Transcat reports record third quarter ebitda on service revenue growth of 22% and strong 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 third quarter and nine-month period ended december 25, 2021 (the “third quarter”) of fiscal year 2022, which ends march 26, 2022 (“fiscal 2022”). results include the previously reported acquisitions of biotek services, inc. (“biotek”) effective december 16, 2020, upstate metrology (“upstate”) effective april 29, 2021 and cal opex limited (d/b/a nexa enterprise asset management), (“nexa”) effective august 31, 2021. “our excellent third quarter results were driven by continued strong performance from our service business.” commented lee d. rudow, president and ceo. “service revenue grew 22% as robust demand in our highly regulated end markets drove 10.2% organic growth and was supplemented by 12% growth from acquisitions. gross margin expanded 180 basis points to a third quarter record of 29.7% and was driven by operating leverage on our fixed costs from the strong organic growth and accretive gross margins from recent acquisitions.” “our distribution segment revenue grew 7.2%, modestly below our expectations, as vendor lead times extended further toward the end of the calendar year. however, orders remained strong and we enter our fiscal fourth quarter with a record $9 million in backlog, up $3.3 million from prior year. overall, our service segment performance drove third quarter consolidated adjusted ebitda of $5.5 million, an increase of 20% from the prior year.” mr. rudow added, “acquisitions continue to be an important part of our growth strategy. we are pleased with how the program has performed and the level of activity in our current pipeline. our recent acquisitions enhance our long-term growth potential and have added unique capabilities, extended our geographic reach and increased our available market. the pipettes businesses we have acquired over the last two years, pipettes.com and biotek, have created a powerful platform for growth and have exceeded our original expectations. nexa, which has also performed well, is a natural complement to our core calibration offerings and expands our reach into ireland and the attractive market for asset management services. additionally, in late december, we announced the acquisition of tangent labs, which gives us new local presence in indiana, an attractive life sciences market, and huntsville, alabama, which has a large aerospace and defense market.” third quarter fiscal 2022 review (results are compared with the third quarter of the fiscal year ended march 27, 2021 (“fiscal 2021”)) ($ in thousands) change fy22 q3 fy21 q3 $'s % service revenue $ 30,237 $ 24,776 $ 5,461 22.0% distribution sales 20,665 19,286 1,379 7.2% revenue $ 50,902 $ 44,062 $ 6,840 15.5% gross profit $ 13,636 $ 11,245 $ 2,391 21.3% gross margin 26.8% 25.5% operating income $ 2,361 $ 2,519 $ (158) (6.3%) operating margin 4.6% 5.7% net income $ 1,629 $ 1,761 $ (132) (7.5%) net margin 3.2% 4.0% adjusted ebitda* $ 5,466 $ 4,562 $ 904 19.8% adjusted ebitda* margin 10.7% 10.4% *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 was $50.9 million, an increase of 15.5%. consolidated gross profit was $13.6 million, an increase of $2.4 million, or 21.3%, and gross margin expanded 130 basis points to 26.8% due to strong operational performance in the service segment. operating expenses increased $2.5 million, or 29.2%, driven by incremental expenses from acquired businesses, increases in employee and stock compensation costs and investments in technology. adjusted ebitda was $5.5 million and increased by 19.8%. net income per diluted share decreased to $0.21 from $0.23. service segment achieved strong revenue growth and gross margin expansion represents the accredited calibration, repair, inspection and laboratory instrument services business (59.4% of total revenue for the third quarter of fiscal 2022). ($ in thousands) change fy22 q3 fy21 q3 $'s % service segment revenue $ 30,237 $ 24,776 $ 5,461 22.0% gross profit $ 8,983 $ 6,915 $ 2,068 29.9% gross margin 29.7% 27.9% operating income $ 1,661 $ 1,956 $ (295) (15.1%) operating margin 5.5% 7.9% adjusted ebitda* $ 