美國
證券交易委員會
華盛頓特區20549
_______________
表格
(做一個標記)
截至季度結束時：
或
到 至
委員會檔案編號：
TRANSCAt, INC.
（依憑章程所載的完整登記名稱）
| | |
| (成立地或組織其他管轄區) | （聯邦稅號） |
(主要行政辦公室的地址)（郵政編碼）
(
(註冊公司之電話號碼，包括區號)
根據法案第12(b)條規定註冊的證券：
| 每種類別的名稱 | 交易標的（s） | 每個註冊交易所的名稱 |
| | | |
請用核取符號表示：（1）在過去12個月內已按照1934年證券交易法第13條或第15(d)條的規定提交了所有必須提交的報告（或者在註冊人必須提交此類報告時的更短期間内），並且（2）在過去90天內已受到此類提交要求的規定。☑
請用核取符號表示：在過去12個月內，註冊人是否根據條例S-t第405條要求通過電子方式提交了每一份互動數據文件（或者在註冊人需要提交此類文件的更短期間內）。☑
標示勾選，以指示註冊人是否為大型加速檔案提交者、加速檔案提交者、非加速檔案提交者、較小的報告公司或新興成長公司。請參見交易所法案第120億2條中對"大型加速檔案提交者"、"加速檔案提交者"、"較小的報告公司"和"新興成長公司"的定義。
| | 加速遞交人 ☐ |
| 非加速檔案申報者 ☐ | 較小的報告公司 |
| 新興成長型公司 |
如果是新興成長型企業，在符合任何依據證券交易法第13(a)條所提供的任何新的或修改的財務會計準則的遵循的延伸過渡期方面，是否選擇不使用核准記號進行指示。☐
請勾選表示，是否申報人屬於外殼公司（根據交易所法案第120億2條定義）。
截至2024年10月31日，登記公司普通股股份的數量為每股面值0.50美元。
第1項.基本報表
環凱特股份有限公司
綜合損益表
(以千元表示，每股金額除外)
| (未經查核) | (未經查核) | |||||||||||||||
| 截至第二季度 | 六個月結束 | |||||||||||||||
| 九月二十八日, | 九月二十三日， | 九月二十八日, | 九月二十三日， | |||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| 服務業務營收 | $ | $ | $ | $ | ||||||||||||
| 分銷收入 | ||||||||||||||||
| 總營業收入 | ||||||||||||||||
| 服務收入成本 | ||||||||||||||||
| 配銷收入成本 | ||||||||||||||||
| 營業成本總額 | ||||||||||||||||
| 毛利潤 | ||||||||||||||||
| 銷售、行銷和倉儲費用 | ||||||||||||||||
| 一般和管理費用 | ||||||||||||||||
| 營業費用總計 | ||||||||||||||||
| 營業收入 | ||||||||||||||||
| 利息費用 | ||||||||||||||||
| 利息收入 | ( | ) | ( | ) | ||||||||||||
| 其他費用（收入） | ( | ) | ||||||||||||||
| 利息及其他費用（收入），淨 | ( | ) | ||||||||||||||
| 所得稅前收入 | ||||||||||||||||
| 所得稅費用提存 | ||||||||||||||||
| 凈利潤 | $ | $ | $ | $ | ||||||||||||
| 每股基本盈利 | $ | $ | $ | $ | ||||||||||||
| 普通股份的平均流通數量 | ||||||||||||||||
| 稀釋每股收益 | $ | $ | $ | $ | ||||||||||||
| 普通股份的平均流通數量 | ||||||||||||||||
有關合並財務報表的附註請參閱。
綜合收益綜合表
(以千爲單位)
| (未經審計) | (未經審計) | |||||||||||||||
| 第二季度結束 | 截至六個月結束 | |||||||||||||||
| 九月二十八日， | 9月23日， | 九月二十八日， | 9月23日， | |||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| 淨收入 | $ | $ | $ | $ | ||||||||||||
| 其他綜合（虧損）/收入： | ||||||||||||||||
| 貨幣翻譯調整 | ( | ) | ||||||||||||||
| 其他，淨額爲$ and $ 截至2024年9月28日及2023年9月23日的第二季度；和$ and $ 截至2024年9月28日及2023年9月23日的六個月； | ||||||||||||||||
| 其他綜合收益 / (損失) | ( | ) | ||||||||||||||
| 綜合收益 | $ | $ | $ | $ | ||||||||||||
有關合並財務報表的附註請參閱。
合併資產負債表
（以千爲單位，股份和每股金額除外）
| (未經審計) | (已經審計) | |||||||
| 九月二十八日， | 3月30日 | |||||||
| 2024 | 2024 | |||||||
| 資產 | ||||||||
| 流動資產： | ||||||||
| 現金及現金等價物 | $ | $ | ||||||
| 流動證券 | ||||||||
| 應收賬款，減少$的信用損失準備金 and $ 截至2024年9月28日和2024年3月30日 | ||||||||
| 其他應收款 | ||||||||
| 存貨淨額 | ||||||||
| 預付款項及其他流動資產 | ||||||||
| 流動資產合計 | ||||||||
| 物業和設備，淨值 | ||||||||
| 商譽 | ||||||||
| 無形資產，淨額 | ||||||||
| 使用權資產，淨額 | ||||||||
| 其他資產 | ||||||||
| 總資產 | $ | $ | ||||||
| 負債和股東權益 | ||||||||
| 流動負債: | ||||||||
| 應付賬款 | $ | $ | ||||||
| 應計薪酬和其他流動負債 | ||||||||
| 短期借款 | ||||||||
| 總流動負債 | ||||||||
| 長期債務 | ||||||||
| 遞延稅項負債，淨額 | ||||||||
| 租賃負債 | ||||||||
| 其他負債 | ||||||||
| 總負債 | ||||||||
| 股東權益: | ||||||||
| 普通股，每股面值 $ 每股 授權股份數; 和 股份於2024年9月28日和2024年3月30日分別已發行並流通 | ||||||||
| 超額股本 | ||||||||
| 累計其他全面收益虧損 | ( | ) | ( | ) | ||||
| 留存收益 | ||||||||
| 股東權益合計 | ||||||||
| 負債和股東權益合計 | $ | $ | ||||||
有關合並財務報表的附註請參閱。
合併現金流量表
(以千爲單位)
| (未經審計) |
||||||||
| 截至六個月結束 |
||||||||
| 九月二十八日， |
9月23日， |
|||||||
| 2024 |
2023 |
|||||||
| 經營活動產生的現金流量： |
||||||||
| 淨收入 |
$ | $ | ||||||
| 調整項（用於調節淨利潤至經營活動產生的現金淨額）： |
||||||||
| 處置物業和設備的淨損失 |
||||||||
| 遞延所得稅 |
||||||||
| 折舊和攤銷 |
||||||||
| 應收賬款和存貨準備 |
||||||||
| 股票補償費用 |
||||||||
| 資產和負債的變動，淨收購額外扣除 |
||||||||
| 應收賬款和其他應收款 |
||||||||
| 存貨 |
||||||||
| 預付款項及其他流動資產 |
( |
) | ||||||
| 應付賬款 |
( |
) | ||||||
| 應計薪酬和其他流動負債 |
( |
) | ||||||
| 經營活動產生的淨現金流量 |
||||||||
| 投資活動現金流量: |
||||||||
| 購買固定資產和設備 |
( |
) | ( |
) | ||||
| 業務收購，扣除取得現金淨額 |
( |
) | ( |
) | ||||
| 可流通證券銷售 |
||||||||
| 投資活動中使用的淨現金流量 |
( |
) | ( |
) | ||||
| 籌資活動產生的現金流量： |
||||||||
| 償還循環信貸設施，淨額 |
||||||||
| 定期貸款償還 |
( |
) | ( |
) | ||||
| 發行普通股，扣除直接成本淨額 |
||||||||
| 回購普通股 |
( |
) | ( |
) | ||||
| 融資活動提供的淨現金額/(使用的) |
( |
) | ||||||
| 匯率變動對現金及現金等價物的影響 |
( |
) | ( |
) | ||||
| 現金及現金等價物的淨增加/(減少) |
( |
) | ||||||
| 期初現金及現金等價物餘額 |
||||||||
| 期末現金及現金等價物餘額 |
$ | $ | ||||||
| 現金流動活動的補充披露： |
||||||||
| 賬期內現金收入/支出情況： |
||||||||
| 利息 |
$ | ( |
) | $ | ||||
| 淨所得稅 |
$ | $ | ||||||
| 補充非現金投融資活動披露： |
||||||||
| 爲收購而發行的普通股 |
$ | $ | ||||||
| 業務組合中獲取的資產和承擔的負債： |
||||||||
| 與收購相關的應計留存款和待定對價 |
$ | $ | ||||||
| 作爲與收購相關的權益處理的待定對價 |
$ | $ | ||||||
| 資產負債表中的屬性和設備淨值重新分類爲存貨 |
$ | $ | ||||||
有關合並財務報表的附註請參閱。
股東權益變動表’ 資本
（以千爲單位，除每份面值金額外）
(未經審計)
| 資本 |
||||||||||||||||||||||||
| 普通股 |
In |
累計 |
||||||||||||||||||||||
| 已發行 |
超過 |
其他 |
||||||||||||||||||||||
| 面值爲0.50美元 |
面值以上 |
綜合 |
保留 |
|||||||||||||||||||||
| 股份 |
金額 |
價值 |
（損失） |
收益 |
總計 |
|||||||||||||||||||
| 2023年3月25日餘額 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| 普通股發行 |
||||||||||||||||||||||||
| 回購普通股 |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||
| 按股票補償計算的費用 |
- | |||||||||||||||||||||||
| 其他綜合收益 |
- | |||||||||||||||||||||||
| 淨收入 |
- | |||||||||||||||||||||||
| 2023年6月24日餘額 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| 普通股發行 |
||||||||||||||||||||||||
| 回購普通股 |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||
| 按股票補償計算的費用 |
- | |||||||||||||||||||||||
| 其他全面損失 |
- | ( |
) | ( |
) | |||||||||||||||||||
| 淨收入 |
- | |||||||||||||||||||||||
| 2023年9月23日的餘額 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| 資本 |
||||||||||||||||||||||||
| 普通股 |
In |
累計 |
||||||||||||||||||||||
| 已發行 |
超過 |
其他 |
||||||||||||||||||||||
| 面值$0.50 |
面值以上 |
綜合 |
保留 |
|||||||||||||||||||||
| 股份 |
金額 |
價值 |
（損失） |
收益 |
總計 |
|||||||||||||||||||
| 截至2024年3月30日的餘額 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| 普通股發行 |
||||||||||||||||||||||||
| 按股本分類的可能償付款 |
- | |||||||||||||||||||||||
| 回購普通股 |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||
| 按股票補償計算的費用 |
- | |||||||||||||||||||||||
| 其他全面損失 |
- | ( |
) | ( |
) | |||||||||||||||||||
| 淨收入 |
- | |||||||||||||||||||||||
| 截至2024年6月29日的餘額 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| 普通股發行 |
||||||||||||||||||||||||
| 回購普通股 |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||
| 按股票補償計算的費用 |
- | |||||||||||||||||||||||
| 其他綜合收益 |
- | |||||||||||||||||||||||
| 淨收入 |
- | |||||||||||||||||||||||
| 截至2024年9月28日的餘額 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
See accompanying notes to consolidated financial statements.
