Transcat Reports double-digit Organic Service Revenue Growth and significant Gross Margin expansion in both Segments for the Fourth Quarter and Full Year 2024

May 21, 2024

Fourth Quarter Service gross margin expanded 170 basis points driven by 13% Service organic growth
Fourth Quarter Distribution gross margin expands 510 basis points to 30.3% on strength of Rentals
Fourth Quarter Consolidated adjusted EBITDA grew 29.8% with margins expanding 200 basis points
Generated $32.6M of Operating Cash Flow in fiscal 2024, 92% growth versus prior year

ROCHESTER, N.Y.–(BUSINESS WIRE)–Transcat, Inc. (Nasdaq: TRNS) (“Transcat” or the “Company”), a leading provider of accredited calibration services, cost control and optimization services, and distribution and rental of value-added professional grade handheld test, measurement, and control instrumentation, today reported financial results for its fourth quarter ended March 30, 2024 (the “fourth quarter”) of fiscal year 2024, which ends March 30, 2024 (“fiscal 2024”). Results include the previously reported acquisitions of TIC-MS, Inc. (“TIC-MS”) effective March 27, 2023, SteriQual, Inc. (“SteriQual”), effective July 12, 2023 and Axiom Test Equipment, Inc. (“Axiom”), effective August 8, 2023. Transcat operates on a 52/53 week fiscal year, ending the last Saturday in March. In a 52-week fiscal year, each of the four quarters is a 13-week period. In a 53-week fiscal year (which occurs once every five or six years), the last quarter is a 14-week period. Fiscal 2024 consisted of 53 weeks while the fiscal year 2023 consisted of 52 weeks.

“We are extremely pleased with our fourth quarter and full year fiscal 2024 results as double-digit organic Service revenue growth and increased productivity drove Service gross margin expansion while Distribution gross margins soared due to growth in Rentals,” commented Lee D. Rudow, President and CEO. “Adjusted EBITDA growth of 30% for the fourth quarter reflects our ability to leverage organic Service revenue growth and the successful integration of acquired companies. Fourth quarter Consolidated revenue was up 14% with gross margin expansion of 300 basis points year over year driven by our widened breadth of service offerings, excellent performance in the higher-margin rental business, and execution of automation and process improvement initiatives. Service segment revenue grew 18% in the fourth quarter as demand in highly regulated end markets, including life sciences, remained strong and our differentiated value proposition continues to resonate throughout Transcat’s expanded addressable markets.”

Mr. Rudow added, “In the fiscal year we completed three acquisitions, TIC-MS, SteriQual, and Axiom Test Equipment that have expanded our addressable markets, widened the breadth of offerings, and allowed us to leverage our existing infrastructure. The key differentiator of the Transcat acquisition strategy is the effectiveness of our integration processes enabling new acquisitions to very quickly be accretive to the overall company. In addition to strong returns, the acquisitions present compelling cross-sell synergies to drive organic calibration service growth and rental sales into these newly acquired customer bases. On a final note, we are extremely excited about our recent rental acquisition, Becnel Rental Tools, which closed just after the end of the fiscal year. Becnel is a well-run business, with great customer relationships, which will differentiate our higher margin rental portfolio and will in time provide significant opportunities for cross-selling of Transcat’s products and services.”

Fourth Quarter Fiscal 2024 Review

(Results are compared with the fourth quarter of the fiscal year ended March 25, 2023 (“fiscal 2023”))

($ in thousands)							Change
	FY24 Q4			FY23 Q4			$’s		%
Service Revenue	$	46,732		$	39,763		$	6,969		17.5	%
Distribution Sales		24,181			22,304			1,877		8.4	%
Revenue	$	70,913		$	62,067		$	8,846		14.3	%

Gross Profit	$	24,035		$	19,150		$	4,885		25.5	%
Gross Margin		33.9	%		30.9	%

Operating Income	$	9,204		$	5,855		$	3,349		57.2	%
Operating Margin		13.0	%		9.4	%

Net Income	$	6,890		$	3,658		$	3,232		88.4	%
Net Margin		9.7	%		5.9	%

Adjusted EBITDA*	$	11,682		$	8,998		$	2,684		29.8	%
Adjusted EBITDA Margin*		16.5	%		14.5	%

Diluted EPS	$	0.77		$	0.48		$	0.29		60.0	%

Adjusted Diluted EPS*	$	0.66		$	0.60		$	0.06		9.8	%

*See Note 1 on page 5 for a description of these non-GAAP financial measures and pages 10, 11 and 12 for the reconciliation tables.

