Transcat, Inc. (TRNS) on Q1 2021 Results - Earnings Call Transcript

Operator: Greetings! And welcome to today’s Transcat, First Quarter Fiscal Year 2021 Financial Results Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recoded. I would now like to turn the conference over to your host, Mr. Craig Mychajluk, Investor Relations. Thank you. You may begin. Craig Mychajluk: Yeah, thank you and good morning everyone. We certainly appreciate your time today and your interest in Transcat. With me on the call today we have our President and Chief Executive Officer, Lee Rudow; and our Chief Financial Officer, Mike Tschiderer. After formal remarks, we will open the call for questions. If you don’t have the news release that crossed the wire after market closed yesterday, it can be found on our website at www.transcat.com. The slides that accompany today's discussion are also on our website. If you would, please refer to slide two. As you are aware, we may make forward-looking statements during the formal presentation and Q&A portion of this teleconference. Those statements apply to future events which are subject to risks and uncertainties, as well as other factors that could cause the actual results to differ materially from where we are today. These factors are outlined in the news release, as well as with documents filed by the company with the Securities and Exchange Commission. You can find those on our website where we regularly post information about the company, as well as on the SEC's website at sec.gov. We undertake no obligation to publicly update or correct any of the forward-looking statements contained in this call, whether as a result of new information, future events or otherwise, except as required by law. Please review our forward-looking statements in conjunction with these precautionary factors. I would like to point out as well that during today's call we will discuss certain non-GAAP measures, which we believe will be useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. We have provided reconciliations of non-GAAP to comparable GAAP measures in the tables accompanying the earnings release. With that, I’ll turn the call over to Lee to begin the discussion. Lee? Lee Rudow: Thank you, Craig. Good morning everyone. Thank you for joining us on the call today. I hope you and your families are navigating this challenging environment well and are in good health. I'll start today's call by acknowledging our dedicated team, the 750 people that work at our 42 Transcat Laboratories across North America. Without their tireless efforts and adaptability, we could not have produced the solid results that we did in the first quarter. Meeting our commitments to our customers, both on the Distribution and Service side of the business was no easy task, but we got it done. And as I mentioned in the past, many of our customers include those who are working to develop a COVID-19 vaccine, treatments, and medical devices required to save lives. Our team has made an incredible difference and in my opinion they define the word essential and I'm very grateful for their efforts. On this call I'll provide an overview of our first quarter results, which as many of you know exceeded our expectations. The results validate our strategy, which entails providing calibration of services to the life science and other regulated industries, and leveraging technology to improve our processes and enhance our gross and operating margins. At the conclusion of my overview, I'll turn things over to Mike to provide a closer look at the first quarter financials before I return and speak to our outlook for fiscal 2021 and beyond. Turning to our Service segment; despite the headwinds created by the COVID-19 pandemic we achieved our 45th consecutive quarter of year-over-year Service growth. Perhaps even more important, we made significant improvements in our Service gross margins, even with a modest Service revenue growth of 2.5% in this challenging environment. Service gross margins expanded 240 basis points to 26.4%. The main driver behind the gains was the continued increase in productivity. Productivity which is something we've been talking about over the last couple of years benefited in the quarter by the effective execution of our operational excellence initiatives. The initiatives included a combination of improved processes, technical training and lab management, all of which we believe are sustainable. The improvements resulted in the generation of $1 million in first quarter operating income. This exceeded our expectation of operating income being in the breakeven range for the quarter that we forecasted in May 2020 when we released our year-end results. In addition, our first quarter operating margin expanded 160 basis points as we generated $4 million of cash from operations. So, while our Service segment was not immune to the headwinds created by COVID-19, it did hold up pretty well. And as we generate higher revenue growth at some point when we move beyond and through this present pandemic that we're experiencing, we would anticipate additional traction and continued margin enhancement. Moving on to Distribution. As expected the segment felt the brunt of the impact from COVID-19, reduced demand for oil and gas related businesses and most of the industrial sector drove the softness. We have experienced an uptick in distribution sales related to thermal and infrared measurements of body temperature. That makes perfect sense during these times and we are in the process of introducing a new program to sell, install and calibrate permanently installed elevated body temperature measurement systems. That market is a very natural fit for Transcat. And as you've heard me say many times