基本報表附註
(未經審計)
注意 1 – 概況
業務描述: Transcat公司（「Transcat」，「我們」，「我們」，「我們的」或「公司」）是一家領先的認證校準服務提供商，提供成本控制和優化服務，以及增值專業級手持測試、測量和控制儀器的分銷和租賃。該公司專注於爲高度監管的行業提供服務和產品，特別是生命科學行業，包括藥品、生物技術、器械和其他FDA監管的業務。其他服務行業包括工業製造；能源和公用事業，包括石油和燃料幣；化學制造；FAA監管的業務，包括航空航天與國防，以及其他在其過程中需要準確性、確認其設備能力並且失敗風險非常高的行業。
演示方式的基礎： transcat的未經審計的基本報表是根據美國公認的會計原則（「GAAP」）和美國證券交易委員會（「SEC」）指示的表格。 10Q和規則 10-01 -X includetranscat的基本報表包括所有在GAAP要求的信息和附註以供編制完整的財務報表。 在測試商譽減值時，公司可以選擇 在公司管理層的意見中，所有必要的調整（包括正常的週轉調整）均已包括在內。中期報表的結果是 在測試商譽減值時，公司可以選擇 並不必然代表財政年度的結果。伴隨的合併基本報表應當結合審計過的截至財政年度結束的合併基本報表一起閱讀 2024年3月30日 （財政年度 2024）包含於公司向SEC提交的年度報告的Form 10-k 財政年度 2024提交給SEC的文件
估算值的使用： 根據美國普遍接受的會計原則（「GAAP」）編制Transcat的合併財務報表要求公司做出影響報告的資產和負債金額、財務報表發佈之日的或有資產負債的披露以及報告期內報告的收入和支出金額的估算和假設。使用了重要的估計值和假設，但是 不 限於信貸損失和回報備金、庫存儲備、基於業績的限制性股票單位的估計績效水平、股票期權的公允價值、固定資產的折舊壽命、無形資產的估計壽命、商譽報告單位的公允價值以及企業收購中獲得的資產估值、承擔的負債和轉移的對價。無法肯定地預測未來事件及其影響；因此，會計估算需要作出判斷。編制合併財務報表時使用的會計估計 可能 隨着新事件的發生、獲得更多經驗、獲得更多信息以及操作環境的變化而變化。實際結果可能與這些估計有所不同。估算方法的此類變化和完善反映在變更期間報告的經營業績中，如果重大，其影響將在合併財務報表附註中披露。
Cash and Cash Equivalents: Cash equivalents consist of highly liquid investments with an original maturity when purchased of three months or less and are stated at cost, which approximates fair value.
Marketable Securities: Marketable securities consist of highly liquid investments with an original maturity when purchased of more than three months and are stated at fair value on the Consolidated Balance Sheets. These securities are considered trading securities. Earnings on the marketable securities are included in interest income in the Consolidated Statements of Income.
Revenue Recognition: Distribution non-rental revenue is recorded when an order’s title and risk of loss transfers to the customer, which is generally upon shipment. Distribution rental revenue is recognized over time using the time-elapsed output method as this portrays the transfer of control to the customer. The Company recognizes the majority of its Service revenue based upon when the calibration or other activity is performed and then shipped and/or delivered to the customer. The majority of the Company’s revenue generating activities have a single performance obligation and are recognized at the point in time when control transfers and/or our obligation has been fulfilled. Some Service revenue is generated from managing customers’ calibration programs in which the Company recognizes revenue over time using the time-elapsed output method as this portrays the transfer of control to the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for product shipped or services performed. Sales taxes and other taxes billed and collected from customers are excluded from revenue. The Company generally invoices its customers for freight, shipping, and handling charges. Freight billed to customers is included in revenue. Shipping and handling is not included in revenue. Provisions for customer returns are provided for in the period the related revenue is recorded based upon historical data.
Under Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers, we use judgments that could potentially impact both the timing of our satisfaction of performance obligations. Such judgments include considerations in determining our transaction prices and when our performance obligations are satisfied for our standard product sales that include general payment terms that are between net 30 and 90 days.
Revenue recognized from prior period performance obligations for the second quarter of the fiscal year ending March 29, 2025 (“fiscal year 2025”) was immaterial. As of September 28, 2024, the Company had no unsatisfied performance obligations for contracts with an original expected duration of greater than one year. Pursuant to ASC Topic 606, the Company applied the practical expedient with respect to disclosure of the deferral and future expected timing of revenue recognition for transaction price allocated to remaining performance obligations. Deferred revenue, unbilled revenue and deferred contract costs recorded on our Consolidated Balance Sheets as of September 28, 2024 and March 30, 2024 were immaterial. See Note 4 for disaggregated revenue information.
| % of Total Net Sales | ||||||||||||||||
| Second Quarter Ended | Six Months Ended | |||||||||||||||
| September 28, | September 23, | September 28, | September 23, | |||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Point-in-Time | % | % | % | % | ||||||||||||
| Over Time - Output Method | % | % | % | % | ||||||||||||
| Total | % | % | % | % | ||||||||||||
Fair Value of Financial Instruments: Transcat has determined the fair value of debt and other financial instruments using a valuation hierarchy. The hierarchy, which prioritizes the inputs used in measuring fair value, consists of three levels. Level 1 uses observable inputs such as quoted prices in active markets; Level 2 uses inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, which is defined as unobservable inputs in which little or no market data exists, requires the Company to develop its own assumptions. The carrying amount of debt on the Consolidated Balance Sheets approximates fair value due to variable interest rate pricing on a portion of the debt with the balance bearing an interest rate approximating current market rates, and the carrying amounts for cash and cash equivalents, marketable securities, accounts receivable and accounts payable approximate fair value due to their short-term nature. Investment assets, which fund the Company’s non-qualified deferred compensation plan, consist of mutual funds and are valued based on Level 1 inputs. At each of September 28, 2024 and March 30, 2024, investment assets totaled $
Stock-Based Compensation: The Company measures the cost of services received in exchange for all equity awards granted, including stock options and restricted stock units, based on the fair market value of the award as of the grant date. The Company records compensation cost related to unvested equity awards by recognizing, on a straight-line basis, the unamortized grant date fair value over the remaining service period for awards expected to vest. Excess tax benefits for share-based award activity are reflected in the Consolidated Statements of Income as a component of the provision for income taxes. Excess tax benefits are realized benefits from tax deductions for exercised awards in excess of the deferred tax asset attributable to stock-based compensation costs for such awards. The Company did not capitalize any stock-based compensation costs as part of an asset. The Company estimates forfeiture rates based on its historical experience. During the first six months of fiscal year 2025 and fiscal year 2024, the Company recorded non-cash stock-based compensation cost of $
Foreign Currency Translation and Transactions: The accounts of Cal OpEx Limited (d/b/a Transcat Ireland), an Irish company, and Transcat Canada Inc., both of which are wholly-owned subsidiaries of the Company, are maintained in their local currencies, the Euro and the Canadian dollar, respectively, and have been translated to U.S. dollars. Accordingly, the amounts representing assets and liabilities have been translated at the period-end rates of exchange and related revenue and expense accounts have been translated at an average rate of exchange during the period. Gains and losses arising from translation of Cal OpEx Limited’s and Transcat Canada Inc.’s financial statements into U.S. dollars are recorded directly to the accumulated other comprehensive loss component of shareholders’ equity.
Transcat records foreign currency gains and losses on business transactions denominated in foreign currency. The net foreign currency was a net loss of $
Earnings Per Share: Basic earnings per share of the Company's common stock, par value $
For the second quarter of fiscal year 2025, the net additional common stock equivalents had a ($
| Second Quarter Ended | Six Months Ended | |||||||||||||||
| September 28, | September 23, | September 28, | September 23, | |||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Average Shares Outstanding – Basic | ||||||||||||||||
| Effect of Dilutive Common Stock Equivalents | ||||||||||||||||
| Average Shares Outstanding – Diluted | ||||||||||||||||
| Anti-dilutive Common Stock Equivalents | ||||||||||||||||
Goodwill and Intangible Assets: Goodwill represents the excess of the purchase price over the fair values of the underlying net assets of an acquired business. The Company tests goodwill for impairment for each reporting unit on an annual basis during the fourth quarter of its fiscal year, or immediately if conditions indicate that such impairment could exist. The Company is permitted, but not required, to qualitatively assess indicators of a reporting unit’s fair value to determine whether it is necessary to perform the two-step goodwill impairment test. If a quantitative test is deemed necessary, a discounted cash flow analysis is prepared to estimate fair value.
