UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549____________
_______________
FORM 10-Q
(Mark one)
☑ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|
For the quarterly period ended: December 23, 20172023
or
☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _______________ to _______________
Commission File Number: 000-03905
TRANSCAT, INC.
(Exact name of registrant as specified in its charter)
Ohio | 16-0874418 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
35 Vantage Point Drive, Rochester, New York 14624
(Address of principal executive offices) (Zip Code)
(585) 352-7777
(Registrant’sRegistrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $0.50 par value | TRNS | Nasdaq Global Market |
Indicate by check mark whether the registrantregistrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☑ Yes [✓] No [ ]☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☑ Yes [✓] No [ ]☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large"large accelerated filer,” “accelerated" "accelerated filer,” “smaller" "smaller reporting company”company" and emerging"emerging growth companycompany" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | Accelerated filer | |
Non-accelerated filer | Smaller reporting company | |
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐ Yes [ ] No [✓]☑
The number of shares of common stock, par value $0.50 per share, of the registrant outstanding as of February 1, 2018January 26, 2024 was 7,152,764.8,829,127.
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
TRANSCAT, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
(Unaudited) | (Unaudited) | |||||||||||
Third Quarter Ended | Nine Months Ended | |||||||||||
December 23, | December 24, | December 23, | December 24, | |||||||||
2017 | 2016 | 2017 | 2016 | |||||||||
Service Revenue | $ | 18,769 | $ | 17,455 | $ | 55,490 | $ | 51,577 | ||||
Distribution Sales | 21,714 | 20,358 | 57,199 | 53,868 | ||||||||
Total Revenue | 40,483 | 37,813 | 112,689 | 105,445 | ||||||||
Cost of Service Revenue | 14,070 | 13,149 | 41,835 | 38,402 | ||||||||
Cost of Distribution Sales | 16,712 | 15,749 | 44,308 | 41,855 | ||||||||
Total Cost of Revenue | 30,782 | 28,898 | 86,143 | 80,257 | ||||||||
Gross Profit | 9,701 | 8,915 | 26,546 | 25,188 | ||||||||
Selling, Marketing and Warehouse Expenses | 4,150 | 4,159 | 12,247 | 12,612 | ||||||||
General and Administrative Expenses | 2,897 | 2,403 | 8,776 | 7,207 | ||||||||
Total Operating Expenses | 7,047 | 6,562 | 21,023 | 19,819 | ||||||||
Operating Income | 2,654 | 2,353 | 5,523 | 5,369 | ||||||||
Interest and Other Expense, net | 311 | 188 | 854 | 547 | ||||||||
Income Before Income Taxes | 2,343 | 2,165 | 4,669 | 4,822 | ||||||||
Provision for Income Taxes | 512 | 895 | 1,201 | 1,729 | ||||||||
Net Income | $ | 1,831 | $ | 1,270 | $ | 3,468 | $ | 3,093 | ||||
Basic Earnings Per Share | $ | 0.26 | $ | 0.18 | $ | 0.49 | $ | 0.44 | ||||
Average Shares Outstanding | 7,142 | 7,010 | 7,115 | 6,984 | ||||||||
Diluted Earnings Per Share | $ | 0.25 | $ | 0.18 | $ | 0.48 | $ | 0.43 | ||||
Average Shares Outstanding | 7,319 | 7,204 | 7,273 | 7,161 |
(Unaudited) | (Unaudited) | |||||||||||||||
Third Quarter Ended | Nine Months Ended | |||||||||||||||
December 23, | December 24, | December 23, | December 24, | |||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Service Revenue | $ | 41,509 | $ | 35,977 | $ | 122,793 | $ | 105,120 | ||||||||
Distribution Sales | 23,657 | 21,425 | 65,775 | 63,382 | ||||||||||||