in the past, the distribution segment continues to be a differentiator as we leverage the segment touches to grow our Service business. With that, I'll turn things over to Mike. Mike Tschiderer: Thanks Lee and good morning everyone. Today I will be starting on slide four, which provides some detail regarding our revenue on a consolidated basis and by business segment. As a reminder, we have two reportable business segments, Service and Distribution. Also included in our results is the previously reported acquisition of TTE Laboratories, which was effective February 21, 2020. Going forward, we will be referring to TTE as pipettes.com. The pipettes.com URL was one of the assets we acquired in that acquisition. As expected, our first quarter performance was impacted by the economic downturn from the COVID-19 pandemic which reduced customer demand, especially for the Distribution segment and resulted in consolidated revenue declining 8% to $39 million. Compared to Q1 of the prior fiscal year, fiscal 2021 Q1 Service revenue was up 2.5% and Distribution was down 20.3%. Pipettes.com provided approximately $1.6 million of incremental revenue on a consolidated basis. We are pleased with the performance and integration progress to date. The increase in Service revenue to $23 million reflects the essential nature of our work to largely regulated industries, especially with our life sciences sector focus. We saw increased demand and secured new business from that sector, such that the life sciences sector now represents almost 50% of our Service revenue. Included in the Service revenue results was $1.1 million of incremental revenue from pipettes.com. The 20% decline in Distribution sales was not a surprise and as we mentioned, was the result of COVID-19 impact on customer confidence and demand as Distribution is a barometer of changes in economic conditions. You may recall that our Distribution sales had historically been focused on oil and gas and general industrial manufacturing sectors, although in life science we have seen more opportunities with pipettes.com in the sale of handheld thermometers and elevated body temperature equipment that Lee referenced. For Distribution, pipettes.com contributed approximately $500,000 of revenue to that segment in the quarter. We're very pleased with the gross margin performance we achieved. Our consolidated gross margin expanded 50 basis points to 24.2%, largely due to strong margin improvement in Service. Service gross margin was the highlight for the quarter, where our multi-year productivity initiatives showed results and are still gaining traction. Service gross margin expanded 240 basis points to 26.4% on modest top-line growth. The Distribution gross margin reflects some mixed changes as we saw less demand from core product sales which tend to have a slightly lower margin profile. Also impacting that segment were actions taken by our vendors to lower their own costs during these challenging times as they reduce their cooperative advertising and rebate programs. We anticipate that headwind continuing into the second fiscal quarter. Rental revenues were $1 million in the quarter. Slide five shows our operating income performance. We were able to deliver operating income of $1 million in the quarter, which exceeded our expectations of operating income being in that breakeven range that we had forecast, and we continue to invest in our technology capabilities to support our planned growth and to advance our operational excellence initiatives. In the quarter we did have incremental amortization expense related to pipettes.com purchase accounting, as well as some associated non-recurring start-up costs. We also recognize $400,000 of severance expense in the quarter. Some of our technology enhancements have reduced and are expected to further reduce certain operating costs going forward, but we did pay some severance in the first quarter as a part of that evolution. The severance costs are noted in our adjusted EBITDA reconciliation as an add-back under restructuring expense as we view them as non-recurring. Please see the supplemental slides for more information regarding this non-GAAP measure. I was slide six we show our bottom line results. We recognized a tax benefit in both the first quarter of fiscal 2021 and fiscal 2020 due to the tax accounting impact of share based payments and stock option activity. As a result, we have lowered our full fiscal year 2021 tax rate expectations to range between 20% and 21% which includes Federal, State and Canadian income taxes. On slide seven we show adjusted-EBITDA and adjusted-EBITDA margin. Among other measures we use adjusted EBITDA, which is a non-GAAP measure to gauge the performance of our segments. I encourage you to look at the provided reconciliation of adjusted-EBITDA to the closest GAAP measures, which for us are operating income and net income. We continue to generate cash in this challenging environment, and as shown on the slide, you can see the strength and overall importance the Service segment has on our business. In the quarter Service EBITDA increased more than 33% to $2.9 million and Service EBITDA margin expanded 290 basis points. Slides eight and nine provide some detail regarding our balance sheet and our cash flow. We ended the quarter with sufficient flexibility and liquidity and we generated cash from operations, which was used in part to fund our CapEx and to reduce our debt. At quarter end we had total debt of $28.5 million, which was down $1.8 million from fiscal 2020 year-end. Our leverage ratio was 1.50 to 1 and is calculated as the total debt on the balance sheet at a period end, divided by the trailing 12 months adjusted EBITDA, including giving credit for any