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Transcat Reports Consolidated Operating Income Growth of 40% and Service Segment Revenue Growth of 18% for Fiscal 2020 Second Quarter

ROCHESTER, N.Y.--(BUSINESS WIRE)--

  • Service segment revenue increased 18.1% with strong Service organic growth of 15.1%
  • Productivity initiatives developing early traction as Service segment gross margin expanded 140 basis points; consolidated gross profit margin increased 150 basis points
  • Consolidated operating income grew more than 40% on total revenue growth of 7.4%
  • Achieved net income of $2.4 million and diluted earnings per share of $0.32, up $0.12

Transcat, Inc. (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 second quarter ended September 28, 2019 (the “second quarter”) of fiscal year 2020, which ends March 28, 2020 (“fiscal 2020”). Results include the previously reported acquisitions of Angel’s Instrumentation, Inc., effective August 31, 2018 and Gauge Repair Service, effective April 1, 2019.

Lee D. Rudow, President and CEO, commented, “Our initiatives to diversify and differentiate our value proposition are clearly resonating in the market. We achieved strong Service segment revenue growth, particularly on the organic side, and had meaningful margin expansion in both operating segments driving our strong bottom line results.

“We continue to expand our market position, and while still early in the process, we are making strides every day in improving our margin profile. Specifically, the early results of our ongoing technology and productivity initiatives are taking hold as demonstrated in this quarter’s Service segment performance.”

Second Quarter Fiscal 2020 Review (Results are compared with the second quarter of the fiscal year ended March 30, 2019 (“fiscal 2019”))

($ in thousands)

 

 

 

 

Change

FY20 Q2

 

FY19 Q2

 

$'s

 

%

Service Revenue

$

23,502

 

 

$

19,902

 

 

$

3,600

 

 

18.1

%

Distribution Sales

$

18,261

 

 

$

18,977

 

 

$

(716

)

 

(3.8

%)

Revenue

$

41,763

 

 

$

38,879

 

 

$

2,884

 

 

7.4

%

Gross Profit

$

10,445

 

 

$

9,139

 

 

$

1,306

 

 

14.3

%

Gross Margin

 

25.0

%

 

 

23.5

%

 

 

 

 

 

 

 

 

 

 

 

 

Operating Income

$

3,059

 

 

$

2,176

 

 

$

883

 

 

40.6

%

Operating Margin

 

7.3

%

 

 

5.6

%

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

$

2,379

 

 

$

1,488

 

 

$

891

 

 

59.9

%

Net Margin

 

5.7

%

 

 

3.8

%

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA*

$

4,788

 

 

$

4,015

 

 

$

773

 

 

19.3

%

Adjusted EBITDA* Margin

 

11.5

%

 

 

10.3

%

 

 

 

 

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

Transcat achieved record second quarter consolidated revenue of $41.8 million, up 7.4% or 5.5% when excluding acquired revenue. Gross margin expanded 150 basis points. Total operating expenses were up $0.4 million to $7.4 million; however, as a percent of revenue, operating expenses decreased 20 basis points to 17.7%. As a result, operating income increased more than 40% and operating margin expanded 170 basis points to 7.3%. Net income grew nearly 60% and diluted earnings per share increased $0.12 to $0.32. The growth in net income continues to be aided by the increased discrete income tax benefits related to share-based awards that were greater than expected, due to second quarter stock option exercises by certain Company officers.

Service segment delivers strong organic growth while focusing on productivity enhancements

Represents the accredited calibration, repair, inspection and laboratory instrument services business (56% of total revenue for the second quarter of fiscal 2020).

($ in thousands)

 

 

 

 

Change

FY20 Q2

 

FY19 Q2

 

$'s

 

%

Service Segment Revenue

$

23,502

 

 

$

19,902

 

 

$

3,600

 

18.1

%

Gross Profit

$

6,012

 

 

$

4,807

 

 

$

1,205

 

25.1

%

Gross Margin

 

25.6

%

 

 

24.2

%

 

 

 

 

 

 

 

 

 

 

 

Operating Income

$

1,837

 

 

$

1,125

 

 

$

712

 

63.3

%

Operating Margin

 

7.8

%

 

 

5.7

%

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA*

$

3,101

 

 

$

2,414

 

 

$

687

 

28.4

%

Adjusted EBITDA* Margin

 

13.2

%

 

 

12.1

%

 

 

 

 

*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 revenue was $23.5 million, an increase of 18.1%, which reflects double-digit growth in both the U.S. and Canada. Organic Service revenue growth was a strong 15.1% in the second quarter, in part reflecting new business from the highly regulated life sciences market and also from growth in other regulated sectors. On a trailing twelve-month basis, Service revenue was $90.7 million, up 13.5% when compared with the trailing twelve-month period ending with the prior-fiscal year second quarter.