Intangible assets, namely customer base and covenants not to compete, represent an allocation of purchase price to identifiable intangible assets of an acquired business. Intangible assets are evaluated for impairment when events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. The allocation of goodwill and intangible assets by segment for the fiscal year 2025 additions are preliminary. A summary of changes in the Company’s goodwill and intangible assets is as follows (amounts in thousands):
| Goodwill | Intangible Assets | |||||||||||||||||||||||
| Distribution | Service | Total | Distribution | Service | Total | |||||||||||||||||||
| Net Book Value as of March 30, 2024 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Additions | ||||||||||||||||||||||||
| Amortization | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Currency Translation Adjustment | ||||||||||||||||||||||||
| Net Book Value as of September 28, 2024 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Other Liabilities: A summary of other current and non-current liabilities is as follows (amounts in thousands):
| (Unaudited) | (Audited) | |||||||
| September 28, | March 30, | |||||||
| 2024 | 2024 | |||||||
| Current Liabilities: | ||||||||
| Accrued Payroll and Employee Benefits | $ | $ | ||||||
| Accrued Incentives | ||||||||
| Current Portion of Lease Liabilities | ||||||||
| Accrued Acquisition Holdbacks | ||||||||
| Accrued Sales Tax | ||||||||
| Accrued Contingent Consideration | ||||||||
| Income Taxes Payable | ||||||||
| Other Current Liabilities | ||||||||
| Accrued Compensation and Other Current Liabilities | $ | $ | ||||||
| Non-Current Liabilities: | ||||||||
| Postretirement Benefit Obligation | $ | $ | ||||||
| Accrued Acquisition Holdbacks | ||||||||
| Accrued Contingent Consideration | ||||||||
| Other Non-Current Liabilities | ||||||||
| Other Liabilities | $ | $ | ||||||
Recent Accounting Guidance Not Yet Adopted: In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280). The ASU requires disclosures, on an annual and interim basis, of significant segment expenses and other segment items that are regularly provided to the Chief Operating Decision Maker ("CODM") as well as the title and position of the CODM. ASU 2023-07 is effective for annual periods beginning in fiscal 2025 and interim periods in fiscal year 2026 with early adoption permitted. The adoption of this ASU is expected to impact the Company's financial statement disclosures but have no material impact on our results of operations, cash flows or financial condition.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The ASU expands the income tax disclosure requirements, principally related to the rate reconciliation table and income taxes paid. ASU 2023-09 is effective for annual periods beginning in fiscal 2026, with early adoption permitted. The adoption of the ASU is not expected to have a material impact on the Company’s financial statement disclosures.
NOTE 2 – LONG-TERM DEBT
On July 7, 2021, the Company entered into the Second Amended and Restated Credit Facility Agreement (the “Credit Agreement”) with Manufacturers and Traders Trust Company (“M&T”), that amended and restated in its entirety the Company’s prior credit agreement with M&T.
The Credit Agreement provides for a revolving credit commitment (the “revolving credit facility”) of $
The Credit Agreement allows the Company to use up to $
Under the Credit Agreement, the Company may make restricted payments up to $
As of September 28, 2024, $
As of September 28, 2024, $
Interest and Other Costs: Effective July 1, 2023, interest on outstanding borrowings under the revolving credit facility accrue, at Transcat’s election, at either the variable Daily Simple SOFR or a fixed rate for a designated period at the SOFR corresponding to such period (subject to a
Covenants: The Credit Agreement has certain covenants with which the Company must comply, including a fixed charge ratio covenant, which prohibits the Company's fixed charge ratio from being less than
Other Terms: The Company has pledged all of its U.S. tangible and intangible personal property, the equity interests of its U.S.-based subsidiaries, and a majority of the common stock of Transcat Canada Inc. as collateral security for the loans made under the revolving credit facility.
NOTE 3 – STOCK-BASED COMPENSATION
In September 2021, the Transcat, Inc. 2021 Stock Incentive Plan (the “2021 Plan”) was approved by shareholders and became effective. The 2021 Plan replaced the Transcat, Inc. 2003 Incentive Plan (the “2003 Plan”). Shares available for grant under the 2021 Plan include any shares remaining available for issuance under the 2003 Plan and any shares that are subject to outstanding awards under the 2003 Plan that are subsequently canceled, expired, forfeited, or otherwise not issued or are settled in cash. The 2021 Plan provides for, among other awards, grants of restricted stock units and stock options to directors, officers and key employees at the fair market value at the date of grant. At September 28, 2024,
The Company receives an excess tax benefit related to restricted stock vesting and stock options exercised and redeemed. The discrete tax benefits related to share-based compensation and stock option activity during the first six months of fiscal year 2025 and fiscal year 2024 were $
Restricted Stock Units: The Company grants time-based and performance-based restricted stock units as a component of executive and key employee compensation. Expense for restricted stock unit grants is recognized on a straight-line basis for the service period of the stock award based upon fair value of the award on the date of grant. The fair value of the restricted stock unit grants is the quoted market price for the Company’s common stock on the date of grant. These restricted stock units are either time vested, or vest following the fiscal year from the date of grant subject to cumulative diluted earnings per share or cumulative Adjusted EBITDA targets over the eligible period.
Compensation cost ultimately recognized for performance-based restricted stock units will equal the grant date fair market value of the unit that coincides with the actual outcome of the performance conditions. On an interim basis, the Company records compensation cost based on the estimated level of achievement of the performance conditions. The expense relating to the time vested restricted stock units is recognized on a straight-line basis over the requisite service period for the entire award.
The following table summarizes the non-vested restricted stock units outstanding as of September 28, 2024 (in thousands, except per unit data):
| Total |
Grant Date |
Estimated |
||||||||
| Number |
Fair |
Level of |
||||||||
| Date |
Measurement |
of Units |
Value |
Achievement at |
||||||
| Granted |
Period |
Outstanding |
Per Unit |
September 28, 2024 |
||||||
| October 2018 |
October 2018 – September 2028 |
$ | Time Vested |
|||||||
| March 2022 |
March 2022 – March 2025 |
$ | Time Vested |
|||||||
| May 2022 |
May 2022 – March 2025 |
$ | Time Vested |
|||||||
| May 2022 |
May 2022 – March 2025 |
$ |
|
|||||||
| August 2022 |
August 2022 – August 2025 |
$ | Time Vested |
|||||||
| May 2023 |
May 2023 – March 2026 |
$ |
|
|||||||
| May 2023 |
May 2023 – March 2026 |
$ | Time Vested |
|||||||
| May 2023 |
May 2023 – May 2026 |
$ | Time Vested |
|||||||
| April 2024 |
April 2024 - April 2027 |
$ | Time Vested |
|||||||
| April 2024 |
April 2024 - April 2027 |
$ | Time Vested |
|||||||
| May 2024 |
May 2024 - May 2027 |
$ | Time Vested |
|||||||
| May 2024 |
May 2024 - May 2027 |
$ | Time Vested |
|||||||
| May 2024 |
May 2024 - March 2027 |
$ |
|
|||||||
| May 2024 |
May 2024 - March 2027 |
$ | Time Vested |
|||||||
| July 2024 |
July 2024 - July 2027 |
$ | Time Vested |
|||||||
| September 2024 |
September 2024 - September 2025 |
$ | Time Vested |
|||||||
| September 2024 |
September 2024 - September 2027 |
$ |
|
|||||||
| September 2024 |
September 2024 - September 2027 |
$ | Time Vested |
|||||||
Total expense relating to restricted stock units, based on grant date fair value and the achievement criteria, was $
Stock Options: The Company grants stock options to employees and directors with an exercise price equal to the quoted market price of the Company’s stock at the date of the grant. The fair value of stock options is estimated using the Black-Scholes option pricing formula that requires assumptions for expected volatility, expected dividends, the risk-free interest rate and the expected term of the option. Expense for stock options is recognized on a straight-line basis over the requisite service period for each award. Options vest either immediately or over a period of up to years using a straight-line basis and expire either years or years from the date of grant.
We calculate the fair value of the stock options granted using the Black-Scholes model. The following weighted-average assumptions were used to value options granted during the first six months of fiscal year 2025 and fiscal year 2024:
| Second Quarter Ended |
Six Months Ended |
|||||||||||||||
| September 28, |
September 23, |
September 28, |
September 23, |
|||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||
| Risk-Free Interest Rate |
% | % | % | % | ||||||||||||
| Volatility Factor |
% | % | % | % | ||||||||||||
| Expected Term (in Years) |
||||||||||||||||
| Annual Dividend Rate |
% | % | % | % | ||||||||||||
We calculate expected volatility for stock options by taking an average of historical volatility over the expected term. The computation of expected term was determined based on safe harbor rules, giving consideration to the contractual terms of the stock-based awards and vesting schedules. The interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield in effect at the time of grant. We assume expected dividends. Under FASB ASC Topic 718, Compensation – Stock Compensation, the Company has elected to account for forfeitures as they occur.
During the first six months of fiscal year 2025, the Company granted options for
During the first six months of fiscal year 2024, the Company granted options for
The expense related to all stock option awards was $
The following table summarizes the Company’s options as of and for the first six months ended September 28, 2024 (in thousands, except price per option data and years):
| Weighted |
Weighted |
|||||||||||||||
| Average |
Average |
|||||||||||||||
| Number |
Exercise |
Remaining |
Aggregate |
|||||||||||||
| Of |
Price Per |
Contractual |
Intrinsic |
|||||||||||||
| Options |
Option |
Term (in years) |
Value |
|||||||||||||
| Outstanding as of March 30, 2024 |
$ | |||||||||||||||
| Granted |
$ | |||||||||||||||
| Exercised |
( |
) | $ | |||||||||||||
| Forfeited |
( |
) | $ | |||||||||||||
| Outstanding as of September 28, 2024 |
$ | $ | ||||||||||||||
| Exercisable as of September 28, 2024 |
$ | $ | ||||||||||||||
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the second quarter of fiscal year 2025 and the exercise price, multiplied by the number of in-the-money stock options) that would have been received by the option holders had all holders exercised their options on September 28, 2024. The amount of aggregate intrinsic value will change based on the fair market value of the Company’s common stock.
Total unrecognized compensation cost related to non-vested stock options as of September 28, 2024 was $
NOTE 4 – SEGMENT INFORMATION
The basis for determining our operating segments is the manner in which financial information is used in monitoring our operations. Transcat has reportable segments: Service and Distribution. Through our Service segment, we offer calibration, repair, inspection, analytical qualifications, preventative maintenance, consulting and other related services. Through our Distribution segment, we sell and rent national and proprietary brand instruments to customers globally. The Company has no inter-segment sales. We believe that reporting performance at the operating income level is the best indicator of segment performance. The following table presents segment and geographic data for the second quarter and first six months of fiscal year 2025 and fiscal year 2024 (dollars in thousands):
| Second Quarter Ended |
Six Months Ended |
|||||||||||||||
| September 28, |
September 23, |
September 28, |
September 23, |
|||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||
| Revenue: |
||||||||||||||||
| Service |
$ | $ | $ | $ | ||||||||||||
| Distribution |
||||||||||||||||
| Total |
||||||||||||||||
| Gross Profit: |
||||||||||||||||
| Service |
||||||||||||||||
| Distribution |
||||||||||||||||
| Total |
||||||||||||||||
| Operating Expenses: |
||||||||||||||||
| Service (1) |
||||||||||||||||
| Distribution (1) |
||||||||||||||||
| Total |
||||||||||||||||
| Operating Income: |
||||||||||||||||
| Service |
||||||||||||||||
| Distribution |
||||||||||||||||
| Total |
||||||||||||||||
| Unallocated Amounts: |
||||||||||||||||
| Interest and Other (Income)/Expense, net |
( |
) | ||||||||||||||
| Provision for Income Taxes |
||||||||||||||||
| Total |
||||||||||||||||
| Net Income |
$ | $ | $ | $ | ||||||||||||
| Geographic Data: |
||||||||||||||||
| Revenues to Unaffiliated Customers (2) |
||||||||||||||||
| United States (3) |
$ | $ | $ | $ | ||||||||||||
| Canada |
||||||||||||||||
| Other International |
||||||||||||||||
| Total |
$ | $ | $ | $ | ||||||||||||
| (1) |
Operating expense allocations between segments are based on actual amounts, a percentage of revenues, headcount, and management’s estimates. |
| (2) |
Revenues are attributed to the countries based on the destination of a product shipment or the location where service is rendered. |
| (3) |
United States includes Puerto Rico. |
NOTE 5 – BUSINESS ACQUISITIONS
Becnel: Effective April 15, 2024, the Company acquired Becnel Rental Tools, LLC, a privately-held Louisiana limited liability company (“Becnel”), pursuant to an Agreement and Plan of Merger (the “Becnel agreement”), by and among the Company, Becnel and the other parties thereto. Becnel is an ISO 9001:2015 certified provider of rental tools and services primarily utilized in the decommissioning and maintenance of oil wells. This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that expand the depth and breadth of the Company’s service and rental capabilities.