acquired EBITDA. Other companies may calculate such a metric differently. In the fiscal quarter, as previously announced we amended our credit facility increasing our borrowing capacity an additional $10 million and included some favorable covenant modifications. We had $23.6 million available under our revolving credit facility at the end of the quarter and more than $27 million in net working capital. Net cash provided by operations was $4 million compared with less than $900,000 in the prior fiscal year first quarter, primarily from changes in accounts receivable and inventory levels at the measurement date. Capital expenditures were $1.4 million for the quarter. Our capital plan for fiscal 2021 is unchanged and expected to be between $5 million and $5.5 million. The focus is expected to largely center on Technology and Service infrastructure and growth oriented opportunities and for rental pool asset purchases. This amount is inclusive of our maintenance CapEx, which is expected to be consistent in fiscal 2020 at approximately $1 million to $1.5 million. Lastly we expected to timely file our Form 10-Q on/or about August 5. With that I'll turn it back to you, Lee. Lee Rudow: Okay, thank you Mike. As we move forward, we continue to focus on the safety and wellbeing of our employees and customers. We believe we're in a strong position and have the right strategies and leadership to succeed in our markets, especially at this time. We believe we have sufficient flexibility and liquidity to maintain our investments, in technology and growth. Technology remains one of the four pillars of our strategic plan, which also includes strong organic growth, acquired service growth add-capabilities, expertise and geographic footprint and leveraging distribution as a differentiator to drive our Service business. As mentioned in our earnings release for the quarter, demand for our services strengthened through June and into July and we expect modest service growth in the second quarter, and with similar improved margins like we generated in the first quarter. Though Distribution pulse picked up just a bit over the last week or so, we remain cautious and expect Distribution sales to remain relatively unchanged, sequentially in the second quarter. That's especially true given the recent trends and the new virus cases around the country. As we look at the consolidated business, we believe that we can deliver second quarter consolidated operating income around $2 million, approximately $1 million growth sequentially over the first quarter. On the acquisition front Transcat remains an acquisitive company and we expect there to be opportunities for acquisition as we move through and beyond the current pandemic. Overall, we believe we are managing and navigating this pandemic well and we're going to continue to advance our growth and profitability strategies. With that operator, we can open the lines for questions. Operator: [Operator Instructions]. The first question comes from the line of Dick Ryan with Colliers. You may proceed with your question. Dick Ryan: Thank you and congratulations on the strong profitability showing guys. So Lee, is there a way to parse the margin performance in Service, kind of between the better productivity issues and your cost reductions. I’m just trying to gauge the kind of sustainability you might have with margins? Lee Rudow: Right. Dick, we haven't broken that out you know and disclosed it, but I think I understand the nature of your question and the way I'd characterize the way we look at it, is the margin improvement that you saw in Service for the first quarter as I mentioned is sustainable. The only elements of sort of the cost structure that went into Service that aren't going to go forward are things like some modest severance payments that you know some effect above and below the lines in Service. But I think almost all of the improvements you saw were driven by an uptick and increase in productivity. Less – you know I’d say less tax, but tax doing more and spending more time on the bench, being better at what they are doing and the overall management of our labs, this you know increase in operational excellence oriented activities. I would expect that you will see most of this improvement if not all continue and I still think there's upside. We are still in the early days of this journey on margin improvement. So we are pleased, that's how I would characterize it. Dick Ryan: Okay, great, thanks. How are you sitting with technicians? Is it you’re at a level at looking beyond the next quarter or so or is it at a good level for you guys? Lee Rudow: We're at a good level and you know right now still we're at over capacity. So you know as additional revenue comes in, you know we’ll be able to handle it and you know we've achieved - that's what's interesting; we've achieved the margins we did and the performance we did and we could handle more. And so that's an indication that you know more would drop to the bottom line you know if and when that revenue comes in, and it's going to come in. We're just trying to get through this pandemic environment, but we're good situation because we're in an over capacity and we’re holding strong. Dick Ryan: Sure, how is the life science exposure? You said it's 50% of Service, but when you look at your roster of labs out there, is it concentrated in a few or is it broad based where you know a lot and most of the labs participate in life science. Lee Rudow: I would say most of the labs participate, its broad based, not every single lab. So there are a couple of labs in certain regions that may be more process oriented; for example, our Houston lab. But generally speaking, whether you're talking about Southern