Total Revenue | 65,166 | 57,402 | 188,568 | 168,502 | ||||||||||||
Cost of Service Revenue | 28,015 | 25,184 | 82,244 | 72,005 | ||||||||||||
Cost of Distribution Sales | 16,215 | 15,818 | 46,553 | 47,292 | ||||||||||||
Total Cost of Revenue | 44,230 | 41,002 | 128,797 | 119,297 | ||||||||||||
Gross Profit | 20,936 | 16,400 | 59,771 | 49,205 | ||||||||||||
Selling, Marketing and Warehouse Expenses | 7,519 | 6,595 | 20,844 | 18,315 | ||||||||||||
General and Administrative Expenses | 9,123 | 6,642 | 28,350 | 20,497 | ||||||||||||
Total Operating Expenses | 16,642 | 13,237 | 49,194 | 38,812 | ||||||||||||
Operating Income | 4,294 | 3,163 | 10,577 | 10,393 | ||||||||||||
Interest Expense | 81 | 731 | 1,785 | 1,651 | ||||||||||||
Interest Income | (347 | ) | (5 | ) | (347 | ) | (15 | ) | ||||||||
Other Income/Expense | 289 | 313 | 304 | 96 | ||||||||||||
Total Interest and Other | 23 | 1,039 | 1,742 | 1,732 | ||||||||||||
Income Before Income Taxes | 4,271 | 2,124 | 8,835 | 8,661 | ||||||||||||
Provision for Income Taxes | 923 | 523 | 2,078 | 1,631 | ||||||||||||
Net Income | $ | 3,348 | $ | 1,601 | $ | 6,757 | $ | 7,030 | ||||||||
Basic Earnings Per Share | $ | 0.39 | $ | 0.21 | $ | 0.84 | $ | 0.93 | ||||||||
Average Shares Outstanding | 8,615 | 7,559 | 8,060 | 7,547 | ||||||||||||
Diluted Earnings Per Share | $ | 0.38 | $ | 0.21 | $ | 0.83 | $ | 0.92 | ||||||||
Average Shares Outstanding | 8,752 | 7,666 | 8,187 | 7,644 |
See accompanying notes to consolidated financial statements.
TRANSCAT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
(Unaudited) | (Unaudited) | ||||||||||||||
Third Quarter Ended | Nine Months Ended | ||||||||||||||
December 23, | December 24, | December 23, | December 24, | ||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net Income | $ | 1,831 | $ | 1,270 | $ | 3,468 | $ | 3,093 | |||||||
Other Comprehensive Income (Loss): | |||||||||||||||
Currency Translation Adjustment | (151 | ) | (114 | ) | 227 | (88 | ) | ||||||||
Other, net of tax effects of $(28) and $(13) for the third quarters ended December 23, 2017 and December 24, 2016, respectively; and $(44) and $(27) for the nine months ended December 23, 2017 and December 24, 2016, respectively. | 1 | 21 | 26 | 43 | |||||||||||
Total Other Comprehensive (Loss) Income | (150 | ) | (93 | ) | 253 | (45 | ) | ||||||||
Comprehensive Income | $ | 1,681 | $ | 1,177 | $ | 3,721 | $ | 3,048 |
(Unaudited) | (Unaudited) | |||||||||||||||
Third Quarter Ended | Nine Months Ended | |||||||||||||||
December 23, | December 24, | December 23, | December 24, | |||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Net Income | $ | 3,348 | $ | 1,601 | $ | 6,757 | $ | 7,030 | ||||||||
Other Comprehensive Income (Loss): | ||||||||||||||||
Currency Translation Adjustment | 364 | 393 | 488 | (878 | ) | |||||||||||
Other, net of tax effects of $3 and $2 for the third quarter ended December 23, 2023 and December 24, 2022, respectively; and $7 and $(4) for the nine months ended December 23, 2023 and December 24, 2022, respectively | 9 | 8 | 21 | (12 | ) | |||||||||||
Total Other Comprehensive Income (Loss) | 373 | 401 | 509 | (890 | ) | |||||||||||
Comprehensive Income | $ | 3,721 | $ | 2,002 | $ | 7,266 | $ | 6,140 |
See accompanying notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Amounts)
(Unaudited) | (Audited) | |||||||
December 23, | March 25, | |||||||
2017 | 2017 | |||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash | $ | 504 | $ | 842 | ||||