The Becnel goodwill is primarily attributable to the workforce acquired, as well as operational synergies and other intangibles that do not qualify for separate recognition. The goodwill and intangible assets relating to the Becnel acquisition have preliminarily been allocated to both the Service and Distribution segment. Intangible assets related to the Becnel acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up to years and are deductible for tax purposes. Amortization of goodwill related to the Becnel acquisition is deductible for income tax purposes.
The total purchase price for Becnel was approximately $
Pursuant to the Becnel agreement, the purchase price is subject to reduction by $
This cash portion of the contingent consideration is remeasured quarterly. If, as a result of remeasurement, the value of the cash portion of the contingent consideration changes, any charges or income will be included in the Company’s Consolidated Statements of Income. There was no impact from the remeasurement done during the first six months of fiscal year 2025. Due to the uncertainty with utilizing these significant unobservable inputs for this Level 3 fair value measurement, materially higher or lower fair value measurements may be recognized at subsequent remeasurement periods. The stock portion of the contingent consideration is remeasured quarterly. If, as a result of the measurement, the value of the stock portion of the contingent consideration changes, any changes will be included in the Consolidated Balance Sheets as a component of shareholders equity.
The purchase price allocation is subject to revision based upon our final review of tangible and intangible asset valuation assumptions, working capital adjustments, assets acquired, liabilities assumed and consideration transferred. The following is a summary of the preliminary purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of Becnel's assets and liabilities acquired on April 15, 2024 (in thousands):
| Goodwill |
$ |
||||
| Intangible Assets – Customer Base & Contracts |
|||||
| Intangible Assets – Trademarks and Tradenames |
|||||
| Plus: |
Cash |
||||
| Accounts Receivable |
|||||
| Property and Equipment |
|||||
| Other Current Assets |
|||||
| Less: |
Current Liabilities |
( |
) | ||
| Total Purchase Price |
$ | ||||
From the date of acquisition through the end of the second quarter of fiscal year 2025, Becnel has contributed revenue of $
Axiom: Effective August 8, 2023, Transcat purchased all of the outstanding capital stock of Axiom Test Equipment, Inc. (“Axiom”), a privately-held California rental provider of electronic test equipment to customers across the United States. This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that expand the depth and breadth of the Company’s Distribution capabilities.
The Axiom goodwill is primarily attributable to the workforce acquired, as well as operational synergies and other intangibles that do not qualify for separate recognition. All the goodwill and intangible assets relating to the Axiom acquisition has been allocated to the Distribution segment. Intangible assets related to the Axiom acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up to twelve years and are not deductible for tax purposes. Amortization of goodwill related to the Axiom acquisition is not deductible for tax purposes.
The total purchase price for Axiom was approximately $
The following is a summary of the purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of Axiom's assets and liabilities acquired on August 8, 2023 (in thousands):
| Goodwill |
$ | ||||
| Intangible Assets – Customer Base & Contracts |
|||||
| Plus: |
Cash |
||||
| Accounts Receivable |
|||||
| Inventory |
|||||
| Other Current Assets |
|||||
| Property and Equipment |
|||||
| Less: |
Current Liabilities |
( |
) | ||
| Deferred Tax Liability |
( |
) | |||
| Total Purchase Price |
$ | ||||
During the first six months of fiscal year 2025, Axiom has contributed revenue of $
SteriQual: Effective July 12, 2023, Transcat purchased all of the outstanding capital stock of SteriQual, Inc. (“SteriQual”), a Florida based provider of expert consulting services to pharmaceutical, biopharmaceutical, medical device and diagnostic equipment manufacturers. This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that expand the depth and breadth of the Company’s Service capabilities.
The SteriQual goodwill is primarily attributable to the workforce acquired, as well as operational synergies and other intangibles that do not qualify for separate recognition. All the goodwill and intangible assets relating to the SteriQual acquisition has been allocated to the Service segment. Intangible assets related to the SteriQual acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up to fifteen years and are not deductible for tax purposes. Amortization of goodwill related to the SteriQual acquisition is not deductible for tax purposes.
The total purchase price for SteriQual was approximately $
The following is a summary of the purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of SteriQual's assets and liabilities acquired on July 12, 2023 (in thousands):
| Goodwill |
$ | ||||
| Intangible Assets – Customer Base & Contracts |
|||||
| Intangible Assets – Covenant Not to Compete |
|||||
| Intangible Assets – Sales Backlog |
|||||
| Plus: |
Accounts Receivable |
||||
| Less: |
Current Liabilities |
( |
) | ||
| Deferred Tax Liability |
( |
) | |||
| Total Purchase Price |
$ | ||||
During the first six months of fiscal year 2025, SteriQual has contributed revenue of $
TIC-MS: Effective March 27, 2023, Transcat purchased all of the outstanding capital stock of TIC-MS, Inc. (“TIC-MS”), a Missouri based provider of calibration services. This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that expand the depth and breadth of the Company’s Service capabilities.
The TIC-MS goodwill is primarily attributable to the workforce acquired, as well as operational synergies and other intangibles that do not qualify for separate recognition. All the goodwill and intangible assets relating to the TIC-MS acquisition has been allocated to the Service segment. Intangible assets related to the TIC-MS acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up to years and are not deductible for tax purposes. Amortization of goodwill related to the TIC-MS acquisition is not deductible for tax purposes.
The total purchase price for TIC-MS was approximately $
The following is a summary of the purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of TIC-MS's assets and liabilities acquired on March 27, 2023 (in thousands):
| Goodwill |
$ | ||||
| Intangible Assets – Customer Base & Contracts |
|||||
| Intangible Assets – Covenant Not to Compete |
|||||
| Plus: |
Accounts Receivable |
||||
| Property and Equipment |
|||||
| Less: |
Current Liabilities |
( |
) | ||
| Deferred Tax Liability |
( |
) | |||
| Total Purchase Price |
$ | ||||
During the first six months of fiscal year 2025, TIC-MS has contributed revenue of $
The results of acquired businesses are included in Transcat’s consolidated operating results as of the dates the businesses were acquired. The following unaudited pro forma information presents the Company’s results of operations as if the acquisitions of Becnel, Axiom, SteriQual and TIC-MS had occurred at the beginning of fiscal year 2024. The pro forma results do not purport to represent what the Company’s results of operations actually would have been if the transactions had occurred at the beginning of the period presented or what the Company’s operating results will be in future periods.
| (Unaudited) |
(Unaudited) |
|||||||||||||||
| Second Quarter Ended |
Six Months Ended |
|||||||||||||||
| (in thousands except per share information) |
September 28, 2024 |
September 23, 2023 |
September 28, 2024 |
September 23, 2023 |
||||||||||||
| Total Revenue |
$ | $ | $ | $ | ||||||||||||
| Net Income |
$ | $ | $ | $ | ||||||||||||
| Basic Earnings Per Share |
$ | $ | $ | $ | ||||||||||||
| Diluted Earnings Per Share |
$ | $ | $ | $ | ||||||||||||
Certain of the Company’s acquisition agreements include provisions for contingent consideration and other holdback amounts. The Company accrues for contingent consideration and holdback provisions based on their estimated fair value at the date of acquisition and at subsequent remeasurement periods, as applicable. As of September 28, 2024, $
During the first six months of fiscal year 2025 and fiscal year 2024, acquisition costs of $
NOTE 6 – SUBSEQUENT EVENT
On October 30, 2024, the Company entered into an asset purchase agreement with Wiscale, LLC, a Wisconsin limited liability company and subsidiary of Nesnah Ventures, LLC (the “Purchaser”), pursuant to which the Company sold the assets, and certain liabilities, of the Company’s United Scale & Engineering division which is engaged in the business of selling, renting and servicing weighing systems, scales and balances, including truck scales, and related parts to the Purchaser. The aggregate consideration received by the Company for the sale was $
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements. This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to expectations, estimates, beliefs, assumptions and predictions of future events and are identified by words such as “anticipate,” “believes,” “estimates,” “expects,” “potential,” “outlook,” “seek,” “strategy,” “target,” “could,” "can," “may,” “will,” “would,” and other similar words. Forward-looking statements are not statements of historical fact and thus are subject to risks, uncertainties and other factors that could cause actual results to differ materially from historical results or those expressed in such forward-looking statements. You should evaluate forward-looking statements in light of important risk factors and uncertainties that may affect our operating and financial results and our ability to achieve our financial objectives. These factors include, but are not limited to, general economic conditions applicable to our business, inflationary impacts and changes in interest rates, the highly competitive nature of the industries in which we compete and in the nature of our two business segments, the concentration of Service segment customers in the life science and other FDA-regulated and industrial manufacturing industries, the significant competition we face in our Distribution segment, any impairment of our goodwill or intangible assets, tariffs and trade relations, our ability to successfully complete and integrate business acquisitions, cybersecurity risks, the risk of significant disruptions in our information technology systems, our ability to recruit, train and retain quality employees, skilled technicians and senior management, fluctuations in our operating results, our ability to achieve or maintain adequate utilization and pricing rates for our technical service providers, the prices we are able to charge for our services in our Service segment, competition in the rental market, our ability to adapt our technology, reliance on our enterprise resource planning system, technology updates, supply chain delays or disruptions, the risks related to current and future indebtedness, foreign currency rate fluctuations, risks related to our intellectual property, geopolitical events, adverse weather events or other catastrophes, natural disasters or widespread public health crises, the volatility of our stock price, the relatively low trading volume of our common stock, changes in tax rates, changes in accounting standards, legal requirements and listing standards, and legal and regulatory risks related to our international operations. These risk factors and uncertainties are more fully described by us under the heading “Risk Factors” in our reports filed with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the fiscal year ended March 30, 2024. You should not place undue reliance on our forward-looking statements, which speak only as of the date they are made. Except as required by law, we undertake no obligation to update, correct or publicly announce any revisions to any of the forward-looking statements contained in this report, whether as a result of new information, future events or otherwise.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
There have been no material changes to our critical accounting policies and estimates from the information provided in our Annual Report on Form 10-K for the fiscal year ended March 30, 2024.