California, the New England area, Mid-Atlantic, you know most of them do a fair amount of life science work, it’s probably distributed. Dick Ryan: Okay, good. Thank you and again, congratulations on the performance. Craig Mychajluk: Thanks. Lee Rudow: Take care, Dick. Operator: Our next question comes from the line of Greg Palm with Craig-Hallum. You may proceed with your question. Greg Palm: Yeah, great, thanks. Good morning! Nice job on the quarter here. I was hoping maybe we could start on, do you have any qualitative commentary, a little bit more detail on the cadence of demand in the quarter. It sounds like you saw some strengthening in June and into July with Service. And then when you referenced the expectation for modest growth in the upcoming quarter, are you talking organic or overall? Lee Rudow: Greg, when we say modest growth in the quarter, it's always a combination of organic and you know even acquired growth, because we did acquire TTE, pipettes.com in February. So as we go through the year, a certain element of our growth you know will be you certainly attached to that and a byproduct of that acquisition. However, as we would expect organic growth along the way as well. And so we see an uptick, when we use those words up tick, you know in June and into July, we're talking organic. Greg Palm: Okay, that's helpful. Back to back, really impressive quarters margin wise on the Service segment. If I think about your bridge to you know 30% Service segment margins, which I think you've referenced a few times in the past, how much improvement in productivity is left and can be realized verse maybe some of the volume or leverage that you'll get on higher revenue. I don't know if there's a way to sort of bucket out those items, but are you sort of curious to get sort of how you're looking at the bridge as we sit today. Lee Rudow: Right, well you bring up some good points. When you look at the impact of increased revenue and the fact that we have the capacity for it, you’re right. Volume alone will be an asset. It will help margins as we go forward. We’re doing the work we're doing, producing the results without the kind of volume. We normally look for mid to high single digit organic growth and so without that we were able to get the margin increase. So I would expect volume would be helpful, of course it would be, because there’s inherent leverage in the business. But in addition to that, we're still Greg very, very much in our infancy on automation and I know we've been talking about that for a year and a half. I'm sensitive to the fact that we're probably a little bit behind our expectations for the impact we anticipated. But you know it's still a very tangible initiative that we're working on. A lot of folks are concentrating on, and we would expect automation to impact this business, impact our margins and it has not yet in any kind of material way. So when you are looking at the margin gain that we've gotten, it's through improved processes, improved training with our technicians, better lab management. We're doing it without the volume and we're doing it without the automation, and so we talked about that bridge. You used the word bridge to bridge the gap between where we are and where we could be. You know those are some of the elements that are going to contribute to getting that profit gain over time. Greg Palm: Okay, so if it’s still early days and you’re likely to see leverage at some point, maybe 30% could end up being conservative. Lee Rudow: Those are your words, not mine. It’s not unrealistic to make a statement like that though. It’s very realistic and that range of 30% is our goal. Greg Palm: Okay, great. Now last one, you brought up this opportunity in thermal cameras and body temp measurement. How big of a market is that currently, right now for the company. I guess more importantly, how big should that opportunity be if you put some resources behind that? Lee Rudow: Right, so the short answer is, I'm not sure and we don't know. We definitely have gotten a significant amount of inquiries from our existing customer base and from new customers asking if we can do this work. We’ve sold you know hundreds if not thousands of individual infrared thermometers that you have at relatively low to mid-price point. But what we're talking about, you know the system installation and this sort of ongoing permanent needs, it's just too early for us to tell. It’s very easy for us, because that natural fit that I spoke to, to convert and to offer this to our customer. So it wasn't an investment that took a lot of analysis. We just took a couple of our components, packaged together, with our ability to get on-site with a customer and do this work. So the risk is almost zero or very low and so our analysis to figure out the upside in the market just isn’t there yet, it’s too early. I like the market, I like the fit and it’s a real easy thing for us to do. So depending on – you know we are just going to continue to dig deeper and figure out what the opportunity is, but we are jumping in, because it’s just easy to do it and a good fit. So more to come on, we call it EBD, Elevated Body Temperature, more to come on EBT. Greg Palm: Alright, thanks for the color. Best of luck going forward. Lee Rudow: Alright Greg, thanks. Operator: Our next question comes from the line of Gerry Sweeney with ROTH Capital. You may proceed with your question. Unidentified Analyst: Hi! This Mike on for Gerry. Thanks for taking my questions. Lee Rudow: Hi Mike. Unidentified Analyst: So first just looking at the cadence of fiscal 2021, is it reasonable to expect a little improvement in service activity and margin with each quarter, barring any new economic developments? Lee Rudow: Well, you