Accounts Receivable, less allowance for doubtful accounts of $270 and $210 as of December 23, 2017 and March 25, 2017, respectively | 22,700 | 22,049 | ||||||
Other Receivables | 1,535 | 1,227 | ||||||
Inventory, net | 11,144 | 10,278 | ||||||
Prepaid Expenses and Other Current Assets | 988 | 1,193 | ||||||
Total Current Assets | 36,871 | 35,589 | ||||||
Property and Equipment, net | 17,478 | 15,568 | ||||||
Goodwill | 32,823 | 32,520 | ||||||
Intangible Assets, net | 5,984 | 7,519 | ||||||
Other Assets | 1,079 | 901 | ||||||
Total Assets | $ | 94,235 | $ | 92,097 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts Payable | $ | 11,478 | $ | 11,615 | ||||
Accrued Compensation and Other Liabilities | 4,524 | 5,907 | ||||||
Income Taxes Payable | 468 | 805 | ||||||
Current Portion of Long-Term Debt | 2,143 | 1,429 | ||||||
Total Current Liabilities | 18,613 | 19,756 | ||||||
Long-Term Debt | 24,103 | 25,883 | ||||||
Deferred Tax Liabilities | 955 | 1,134 | ||||||
Other Liabilities | 1,960 | 1,923 | ||||||
Total Liabilities | 45,631 | 48,696 | ||||||
Shareholders' Equity: | ||||||||
Common Stock, par value $0.50 per share, 30,000,000 shares authorized; 7,144,475 and 7,043,754 shares issued and outstanding as of December 23, 2017 and March 25, 2017, respectively | 3,572 | 3,522 | ||||||
Capital in Excess of Par Value | 14,553 | 12,996 | ||||||
Accumulated Other Comprehensive Loss | (161 | ) | (414 | ) | ||||
Retained Earnings | 30,640 | 27,297 | ||||||
Total Shareholders' Equity | 48,604 | 43,401 | ||||||
Total Liabilities and Shareholders' Equity | $ | 94,235 | $ | 92,097 |
(Unaudited) | (Audited) | |||||||
December 23, | March 25, | |||||||
2023 | 2023 | |||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 35,205 | $ | 1,531 | ||||
Accounts Receivable, less allowance for credit losses of $579 and $457 as of December 23, 2023 and March 25, 2023, respectively | 43,307 | 44,698 | ||||||
Other Receivables | 819 | 506 | ||||||
Inventory, net | 16,178 | 16,929 | ||||||
Prepaid Expenses and Other Current Assets | 3,295 | 3,935 | ||||||
Total Current Assets | 98,804 | 67,599 | ||||||
Property and Equipment, net | 37,222 | 29,064 | ||||||
Goodwill | 105,700 | 69,360 | ||||||
Intangible Assets, net | 21,459 | 13,799 | ||||||
Right To Use Assets, net | 16,834 | 14,876 | ||||||
Other Assets | 1,055 | 1,051 | ||||||
Total Assets | $ | 281,074 | $ | 195,749 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts Payable | $ | 11,355 | $ | 15,869 | ||||
Accrued Compensation and Other Current Liabilities | 15,683 | 10,201 | ||||||
Current Portion of Long-Term Debt | 2,316 | 2,248 | ||||||
Total Current Liabilities | 29,354 | 28,318 | ||||||
Long-Term Debt | 2,411 | 46,869 | ||||||
Deferred Tax Liabilities, net | 10,855 | 6,538 | ||||||
Lease Liabilities | 14,457 | 12,960 | ||||||
Other Liabilities | 5,527 | 1,434 | ||||||
Total Liabilities | 62,604 | 96,119 | ||||||
Shareholders' Equity: | ||||||||
Common Stock, par value $0.50 per share, 30,000,000 shares authorized; 8,828,515 and 7,562,604 shares issued and outstanding as of December 23, 2023 and March 25, 2023, respectively | 4,414 | 3,781 | ||||||
Capital in Excess of Par Value | 140,382 | 27,886 | ||||||
Accumulated Other Comprehensive Loss | (691 | ) | (1,200 | ) | ||||
Retained Earnings | 74,365 | 69,163 | ||||||
Total Shareholders' Equity | 218,470 | 99,630 | ||||||
Total Liabilities and Shareholders' Equity | $ | 281,074 | $ | 195,749 |
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited) | ||||||||
Nine Months Ended | ||||||||