RESULTS OF OPERATIONS
Executive Summary
During our second quarter of fiscal year 2025, we had consolidated revenue of $67.8 million. This represented an increase of $5.0 million or 8.0% versus the second quarter of fiscal year 2024. This increase was primarily due to acquisitions, demand in our Service segment’s highly-regulated end markets and increased rental sales, which includes incremental revenue from acquisitions. See Note 5 – “Business Acquisitions” to our unaudited consolidated financial statements in this report for more information about the impact of our acquisitions.
Our second quarter of fiscal year 2025 gross profit was $21.2 million. This was an increase of $1.1 million or 5.4% versus the second quarter of fiscal year 2024. In addition, consolidated gross margin was 31.3%, a decrease of 70 basis points versus the second quarter of fiscal year 2024. This decrease was due to lower margins from NEXA and Becnel.
Total operating expenses were $17.5 million in the second quarter of fiscal year 2025, a decrease of $1.0 million or 5.5% when compared to the prior fiscal year second quarter. Included in operating expenses during the second quarter of fiscal year 2025 were incremental operating expenses from the acquisitions of Becnel, Axiom and SteriQual, investments in technology and higher incentive-based employee costs due to higher sales. Included in operating expenses during the second quarter of fiscal year 2024 was a $2.8 million non-cash charge related to the amended NEXA earn-out agreement. As a percentage of total revenue, operating expenses were 25.8% in the second quarter of fiscal year 2025, down 360 basis points from 29.4% in the second quarter of fiscal year 2024. Operating income was $3.7 million, an increase of $2.1 million, or 127.3% and operating margin increased from 2.6% to 5.5% in the second quarter of fiscal year 2025.
Net income was $3.3 million in the second quarter of fiscal year 2025 versus $0.5 million in the second quarter of fiscal year 2024. The increase was primarily due to higher operating income and lower interest expense.
The following table presents, for the second quarter and for the first six months of fiscal year 2025 and fiscal year 2024, the components of our Consolidated Statements of Income:
| (Unaudited) |
(Unaudited) |
|||||||||||||||
| Second Quarter Ended |
Six Months Ended |
|||||||||||||||
| September 28, |
September 23, |
September 28, |
September 23, |
|||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||
| As a Percentage of Total Revenue: |
||||||||||||||||
| Service Revenue |
65.0 | % | 66.0 | % | 65.3 | % | 65.9 | % | ||||||||
| Distribution Revenue |
35.0 | % | 34.0 | % | 34.7 | % | 34.1 | % | ||||||||
| Total Revenue |
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
| Gross Profit Percentage: |
||||||||||||||||
| Service Gross Profit |
33.1 | % | 34.0 | % | 33.5 | % | 33.3 | % | ||||||||
| Distribution Gross Profit |
27.9 | % | 28.3 | % | 30.8 | % | 28.0 | % | ||||||||
| Total Gross Profit |
31.3 | % | 32.0 | % | 32.6 | % | 31.5 | % | ||||||||
| Selling, Marketing and Warehouse Expenses |
12.1 | % | 10.9 | % | 11.9 | % | 10.8 | % | ||||||||
| General and Administrative Expenses |
13.7 | % | 18.5 | % | 14.2 | % | 15.6 | % | ||||||||
| Total Operating Expenses |
25.8 | % | 29.4 | % | 26.0 | % | 26.4 | % | ||||||||
| Operating Income |
5.5 | % | 2.6 | % | 6.6 | % | 5.1 | % | ||||||||
| Interest and Other (Income)/Expense, net |
0.0 | % | 1.3 | % | (0.1 | )% | 1.4 | % | ||||||||
| Income Before Provision for Income Taxes |
5.5 | % | 1.3 | % | 6.6 | % | 3.7 | % | ||||||||
| Provision for Income Taxes |
0.6 | % | 0.6 | % | 0.9 | % | 0.9 | % | ||||||||
| Net Income |
4.8 | % | 0.7 | % | 5.7 | % | 2.8 | % | ||||||||
Second QUARTER ENDED September 28, 2024 COMPARED TO Second QUARTER ENDED September 23, 2023 (dollars in thousands):
Revenue:
| Second Quarter Ended |
Change |
|||||||||||||||
| September 28, |
September 23, |
|||||||||||||||
| 2024 |
2023 |
$ |
% | |||||||||||||
| Revenue: |
||||||||||||||||
| Service |
$ | 44,083 | $ | 41,431 | $ | 2,652 | 6.4 | % | ||||||||
| Distribution |
23,743 | 21,373 | 2,370 | 11.1 | % | |||||||||||
| Total |
$ | 67,826 | $ | 62,804 | $ | 5,022 | 8.0 | % | ||||||||
Total revenue was $67.8 million, an increase of $5.0 million, or 8.0%, in our fiscal year 2025 second quarter compared to the prior fiscal year second quarter.
Service revenue, which accounted for 65.0% and 66.0% of our total revenue in the second quarter of fiscal years 2025 and 2024, respectively, increased $2.7 million or 6.4% from the second quarter of fiscal year 2024 to the second quarter of fiscal year 2025. This year-over-year increase included $0.8 million in revenue from the acquisition of Becnel, and also included organic revenue growth of 4.4% driven by end-market demand and continued market share gains.
Our fiscal years 2025 and 2024 Service revenue growth, in relation to prior fiscal year quarter comparisons, was as follows:
| FY 2025 |
FY 2024 |
|||||||||||||||||||||||
| Q2 |
Q1 |
Q4 |
Q3 |
Q2 |
Q1 |
|||||||||||||||||||
| Service Revenue Growth |
6.4 | % | 9.8 | % | 17.5 | % | 15.4 | % | 17.5 | % | 17.6 | % | ||||||||||||
The lower growth in Service revenue during the second quarter of fiscal year 2025 was primarily due to a decline in our NEXA cost control and optimization services business as compared to the prior year quarter. We expect to fully integrate NEXA’s sales and marketing into our existing process to drive anticipated revenue growth. Within any fiscal year, while we add new customers, we also have customers from the prior fiscal year whose service orders may not repeat for any number of factors. Among those factors are variations in the timing of periodic calibrations and other services, customer capital expenditures and customer outsourcing decisions. Because the timing of Service segment orders can vary on a quarter-to-quarter basis, we believe trailing twelve-month information provides a better indication of the progress of this segment.
The following table presents the trailing twelve-month Service segment revenue for the first and second quarter of fiscal year 2025 and each quarter in fiscal year 2024 as well as the trailing twelve-month revenue growth as a comparison to that of the prior fiscal year period:
| FY 2025 |
FY 2024 |
|||||||||||||||||||||||
| Q2 |
Q1 |
Q4 |
Q3 |
Q2 |
Q1 |
|||||||||||||||||||
| Trailing Twelve-Month: |
||||||||||||||||||||||||
| Service Revenue |
$ | 176,006 | $ | 173,450 | $ | 169,525 | $ | 162,556 | $ | 157,024 | $ | 150,860 | ||||||||||||
| Service Revenue Growth |
12.1 | % | 15.0 | % | 17.0 | % | 16.3 | % | 17.1 | % | 17.6 | % | ||||||||||||
Our strategy has been to focus our investments in the core electrical, temperature, pressure, physical/dimensional and radio frequency/microwave calibration disciplines. We expect to subcontract approximately 13% to 15% of our Service revenue to third-party vendors for calibration beyond our chosen scope of capabilities. We continually evaluate our outsourcing needs and make capital investments, as deemed necessary, to add more in-house capabilities and reduce the need for third-party vendors. Capability expansion through business acquisitions is another way that we seek to reduce the need for outsourcing. The following table presents the source of our Service revenue and the percentage of Service revenue derived from each source for the first and second quarter of fiscal year 2025 and for each quarter during fiscal year 2024:
| FY 2025 |
FY 2024 |
|||||||||||||||||||||||
| Q2 |
Q1 |
Q4 |
Q3 |
Q2 |
Q1 |
|||||||||||||||||||
| Percent of Service Revenue: |
||||||||||||||||||||||||
| In-House |
86.6 | % | 86.9 | % | 87.0 | % | 86.2 | % | 85.8 | % | 87.3 | % | ||||||||||||
| Outsourced |
12.3 | % | 12.0 | % | 11.9 | % | 12.6 | % | 13.0 | % | 11.6 | % | ||||||||||||
| Freight Billed to Customers |
1.1 | % | 1.1 | % | 1.1 | % | 1.2 | % | 1.2 | % | 1.1 | % | ||||||||||||
| 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||
Our Distribution revenue accounted for 35.0% of our total revenue in the second quarter of fiscal year 2025 and 34.0% of our total revenue in the second quarter of fiscal year 2024. During the second quarter of fiscal year 2025, Distribution segment revenue was $23.7 million which was an increase of $2.3 million or 11.1%. This increase was due to $2.0 million of incremental revenue from the acquisitions of Axiom and Becnel, incremental rental revenue, offset by slower demand for our non-rental products.
The following table presents the quarterly historical trend of Distribution revenue in fiscal years 2025 and 2024 compared to the prior year fiscal quarter:
| FY 2025 |
FY 2024 |
|||||||||||||||||||||||
| Q2 |
Q1 |
Q4 |
Q3 |
Q2 |
Q1 |
|||||||||||||||||||
| Distribution Revenue Growth (Decline) |
11.1 | % | 10.5 | % | 8.4 | % | 10.4 | % | 0.9 | % | (0.2 | )% | ||||||||||||
The Distribution segment revenue increase for the second quarter of fiscal year 2025 versus the second quarter of fiscal year 2024 was due to revenue from the acquisitions of Axiom and Becnel and increases in traditional rental products.