know I think as I mentioned before, there's still a lot of unknowns. In normal circumstances, if you just rewind the clock to last year at this time, we were doing very, very well in the marketplace. We were well positioned for growth. So we would have expected high single digit organic growth. In a COVID environment, where half our business is life science and half of it is you know generally other regulated industries that run from aerospace and defense and runs again, there is going to be some muted expectations on revenue growth, you know probably for the next quarter or so. We can't really define any more detail than that. We did see up-tick, we have seen up-ticks in service flow of new work in the last you know several weeks. So will it continue, we hope so, we know it's going to continue. You know we would expect it to continue over time, but we're really talking about what's going to happen in the next quarter, which is the nature of your question and nobody knows. So I would expect, we are fairly confident that we’ll have modest growth. The margin, as I said before, you know we've gone up – we’ve come a long way from what we would call our lowest point you know a couple of years ago to where we're headed in the 30% range. We’re halfway there and I would say over time you're going to see this company, we would expect to generate improved markets. Not every single quarter, but over time up into the right with margins based upon volume, improvement in our productivity, improvement in our processes, including automation, these things will get the job done, we would expect over time. So that's the best I can do to define it. Mike Tschiderer: Yeah, and Mike I just got to say, related to these productivity things that have impacted our margins, they're not over. I mean they are evolutionary and continuing, so it's not like we finished a project and now we're going to see the fruits of it. We'll see the fruits of the ones that have been completed, but there's other ones that are still in various phases of implementation. So at the least point we'd expect to kind of see it going up into the right each quarter. It may not be as linear as some might like, but there's no reason to think it won’t continue, even without volume which will just be an added impetus. Unidentified Analyst: Okay. Thanks, that's helpful. And last one for me, the $2 million of operating income you're expecting in the second quarter, does that assume any meaningful changes to the cost structure or bringing back any expenses that were previously scaled back? Lee Rudow: Generally I think you're going to look at a stable cost structure in any – without any material changes from Q1 to Q2 when we when we make that estimate. Mike Tschiderer: Yeah, agreed. That's one of the reasons we tried to break out some of this severance, because we do think that's a one time, so that won't be recurring. And a lot of the costs are variable in nature. So you'd expect those to be increased, but only when the revenue increases Mike. Unidentified Analyst: Okay, great. Thank you. Operator: Our next question comes from the line to Scott Buck with B. Riley. You may proceed with your question. Scott Buck: Hi, good morning guys. I’m curious on the distribution segment. Did more depressed revenue levels – do you think this is loss revenue or are we looking at a potential kind of backlog or build up in demand for you know you did the back part of this year or early next year? Lee Rudow: That's an interesting question. I think it's going to be a little bit of both. You know there are some – there's some loss revenue associated with just the softening of oil and gas for example that’s – you know you're just not going to see that come back, but there's probably equal to or even greater amount at some point of across the spectrum of distribution revenue that is – you know it will be driven by some pent up demand. I mean people who manufacture products, you know they need test equipment to be able to do that, and they're holding off and at some point we'll see some of that back. But I wouldn't want to you know set up expectations that it’s all going to come back. You know maybe it's right down the middle in terms of loss versus pent-up demand. Scott Buck: That’s great, very helpful. Second one, I'm curious on the services side, whether you're seeing a change in mix in how your customer base wants the services provided. For example, are you seeing you know less mobile work, because customers don't want new individuals coming into their facilities or you know are you seeing a pick-up in kind of mail-in calibration work, just curious what's going on there? Lee Rudow: Yeah, so it would be the latter. We are definitely seeing a pick-up in people sending products to our lab versus us going out to do the work. In fact, you know we've had a lot of cancellations from customers who don't want us to do the work on site. So in that case you're either going to have pent-up demand or we've been able to convert them to sending stuff to our labs. So it's really going to be – I think there's an element of pent-up demand there that we should see at a later point. Now when people do send stuff coming to our labs, that is also a more profitable profile for us, so we like that, and that is also a small, but contributing factor to the fact that our margins have improved, but we're not going out to do those on site. It would be our goal to anybody who has converted from an onsite you know to a depot where they send us the work. We want to offer them really spectacular service, so we can continue doing that in the future; it's our preferred way to do business. But we're very flexible in terms of what it takes to meet our customers’ needs, but