December 23, | December 24, | |||||||
2017 | 2016 | |||||||
Cash Flows from Operating Activities: | ||||||||
Net Income | $ | 3,468 | $ | 3,093 | ||||
Adjustments to Reconcile Net Income to Net Cash | ||||||||
Provided by Operating Activities: | ||||||||
Net Loss on Disposal of Property and Equipment | 57 | 6 | ||||||
Deferred Income Taxes | 11 | 121 | ||||||
Depreciation and Amortization | 4,527 | 4,667 | ||||||
Provision for Accounts Receivable and Inventory Reserves | 341 | 243 | ||||||
Stock-Based Compensation | 1,095 | 316 | ||||||
Changes in Assets and Liabilities: | ||||||||
Accounts Receivable and Other Receivables | (1,009 | ) | (3,168 | ) | ||||
Inventory | (612 | ) | (3,967 | ) | ||||
Prepaid Expenses and Other Assets | (29 | ) | (341 | ) | ||||
Accounts Payable | (137 | ) | 3,378 | |||||
Accrued Compensation and Other Liabilities | (1,325 | ) | (454 | ) | ||||
Income Taxes Payable | (570 | ) | (20 | ) | ||||
Net Cash Provided by Operating Activities | 5,817 | 3,874 | ||||||
Cash Flows from Investing Activities: | ||||||||
Purchases of Property and Equipment | (5,084 | ) | (4,104 | ) | ||||
Proceeds from Sale of Property and Equipment | 11 | 29 | ||||||
Business Acquisitions | - | (6,977 | ) | |||||
Net Cash Used in Investing Activities | (5,073 | ) | (11,052 | ) | ||||
Cash Flows from Financing Activities: | ||||||||
Repayment of Revolving Credit Facility, net | (7,018 | ) | (1,924 | ) | ||||
Proceeds from Term Loan | 7,143 | 10,000 | ||||||
Repayment of Term Loan | (1,190 | ) | (952 | ) | ||||
Payment of Contingent Consideration and Holdbacks Related to Business Acquisitions | - | (339 | ) | |||||
Issuance of Common Stock | 821 | 384 | ||||||
Repurchase of Common Stock | (344 | ) | (98 | ) | ||||
Stock Option Redemption | (90 | ) | (137 | ) | ||||
Net Cash (Used in) Provided by Financing Activities | (678 | ) | 6,934 | |||||
Effect of Exchange Rate Changes on Cash | (404 | ) | 162 | |||||
Net Decrease in Cash | (338 | ) | (82 | ) | ||||
Cash at Beginning of Period | 842 | 641 | ||||||
Cash at End of Period | $ | 504 | $ | 559 | ||||
Supplemental Disclosure of Cash Flow Activity: | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | 765 | $ | 488 | ||||
Income Taxes, net | $ | 1,783 | $ | 1,595 | ||||
Supplemental Disclosure of Non-Cash Investing and Financing Activities: | ||||||||
Holdback Amounts Related to Business Acquisitions | $ | - | $ | 735 |
(Unaudited) | ||||||||
Nine Months Ended | ||||||||
December 23, | December 24, | |||||||
2023 | 2022 | |||||||
Cash Flows from Operating Activities: | ||||||||
Net Income | $ | 6,757 | $ | 7,030 | ||||
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: | ||||||||
Net Loss on Disposal of Property and Equipment | 24 | 62 | ||||||
Deferred Income Taxes | 42 | (52 | ) | |||||
Depreciation and Amortization | 9,841 | 8,243 | ||||||
Provision for Accounts Receivable and Inventory Reserves | 379 | 174 | ||||||
Stock-Based Compensation Expense | 3,338 | 2,757 | ||||||
Changes in Assets and Liabilities, net of acquisitions: | ||||||||
Accounts Receivable and Other Receivables | 3,819 | 1,850 | ||||||
Inventory | 3,208 | (3,589 | ) | |||||
Prepaid Expenses and Other Current Assets | 728 | 1,074 | ||||||
Accounts Payable | (5,194 | ) | (424 | ) | ||||
Accrued Compensation and Other Current Liabilities | 3,947 | (3,150 | ) | |||||
Net Cash Provided by Operating Activities | 26,889 | 13,975 | ||||||
Cash Flows from Investing Activities: | ||||||||
Purchases of Property and Equipment | (9,099 | ) | (7,149 | ) | ||||
