Transcat reports operating income of $1.0 million from service segment revenue and margin growth for fiscal 2021 first quarter
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 27, 2020 (the “first quarter”) of fiscal year 2021, which ends march 27, 2021 (“fiscal 2021”). results include the previously-reported acquisition of tte laboratories, inc. (which we refer to as “pipettes.com”) effective february 21, 2020. “we are extremely proud of our organization and the invaluable contributions our people made during these difficult times. our staff at our 42 labs have worked tirelessly to remain open and meet the demands of our customers, particularly those in the life sciences sector,” commented lee d. rudow, president and ceo. “our first quarter results are a testament to the value and effective execution of our strategy. our commitment to technology and process improvements positively impacted our results as increased productivity drove higher service segment gross margins. we believe the improvements are sustainable and we expect to see additional traction and margin enhancement as we move forward.” mr. rudow added, “the 20% decline in distribution sales was expected and was the direct result of the impact of the covid-19 pandemic on customer demand throughout the quarter. nonetheless, the contribution from the service business combined with company-wide cost saving measures, which we implemented early on in the pandemic to protect the financial strength and liquidity of the company, and which continued in our first quarter, resulted in operating income of $1.0 million for the first quarter. this exceeded our expectation of operating income being in the break-even range that we had forecast in may 2020 when we released fiscal year-end results.” first quarter fiscal 2021 review (results are compared with the first quarter of the fiscal year ended march 28, 2020 (“fiscal 2020”)) ($ in thousands) change fy21 q1 fy20 q1 $'s % service revenue $ 22,967 $ 22,398 $ 569 2.5% distribution sales 15,937 19,997 (4,060) (20.3%) revenue $ 38,904 $ 42,395 $ (3,491) (8.2%) gross profit $ 9,409 $ 10,052 $ (643) (6.4%) gross margin 24.2% 23.7% operating income $ 964 $ 1,958 $ (994) (50.8%) operating margin 2.5% 4.6% net income $ 798 $ 1,718 $ (920) (53.6%) net margin 2.1% 4.1% adjusted ebitda* $ 3,488 $ 3,942 $ (454) (11.5%) adjusted ebitda* margin 9.0% 9.3% *see note 1 on page 4 for a description of this non-gaap financial measure and page 9 for the adjusted ebitda reconciliation table. the economic downturn from the covid-19 pandemic impacted customer demand, especially for the distribution segment, and resulted in consolidated revenue declining 8.2% in the first quarter. consolidated gross profit was $9.4 million, a decrease of $0.6 million, or 6.4%, while gross margin expanded 50 basis points due to productivity improvements in the service segment and various cost reduction efforts. operating expenses increased $0.4 million, or 4.3%, and included incremental expenses related to pipettes.com and approximately $0.4 million of severance expense as technology advancements allowed the company to lower its ongoing operating expenses but resulted in certain charges in the quarter. net income per diluted share decreased to $0.11 from $0.23. service segment shows revenue growth for 45th straight quarter represents the accredited calibration, repair, inspection and laboratory instrument services business (59% of total revenue for the first quarter of fiscal 2021). ($ in thousands) change fy21 q1 fy20 q1 $'s % service segment revenue $ 22,967 $ 22,398 $ 569 2.5% gross profit $ 6,069 $ 5,372 $ 697 13.0% gross margin 26.4% 24.0% operating income $ 1,129 $ 738 $ 391 53.0% operating margin 4.9% 3.3% adjusted ebitda* $ 2,863 $ 2,147 $ 716 33.4% adjusted ebitda* margin 12.5% 9.6% service revenue grew as new business and increased demand from the life sciences market combined with $1.1 million of incremental revenue from pipettes.com more than offset softness from other markets. on a trailing twelve-month basis, service segment revenue was $93.6 million, up 7.4% when compared with the trailing twelve-month period ending with the prior-fiscal year first quarter. ongoing productivity improvements along with prudent cost reduction initiatives resulted in an increase of service gross margin by 240 basis points. distribution