there's a combination of pent-up demand there based upon some cancellations and people converting. Scott Buck: Great! That's very helpful. Last one for me; on M&A, curious if you guys are seeing a pickup in the number of acquisition candidates being presented to you given the broader environment and how you're thinking about that going forward? Lee Rudow: Right, I wouldn't characterize it at this point that we’ve seen an up-tick, but I would characterize this saying, we would expect at some point there would be an up-tick. You know we've been through cycles like this before and you know it takes a little bit longer than 90 days, but at some point this environment will have a negative effect on some companies and I think we'll provide somewhat of an increased level of activity around acquisitions. We’re fairly confident in that, but I wouldn't want to point to it as something that exists today, you know as we speak and set up expectations in you know the next quarter or so. But you know we're pretty confident that we’ll see a significant level increase at some point. Mike Tschiderer: Yeah, and I think it's kind of reinforced by the fact that we’ve not seen acquisitions being made by others who might be acquirers, so it’s not like we're losing out. We’re still kind of in that wait-and-see period, where we do think it'll be a good opportunity for us a little bit further out. Scott Buck: No, I appreciate all the help guys. Thanks. Lee Rudow: Thanks Scott. Operator: Our next question comes from the line of Mitra Ramgopal with Sidoti & Co. You may proceed with your question. Mitra Ramgopal: Yes, hi, good morning. Thanks for taking the questions. Just a couple; firstly I just wanted to get a sense in terms of, I know you had mentioned some of the impact from COVID would result in some of revenue not coming back, but just wondering on the customer side of things, how they are faring in terms of maybe some of them potentially are closing up shop, etc., if you’re seeing any of that. Lee Rudow: We – Mitra, we haven't seen much of that. So when I mentioned about revenue coming back versus not coming back, let's be careful to look at each segment differently. So when you talk about Service, that's a situation where in the case where it has been pent-up demand and in some cases there have been, we would expect that to come back at 100% or somewhere in that range. Our retention rates are very, very high. Remember, this is a regulated business space. This is what has to be done. If a line has slowed down or shut down, then you know you can delay that work, but at some point it's logical to anticipate that it would return, so no major concerns there. On Distributions, going to I think with Scott’s questions, you know that's a little bit different. You know people who aren't buying test equipment, going with their manufacturing, because their process is shut down, before they go out of business that's not going to return. In some cases where they are holding off, they are still laying expenses that they need to -- you know OpEx as they need to spend, that's different and we'll get that back. So it's really a blend, but I would think about the losses on a permanent basis, more on the Distribution side of the business, and pent-up demand, where there is pent up demand on the Service side; that's how we’d characterize the difference. Mitra Ramgopal: Okay. No, that's great. Then obviously on pipettes, that's coming along and I was just curious if it's still too early given the environment for you to be more aggressive on that front as it relates to maybe cross selling opportunities, etc. Lee Rudow: Yes. Well, we are being aggressive on that front and we really like that acquisition. You know right acquisition, right management team, right time. One of things that we like about it, just as a reminder, is that as powerful as their URL pipette.com is and as well as they ran that company, it was really just a localized New England based pipette company. Because of our national footprint and because of you know our exposure to life sciences business, probably more than any other acquisition we've made since I've been here, this just offers more upside, you know more national exposure, more of the – you know check at a very strong end marketing and outreach and you know our domain authority and all of our link equities and all the things that from a digital world are important, that's our strength. And so when we buy a company with that powerful URL, there's a lot of marketing upside under our ownership versus theirs and we'll call that a sales synergy, right. So all that is to come. I don't want to build it up too much, but we are excited about growing and promoting that company. I think it's going to be an asset you know for years to come. Mitra Ramgopal: Okay. No, that's great. And then, finally I think you touched on it earlier, but just wanted to be clear. I know you had mentioned obviously in some of the project delays you’re expecting it to be maybe a quarter, quarter and a half out in light of what we are seeing with the environment and expect it to get probably worse before it gets better. Has that timeframe changed for you in terms of your conversations with customers? Lee Rudow: It really hasn't. Generally speaking, still really hard to define, that's why Mike and I have used the words modest growth. We want there to be growth, we expect it, but you know we don’t want to set up expectations in the next 90 days, because we're just not sure. We're having a lot of great conversations with our customers. There is a lot of interest in Transcat services throughout our business development team, but at the same time you know we are hearing from customers: We really like you guys, but we're