Proceeds from Sale of Property and Equipment | - | 10 | ||||||
Business Acquisitions, net of cash acquired | (12,932 | ) | (8,306 | ) | ||||
Net Cash Used in Investing Activities | (22,031 | ) | (15,445 | ) | ||||
Cash Flows from Financing Activities: | ||||||||
(Repayment of) Proceeds from Revolving Credit Facility, net | (42,713 | ) | 2,286 | |||||
Repayments of Term Loan | (1,678 | ) | (1,570 | ) | ||||
Issuance of Common Stock, net of direct costs | 75,714 | 503 | ||||||
Repurchase of Common Stock | (2,247 | ) | (437 | ) | ||||
Net Cash Provided by Financing Activities | 29,076 | 782 | ||||||
Effect of Exchange Rate Changes on Cash and cash equivalents | (260 | ) | 885 | |||||
Net Increase in Cash and cash equivalents | 33,674 | 197 | ||||||
Cash and cash equivalents at Beginning of Period | 1,531 | 1,396 | ||||||
Cash and cash equivalents at End of Period | $ | 35,205 | $ | 1,593 | ||||
Supplemental Disclosure of Cash Flow Activity: | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | 1,652 | $ | 1,510 | ||||
Income Taxes, net | $ | 1,884 | $ | 957 | ||||
Supplemental Disclosure of Non-Cash Investing and Financing Activities: | ||||||||
Common stock issued for acquisitions | $ | 34,769 | $ | 145 | ||||
Assets acquired and liabilities assumed in business combinations: | ||||||||
Accrued holdback and contingent consideration related to acquisitions | $ | 4,859 | $ | 518 | ||||
Balance Sheet Reclassification of Property and Equipment, net to Inventory | $ | 737 | $ | 576 | ||||
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTSTATEMENTS OF SHAREHOLDERS’CHANGES IN SHAREHOLDERS’ EQUITY
(In Thousands, Except Par Value Amounts)
(Unaudited)
Capital | |||||||||||||||||||||||
Common Stock | In | Accumulated | |||||||||||||||||||||
Issued | Excess | Other | |||||||||||||||||||||
$0.50 Par Value | of Par | Comprehensive | Retained | ||||||||||||||||||||
Shares | Amount | Value | (Loss) | Earnings | Total | ||||||||||||||||||
Balance as of March 25, 2017 | 7,044 | $ | 3,522 | $ | 12,996 | $ | (414 | ) | $ | 27,297 | $ | 43,401 | |||||||||||
Issuance of Common Stock | 102 | 51 | 770 | - | - | 821 | |||||||||||||||||
Repurchase of Common Stock | (27 | ) | (14 | ) | (205 | ) | - | (125 | ) | (344 | ) | ||||||||||||
Stock-Based Compensation | 25 | 13 | 1,082 | - | - | 1,095 | |||||||||||||||||
Redemption of Stock Options | - | - | (90 | ) | - | - | (90 | ) | |||||||||||||||
Other Comprehensive Income | - | - | - | 253 | - | 253 | |||||||||||||||||
Net Income | - | - | - | - | 3,468 | 3,468 | |||||||||||||||||
Balance as of December 23, 2017 | 7,144 | $ | 3,572 | $ | 14,553 | $ | (161 | ) | $ | 30,640 | $ | 48,604 |
Capital | ||||||||||||||||||||||||
Common Stock | In | Accumulated | ||||||||||||||||||||||
Issued | Excess | Other | ||||||||||||||||||||||
$0.50 Par Value | of Par | Comprehensive | Retained | |||||||||||||||||||||
Shares | Amount | Value | Income (Loss) | Earnings | Total | |||||||||||||||||||
Balance as of March 26, 2022 | 7,529 | $ | 3,765 | $ | 23,900 | $ | (233 | ) | $ | 58,744 | $ | 86,176 | ||||||||||||
Issuance of Common Stock | 8 | 3 | 363 | - | - | 366 | ||||||||||||||||||
Repurchase of Common Stock | (7 | ) | (3 | ) | (164 | ) | - | (270 | ) | (437 | ) | |||||||||||||
Stock-Based Compensation | 16 | 8 | 820 | - | - | 828 | ||||||||||||||||||
Other Comprehensive Loss | - | - | - | (453 | ) | - | (453 | ) | ||||||||||||||||
Net Income | - | - | - | - | 3,072 | 3,072 | ||||||||||||||||||