segment revenue and margins impacted by covid-19 pandemic represents the sale and rental of new and used professional grade handheld test, measurement and control instrumentation (41% of total revenue for the first quarter of fiscal 2021). ($ in thousands) change fy21 q1 fy20 q1 $'s % distribution segment sales $ 15,937 $ 19,997 $ (4,060) (20.3%) gross profit $ 3,340 $ 4,680 $ (1,340) (28.6%) gross margin 21.0% 23.4% operating (loss) income $ (165) $ 1,220 $ (1,385) (113.5%) operating margin (1.0%) 6.1% adjusted ebitda* $ 625 $ 1,795 $ (1,170) (65.2%) adjusted ebitda* margin 3.9% 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. as expected, distribution sales were impacted by the covid-19 pandemic, with reduced demand from oil and gas related businesses and most other industrial manufacturing sectors. rental revenue was $1.0 million in the quarter, down 18.1%. distribution gross margin was impacted by lower volume, less demand from core product sales and reduced co-operative advertising and rebate programs as vendors reduced these programs to lower their own costs. solid balance sheet and sufficient liquidity net cash provided by operations increased to $4.0 million from $0.9 million in the prior-fiscal year first quarter and was used to fund $1.3 million of capital expenditures and debt repayment. capital investments were focused on technology and service segment capabilities, and for rental pool assets. at the end of the first quarter, transcat had $27.3 million in net working capital and $23.6 million available for borrowing under its secured revolving credit facility. on may 18, 2020, the company amended its revolving credit facility to include a $10.0 million increase in borrowing capacity and provide financial covenant modifications, among other customary provisions. total debt at the end of the quarter was down $1.8 million to $28.5 million compared with the balance at fiscal 2020 year-end. the company’s leverage ratio, as defined in its credit agreement, was down to 1.50 at quarter end, compared with 1.53 at fiscal 2020 year-end. outlook mr. rudow concluded, “encouragingly, service demand strengthened through june and into july, although we are cautious with our outlook given the trend in new cases of covid-19 across north america. for the second quarter of fiscal 2021, we expect service revenue to grow modestly versus last fiscal year’s second quarter, and anticipate improved gross margin. distribution is likely to remain relatively unchanged sequentially. we expect operating income to grow sequentially from the first quarter of fiscal 2021 by approximately $1 million and to be in the range of $2 million for our second quarter of fiscal 2021. overall, we believe we are managing and navigating this pandemic well, while continuing to advance our technology in support of our growth and profitability strategy.” transcat revised its fiscal year 2021 income tax rate to range between 20% and 21% from the previous estimated range of 24% to 25%. 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 $5.0 million to $5.5 million in fiscal 2021, with the majority of the capital expenditures planned for technology, growth-oriented opportunities within both of its operating segments, and rental pool assets. maintenance and existing asset replacements are expected to be consistent with fiscal 2020 at approximately $1.0 million to $1.5 million. webcast and conference call transcat will host a conference call and webcast on wednesday, july 22, 2020 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, july 29, 2020. to listen to the archived call, dial (412) 317-6671 and enter conference id number 13705865, 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 27, june 29, 2020 2019 service revenue $ 22,967 $ 22,398 distribution sales 15,937 19,997 38,904 42,395 cost of service revenue 16,898 17,026 cost of distribution sales 12,597 15,317 29,495 32,343 gross profit 9,409 10,052 selling, marketing and warehouse expenses 4,074 4,472 general and administrative expenses 4,371 3,622 8,445 8,094 operating income 964 1,958 interest and other expense, net 243 285 income before income taxes 721 1,673 benefit from income taxes (77 ) (45 ) net income $ 798 $ 1,718 basic earnings per share $ 0.11 $ 0.24 average shares outstanding 7,394 7,257 diluted earnings per share $ 0.11 $ 0.23 average