not making any major changes in the next 30 days, or you know we’re going to start sending you some work, but we'll give you an opportunity to start to get to know us, we’ll get to know each other, but we're probably not going to make a move in this quarter. You know we hear things like that, which is both good and bad news. You know good news and that they are very interested and we've done the heavy lifting and we’ve got a customer interested in our services. You know kind of bad news in that, you know we wish we turned it you know – sort of there will be more turnkey and it will start tomorrow. I'm not overly concerned with that. I think you know we’re taking a balanced approach and in the long run we’ll be just fine, but you know over the next quarter it's really hard to tell. You know I can't offer any more clarity than I have and what we have. Mitra Ramgopal: Okay. No, that's great. Thanks again for taking the questions. Lee Rudow: Thanks Mitra. Operator: [Operator Instructions] Our next question comes from the line of Chris Sakai with Singular Research. You may proceed with your question. Chris Sakai: Hi everyone! Just, I got a quick question on I guess the Distribution segment. Wanted to know, is there a metric or something? Is there some way we can tell on how the, that we could see as far as when or may be a bottom to the Distribution segment or when it may be growing again. Is there some way we can sort of – is there something we can see to sort of help us understand when that may come? Lee Rudow: Chris, I would probably in an effort to answer that question, I would guide you back to 2016. So in 2016 if you recall, that was the last time the oil and gas market was really deflated, the dollar was strong, exports were down. We don't export, but it has a derivative effect on the business and you know it's just – you know it’s a softness in our distribution business, and our goal coming out of that was to stabilize the business at that time. With the exception of starting a rental business, it's a pretty good indicator of how long and what type of recovery we had. So go back to ’16. Look at ’17 and ‘18 and I think you’ll get a pretty good indication of you know what a reasonable person would assume is going to happen and what the recovery will look like. We did recover, we even got better, both from a margin and revenue growth perspective and there’s no reason to believe that a similar pattern you know wouldn’t follow. I can't guarantee it, but that’s certainly what we would expect from the business over time. Mike Tschiderer: Yeah, it's a really hard one Chris, only because it is so dependent on the economic uncertainty. You know if you could predict that you know the COVID impact on the economy and unemployment and U.S. industrial output would stay the same next quarter as it did last quarter, well you'd probably expect around the same result in Distribution, which is kind of what we're assuming; we're not assuming many changes. Now the downside of that could be if something you know very drastic happens with the pandemic. It could be that it could go down even further. We're not anticipating that based on what we're seeing now, but it really is a barometer of that economic uncertainty and confidence level of customers to spend dollars right now on equipment. Lee Rudow: Yeah, and I’ll just follow-up by saying we're in a fortunate position. You know we spent the last decade pivoting to our Service business, not in anticipation of a pandemic like COVID-19, but anticipation that at some point you know we were going to be a Service oriented company, and that was our goal, and that was our strategy, and we've been laser focused on it, and hear a pandemic hits that does affect our Distribution business and affects everyone everywhere and yet we are able to be a very liquid, profitable company, still generate cash and still grow our business. So that's a testament to our strategy working and I think it would be nice when distribution recovers, but we're going to be successful whether that takes a quarter, two quarters, you know we would anticipate being able to execute our strategy well regardless and so we're in a good spot; we hope it continues. Chris Sakai: Okay, great. Well, thanks for that. Lee Rudow: Appreciate the question. Mike Tschiderer: Thanks Chris. Operator: Ladies and gentlemen, we have reached the end of the question-and-answer session. I would like to turn the call back over to management for closing remarks. Lee Rudow: Okay, I appreciate everybody joining us on the call today. Thank you. Your interest is always valued. Feel free to check in with us at any time. Mike and I are available to talk with each one of you if you have questions and if not, then we'll look forward to speaking with everybody at the end of second quarter when we send out our results. Again, thanks for participating. Appreciate it. Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great day!
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Transcat, Inc. (NASDAQ:TRNS) Earnings Report Analysis

  • Earnings per share (EPS) of $0.64 was reported, slightly below the estimated $0.66, marking a negative surprise of 3.03%.
  • Revenue for the quarter was $77.13 million, surpassing the estimated $76.40 million by 0.44%.
  • The company has a price-to-earnings (P/E) ratio of 44.23, indicating a premium valuation by investors.

Transcat, Inc. (NASDAQ:TRNS) operates within the Zacks Instruments - Control industry, providing calibration and laboratory instrument services across various industries. Headquartered in Rochester, New York, Transcat is committed to quality and precision, competing vigorously in the instrumentation and control sector to maintain its market position.