Service Segment gross margin improved 140 basis points due to the early progress on the Company’s various productivity initiatives, improved efficiency of recently hired technicians, and client-based lab contracts initiated in prior quarters achieving expected profitability after start-up costs trail off. Segment operating income grew more than 63% and operating margin improved 210 basis points.

Distribution segment generated strong gross and operating margin performance

Represents the sale and rental of new and used professional grade handheld test, measurement and control instrumentation (44% of total revenue for the second quarter of fiscal 2020).

($ in thousands)

 

 

 

 

Change

FY20 Q2

 

FY19 Q2

 

$'s

 

%

Distribution Segment Sales

$

18,261

 

 

$

18,977

 

 

$

(716

)

 

(3.8

%)

Gross Profit

$

4,433

 

 

$

4,332

 

 

$

101

 

 

2.3

%

Gross Margin

 

24.3

%

 

 

22.8

%

 

 

 

 

 

 

 

 

 

 

Operating Income

$

1,222

 

 

$

1,051

 

 

$

171

 

 

16.3

%

Operating Margin

 

6.7

%

 

 

5.5

%

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA*

$

1,687

 

 

$

1,601

 

 

$

86

 

 

5.4

%

Adjusted EBITDA* Margin

 

9.2

%

 

 

8.4

%

 

 

 

 

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

Distribution segment gross profit increased 2.3% and gross margin expanded 150 basis points despite lower sales, due to the mix of products sold, including solid growth in rentals. The Company’s equipment rental business continued to expand with sales up 32% to $1.3 million in the quarter.

Six Month Review (Results are compared with the first six months of fiscal 2019)

Total revenue was $84.2 million, an increase of 11.4%, or $8.6 million, primarily due to the factors described above in the second quarter fiscal 2020 review. Consolidated gross profit was up $2.2 million, or 12.3%, to $20.5 million, and gross margin expanded 20 basis points to 24.4%. Consolidated operating expenses increased $1.4 million or 10.2% as the Company continued to invest in its operating infrastructure. However, as a percentage of total revenue, consolidated operating expenses were 18.4%, down 20 basis points. As a result, operating income increased $0.8 million or 19.4%, and operating margin expanded 40 basis points to 6.0%.

Net income was $4.1 million, or $0.55 per diluted share, compared with $2.9 million, or $0.39 per diluted share. Adjusted EBITDA was $8.7 million, or 10.4% of revenue, compared with $7.9 million, or 10.4% of revenue. 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 and Cash Flow Overview

Transcat acquired Infinite Integral Solutions Inc. (“IIS”), a Canadian software company with an application to facilitate the automation of various calibration disciplines, effective July 19, 2019. Total consideration for the shares of IIS was C$1.4 million, subject in part to the achievement of certain milestones, and was funded with debt. In the second quarter, C$0.6M of the purchase price was paid. Also in the second quarter, $0.5 million of cash was used to fund the release of certain purchase agreement holdbacks from the August 2018 Angel’s Instrumentation, Inc. acquisition. At September 28, 2019, the Company had total debt of $24.7 million, with $18.9 million available under its secured revolving credit facility. The Company’s leverage ratio, as defined in its credit agreement, was 1.32 at September 28, 2019, compared with 1.12 at fiscal 2019 year-end.

Capital expenditures were $4.0 million for the first six months of fiscal 2020, with investments focused on customer-driven expansion of Service segment capabilities and the Company’s rental business.

Outlook

Mr. Rudow concluded, “We believe we are well on pace to achieve record results in fiscal 2020. We have a high level of confidence and expect to continue to take market share in calibration services, especially in the life science and other regulated sectors where our commitment to quality reduces our customers’ risk. We also believe we are well positioned to achieve strong organic Service growth for the remainder of this fiscal year.