Distribution revenue orders include orders for instruments that we routinely stock in our inventory, customized products, and other products ordered less frequently, which we do not stock. Product backorders are the total dollar value of orders received for which revenue has not yet been recognized. Pending product shipments are primarily backorders, but also include products that are requested to be calibrated in our service centers prior to shipment, orders required by the customer to be shipped complete or at a future date, and other orders awaiting final credit or management review prior to shipment. Management uses pending product shipments and backorders as measures of our future business performance and financial performance within the distribution segment.
The following table presents our total pending product shipments and the percentage of total pending product shipments that were backorders at the end of the first and second quarter of fiscal year 2025 and each quarter of fiscal year 2024:
| FY 2025 |
FY 2024 |
|||||||||||||||||||||||
| Q2 |
Q1 |
Q4 |
Q3 |
Q2 |
Q1 |
|||||||||||||||||||
| Total Pending Product Shipments |
$ | 4,102 | $ | 4,713 | $ | 5,079 | $ | 4,652 | $ | 6,332 | $ | 7,109 | ||||||||||||
| % of Pending Product |
||||||||||||||||||||||||
| Shipments that were Backorders |
84.7 | % | 78.4 | % | 88.8 | % | 82.0 | % | 87.4 | % | 85.0 | % | ||||||||||||
Our total pending product shipments at the end of the second quarter of fiscal year 2025 were $4.1 million, a decrease of $2.2 million versus the end of the second quarter of fiscal year 2024 and a decrease of $1.0 million since March 30, 2024. The decrease in pending product shipments and backorders was a result of improved fulfillment of existing orders.
Gross Profit:
| Second Quarter Ended |
Change |
|||||||||||||||
| September 28, |
September 23, |
|||||||||||||||
| 2024 |
2023 |
$ |
% | |||||||||||||
| Gross Profit: |
||||||||||||||||
| Service |
$ | 14,591 | $ | 14,084 | $ | 507 | 3.6 | % | ||||||||
| Distribution |
6,615 | 6,041 | 574 | 9.5 | % | |||||||||||
| Total |
$ | 21,206 | $ | 20,125 | $ | 1,081 | 5.4 | % | ||||||||
Total gross profit for the second quarter of fiscal year 2025 was $21.2 million, an increase of $1.1 million or 5.4% versus the second quarter of fiscal year 2024. Total gross margin was 31.3% in the second quarter of fiscal year 2025, down from 32.0% in the second quarter of fiscal year 2024, a 70 basis point decrease.
Service gross profit in the second quarter of fiscal year 2025 increased $0.5 million, or 3.6%, from the second quarter of fiscal year 2024. Service gross margin was 33.1% in the second quarter of fiscal year 2025, a 90 basis point decrease versus the 34.0% in the second quarter of fiscal year 2024. This decrease in Service gross margin was the result of lower than expected revenue and lower margins from NEXA.
The following table presents the quarterly historical trend of our Service gross margin as a percent of Service revenue:
| FY 2025 |
FY 2024 |
|||||||||||||||||||||||
| Q2 |
Q1 |
Q4 |
Q3 |
Q2 |
Q1 |
|||||||||||||||||||
| Service Gross Margin |
33.1 | % | 34.0 | % | 35.7 | % | 32.5 | % | 34.0 | % | 32.5 | % | ||||||||||||
Our Distribution gross margin includes net sales less the direct cost of inventory sold and the direct costs of equipment rental revenues, primarily depreciation expense for the fixed assets in our rental equipment pool, as well as the impact of rebates and cooperative advertising income we receive from vendors, freight billed to customers, freight expenses and direct shipping costs. In general, our Distribution gross margin can vary based upon the mix of products sold, price discounting, and the timing of periodic vendor rebates offered and cooperative advertising programs from suppliers.
The following table reflects the quarterly historical trend of our Distribution gross margin as a percent of Distribution revenue:
| FY 2025 |
FY 2024 |
|||||||||||||||||||||||
| Q2 |
Q1 |
Q4 |
Q3 |
Q2 |
Q1 |
|||||||||||||||||||
| Distribution Gross Margin |
27.9 | % | 33.9 | % | 30.3 | % | 31.5 | % | 28.3 | % | 27.7 | % | ||||||||||||
Distribution segment gross margin was 27.9% in the second quarter of fiscal year 2025 versus 28.3% in the second quarter of fiscal year 2024, a 40 basis point decrease. The decrease in Distribution gross margin was due to lower revenue and margins from Becnel which were impacted by hurricanes in the Gulf of Mexico.
Operating Expenses:
| Second Quarter Ended |
Change |
|||||||||||||||
| September 28, |
September 23, |
|||||||||||||||
| 2024 |
2023 |
$ |
% | |||||||||||||
| Operating Expenses: |
||||||||||||||||
| Selling, Marketing and Warehouse |
$ | 8,181 | $ | 6,856 | $ | 1,325 | 19.3 | % | ||||||||
| General and Administrative |
9,290 | 11,626 | (2,336 | ) | (20.1 | )% | ||||||||||
| Total |
$ | 17,471 | $ | 18,482 | $ | (1,011 | ) | (5.5 | )% | |||||||
Total operating expenses were $17.5 million in the second quarter of fiscal year 2025 versus $18.5 million during the second quarter of fiscal year 2024. The year-over-year increase in selling, marketing and warehouse expenses is due to increased expenses related to recent acquisitions and higher incentive-based employee costs due to higher sales. The decrease in general and administrative expenses is due to the reduction in the non-cash charge related to the NEXA earn-out in the second quarter of fiscal year 2024 offset by incremental expenses related to acquired companies, increased payroll costs for new employees and continued investments in technology.
As a percentage of total revenue, operating expenses were 25.8% in the second quarter of fiscal year 2025 and 29.4% in the second quarter of fiscal year 2024, a decrease of 360 basis points.
Income Taxes:
| Second Quarter Ended |
Change |
|||||||||||||||
| September 28, |
September 23, |
|||||||||||||||
| 2024 |
2023 |
$ |
% | |||||||||||||
| Provision for Income Taxes |
$ | 427 | $ | 342 | $ | 85 | 24.9 | % | ||||||||
Our effective tax rate for the second quarter of fiscal years 2025 and 2024 was 11.5% and 42.6%, respectively. The tax provision is impacted by higher operating income and lower interest expense. The decrease in effective tax rate is due to the increase in our discrete items. Our quarterly provision for income taxes is affected by discrete items that may occur in any given period but are not consistent from year to year. The discrete benefits related to share-based compensation activity in the second quarter of fiscal years 2025 and 2024 was $0.6 million and less than $0.1 million, respectively.
Net Income:
| Second Quarter Ended |
Change |
|||||||||||||||
| September 28, |
September 23, |
|||||||||||||||
| 2024 |
2023 |
$ |
% | |||||||||||||
| Net Income |
$ | 3,286 | $ | 460 | $ | 2,826 | 614.3 | % | ||||||||
Net income for the second quarter of fiscal year 2025 increased from the second quarter of fiscal year 2024 primarily due to higher operating income and lower interest expense.
Adjusted EBITDA:
Total Adjusted EBITDA, a non-GAAP measure, for the second quarter of fiscal year 2025 was $8.9 million, a decrease of $0.5 million or 5.0% versus the second quarter of fiscal year 2024. See “Non-GAAP Financial Measures” below for a description of the non-GAAP measures we use and a reconciliation to the most directly comparable GAAP measures. As a percentage of revenue, Adjusted EBITDA decreased to 13.1% for the second quarter of fiscal year 2025 from 14.9% for the second quarter of fiscal year 2024. The decrease in Adjusted EBITDA during the second quarter of fiscal year 2025 was primarily driven by increases in operating income and depreciation and amortization expense, offset by the decrease in the NEXA earn-out adjustment.
Six Months Ended September 28, 2024 COMPARED TO Six Months Ended September 23, 2023 (dollars in thousands):
Revenue:
| Six Months Ended |
Change |
|||||||||||||||
| (dollars in thousands) |
September 28, |
September 23, |
||||||||||||||
| 2024 |
2023 |
$ |
% | |||||||||||||
| Revenue: |
||||||||||||||||
| Service |
$ | 87,861 | $ | 81,284 | $ | 6,577 | 8.1 | % | ||||||||
| Distribution |
46,672 | 42,118 | 4,554 | 10.8 | % | |||||||||||
| Total |
$ | 134,533 | $ | 123,402 | $ | 11,131 | 9.0 | % | ||||||||
Service revenue, which accounted for 65.3% and 65.9% of our total revenue in the first six months of fiscal years 2025 and 2024, respectively, increased $11.1 million or 9.0% from the first six months of fiscal year 2024 to the first six months of fiscal year 2025. This year-over-year increase included $2.2 million in revenue from the acquisitions of SteriQual and Becnel, and also included organic revenue growth of 5.4% driven by end-market demand and continued market share gains.
Distribution revenue, which accounted for 34.7% and 34.1% of our total revenue in the first six months of fiscal years 2025 and 2024, respectively, increased $4.6 million, or 10.8%, from the first six months of fiscal year 2024 to the first six months of fiscal year 2025. This year-over-year increase is primarily due to $3.8 million of incremental revenue from the acquisitions of Axiom and Becnel, and increases in rental revenue offset by slower demand for our non-rental products.
Gross Profit:
| Six Months Ended |
Change |
|||||||||||||||
| (dollars in thousands) |
September 28, |
September 23, |
||||||||||||||
| 2024 |
2023 |
$ |
% | |||||||||||||
| Gross Profit: |
||||||||||||||||
| Service |
$ | 29,474 | $ | 27,055 | $ | 2,419 | 8.9 | % | ||||||||
| Distribution |
14,387 | 11,780 | 2,607 | 22.1 | % | |||||||||||
| Total |
$ | 43,861 | $ | 38,835 | $ | 5,026 | 12.9 | % | ||||||||
Total gross profit for the first six months of fiscal year 2025 was $43.9 million, an increase of $5.0 million or 12.9% versus the first six months of fiscal year 2024. Total gross margin was 32.6% in the first six months of fiscal year 2025, up from 31.5% in the first six months of fiscal year 2024, a 110 basis point increase. This increase in gross margin was primarily due to increased revenue in our Service segment, which allows us to leverage our fixed costs, continued technician productivity improvements, and a favorable sales mix driven by increases in rental revenue in the Distribution segment.