4,088 $ 3,446 $ 642 18.6% adjusted ebitda* margin 13.5% 13.9% *see note 1 on page 4 for a description of this non-gaap financial measure and page 9 for the adjusted ebitda reconciliation table. service segment revenue increased 22.0% to $30.2 million and included $2.9 million of incremental revenue from acquisitions. organic revenue growth was 10.2% and was driven by strong end market demand and continued market share gains. the segment gross margin increased by 180 basis points due to operating leverage on our fixed costs and accretive gross margins from recent acquisitions. distribution shows revenue increases represents the sale and rental of new and used professional grade handheld test, measurement and control instrumentation (40.6% of total revenue for the third quarter of fiscal 2022). ($ in thousands) change fy22 q3 fy21 q3 $'s % distribution segment sales $ 20,665 $ 19.286 $ 1,379 7.2% gross profit $ 4,653 $ 4.330 $ 323 7.5% gross margin 22.5% 22.5% operating income $ 700 $ 563 $ 137 24.3% operating margin 3.4% 2.9% adjusted ebitda* $ 1,378 $ 1,116 $ 262 23.5% adjusted ebitda* margin 6.7% 5.8% *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 7.2% on improved market conditions and an easier comparison to the prior year period, which was impacted by the covid-19 pandemic. distribution segment gross margins were flat compared to prior year. nine month review (results are compared with the first nine months of fiscal 2021) total revenue was $149.1 million, an increase of 19.7%. consolidated gross profit was up $9.6 million, or 29.9%, and gross margin expanded to 28.0% or 220 basis points. consolidated operating expenses increased $6.6 million, or 25.6%, driven by incremental expenses from acquired businesses, increases in employee and stock compensation costs, investments in technology and one-time transaction expenses related to acquisitions that closed in the fiscal year. as a result, consolidated operating income was $9.6 million compared with $6.6 million in last fiscal year’s period. net income was $8.3 million, or $1.10 per diluted share, compared with $4.6 million, or $0.61 per diluted share. adjusted ebitda was $18.7 million, an increase of 40.5% compared to prior year. see note 1 on page 4 for a description of this non-gaap financial measure and page 9 for the adjusted ebitda reconciliation table. balance sheet highlights at december 25, 2021, the company had $48.3 million available for borrowing under its secured revolving credit facility. total debt of $40.8 million was up $21.2 million from fiscal 2021 year-end. the company’s leverage ratio, as defined in the credit agreement, was 1.47 at december 25, 2021, compared with 0.94 at march 27, 2021. outlook mr. rudow concluded, “we are incredibly proud of our dedicated team, which has successfully executed through the challenges of the covid-19 pandemic and consistently delivered excellent results. 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 and enhanced value proposition and our new customer pipeline positions us well for continued strong organic growth. “for the fourth quarter of fiscal 2022, which is historically the strongest quarter of our fiscal year due to the seasonality of our service business, we expect service revenue growth to be in the high-teens. we expect service gross margin to be in the range of 35% as we benefit from a seasonally higher level of volume. distribution revenue is expected to grow high single-digits in the fourth quarter. total operating expenses are expected to increase approximately $0.5 million sequentially from the third quarter and will include expenses associated with our recent acquisition of tangent labs.” transcat expects its income tax rate for fiscal 2022 to range between 14% to 15%, unchanged from previous expectations. webcast and conference call transcat will host a conference call and webcast on wednesday, february 2, 2022 at 11:00 a.m. et. management will review the financial and operating results for the third 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, february 9, 2022. to listen to the archived call, dial (412) 317-6671 and enter conference id number 13726586, 