“We plan to continue to build the business for the long term and believe our investments in people, operational excellence and technology will position Transcat to further capitalize on organic and acquired opportunities.”

Transcat adjusted its expected income tax rate for full year fiscal 2020 down to 18% to 19% from the previously provided range of 21% to 22%, largely due to the increased discrete income tax benefit received for certain share-based awards in the second quarter.

The Company’s capital expenditure plan for fiscal 2020 remains in the $7.8 million to $8.2 million range. Capital investments are expected to be primarily focused on technology infrastructure to drive operational excellence, fund organic growth opportunities within both operating segments, and for rental pool assets.

Webcast and Conference Call

Transcat will host a conference call and webcast on Wednesday, October 23, 2019 at 11:00 a.m. ET. Management will review the financial and operating results for the second 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, October 30, 2019. To listen to the archived call, dial (412) 317-6671 and enter conference ID number 13694759, 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-based compensation 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 on page 9.

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, including life science, aerospace and defense, pharmaceutical, medical device manufacturing and biotechnology. Transcat provides permanent and periodic on-site services, mobile calibration services and in-house services through 21 Calibration Service Centers strategically located across the United States, Puerto Rico and Canada. 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 growth 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 its 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,” 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 commercialization of software products, 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 are 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.

FINANCIAL TABLES FOLLOW.

TRANSCAT, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, Except Per Share Amounts)

 

(Unaudited)

(Unaudited)

Second Quarter Ended

Six Months Ended

September 28,

September 29,

September 28,

September 29,

2019

2018

2019

2018

Service Revenue

$

23,502

$

19,902

$

45,900

$

39,227

Distribution Sales

 

18,261

 

18,977

 

38,258

 

36,310

Total Revenue

 

41,763

 

38,879

 

84,158

 

75,537

 

Cost of Service Revenue

 

17,490

 

15,095

 

34,516

 

29,501

Cost of Distribution Sales

 

13,828

 

14,645

 

29,145

 

27,784

Total Cost of Revenue

 

31,318

 

29,740

 

63,661

 

57,285

 

Gross Profit

 

10,445

 

9,139

 

20,497

 

18,252

 

Selling, Marketing and Warehouse Expenses

 

4,231

 

4,020

 

8,703

 

8,052

Administrative Expenses

 

3,155

 

2,943

 

6,777

 

5,999

Total Operating Expenses

 

7,386

 

6,963

 

15,480

 

14,051

 

Operating Income

 

3,059

 

2,176

 

5,017

 

4,201

 

Interest and Other Expense, net

 

297

 

195

 

582

 

420

 

Income Before Income Taxes

 

2,762

 

1,981

 

4,435

 

3,781

Provision for Income Taxes

 

383

 

493

 

338

 

865

 

Net Income

$

2,379

$

1,488

$

4,097

$

2,916

 

Basic Earnings Per Share

$

0.32

$

0.21

$

0.56

$

0.41

Average Shares Outstanding

 

7,331

 

7,200

 

7,293

 

7,187

 

Diluted Earnings Per Share

$

0.32

$

0.20

$

0.55

$

0.39

Average Shares Outstanding

 

7,484

 

7,520

 

7,441

 

7,486

TRANSCAT, INC.

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share and Per Share Amounts)

 

(Unaudited)

September 28,

March 30,

2019

2019

ASSETS

Current Assets:

Cash

$

920

 

$

788

 

Accounts Receivable, less allowance for doubtful accounts of $392

and $338 as of September 28, 2019 and March 30, 2019, respectively

 

26,699

 

 

27,469

 

Other Receivables

 

988

 

 

1,116

 

Inventory, net

 

15,325

 

 

14,304

 

Prepaid Expenses and Other Current Assets

 

2,409

 

 

1,329

 

Total Current Assets

 

46,341

 

 

45,006

 

Property and Equipment, net

 

21,189

 

 

19,653

 

Goodwill

 

34,889

 

 

34,545

 

Intangible Assets, net

 

4,341

 

 

5,233

 

Right To Use Asset, net

 

7,424

 

 

-

 

Other Assets

 

821

 

 

793

 

Total Assets

$

115,005

 

$

105,230

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:

Accounts Payable

$

11,139

 

