64.9%

Adjusted EBITDA* Margin

17.1%

 

12.5%

 

 

 

 

*See Note 1 on page 4 for a description of this non-GAAP financial measure and page 9 for the Adjusted EBITDA Reconciliation table.

Service segment revenue increased 20.0% to a record $27.6 million and included $0.8 million of incremental revenue from acquisitions. Organic revenue growth was 16.6% and was driven by improvement in end market conditions, continued market share gains and an easier comparison over the prior-year quarter, which was impacted by the COVID-19 pandemic.

Continued strong technician productivity and operating leverage on fixed costs resulted in an increase of Service gross margin by 540 basis points over prior year.

Distribution segment revenue and margins rebounded in the first quarter

Represents the sale and rental of new and used professional grade handheld test, measurement and control instrumentation (42% of total revenue for the first quarter of fiscal 2022).

($ in thousands)

 

 

 

 

Change

FY22 Q1

 

FY21 Q1

 

$’s

 

%

Distribution Segment Sales

$ 20,233

 

$ 15,937

 

$ 4,296

 

27.0%

Gross Profit

$ 4,768

 

$ 3,340

 

$ 1,428

 

42.8%

Gross Margin

23.6%

 

21.0%

 

 

 

 

 

 

 

 

 

 

Operating Income (Loss)

$ 715

 

$ (165)

 

$ 880

 

(533.3%)

Operating Margin

3.5%

 

(1.0%)

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA*

$ 1,389

 

$ 625

 

$ 764

 

122.0%

Adjusted EBITDA* Margin

6.9%

 

3.9%

 

 

 

 

*See Note 1 on page 4 for a description of this non-GAAP financial measure and page 9 for the Adjusted EBITDA Reconciliation table.

Distribution sales increased 27.0% on improving order trends and an easier comparison to the prior year period, which was significantly impacted by the COVID-19 pandemic. Distribution gross margin increased 260 basis points on a favorable mix of products sold.

Balance Sheet Highlights

At June 26, 2021, the Company had $27.9 million available for borrowing under its secured revolving credit facility. Total debt of $22.2 million was up $2.6 million from fiscal 2021 year-end. The Company’s leverage ratio, as defined in the credit agreement, was 0.96 at June 26, 2021, compared with 0.94 at March 27, 2021.

On July 7, 2021, the Company amended its revolving credit facility to include a $40.0 million increase in borrowing capacity, a reduced LIBOR floor on its revolving line of credit borrowings, a reduced interest rate on its Term Loan and certain financial covenant modifications, among other customary provisions.

Outlook

Mr. Rudow concluded, “The results of the first quarter were excellent and we are pleased with the continued strong performance of our Service segment and improving trends in our Distribution segment. We have a strong balance sheet, sustainable Service segment gross margins and an active M&A pipeline. We are confident that the strength of our unique value proposition and our new customer pipeline positions us well for continued strong organic growth.

“For the second quarter of fiscal 2022, we expect Service organic growth to be similar to what we achieved in the first quarter. We expect more modest improvement in Service gross margin than we have experienced over the last several quarters, largely due to a more difficult technician productivity comparison versus the second quarter of fiscal 2021. Distribution is expected to achieve high teens growth in the second quarter on improved order trends and a prior-year comparison that includes lower levels of demand due to the COVID-19 pandemic.”

Transcat revised its fiscal year 2022 income tax rate to a range between 16% and 18% from the previous estimated range of 20% to 22%. This estimate includes Federal, various state, and Canadian income taxes and reflects the discrete tax benefit associated with share-based payment and stock option activity.

The Company anticipates total capital expenditures to be approximately $7.5 million to $8.5 million in fiscal 2022, with the majority of the capital expenditures planned for growth-oriented opportunities within both operating segments.

Webcast and Conference Call

Transcat will host a conference call and webcast on Wednesday, July 28, 2021 at 11:00 a.m. ET. Management will review the financial and operating results for the first quarter, as well as the Company’s strategy and outlook. A question and answer session will follow the formal discussion. The review will be accompanied by a slide presentation, which will be available at www.transcat.com/investor-relations. The conference call can be accessed by calling (201) 689-8471. Alternatively, the webcast can be monitored at www.transcat.com/investor-relations.

A telephonic replay will be available from 2:00 p.m. ET on the day of the call through Wednesday, August 4, 2021. To listen to the archived call, dial (412) 317-6671 and enter conference ID number 13721676, or access the webcast replay at www.transcat.com/investor-relations, where a transcript will be posted once available.