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, non-cash loss on sale of building and acquisition related transaction expenses), 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, rather 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, canada and ireland, 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 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) (unaudited) third quarter ended nine months ended december 25, december 26, december 25, december 26, 2021 2020 2021 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 cost of service revenue 21,254 17,861 59,891 51,413 cost of distribution sales 16,012 14,956 47,421 41,012 total cost of revenue 37,266 32,817 107,312 92,425 gross profit 13,636 11,245 41,767 32,148 selling, marketing and warehouse expenses 5,051 4,675 15,022 13,040 general and administrative expenses 6,224 4,051 17,117 12,547 total operating expenses 11,275 8,726 32,139 25,587 operating income 2,361 2,519 9,628 6,561 interest and other expense, net 136 219 581 779 income before income taxes 2,225 2,300 9,047 5,782 provision for income taxes 596 539 715 1,199 net income $ 1,629 $ 1,761 $ 8,332 $ 4,583 basic earnings per share $ 0.22 $ 0.24 $ 1.11 $ 0.62 average shares outstanding 7,519 7,437 7,487 7,415 diluted earnings per share $ 0.21 $ 0.23 $ 1.10 $ 0.61 average shares outstanding 7,653 7,580 7,599 7,532 transcat, inc. consolidated balance sheets (in thousands, except share and per share amounts) (unaudited) (audited) december 25, march 27, 2021 2021 assets current assets: cash $ 2,779 $ 560 accounts receivable, less allowance for doubtful accounts of $505 and $526 as of december 25, 2021 and march 27, 2021, respectively 34,702 33,950 other receivables 628 428 inventory, net 13,868 11,636 prepaid expenses and other current assets 5,572 2,354 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 right to use asset, net 8,738 9,392 other assets 896 808 total assets $ 161,600 $ 132,116 liabilities and shareholders' equity current liabilities: accounts payable $ 12,965 $ 12,276 accrued compensation and other liabilities 9,514 10,417 income taxes payable - 382 current portion of long-term debt 2,140 2,067 total current liabilities 24,619 25,142 long-term debt 38,616 17,494 deferred tax liabilities 4,912 3,201 lease liabilities 7,123 7,958 other liabilities 3,432 3,243 total liabilities 78,702 57,038 shareholders' equity: common stock, par value $0.50 per share, 30,000,000 shares authorized; 7,520,719 and 7,458,251 shares issued and outstanding as of december 25, 2021 and march 27, 2021, respectively 3,760 3,729 capital in excess of par value 23,452 19,287 accumulated other comprehensive loss (717) (451) retained earnings 56,403 52,513 total shareholders' equity 82,898 75,078 total liabilities and shareholders' equity $ 161,600 $ 132,116 transcat, inc. consolidated statements of cash flows (in thousands) (unaudited) for the nine months ended december 25, december 26, 2021 2020 cash flows from operating activities: net income $ 8,332 $ 4,583 adjustments to reconcile net income to net cash provided by operating activities: net loss on disposal of property and equipment 113 65 deferred income taxes 5 75 depreciation and amortization 6,899 5,596 provision for accounts receivable and inventory reserves 417 699 stock-based compensation 1,681 875 changes in assets and liabilities: accounts receivable and other receivables 1,185 902 inventory (1,794 ) 2,072 prepaid expenses and other assets (3,280 ) (678 ) accounts payable 689 (2,103 ) accrued compensation and other liabilities (1,470 ) 3,391 income taxes payable (399 ) 170 net cash provided by operating activities 12,378 15,647 cash flows from investing activities: purchase of property and equipment (5,861 ) (4,295 ) proceeds from sale of property and equipment 12 - business acquisitions, net of cash acquired (20,910 ) (3,447 ) net cash used in investing activities (26,759 ) (7,742 ) cash flows from financing activities: proceeds from (repayments of) revolving credit facility, net 22,760 (4,504 ) repayments of term loan (1,565 ) (1,477 ) issuance of common stock 1,354 649 repurchase of common stock (5,649 ) (1,287 ) net cash provided by (used in) financing