$

14,572

 

Accrued Compensation and Other Liabilities

 

6,289

 

 

5,450

 

Income Taxes Payable

 

-

 

 

228

 

Current Portion of Long-Term Debt

 

1,940

 

 

1,899

 

Total Current Liabilities

 

19,368

 

 

22,149

 

Long-Term Debt

 

22,722

 

 

19,103

 

Deferred Tax Liability

 

2,460

 

 

2,450

 

Lease Liability

 

5,920

 

 

-

 

Other Liabilities

 

1,879

 

 

1,898

 

Total Liabilities

 

52,349

 

 

45,600

 

 

Shareholders' Equity:

Common Stock, par value $0.50 per share, 30,000,000 shares authorized;

7,357,973 and 7,210,882 shares issued and outstanding

as of September 28, 2019 and March 30, 2019, respectively

 

3,679

 

 

3,605

 

Capital in Excess of Par Value

 

17,007

 

 

16,467

 

Accumulated Other Comprehensive Loss

 

(537

)

 

(611

)

Retained Earnings

 

42,507

 

 

40,169

 

Total Shareholders' Equity

 

62,656

 

 

59,630

 

Total Liabilities and Shareholders' Equity

$

115,005

 

$

105,230

 

TRANSCAT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

 

(Unaudited)

For the Six Months Ended

 

September 28,

September 29,

2019

 

2018

Cash Flows from Operating Activities:

Net Income

$

4,097

 

$

2,916

 

Adjustments to Reconcile Net Income to Net Cash Provided

 

by Operating Activities:

Loss on Sale of Property and Equipment

 

240

 

 

6

 

Deferred Income Taxes

 

10

 

 

(1

)

Depreciation and Amortization

 

3,303

 

 

3,067

 

Provision for Accounts Receivable and Inventory Reserves

 

201

 

 

74

 

Stock-Based Compensation Expense

 

305

 

 

606

 

Changes in Assets and Liabilities:

Accounts Receivable and Other Receivables

 

778

 

 

856

 

Inventory

 

(807

)

 

(1,172

)

Prepaid Expenses and Other Assets

 

(1,149

)

 

101

 

Accounts Payable

 

(3,433

)

 

(706

)

Accrued Compensation and Other Liabilities

 

(475

)

 

(1,271

)

Income Taxes Payable

 

(236

)

 

389

 

Net Cash Provided by Operating Activities

 

2,834

 

 

4,865

 

 

Cash Flows from Investing Activities:

Purchase of Property and Equipment

 

(4,048

)

 

(3,703

)

Proceeds from Sale of Property and Equipment

 

184

 

 

-

 

Business Acquisitions, net of cash acquired

 

(452

)

 

(3,614

)

 

Payment of Contingent Consideration & Holdbacks Related to Business Acquisition

 

(484

)

 

 

-

 

Net Cash Used in Investing Activities

 

(4,800

)

 

 

(7,317

)

 

Cash Flows from Financing Activities:

Proceeds from Revolving Credit Facility, net

 

4,598

 

 

3,517

 

Repayments of Term Loan

 

(938

)

 

(1,071

)

Issuance of Common Stock

 

1,372

 

 

132

 

Repurchase of Common Stock

 

(2,822

)

 

(143

)

Net Cash Provided by Financing Activities

 

2,210

 

 

 

2,435

 

 

Effect of Exchange Rate Changes on Cash

 

(112

)

 

 

11

 

 

Net Increase/(Decrease) in Cash

 

132

 

 

(6

)

Cash at Beginning of Period

 

788

 

 

 

577

 

Cash at End of Period

$

920

 

 

$

571

 

null

TRANSCAT, INC.

Adjusted EBITDA Reconciliation Table

(Dollars in thousands)

(Unaudited)

         

Fiscal 2020

         

Q1

 

Q2

 

Q3

 

Q4

 

YTD

Net Income

$

1,718

 

 

$

2,379

 

     

$

4,097

 

+ Interest Expense

 

244

 

 

 

243

 

     

 

487

 

+ Other Expense / (Income)

 

41

 

 

 

54

 

     

 

95

 

+ Tax Provision

 

(45

)

 

 

383

 

 

 

 

 

 

 

338

 

Operating Income

$

1,958

 

 

$

3,059