Operating Expenses:
| Six Months Ended |
Change |
|||||||||||||||
| (dollars in thousands) |
September 28, |
September 23, |
||||||||||||||
| 2024 |
2023 |
$ |
% | |||||||||||||
| Operating Expenses: |
||||||||||||||||
| Selling, Marketing and Warehouse |
$ | 15,982 | $ | 13,325 | $ | 2,657 | 19.9 | % | ||||||||
| General and Administrative |
19,045 | 19,227 | (182 | ) | (0.9 | )% | ||||||||||
| Total |
$ | 35,027 | $ | 32,552 | $ | 2,475 | 7.6 | % | ||||||||
Total operating expenses were $35.0 million in the first six months of fiscal year 2025 versus $32.6 million during the first six months of fiscal year 2024, an increase of $2.5 million or 7.6%. The year-over-year increase in selling, marketing and warehouse expenses is due to increased expenses related to recent acquisitions and higher incentive-based employee costs due to higher sales. The decrease in general and administrative expenses is due to the decrease in the non-cash charge related to the NEXA earn-out, offset by incremental expenses related to acquired companies, increased payroll costs for new employees and continued investments in technology.
As a percentage of total revenue, operating expenses were 26.0% in the first six months of fiscal year 2025 and 26.4% in the first six months of fiscal year 2024, a decrease of 40 basis points.
Income Taxes:
| Six Months Ended |
Change |
|||||||||||||||
| (dollars in thousands) |
September 28, |
September 23, |
||||||||||||||
| 2024 |
2023 |
$ |
% | |||||||||||||
| Provision for Income Taxes |
$ | 1,247 | $ | 1,155 | $ | 92 | 8.0 | % | ||||||||
Our effective tax rate for the first six months of fiscal years 2025 and 2024 was 13.9% and 25.3%, respectively. The tax provision is impacted by higher operating income and lower interest expense. The decrease in effective tax rate is due to the increase in our discrete items. Our quarterly provision for income taxes is affected by discrete items that may occur in any given period but are not consistent from year to year. The discrete benefits related to share-based compensation activity in the first six months of fiscal years 2025 and 2024 was $1.1 million and $0.6 million, respectively.
Net Income:
| Six Months Ended |
Change |
|||||||||||||||
| September 28, |
September 23, |
|||||||||||||||
| 2024 |
2023 |
$ |
% | |||||||||||||
| Net Income |
$ | 7,694 | $ | 3,409 | $ | 4,285 | 125.7 | % | ||||||||
Net income for the first six months of fiscal year 2025 was $7.7 million, an increase of $4.3 million versus the first six months of fiscal year 2024. The year-over-year increase in net income was primarily due to higher operating income and lower interest expense, net.
Adjusted EBITDA:
Total Adjusted EBITDA, a non-GAAP measure, for the first six months of fiscal year 2025 was $19.1 million, an increase of $1.3 million or 7.1% versus the first six months of fiscal year 2024. See “Non-GAAP Financial Measures” below for a description of the non-GAAP measures we use and a reconciliation to the most directly comparable GAAP measures. The increase in Adjusted EBITDA during the first six months of fiscal year 2025 was primarily driven by increases in operating income and depreciation and amortization expense offset by the reduction in the NEXA earn-out adjustment. As a percentage of revenue, Adjusted EBITDA decreased to 14.2% for the first six months of fiscal year 2025 from 14.4% for the first six months of fiscal year 2024, driven by the reduction in the NEXA earn-out adjustment.
Non-GAAP Financial Measures
Adjusted EBITDA
In addition to reporting net income, a GAAP measure, we present Adjusted EBITDA (earnings before interest, income taxes, depreciation and amortization, non-cash stock compensation expense, acquisition related transaction expenses, and other expense), which is a non-GAAP measure. Our management believes Adjusted EBITDA is an important measure of our operating performance because it allows management, investors and others to evaluate and compare the performance of our 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, our management uses Adjusted EBITDA as a measure of performance when evaluating our business segments and as a basis for planning and forecasting. Adjusted EBITDA is also commonly used by rating agencies, lenders and other parties to evaluate our credit worthiness.
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 or alternative 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.
| Second Quarter Ended |
Six Months Ended |
|||||||||||||||
| (dollars in thousands) |
September 28, |
September 23, |
September 28, |
September 23, |
||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||
| Net Income |
$ | 3,286 | $ | 460 | $ | 7,694 | $ | 3,409 | ||||||||
| + Interest (Income) Expense |
(210 | ) | 890 | (470 | ) | 1,704 | ||||||||||
| + Other Expense (Income) |
232 | (49 | ) | 363 | 15 | |||||||||||
| + Tax Provision |
427 | 342 | 1,247 | 1,155 | ||||||||||||
| Operating Income |
3,735 | 1,643 | 8,834 | 6,283 | ||||||||||||
| + Depreciation & Amortization |
4,399 | 3,269 | 8,512 | 6,059 | ||||||||||||
| + Transaction Expense |
33 | 328 | 467 | 513 | ||||||||||||
| + Acquisition Earn-Out Adjustment |
- | 2,800 | - | 2,800 | ||||||||||||
| + Other (Expense) Income |
(232 | ) | 49 | (363 | ) | (15 | ) | |||||||||
| + Non-cash Stock Compensation |
926 | 1,241 | 1,623 | 2,171 | ||||||||||||
| Adjusted EBITDA |
$ | 8,861 | $ | 9,330 | $ | 19,073 | $ | 17,811 | ||||||||
Adjusted Diluted Earnings Per Share
In addition to reporting Diluted Earnings Per Share, a GAAP measure, we present Adjusted Diluted Earnings Per Share (net income plus acquisition related amortization expense, acquisition related transaction expenses, acquisition related stock-based compensation and acquisition amortization of backlog; divided by the average diluted shares outstanding during the period), which is a non-GAAP measure. Our management believes Adjusted Diluted Earnings Per Share is an important measure of our operating performance because it provides a basis for comparison of our business operations between current, past and future periods by excluding items that we do not believe are indicative of our core operating performance.
Adjusted Diluted Earnings Per Share is not a measure of financial performance under GAAP and is not calculated through the application of GAAP. As such, it should not be considered as a substitute or alternative for the GAAP measure of Diluted Earnings Per Share and, therefore, should not be used in isolation of, but in conjunction with, the GAAP measure. Adjusted Diluted Earnings Per Share, as presented, may produce results that vary from the GAAP measure and may not be comparable to a similarly defined non-GAAP measure used by other companies.
| Second Quarter Ended |
Six Months Ended |
|||||||||||||||
| September 28, |
September 23, |
September 28, |
September 23, |
|||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||
| Net Income |
$ | 3,286 | $ | 460 | $ | 7,694 | $ | 3,409 | ||||||||
| + Amortization of Intangible Assets |
1,888 | 1,416 | 3,637 | 2,509 | ||||||||||||
| + Acquisition Amortization of Backlog |
4 | 19 | 28 | 19 | ||||||||||||
| + Acquisition Deal Costs |
33 | 328 | 467 | 513 | ||||||||||||
| + Acquisition Stock Expense |
130 | 274 | 364 | 456 | ||||||||||||
| + Income Tax Effect @ 25% |
(514 | ) | (509 | ) | (1,124 | ) | (874 | ) | ||||||||
| + Acquisition Earn-Out Adjustment |
2,800 | 2,800 | ||||||||||||||
| Adjusted Net Income |
4,827 | 4,788 | 11,066 | 8,832 | ||||||||||||
| Average Diluted Shares Outstanding |
9,282 | 7,948 | 9,222 | 7,840 | ||||||||||||
| Diluted Earnings Per Share – GAAP |
$ | 0.35 | $ | 0.06 | $ | 0.83 | $ | 0.43 | ||||||||
| Adjusted Diluted Earnings Per Share |
$ | 0.52 | $ | 0.60 | $ | 1.20 | $ | 1.13 | ||||||||
LIQUIDITY AND CAPITAL RESOURCES
We expect that foreseeable liquidity and capital resource requirements will be met through cash and cash equivalents, anticipated cash flows from operations and borrowings from our revolving credit facility. We believe that these sources of financing will be adequate to meet our future requirements.
Under our Second Amended and Restated Credit Facility Agreement (the “Credit Agreement”) with Manufacturers and Traders Trust Company (“M&T”), we have access to a revolving credit commitment (the “Revolving Credit Commitment”) of $80.0 million through June 2026, with a letter of credit subfacility of $10.0 million. Our 2018 term loan, with an original principal amount of $15.0 million (the “2018 Term Loan”), is also provided for under the Credit Agreement.
The Credit Agreement allows us to use up to $50.0 million under the Revolving Credit Commitment for acquisitions in any single fiscal year. The Credit Agreement restricts our ability to complete acquisitions of businesses with a principal place of business located in the United Kingdom or the European Union to an aggregate purchase price of $40.0 million during the term of the Credit Agreement, if the acquisition is financed directly or indirectly with the Revolving Credit Commitment. Under the Credit Agreement, we may make restricted payments up to $25.0 million in the aggregate over the term of the Credit Agreement and $10.0 million in any single fiscal year to repurchase shares and pay dividends.
Effective July 1, 2023, interest on outstanding borrowings under the revolving credit facility accrue, at our election, at either the variable Daily Simple SOFR or a fixed rate for a designated period at the SOFR corresponding to such period (subject to a 0.25% floor), in each case, plus a margin. Unused fees accrue based on the average daily amount of unused credit available on the revolving credit facility. Interest rate margins and unused fees are determined on a quarterly basis based upon our calculated leverage ratio. Our interest rate for the revolving credit facility for the first six months of fiscal year 2025 was 7.1%. Interest on outstanding borrowings under the 2018 Term Loan accrue at a fixed rate of 3.90% over the term of the loan.
The Credit Agreement has certain covenants with which we must comply, including a fixed charge ratio covenant, which prohibits our fixed charge coverage ratio from being less than 1.15 to 1.00, and a leverage ratio covenant, which prohibits our leverage ratio from exceeding 3.00 to 1.00. We were in compliance with all loan covenants and requirements during the first six months of fiscal year 2025. Our leverage ratio, as defined in the Credit Agreement, was 0.08 at September 28, 2024, compared with 0.10 at March 30, 2024.
As of September 28, 2024, $80.0 million was available for borrowing under the revolving credit facility. As of September 28, 2024, there were no amounts outstanding under the revolving credit facility. During the first six months of fiscal year 2025 , we used $15.9 million, drawn from cash and cash equivalents on hand for a business acquisition. During the first six months of fiscal year 2024, we used $12.9 million, drawn from the revolving credit facility for business acquisitions.
As of September 28, 2024, $3.0 million was outstanding on the 2018 Term Loan, of which $2.4 million was included in current liabilities on the Consolidated Balance Sheets with the remainder included in long-term debt. The 2018 Term Loan requires total repayments (principal plus interest) of $0.2 million per month through December 2025.