NOTE 1 – Non-GAAP Financial Measures

In addition to reporting net income, a U.S. generally accepted accounting principle (“GAAP”) measure, we present Adjusted EBITDA (earnings before interest, income taxes, depreciation and amortization, non-cash stock compensation expense, restructuring expense, and non-cash loss on sale of building), which is a non-GAAP measure. The Company’s management believes Adjusted EBITDA is an important measure of operating performance because it allows management, investors and others to evaluate and compare the performance of its core operations from period to period by removing the impact of the capital structure (interest), tangible and intangible asset base (depreciation and amortization), taxes, and stock-based compensation expense, which is not always commensurate with the reporting period in which it is included. As such, the Company uses Adjusted EBITDA as a measure of performance when evaluating its business segments and as a basis for planning and forecasting. Adjusted EBITDA is not a measure of financial performance under GAAP and is not calculated through the application of GAAP. As such, it should not be considered as a substitute for the GAAP measure of net income and, therefore, should not be used in isolation of, but in conjunction with, the GAAP measure. Adjusted EBITDA, as presented, 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. See the attached Adjusted EBITDA Reconciliation table below.

ABOUT TRANSCAT

Transcat, Inc. is a leading provider of accredited calibration, repair, inspection and laboratory instrument services. The Company is focused on providing best-in-class services and products to highly regulated industries, particularly the Life Science industry, which includes pharmaceutical, biotechnology, medical device and other FDA-regulated businesses; as well as aerospace and defense, and energy and utilities. Transcat provides periodic on-site services, mobile calibration services, pickup and delivery, in-house services at its 22 Calibration Service Centers strategically located across the United States, Puerto Rico and Canada, and services at 20 imbedded customer-site locations. The breadth and depth of measurement parameters addressed by Transcat’s ISO/IEC 17025 scopes of accreditation are believed to be the best in the industry.

Transcat also operates as a leading value-added distributor that markets, sells and rents new and used national and proprietary brand instruments to customers primarily in North America. The Company believes its combined Service and Distribution segment offerings, experience, technical expertise and integrity create a unique and compelling value proposition for its customers.

Transcat’s strategy is to leverage the complementary nature of its two operating segments, its comprehensive service capabilities, strong brand, enhanced e-commerce capabilities and leading distribution platform to drive organic sales growth. The Company will also look to expand its addressable calibration market through acquisitions and capability investments to further realize the inherent leverage of its business model.

More information about Transcat can be found at: Transcat.com.

Safe Harbor Statement

This news release 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 by words such as “expects,” “estimates,” “projects,” “anticipates,” “believes,” “could,” “plans,” “aims” and other similar words. All statements addressing operating performance, events or developments that Transcat, Inc. expects or anticipates will occur in the future, including but not limited to statements relating to anticipated revenue, profit margins, the Company’s response to the coronavirus (COVID-19) pandemic, the commercialization of software projects, sales operations, capital expenditures, cash flows, operating income, growth strategy, segment growth, potential acquisitions, integration of acquired businesses, market position, customer preferences, outlook and changes in market conditions in the industries in which Transcat operates are forward-looking statements. Forward-looking statements should be evaluated in light of important risk factors and uncertainties. These risk factors and uncertainties include those more fully described in Transcat’s Annual Report and Quarterly Reports filed with the Securities and Exchange Commission, including under the heading entitled “Risk Factors.” Should one or more of these risks or uncertainties materialize, or should any of the Company’s underlying assumptions prove incorrect, actual results may vary materially from those currently anticipated. In addition, undue reliance should not be placed on the Company’s forward-looking statements, which speak only as of the date they are made. Except as required by law, the Company disclaims any obligation to update, correct or publicly announce any revisions to any of the forward-looking statements contained in this news release, whether as the result of new information, future events or otherwise.

FINANCIAL TABLES FOLLOW.

TRANSCAT, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, Except Per Share Amounts)

(Unaudited)

First Quarter Ended

June 26,

 

June 27,

2021

 

2020

Service Revenue

$ 27,557

$ 22,967

Distribution Sales

20,233

15,937

Total Revenue

47,790

38,904

 

Cost of Service Revenue

18,805

16,898

Cost of Distribution Sales

15,465

12,597

Total Cost of Revenue

34,270

29,495

 

Gross Profit

13,520

9,409

 

Selling, Marketing and Warehouse Expenses

4,997

4,074

General and Administrative Expenses

4,834

4,371

Total Operating Expenses

9,831

8,445

 

Operating Income

3,689

964

 

Interest and Other Expense, net

195

243

 

Income Before Income Taxes

3,494

721

Benefit from Income Taxes

(194)

(77)

 

Net Income

$ 3,688

$ 798

 

Basic Earnings Per Share

$ 0.49

$ 0.11

Average Shares Outstanding

7,464

7,394

 

Diluted Earnings Per Share

$ 0.49

$ 0.11

Average Shares Outstanding

7,593

7,514

TRANSCAT, INC.