activities 16,900 (6,619 ) effect of exchange rate changes on cash (300 ) (751 ) net increase in cash 2,219 535 cash at beginning of period 560 499 cash at end of period $ 2,779 $ 1,034 transcat, inc. adjusted ebitda reconciliation table (dollars in thousands) (unaudited) fiscal 2022 q1 q2 q3 q4 ytd net income $ 3,688 $ 3,015 $ 1,629 $ 8,332 189 169 194 552 6 81 (58 ) 29 +tax provision (194 ) 313 596 715 operating income $ 3,689 $ 3,578 $ 2,361 $ 9,628 1,990 2,141 2,368 6,499 + transaction expense - 821 55 876 (6 ) (81 ) 58 (29 ) 437 620 624 1,681 adjusted ebitda $ 6,110 $ 7,079 $ 5,466 $ 18,655 segment breakdown service operating income $ 2,974 $ 2,647 $ 1,661 $ 7,282 1,488 1,634 1,861 4,983 + transaction expense - 821 55 876 (2 ) (56 ) 36 (22 ) 261 414 475 1,150 service adjusted ebitda $ 4,721 $ 5,460 $ 4,088 $ 14,269 distribution operating income $ 715 $ 931 $ 700 $ 2,346 502 507 507 1,516 (4 ) (25 ) 22 (7 ) 176 206 149 531 distribution adjusted ebitda $ 1,389 $ 1,619 $ 1,378 $ 4,386 fiscal 2021 q1 q2 q3 q4 ytd net income $ 798 $ 2,024 $ 1,761 $ 3.208 $ 7,791 224 233 203 190 850 19 84 16 122 241 (77 ) 737 539 992 2,191 operating income $ 964 $ 3,078 $ 2,519 $ 4.512 $ 11,073 1,871 1,864 1,861 1,984 7,580 + restructuring expense 360 - - 290 650 (19 ) (85 ) (15 ) (122 ) (241 ) 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 1,394 1,359 1,372 1,472 5,597 + restructuring expense 193 - - 156 349 (15 ) (57 ) (8 ) (82 ) (162 ) 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 $ 632 477 505 489 512 1,983 + restructuring expense 167 - - 134 301 (4 ) (28 ) (7 ) (40 ) (79 ) 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 q3 fy 2021 q3 $'s % service revenue $ 30,237 $ 24,776 $ 5,461 22.0% cost of service revenue 21,254 17,861 3,393 19.0% gross profit $ 8,983 $ 6,915 $ 2,068 29.9% gross margin 29.7% 27.9% selling, marketing & warehouse expenses $ 3,007 $ 2,527 $ 480 19.0% general and administrative expenses 4,315 2,432 1,883 77.4% operating income $ 1,661 $ 1,956 $ (295) (15.1%) % of revenue 5.5% 7.9% change distribution fy 2022 q3 fy 2021 q3 $'s % distribution sales $ 20,665 $ 19,286 $ 1,379 7.2% cost of distribution sales 16,012 14,956 1,056 7.1% gross profit $ 4,653 $ 4,330 $ 323 7.5% gross margin 22.5% 22.5% selling, marketing & warehouse expenses $ 2,044 $ 2,148 $ (104) (4.8%) general and administrative expenses 1,909 1,619 290 17.9% operating income $ 700 $ 563 $ 137 24.3% % of sales 3.4% 2.9% change total fy 2022 q3 fy 2021 q3 $'s % total revenue $ 50,902 $ 44,062 $ 6,840 15.5% total cost of revenue 37,266 32,817 4,449 13.6% gross profit $ 13,636 $ 11,245 $ 2,391 21.3% gross margin 26.8% 25.5% selling, marketing & warehouse expenses $ 5,051 $ 4,675 $ 376 8.0% general and administrative expenses 6,224 4,051 2,173 53.6% operating income $ 2,361 $ 2,519 $ (158) (6.3%) % of revenue 4.6% 5.7% transcat, inc. additional information - business segment data (dollars in thousands) (unaudited) change service fy 2022 ytd fy 2021 ytd $'s % service revenue $ 87,338 $ 72,297 $ 15,041 20.8% cost of service revenue 59,891 51,413 8,478 16.5% gross profit $ 27,447 $ 20,884 $ 6,563 31.4% gross margin 31.4% 28.9% selling, marketing & warehouse expenses $ 8,557 $ 7,302 $ 1,255 17.2% general and administrative expenses 11,608 7,520 4,088 54.4% operating income $ 7,282 $ 6,062 $ 1,220 20.1% % of revenue 8.3% 8.4% change distribution fy 2022 ytd fy 2021 ytd $'s % distribution sales $ 61,741 $ 52,276 $ 9,465 18.1% cost of distribution sales 47,421 41,012 6,409 15.6% gross profit $ 14,320 $ 11,264 $ 3,056 27.1% gross margin 23.2% 21.5% selling, marketing & warehouse expenses $ 6,465 $ 5,738 $ 727 12.7% general and administrative expenses 5,509 5,027 482 9.6% operating income $ 2,346 $ 499 $ 1,847 370.1% % of sales 3.8% 1.0% change total fy 2022 ytd fy 2021 ytd $'s % total revenue $ 149,079 $ 124,573 $ 24,506 19.7% total cost of revenue 107,312 92,425 14,887 16.1% gross profit $ 41,767 $ 32,148 $ 9,619 29.9% gross margin 28.0% 25.8% selling, marketing & warehouse expenses $ 15,022 $ 13,040 $ 1,982 15.2% general and administrative expenses 17,117 12,547 4,570 36.4% operating income $ 9,628 $ 6,561 $ 3,067 46.7% % of revenue 6.5% 5.3%