Cash Flows: The following table is a summary of our Consolidated Statements of Cash Flows (dollars in thousands):
| Six Months Ended |
||||||||
| September 28, |
September 23, |
|||||||
| 2024 |
2023 |
|||||||
| Cash Provided by (Used in): |
||||||||
| Operating Activities |
$ | 15,759 | $ | 15,972 | ||||
| Investing Activities |
$ | (7,958 | ) | $ | (18,326 | ) | ||
| Financing Activities |
$ | (3,346 | ) | $ | 2,313 | |||
Operating Activities: Net cash provided by operating activities was $15.8 million during the first six months of fiscal year 2025 compared to $16.0 million of net cash provided by operating activities during the first six months of fiscal year 2024. The year-over-year decrease in cash provided by operating activities was primarily the result of changes in net working capital (defined as current assets less current liabilities). The significant working capital fluctuations were as follows:
| ● |
Receivables: Accounts receivable increased $1.2 million during the first six months of fiscal year 2025 inclusive of $3.1 million of accounts receivable acquired during the period. During the first six months of fiscal year 2024, accounts receivable decreased $0.3 million inclusive of $2.1 million of accounts receivable acquired during the period. The year-over-year variation reflects changes in the timing of collections. The following table illustrates our “days sales outstanding” as of September 28, 2024 and September 23, 2023 (dollars in thousands): |
| September 28, |
September 23, |
|||||||
| 2024 |
2023 |
|||||||
| Net Sales, for the last two fiscal months |
$ | 49,548 | $ | 45,032 | ||||
| Accounts Receivable, net |
$ | 48,933 | $ | 44,382 | ||||
| Days Sales Outstanding |
59 | 59 | ||||||
| ● |
Inventory: Our inventory strategy includes making appropriate large quantity, high dollar purchases with key manufacturers for various reasons, including maximizing on-hand availability of key products, expanding the number of SKUs stocked in anticipation of customer demand, reducing backorders for products with long lead times and optimizing vendor purchase and sales volume discounts. As a result, inventory levels may vary from quarter-to-quarter based on the timing of these large orders in relation to our quarter end. Our inventory balance decreased $1.9 million during the first six months of fiscal year 2025. Our inventory balance decreased by $1.2 million during the first six months of fiscal year 2024 inclusive of $1.7 million of inventory acquired during the period. |
| ● |
Accounts Payable: Changes in accounts payable may or may not correlate with changes in inventory balances at any given quarter end due to the timing of vendor payments for inventory, as well as the timing of payments for outsourced Service vendors and capital expenditures. Accounts payable increased $1.5 million during the first six months of fiscal year 2025. Accounts payable decreased $3.3 million during the first six months of fiscal year 2024. The variances are largely due to the timing of inventory and capital expenditures and other payments in the respective periods. |
| ● |
Accrued Compensation and Other Current Liabilities: Accrued compensation and other current liabilities include, among other things, amounts paid to employees for non-equity performance-based compensation. At the end of any particular period, the amounts accrued for such compensation may vary due to many factors including changes in expected performance levels, the performance measurement period, and timing of payments to employees. During the first six months of fiscal year 2025, accrued compensation and other current liabilities decreased by $8.6 million, inclusive of $0.2 million from assumed liabilities, contingent consideration and purchase price holdbacks from acquisition transactions. During the first six months of fiscal year 2024, accrued compensation and other current liabilities increased by $3.1 million, inclusive of $3.5 million from assumed liabilities, contingent consideration and purchase price holdbacks from acquisition transactions. The change from the first six months of fiscal year 2024 was largely due to the inclusion of the acquisition related transactions, partially offset by the timing of income taxes paid. |
Investing Activities: During the first six months of fiscal years 2025 and 2024, we invested $7.6 million and $5.4 million, respectively, in capital expenditures that was used primarily for customer-driven expansion of Service segment capabilities and our rental business.
During the first six months of fiscal years 2025 and 2024, we used $15.9 million and $12.9 million, respectively, for business acquisitions.
During the first six months of fiscal year 2024, we paid $0.3 million of other holdbacks related to business acquisitions.
Financing Activities: During the first six months of fiscal year 2025, $0.8 million in cash was generated from the issuance of common stock. In addition, we used $1.2 million for scheduled repayments of our term loan and $3.0 million for the “net” awarding of certain share awards to cover employee tax-withholding obligations for share award and stock option activity in fiscal year 2025, which are shown as a repurchase of shares of our common stock.
During the first six months of fiscal year 2024, $5.3 million was borrowed from our revolving line of credit and $0.4 million in cash was generated from the issuance of common stock. In addition, we used $1.1 million for scheduled repayments of our term loan and $2.2 million for the “net” awarding of certain share awards to cover employee tax-withholding obligations for share award and stock option activity in fiscal year 2024, which are shown as a repurchase of shares of our common stock.
OUTLOOK
We are very proud of the consistent results the Transcat team has delivered year in and year out over an extended period of time. That said, it goes without saying we are disappointed with the NEXA-impacted aggregated results in fiscal year 2025 second quarter. We experienced isolated revenue challenges in the NEXA services channel in the quarter but believe the swift actions our team is already taking will rectify the situation as we continue to execute on our highly successful core growth strategy.
We expect fiscal year 2025 organic Service revenue growth to be in the mid-single digits when normalized for the extra week in fiscal 2024 and gross margin expansion. We anticipate a return to high single digit organic growth by the second quarter of fiscal year 2026.
Automation of our calibration processes and focus on productivity remain key enablers of margin expansion. We have demonstrated the ability to leverage these tools to improve our operational efficiency, which has become visible in our financial performance over time.
We continue to work our robust acquisition pipeline and are pleased with the potential flow of opportunities.
We expect our income tax rate to range between 21% and 23% for full fiscal year 2025. This estimate includes federal, various state, Canadian and Irish income taxes and reflects the discrete tax accounting associated with share-based payment awards.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATES
Our exposure to changes in interest rates results from our borrowing activities. During the first six months of fiscal year 2025, we had no borrowings under our revolving credit facility. In the event interest rates were to move by 1%, our yearly interest expense would increase or decrease by approximately $0.4 million assuming borrowings of approximately $40 million under our revolving credit facility. As of September 28, 2024, $80.0 million was available for borrowing under the revolving credit facility. As of September 28, 2024, there were no amounts outstanding under the revolving credit facility. As described above under “Liquidity and Capital Resources,” we also have a $15.0 million (original principal) term loan. The 2018 Term Loan is considered a fixed interest rate loan. As of September 28, 2024, $3.0 million was outstanding under the 2018 Term Loan and was included in long-term debt and current portion of long-term debt on the Consolidated Balance Sheets. The 2018 Term Loan requires total (principal and interest) repayments of $0.2 million per month through December 2025.
Effective July 1, 2023, at our option, we may borrow from our revolving credit facility at the variable one-month Daily Simple SOFR or at a fixed rate for a designated period at the SOFR corresponding to such period (subject to a 0.25% floor), in each case, plus a margin. Our interest rate margin is determined on a quarterly basis based upon our calculated leverage ratio. Our interest rate during the first six months of fiscal year 2025 for our revolving credit facility was 7.1%. Interest on outstanding borrowings of the 2018 Term Loan accrued at a fixed rate of 3.90% over the term of the loan. On September 28, 2024, we had no hedging arrangements in place for our revolving credit facility to limit our exposure to movements in interest rates.
FOREIGN CURRENCY
Approximately 90% of our total revenues for each of the first six months of fiscal year 2025 and 2024 were denominated in U.S. dollars, with the remainder denominated in Canadian dollars and Euros. A 10% change in the value of the Canadian dollar to the U.S. dollar and the Euro to the U.S. dollar would impact our revenue by approximately 1%. We monitor the relationship between the U.S. dollar and the Canadian dollar and the U.S. dollar and the Euro on a monthly basis and adjust sales prices for products and services sold in Canadian dollars or Euros as we believe to be appropriate.
We continually utilize short-term foreign exchange forward contracts to reduce the risk that future earnings denominated in Canadian dollars would be adversely affected by changes in currency exchange rates. We do not apply hedge accounting and therefore the net change in the fair value of the contracts, which totaled a loss of $0.1 million in both the first six months of fiscal years 2025 and 2024, respectively, was recognized as a component of Interest and Other Expense, net in the Consolidated Statements of Income. The change in the fair value of the contracts is offset by the change in fair value on the underlying accounts receivables denominated in Canadian dollars being hedged. On September 28, 2024, we had a foreign exchange contract, which matured in October 2024, outstanding in the notional amount of $2.5 million. The foreign exchange contract was renewed in October 2024 and continues to be in place. We do not use hedging arrangements for speculative purposes.
ITEM 4. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures. Our principal executive officer and our principal financial officer evaluated our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this quarterly report. Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our principal executive officer and principal financial officer to allow timely decisions regarding required disclosure. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of such date.
Changes in Internal Control over Financial Reporting. There has been no change in our internal control over financial reporting that occurred during the last fiscal quarter covered by this quarterly report (our second quarter of fiscal year 2025) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
On August 8, 2024, we issued 26,379 shares of common stock to former shareholders of Axiom to settle a $2.3 million holdback and, on August 11, 2024, we issued 4,763 shares of common stock to the former shareholder of SteriQual to settle a $0.4 million holdback. The shares were issued pursuant to an exemption from registration in reliance upon Section 4(a)(2) of the Securities Act of 1933, as amended.
INDEX TO EXHIBITS
| Exhibit No. |
Description |
||
| (3.1) | Articles of Incorporation and Bylaws | ||
| 3.1 | Code of Regulations, as amended through September 11, 2024, are incorporated herein by reference from Exhibit 3.1 to the Company's Current Report on Form 8-K filed on September 13, 2024 | ||
| (31) |
Rule 13a-14(a)/15d-14(a) Certifications |
||
| 31.1* |
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
||
| 31.2* |
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
||
| (32) |
Section 1350 Certifications |
||
| 32.1** |
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
||
| (101) |
Interactive Data File |
||
| 101.INS* | Inline XBRL Instance Document | ||
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | ||
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | ||
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | ||
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | ||
| (104) | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | ||
| * |
Exhibit filed with this report. |
| ** |
Exhibit furnished with this report. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| TRANSCAT, INC. | ||
| Date: November 6, 2024 |
/s/ Lee D. Rudow |
|
| Lee D. Rudow |
||
| President and Chief Executive Officer (Principal Executive Officer) |
||
| Date: November 6, 2024 |
/s/ Thomas L. Barbato |
|
| Thomas L. Barbato |
||
| Senior Vice President of Finance and Chief Financial Officer (Principal Financial Officer) |