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share and Per Share Amounts)

(Unaudited)

(Audited)

June 26,

March 27,

2021

2021

ASSETS

Current Assets:

Cash

$         254

$             560

Accounts Receivable, less allowance for doubtful accounts of $615 and $526 as of June 26, 2021 and March 27, 2021, respectively

       33,324

          33,950

Other Receivables

         380

            428

Inventory, net

       11,642

       11,636

Prepaid Expenses and Other Current Assets

         3,139

            2,354

Total Current Assets

       48,739

          48,928

Property and Equipment, net

       22,172

          22,203

Goodwill

       43,904

          43,272

Intangible Assets, net

         6,901

            7,513

Right To Use Asset, net

8,467

9,392

Other Assets

         956

               808

Total Assets

$      131,139

 $      132,116

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current Liabilities:

Accounts Payable

 $        11,203

 $        12,276

Accrued Compensation and Other Liabilities

         7,312

           10,417

Income Taxes Payable

               382

Current Portion of Long-Term Debt

         2,089

            2,067

Total Current Liabilities

          20,604

          25,142

Long-Term Debt

       20,107

       17,494

Deferred Tax Liabilities

         3,223

         3,201

Lease Liabilities

7,235

7,958

Other Liabilities

         3,263

         3,243

Total Liabilities

       54,432

          57,038

 

Shareholders’ Equity:

Common Stock, par value $0.50 per share, 30,000,000 shares authorized; 7,468,991 and 7,458,251 shares issued and outstanding as of June 26, 2021, and March 27, 2021, respectively

3,734

            3,729

Capital in Excess of Par Value

19,632

       19,287

Accumulated Other Comprehensive Loss

(269)

           (451)

Retained Earnings

53,610

       52,513

Total Shareholders’ Equity

      76,707

          75,078

Total Liabilities and Shareholders’ Equity

 $      131,139

 $      132,116

TRANSCAT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

Cash Flows from Operating Activities:

Net Income

$                 3,688

 $             798

    Adjustments to Reconcile Net Income to Net Cash Provided

by Operating Activities:

(Gain) Loss on Sale of Property and Equipment

               50

         (1)

Deferred Income Taxes

                 22

                 24

Depreciation and Amortization

            1,990

            1,872

Provision for Accounts Receivable and Inventory Reserves

                290

               561

Stock-Based Compensation Expense

              437

              312

Changes in Assets and Liabilities:

Accounts Receivable and Other Receivables

            805

              2,948

Inventory

            33

           5

Prepaid Expenses and Other Assets

                (918)

 

             (251)

Accounts Payable

           (1,073)

           (2,621)

Accrued Compensation and Other Liabilities

           (2,880)

           494

Income Taxes Payable

                (389)

 

               (99)

Net Cash Provided by Operating Activities

            2,055

 

           4,042

 

Cash Flows from Investing Activities:

Purchase of Property and Equipment

           (1,203)

           (1,261)

 

Business Acquisitions, net of cash acquired

(931)

 

–   

Net Cash Used in Investing Activities

           (2,134)

 

           (1,261)

 

Cash Flows from Financing Activities:

Proceeds from (Repayment of) Revolving Credit Facility, net

            3,243

            (1,330)

Repayments of Term Loan

             (608)

             (487)

Issuance of Common Stock

               701

              383

Repurchase of Common Stock

               (3,379)

             (1,287)

Net Cash Used in Financing Activities

            (43)

 

            (2,721)

 

Effect of Exchange Rate Changes on Cash

                  (184)

 

             (193)

 

Net Decrease in Cash

             (306)

             (133)

Cash at Beginning of Period

              560

 

              499

Cash at End of Period

$                  254

 

 $               366

TRANSCAT, INC.
Adjusted EBITDA Reconciliation Table
(In thousands)
(Unaudited)

 

Fiscal 2022

Q1

Q2

Q3

Q4

YTD

Net Income

$ 3,688

$ 3,688

+ Interest Expense

189

189

+ Other Expense / (Income)

6

6

+ Tax Provision

(194)

 

 

 

(194)

Operating Income

$ 3,689

 

 

 

$ 3,689

+ Depreciation & Amortization

1,990

 

 

 

1,990

+ Other (Expense) / Income

(6)

(6)

+ Noncash Stock Compensation

437

 

 

 

437

Adjusted EBITDA

$ 6,110

 

 

 

$ 6,110

 

Segment Breakdown

 

Service Operating Income

$ 2,974

$ 2,974

+ Depreciation & Amortization

1,488

1,488

+ Other (Expense) / Income

(2)

(2)

+ Noncash Stock Compensation

261

 

 

 

261

Service Adjusted EBITDA

$ 4,721

 

 

 

$ 4,721

 

Distribution Operating Income

$ 715

$ 715

+ Depreciation & Amortization

502

502

+ Other (Expense) / Income

(4)

(4)

+ Noncash Stock Compensation

176

 

 

 

176

Distribution Adjusted EBITDA

$ 1,389

 