Consolidated revenue was $70.9 million, an increase of 14.3%, and includes the benefit of the 53rd week in fiscal 2024. Consolidated gross profit was $24.0 million, an increase of $4.9 million, or 25.5%, while gross margin expanded 300 basis points due to margin improvements in both operating segments. Operating expenses were $14.8 million, an increase of $1.5 million, or 11.6%, driven by incremental expenses from acquired businesses (including stock-based compensation expense), increased intangibles amortization expense, higher sales-based incentives, and a reversal of the non-cash charge related to the amended NEXA Earn-Out agreement. Adjusted EBITDA was $11.7 million which represented an increase of $2.7 million or 29.8%. Net income per diluted share of $0.77 was up from $0.48 and adjusted diluted earnings per share increased to $0.66 versus $0.60 last year, which includes the non-cash reversal of $2.4 million for the amended NEXA Earn-Out agreement and a higher effective tax rate.

Service segment delivers record fourth quarter results

Represents the accredited calibration, repair, inspection and laboratory instrument services business (65.9% of total revenue for the fourth quarter of fiscal 2024).

($ in thousand)							Change
	FY24 Q4			FY23 Q4			$’s		%
Service Segment Revenue	$	46,732		$	39,763		$	6,969		17.5	%
Gross Profit	$	16,704		$	13,523		$	3,181		23.5	%
Gross Margin		35.7	%		34.0	%

Operating Income	$	8,144		$	4,547		$	3,597		79.1	%
Operating Margin		17.4	%		11.4	%

Adjusted EBITDA*	$	8,741		$	7,039		$	1,702		24.2	%
Adjusted EBITDA Margin*		18.7	%		17.7	%

*See Note 1 on page 5 for a description of this non-GAAP financial measure and pages 10 and 11 for the Adjusted EBITDA Reconciliation tables.

Service segment revenue was $46.7 million, an increase of $7.0 million or 17.5% and included $1.2 million of incremental revenue from acquisitions. Organic revenue growth was 13.0% driven by strong end market demand and continued market share gains. When normalized for the 53rd week, organic revenue growth falls within the range of high single-digit to low double-digit guidance. The segment gross margin increased 170 basis points from prior year primarily due to continued productivity improvements.

Distribution segment shows continued margin improvement

Represents the sale and rental of new and used professional grade handheld test, measurement and control instrumentation (34.1% of total revenue for the fourth quarter of fiscal 2024).

($ in thousands)							Change
	FY24 Q4			FY23 Q4			$’s			%
Distribution Segment Sales	$	24,181		$	22,304		$	1,877			8.4	%
Gross Profit	$	7,331		$	5,627		$	1,704			30.3	%
Gross Margin		30.3	%		25.2	%

Operating Income	$	1,060		$	1,308		$	(248	)		(19.0	)%
Operating Margin		4.4	%		5.9	%

Adjusted EBITDA*	$	2,941		$	1,959		$	982			50.1	%
Adjusted EBITDA Margin*		12.2	%		8.8	%

*See Note 1 on page 5 for a description of this non-GAAP financial measure and pages 10 and 11 for the Adjusted EBITDA Reconciliation tables.

Distribution sales were $24.2 million, an increase of 8.4% on improved end market demand and strength in our Rentals business. Distribution segment gross margin was 30.3%, an increase of 510 basis points due to a favorable sales mix driven by strength in the Rentals business.

Full-Year Fiscal 2024 Review

(Results are compared with full-year fiscal 2023)

($ in thousands)							Change
	FY 2024			FY 2023			$’s		%
Service Revenue		169,525			144,883		$	24,642		17.0	%
Distribution Sales		89,956			85,686			4,270		5.0	%
Revenue	$	259,481		$	230,569		$	28,912		12.5	%

Gross Profit	$	83,806		$	68,355		$	15,451		22.6	%
Gross Margin		32.3	%		29.6	%

Operating Income	$	19,781		$	16,248		$	3,533		21.7	%
Operating Margin		7.6	%		7.0	%

Net Income	$	13,647		$	10,688		$	2,959		27.7	%
Net Margin		5.3	%		4.6	%

Adjusted EBITDA*	$	38,613		$	30,421		$	8,192		26.9	%
Adjusted EBITDA Margin*		14.9	%		13.2	%

Diluted EPS	$	1.63		$	1.40		$	0.23		16.7	%

Adjusted Diluted EPS*	$	2.36		$	1.93		$	0.43		22.1	%

*See Note 1 on page 5 for a description of these non-GAAP financial measures and pages 10, 11 and 12 for the reconciliation tables.