Balance as of June 25, 2022 | 7,546 | $ | 3,773 | $ | 24,919 | $ | (686 | ) | $ | 61,546 | $ | 89,552 | ||||||||||||
Issuance of Common Stock | 3 | 2 | 141 | - | - | 143 | ||||||||||||||||||
Repurchase of Common Stock | - | - | - | - | - | - | ||||||||||||||||||
Stock-Based Compensation | 9 | 4 | 1,110 | - | - | 1,114 | ||||||||||||||||||
Other Comprehensive Loss | - | - | - | (838 | ) | - | (838 | ) | ||||||||||||||||
Net Income | - | - | - | - | 2,357 | 2,357 | ||||||||||||||||||
Balance as of September 24, 2022 | 7,558 | $ | 3,779 | $ | 26,170 | $ | (1,524 | ) | $ | 63,903 | $ | 92,328 | ||||||||||||
Issuance of Common Stock | 1 | - | 139 | - | - | 139 | ||||||||||||||||||
Stock-Based Compensation | 1 | 1 | 814 | - | - | 815 | ||||||||||||||||||
Other Comprehensive Income | - | - | - | 401 | - | 401 | ||||||||||||||||||
Net Income | - | - | - | - | 1,601 | 1,601 | ||||||||||||||||||
Balance as of December 24, 2022 | 7,560 | $ | 3,780 | $ | 27,123 | $ | (1,123 | ) | $ | 65,504 | $ | 95,284 |
Capital | ||||||||||||||||||||||||
Common Stock | In | Accumulated | ||||||||||||||||||||||
Issued | Excess | Other | ||||||||||||||||||||||
$0.50 Par Value | of Par | Comprehensive | Retained | |||||||||||||||||||||
Shares | Amount | Value | Income (Loss) | Earnings | Total | |||||||||||||||||||
Balance as of March 25, 2023 | 7,562 | $ | 3,781 | $ | 27,886 | $ | (1,200 | ) | $ | 69,163 | $ | 99,630 | ||||||||||||
Issuance of Common Stock | 82 | 42 | 6,988 | - | - | 7,030 | ||||||||||||||||||
Repurchase of Common Stock | (3 | ) | (2 | ) | (86 | ) | - | (213 | ) | (301 | ) | |||||||||||||
Stock-Based Compensation | 2 | 1 | 929 | - | - | 930 | ||||||||||||||||||
Other Comprehensive Income | - | - | - | 482 | - | 482 | ||||||||||||||||||
Net Income | - | - | - | - | 2,949 | 2,949 | ||||||||||||||||||
Balance as of June 24, 2023 | 7,643 | $ | 3,822 | $ | 35,717 | $ | (718 | ) | $ | 71,899 | $ | 110,720 | ||||||||||||
Issuance of Common Stock | 313 | 156 | 27,967 | - | - | 28,123 | ||||||||||||||||||
Repurchase of Common Stock | (22 | ) | (11 | ) | (593 | ) | - | (1,342 | ) | (1,946 | ) | |||||||||||||
Stock-Based Compensation | 44 | 22 | 1,219 | - | - | 1,241 | ||||||||||||||||||
Other Comprehensive Loss | - | - | - | (346 | ) | - | (346 | ) | ||||||||||||||||
Net Income | - | - | - | - | 460 | 460 | ||||||||||||||||||
Balance as of September 23, 2023 | 7,978 | $ | 3,989 | $ | 64,310 | $ | (1,064 | ) | $ | 71,017 | $ | 138,252 | ||||||||||||
Proceeds from Issuance of Common Stock | 849 | 424 | 80,229 | - | - | 80,653 | ||||||||||||||||||
Direct Costs of Stock Offering | - | - | (5,323 | ) | - | - | (5,323 | ) | ||||||||||||||||
Stock-Based Compensation | 2 | 1 | 1,166 | - | - | 1,167 | ||||||||||||||||||
Other Comprehensive Income | - | - | - | 373 | - | 373 | ||||||||||||||||||
Net Income | - | - | - | - | 3,348 | 3,348 | ||||||||||||||||||
Balance as of December 23, 2023 | 8,829 | $ | 4,414 | $ | 140,382 | $ | (691 | ) | $ | 74,365 | $ | 218,470 |
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1(In Thousands, Except Per Share and Per Unit Amounts)(Unaudited)– GENERAL
NOTE 1 – GENERAL