shares outstanding 7,514 7,491 transcat, inc. consolidated balance sheets (in thousands, except share and per share amounts) (unaudited) (audited) june 27, march 28, 2020 2020 assets current assets: $ 366 $ 499 27,849 30,952 894 1,132 14,194 14,180 1,942 1,697 45,245 48,460 property and equipment, net 20,871 20,833 goodwill 41,681 41,540 intangible assets, net 7,349 7,977 right to use asset, net 8,284 8,593 other assets 733 719 $ 124,163 $ 128,122 liabilities and shareholders' equity current liabilities: $ 9,326 $ 11,947 6,588 6,907 - 86 2,003 1,982 17,917 20,922 long-term debt 26,524 28,362 deferred tax liabilities 3,049 3,025 lease liabilities 6,535 6,832 other liabilities 2,682 1,894 56,707 61,035 shareholders' equity: common stock, par value $0.50 per share, 30,000,000 shares authorized; 7,411,117 and 7,381,180 shares issued and outstanding as of june 27, 2020 and march 28, 2020, respectively 3,706 3,691 18,006 17,929 (847 ) (1,010 ) 46,591 46,477 67,456 67,087 $ 124,163 $ 128,122 transcat, inc. consolidated statements of cash flows (in thousands) (unaudited) for the first quarter ended june 27, june 29, 2020 2019 cash flows from operating activities: $ 798 $ 1,718 (1 ) 238 24 12 1,872 1,622 561 102 312 203 2,948 562 5 (1,497 ) (251 ) (278 ) (2,621 ) (1,385 ) 494 (314 ) (99 ) (109 ) 4,042 874 cash flows from investing activities: (1,261 ) (1,446 ) - 184 (1,261 ) (1,262 ) cash flows from financing activities: (1,330 ) 1,823 (487 ) (467 ) 383 369 (1,287 ) (1,346 ) (2,721 ) 379 effect of exchange rate changes on cash (193 ) (158 ) net decrease in cash (133 ) (167 ) cash at beginning of period 499 788 cash at end of period $ 366 $ 621 transcat, inc. adjusted ebitda reconciliation table (in thousands) (unaudited) fiscal 2021 q1 q2 q3 q4 ytd net income $ 798 $ 798 224 224 19 19 (77 ) (77 ) operating income $ 964 $ 964 1,871 1,871 + restructuring expense 360 360 (19 ) (19 ) 312 312 adjusted ebitda $ 3,488 $ 3,488 segment breakdown service operating income $ 1,129 $ 1,129 1,394 1,394 + restructuring expense 193 193 (15 ) (15 ) 162 162 service adjusted ebitda $ 2,863 $ 2,863 distribution operating income $ (165 ) $ (165 ) 477 477 + restructuring expense 167 167 (4 ) (4 ) 150 150 distribution adjusted ebitda $ 625 $ 625 fiscal 2020 q1 q2 q3 q4 ytd net income $ 1,718 $ 2,379 $ 1,477 $ 2,493 $ 8,067 244 243 216 231 934 41 54 (22 ) 113 186 (45 ) 383 420 905 1,663 operating income $ 1,958 $ 3,059 $ 2,091 $ 3,742 $ 10,850 1,622 1,681 1,648 1,707 6,658 159 (54 ) 22 (112 ) 15 203 102 305 274 884 adjusted ebitda $ 3,942 $ 4,788 $ 4,066 $ 5,611 $ 18,407 segment breakdown service operating income $ 738 $ 1,837 $ 488 $ 2,609 $ 5,672 1,220 1,246 1,206 1,257 4,929 77 (38 ) 13 (72 ) (20 ) 112 56 159 143 470 service adjusted ebitda $ 2,147 $ 3,101 $ 1,866 $ 3,937 $ 11,051 distribution operating income $ 1,220 $ 1,222 $ 1,603 $ 1,133 $ 5,178 401 436 442 450 1,729 83 (17 ) 9 (40 ) 35 91 46 146 131 414 distribution adjusted ebitda $ 1,795 $ 1,687 $ 2,200 $ 1,674 $ 7,356 transcat, inc. additional information - business segment data (dollars in thousands) (unaudited) change service fy 2021 q1 fy 2020 q1 $'s % service revenue $ 22,967 $ 22,398 $ 569 2.5 % cost of service revenue 16,898 17,026 (128 ) (0.8 %) gross profit $ 6,069 $ 5,372 $ 697 13.0 % gross margin 26.4% 24.0% selling, marketing & warehouse expenses $ 2,348 $ 2,386 $ (38 ) (1.6 %) general and administrative expenses 2,592 2,248 344 15.3 % operating income $ 1,129 $ 738 $ 391 53.0 % % of revenue 4.9% 3.3% change distribution fy 2021 q1 fy 2020 q1 $'s % distribution sales $ 15,937 $ 19,997 (4,060 ) (20.3 %) cost of distribution sales 12,597 15,317 (2,720 ) (17.8 %) gross profit $ 3,340 $ 4,680 $ (1,340 ) (28.6 %) gross margin 21.0% 23.4% selling, marketing & warehouse expenses $ 1,726 $ 2,086 $ (360 ) (17.3 %) general and administrative expenses 1,779 1,374 405 29.5 % operating income $ (165) $ 1,220 (1,385 ) (113.5 %) % of sales (1.0%) 6.1% change total fy 2021 q1 fy 2020 q1 $'s % total revenue $ 38,904 $ 42,395 $ (3,491 ) (8.2 %) total cost of revenue 29,495 32,343 (2,848 ) (8.8 %) gross profit $ 9,409 $ 10,052 $ (643 ) (6.4 %) gross margin 24.2% 23.7% selling, marketing & warehouse expenses $ 4,074 $ 4,472 $ (398 ) (8.9 %) general and administrative expenses 4,371 3,622 749 20.7 % operating income $ 964 $ 1,958 $ (994 ) (50.8 %) % of revenue 2.5% 4.6%