Total revenue was $259.5 million, an increase of $28.9 million or 12.5%. Consolidated gross profit was $83.8 million, up $15.5 million, or 22.6%, and gross margin expanded to 32.3% or 270 basis points. Consolidated operating expenses were $64.0 million, an increase of $11.9 million, or 22.9%, driven by incremental expenses from acquired businesses (including stock-based compensation expense), increased intangibles amortization expense, and investments in technology and our employee base to support future growth. As a result, consolidated operating income was $19.8 million compared with $16.2 million in last fiscal year’s period, an increase of 21.7%.

Adjusted EBITDA was $38.6 million which represented an increase of $8.2 million or 26.9%. Net income per diluted share increased to $1.63 from $1.40 and adjusted diluted earnings per share was $2.36 versus $1.93 last year.

Balance Sheet and Cash Flow Overview

On March 30, 2024, the Company had $35.2 million of cash and marketable securities on hand and $80.0 million available for borrowing under its secured revolving credit facility. Total debt of $4.2 million was down $44.9 million from fiscal 2023 year-end due to cash proceeds from our secondary stock offering. The Company’s leverage ratio, as defined in the credit agreement, was 0.10 on March 30, 2024, compared with 1.60 on March 25, 2023.

Outlook

Mr. Rudow concluded, “The Transcat team continues to deliver strong revenue growth and sustainable gross margin expansion as can be seen over the past decade and a half of profitable growth. As we think ahead into fiscal 2025, our business will continue to benefit from recurring revenue streams in highly regulated end markets, including life sciences, along with a growing Rentals business that performs well throughout various economic cycles. We expect 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 and gross margin expansion. Automation of our calibration processes and overall process improvement will continue to be key enablers of future margin expansion.”

“We continue to be proud of our work on the leadership development front. We couldn’t be happier with our new COO Mike West; his performance has been stellar and impactful since taking over the role. Likewise, we are promoting John Cummins to lead the significant new growth opportunity Transcat Single Source Solution (TS3). TS3 is a comprehensive value proposition, full suite of services, sold to high level decision makers for new capital projects and existing operations, and a critical next step towards integration of NEXA’s Cost, Control and Optimization services with the Transcat calibration business. The NEXA earnout agreement accrual has been reversed and converted to an incentive program associated with this new and expanded role. On a final note, we are very proud to announce Jim Jenkins was offered and accepted the role as CEO of Lakeland Industries. Jim has been our General Counsel for the last four years and we would like to thank him for his contributions to Transcat.”

“The Service segment has substantial runway ahead for growth, both organically and through acquisition. Our robust acquisition pipeline should enable strategic, accretive acquisitions that drive synergistic growth opportunities and will be a key component of our go-forward strategy. Transcat has a diverse portfolio designed to generate high returns for years to come. We believe strong execution, paired with several strategic acquisitions, will drive significant gains in the market and across key business channels. Our investments in leadership development, automation, and process improvement have made Transcat a stronger company and we are well positioned to continue to generate sustainable long-term shareholder value.”

Transcat expects its income tax rate to range between 24% and 26% in fiscal 2025. This estimate includes Federal, various state, Canadian and Irish income taxes and reflects the discrete tax accounting associated with share-based payment awards.

Webcast and Conference Call

Transcat will host a conference call and webcast on Tuesday, May 21, 2024 at 11:00 a.m. ET. Management will review the financial and operating results for the fourth quarter and full fiscal year, 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 Tuesday, August 8, 2024. To listen to the archived call, dial (412) 317-6671 and enter conference ID number 13746612, 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, acquisition related transaction expenses, non-cash loss on sale of building and restructuring expense), 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, stock-based compensation expense and other items, 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 pages 10 and 11 for the Adjusted EBITDA Reconciliation tables.

In addition to reporting Diluted Earnings Per Share, a GAAP measure, we present Adjusted Diluted Earnings Per Share (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 during the period), which is a non-GAAP measure. Our management believes Adjusted Diluted Earnings Per Share is an important measure of our operating performance because it provides a basis for comparison of our business operations between current, past and future periods by excluding items that we do not believe are indicative of our core operating performance. Adjusted Diluted Earnings Per Share 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 or alternative for the GAAP measure of Diluted Earnings Per Share and, therefore, should not be used in isolation of, but in conjunction with, the GAAP measure. Adjusted Diluted Earnings Per Share, 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 page 12 for the Adjusted Diluted EPS Reconciliation table.