On May 19, 2025, Transcat reported an EPS of $0.64, slightly below the estimated $0.66, resulting in a negative surprise of 3.03%, as highlighted by Zacks. This EPS also represents a decline from the $0.77 reported in the same quarter the previous year. In the preceding quarter, the company faced a larger negative surprise of 15.09%, with an EPS of $0.45 against an expected $0.53.

Despite the earnings miss, Transcat's revenue for the quarter ending March 2025 was $77.13 million, exceeding the estimated $76.40 million by 0.44%. This improvement from the $70.91 million reported a year ago indicates some progress, although the company has only surpassed consensus revenue estimates once in the last four quarters, pointing to challenges in meeting market expectations.

Transcat's financial metrics reveal more about its performance. The company's P/E ratio is 44.23, suggesting a premium valuation by investors. Other ratios, such as the price-to-sales ratio of 2.78 and the enterprise value to sales ratio of 3.00, reflect the company's valuation in relation to its sales. The enterprise value to operating cash flow ratio of 23.97 indicates the company's cash flow generation relative to its valuation.

The financial health of Transcat is supported by a low debt-to-equity ratio of 0.23, showing conservative debt usage. A current ratio of 2.42 suggests strong liquidity, enabling the company to effectively cover its short-term liabilities. Additionally, an earnings yield of 2.26% provides insight into the return on investment for shareholders.

Transcat, Inc. Surpasses Q4 Expectations with Strong Financial Performance

  • Transcat, Inc. reported significant year-over-year growth with an EPS of $0.77, surpassing the estimated EPS of $0.52.
  • The company also exceeded revenue expectations, reporting $70.91 million for the quarter, a 14.3% increase year-over-year.
  • Strategic acquisitions and an extra week in the fiscal year 2024 contributed to Transcat's impressive performance, alongside strong valuation metrics such as a P/E ratio of approximately 80.33 and a P/S ratio of about 4.22.

Transcat, Inc. (NASDAQ:TRNS), a leading provider in the instrument control industry, has recently reported its financial results for the fourth quarter ending March 2024. The company specializes in accredited calibration services, cost control, optimization services, and the distribution and rental of professional-grade handheld test, measurement, and control instrumentation. Transcat's performance in this quarter has been particularly noteworthy, with the company not only surpassing Wall Street expectations in terms of earnings per share (EPS) and revenue but also demonstrating significant year-over-year growth.

On Monday, May 20, 2024, TRNS reported an EPS of $0.77, which exceeded the estimated EPS of $0.52. This performance marks a substantial improvement from the previous year's EPS of $0.48, showcasing an earnings surprise of 48.08%. Such a remarkable increase in EPS year-over-year indicates that Transcat is on a solid path of growth and profitability. The company's ability to consistently outperform consensus EPS estimates, as it has done for the fourth consecutive quarter, reflects its strong financial health and operational efficiency.

In addition to its impressive EPS figures, Transcat also reported revenue of $70.91 million for the quarter, surpassing the estimated revenue of $68.59 million. This represents a significant year-over-year revenue increase of 14.3%, with the figures reaching $70.91 million. The revenue performance exceeded the Zacks consensus estimate by 3.14%, further highlighting Transcat's ability to exceed market expectations. This consistent ability to surpass consensus revenue estimates over the last four quarters underscores the company's robust growth trajectory and its competitive edge in the Instruments & Control industry.

The financial results for the fourth quarter also reflect the positive impacts of the acquisitions of TIC-MS, Inc., SteriQual, Inc., and Axiom Test Equipment, Inc. These strategic acquisitions, finalized throughout the fiscal year 2024, have contributed to the company's performance, indicating effective integration and leveraging of new assets to fuel growth. Additionally, the fiscal year 2024 included an extra week, making it a 53-week year, which may have also played a role in the reported growth and margin expansion.

Transcat's valuation metrics, including a P/E ratio of approximately 80.33 and a P/S ratio of about 4.22, suggest it is valued higher than the market average. However, the company’s robust financial performance and minimal debt, with a low debt-to-equity ratio of 0.018 and a solid current ratio of around 3.14, underscore its financial stability and growth potential. These strengths, along with its consistent ability to exceed expectations and strategic acquisitions, position Transcat well for future success in its industry.