 

 

$ 1,389

 

Fiscal 2021

Q1

Q2

Q3

Q4

YTD

Net Income

$ 798

$ 2,024

$ 1,761

$ 3,208

$ 7,791

+ Interest Expense

224

233

203

190

850

+ Other Expense / (Income)

19

84

16

122

241

+ Tax Provision

(77)

737

539

992

2,191

Operating Income

$ 964

$ 3,078

$ 2,519

$ 4,512

$ 11,073

+ Depreciation & Amortization

1,871

1,864

1,861

1,984

7,580

 

+ Restructuring Expense

360

290

650

+ Other (Expense) / Income

(19)

(85)

(15)

(122)

(241)

+ Noncash Stock Compensation

312

366

197

638

1,513

Adjusted EBITDA

$ 3,488

$ 5,223

$ 4,562

$ 7,302

$ 20,575

 

Segment Breakdown

 

Service Operating Income

$ 1,129

$ 2,977

$ 1,956

$ 4,379

$ 10,441

+ Depreciation & Amortization

1,394

1,359

1,372

1,472

5,597

 

+ Restructuring Expense

193

156

349

+ Other (Expense) / Income

(15)

(57)

(8)

(82)

(162)

+ Noncash Stock Compensation

162

196

126

351

835

Service Adjusted EBITDA

$ 2,863

$ 4,475

$ 3,446

$ 6,276

$ 17,060

 

Distribution Operating Income

$ (165)

$ 101

$ 563

$ 133

$ 632

+ Depreciation & Amortization

477

505

489

512

1,983

 

+ Restructuring Expense

167

134

301

+ Other (Expense) / Income

(4)

(28)

(7)

(40)

(79)

+ Noncash Stock Compensation

150

170

71

287

678

Distribution Adjusted EBITDA

$ 625

$ 748

$ 1,116

$ 1,026

$ 3,515

 

TRANSCAT, INC.

Additional Information – Business Segment Data

(Dollars in thousands)

(Unaudited)

 

 

 

 

 

Change

SERVICE

FY 2022 Q1

 

FY 2021 Q1

 

$’s

 

%

 

 

 

 

 

 

 

 

Service Revenue

$ 27,557

 

$ 22,967

 

$ 4,590

 

20.0%

Cost of Service Revenue

18,805

 

16,898

 

1,907

 

11.3%

Gross Profit

$ 8,752

 

$ 6,069

 

$ 2,683

 

44.2%

Gross Margin

31.8%

 

26.4%

 

 

 

 

 

 

 

 

 

 

 

 

Selling, Marketing & Warehouse Expenses

$ 2,715

 

$ 2,348

 

$ 367

 

15.6%

General and Administrative Expenses

3,063

 

2,592

 

471

 

18.2%

Operating Income

$ 2,974

 

$ 1,129

 

$ 1,845

 

163.5%

% of Revenue

10.8%

 

4.9%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change

DISTRIBUTION

FY 2022 Q1

 

FY 2021 Q1

 

$’s

 

%

Distribution Sales

$ 20,233

 

$ 15,937

 

$ 4,296

 

27.0%

Cost of Distribution Sales

15,465

 

12,597

 

2,868

 

22.8%

Gross Profit

$ 4,768

 

$ 3,340

 

$ 1,428

 

42.8%

Gross Margin

23.6%

 

21.0%

 

 

 

 

 

 

 

 

 

 

 

 

Selling, Marketing & Warehouse Expenses

$ 2,282

 

$ 1,726

 

$ 556

 

32.2%

General and Administrative Expenses

1,771

 

1,779

 

(8)

 

(0.4%)

 

 

 

 

 

 

 

 

Operating Income

$ 715

 

$ (165)

 

$ 880

 

533.3%

% of Sales

3.5%

 

(1.0%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change

TOTAL

FY 2022 Q1

 

FY 2021 Q1

 

$’s

 

%

 

 

 

 

 

 

 

 

Total Revenue

$ 47,790

 

$ 38,904

 

$ 8,886

 

22.8%

Total Cost of Revenue

34,270

 

29,495

 

4,775

 

16.2%

Gross Profit

$ 13,520

 

$ 9,409

 

$ 4,111

 

43.7%

Gross Margin

28.3%

 

24.2%

 

 

 

 

 

 

 

 

 

 

 

 

Selling, Marketing & Warehouse Expenses

$ 4,997

 

$ 4,074

 

$ 923

 

22.7%

General and Administrative Expenses

4,834

 

4,371

 

463

 

10.6%

Operating Income

$ 3,689

 

$ 964

 

$ 2,725

 

282.7%

% of Revenue

7.7%

 

2.5%

 

 

 

 

 

Contacts

Mark A. Doheny, Chief Financial Officer

Phone: (585) 563-5766

Email: mark.doheny@transcat.com

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