ABOUT TRANSCAT

Transcat, Inc. is a leading provider of accredited calibration, reliability, maintenance optimization, quality and compliance, validation, Computerized Maintenance Management System (CMMS), and pipette 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 29 Calibration Service Centers strategically located across the United States, Puerto Rico, Canada, and Ireland. In addition, Transcat operates calibration labs in 21 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 its strong brand and unique value proposition that includes its comprehensive instrument service capabilities, Cost, Control and Optimizations services, 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 relate to expectations, estimates, beliefs, assumptions and predictions of future events and are identified by words such as “aim,” “anticipates,” “believes,” “can,” “could,” “designed,” “estimates,” “expects,” “focus,” “goal,” “intends,” “may,” “plan,” “outlook,” “potential,” “seek,” “strategy,” “strive,” “target,” “will,” “would,” and other similar words. All statements addressing operating performance, events or developments that Transcat expects or anticipates will occur in the future, including but not limited to statements relating to anticipated revenue, profit margins, 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)					(Unaudited)
	Fourth Quarter Ended					Fiscal Year Ended
	March 30,			March 25,		March 30,		March 25,
	2024			2023		2024		2023

Service Revenue	$	46,732		$	39,763	$	169,525	$	144,883
Distribution Sales		24,181			22,304		89,956		85,686
Total Revenue		70,913			62,067		259,481		230,569

Cost of Service Revenue		30,028			26,240		112,272		98,245
Cost of Distribution Sales		16,850			16,677		63,403		63,969
Total Cost of Revenue		46,878			42,917		175,675		162,214

Gross Profit		24,035			19,150		83,806		68,355

Selling, Marketing and Warehouse Expenses		7,866			6,446		28,710		24,761
General and Administrative Expenses		6,965			6,849		35,315		27,346
Total Operating Expenses		14,831			13,295		64,025		52,107

Operating Income		9,204			5,855		19,781		16,248

Interest and Other Expense, net		(400	)		1,029		1,342		2,761

Income Before Income Taxes		9,604			4,826		18,439		13,487
Provision for Income Taxes		2,714			1,168		4,792		2,799

Net Income	$	6,890		$	3,658	$	13,647	$	10,688

Basic Earnings Per Share	$	0.78		$	0.48	$	1.66	$	1.42
Average Shares Outstanding		8,832			7,562		8,239		7,551

Diluted Earnings Per Share	$	0.77		$	0.48	$	1.63	$	1.40
Average Shares Outstanding		8,972			7,688		8,352		7,645

TRANSCAT, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Amounts)

	March 30,			March 25,
	2024			2023
ASSETS
Current Assets:
Cash and Cash Equivalents	$	19,646		$	1,531
Marketable Securities		15,533			–
Accounts Receivable, less allowance for credit losses of $544 and $457 as of March 30, 2024 and March 25, 2023, respectively		47,779			44,698
Other Receivables		506			506
Inventory, net		17,418			16,929
Prepaid Expenses and Other Current Assets		4,276			3,935
Total Current Assets		105,158			67,599
Property and Equipment, net		38,944			29,064
Goodwill		105,585			69,360
Intangible Assets, net		19,987			13,799
Right to Use Assets, net		16,823			14,876
Other Assets		1,055			1,051
Total Assets	$	287,552		$	195,749

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts Payable	$	11,495		$	15,869
Accrued Compensation and Other Current Liabilities		16,739			10,201
Income Taxes Payable		2,926			–
Current Portion of Long-Term Debt		2,339			2,248
Total Current Liabilities		33,499			28,318
Long-Term Debt		1,817			46,869
Deferred Tax Liabilities, net		9,291			6,538
Lease Liabilities		14,873			12,960
Other Liabilities		2,903			1,434
Total Liabilities		62,383			96,119

Shareholders’ Equity:
Common Stock, par value $0.50 per share, 30,000,000 shares authorized; 8,839,299 and 7,562,604 shares issued and outstanding as of March 30, 2024 and March 25, 2023, respectively		4,420			3,781
Capital in Excess of Par Value		141,624			27,886
Accumulated Other Comprehensive Loss		(949	)		(1,200	)
Retained Earnings		80,074			69,163
Total Shareholders’ Equity		225,169			99,630
Total Liabilities and Shareholders’ Equity	$	287,552		$	195,749