Description of Business:Transcat, Inc. (“Transcat”Transcat,” “we,” “us,” “our” or the “Company”) is a leading provider of accredited calibration and laboratory instrumentservices, enterprise asset management services, and a value-added distributor ofand rental source for professional grade handheld test, measurement and control instrumentation. The Company is focused on providing services and products to highly regulated industries, particularly the life science industry, which includes pharmaceutical, biotechnology, medical device and other FDA-regulated businesses. Additional industries served include industrial manufacturing; energy and utilities, including oil and gas; chemical manufacturing; FAA-regulated businesses, including aerospace and defense and other industries that require accuracy in their processes, confirmation of the capabilities of their equipment, and have a high costfor which the risk of failure.failure is very costly.
Basis of Presentation:Transcat’s unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q10-Q and Article 8-03Rule 10-01 of Regulation S-XS-X of the Securities and Exchange Commission (“SEC”). Accordingly, the Consolidated Financial Statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of the Company’s management, all adjustments considered necessary for a fair presentation (consisting of normal recurring adjustments) have been included. The results for the interim periods are not necessarily indicative of what the results will be for the fiscal year. The accompanying Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements as of and for the fiscal year ended March 25, 20172023 (“fiscal year 2017”2023”) contained in the Company’s 2017 Annual Report on Form 10-K10-K for fiscal year 2023 filed with the SEC.
Use of Estimates: The preparation of Transcat’s Consolidated Financial Statements in accordance with GAAP requires that the Company make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions are used for, but not limited to, allowance for credit losses and returns, inventory reserves, estimated levels of achievement for performance-based restricted stock units, fair value of stock options, depreciable lives of fixed assets, estimated lives of major catalogs and intangible assets, fair value of the goodwill reporting units, and the valuation of assets acquired, liabilities assumed and consideration transferred in business acquisitions. Future events and their effects cannot be predicted with certainty; accordingly, accounting estimates require the exercise of judgment. The accounting estimates used in the preparation of the Consolidated Financial Statements may change as new events occur, as more experience is acquired, as additional information is obtained and as the operating environment changes. Actual results could differ from those estimates. Such changes and refinements in estimation methodologies are reflected in reported results of operations in the period in which the changes are made and, if material, their effects are disclosed in the Notes to the Consolidated Financial Statements.
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.
Revenue Recognition:Distribution non-rental sales are recorded when an order’s title and risk of loss transfers to the customer, which is generally upon shipment. Distribution rental sales are recognized over time using the output method-time elapsed 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 output method-time elapsed as this portrays the transfer of control to the customer. Revenue is measured as the amount of consideration the Company expects to receive in equal amounts at fixed intervals.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. In 2014, the Financial
Under Accounting Standards BoardCodification (“FASB”ASC”) issued Accounting Standard Update (“ASU”) 2014-09 to provide specific guidance on how entities should recognizeTopic 606, Revenue from Contracts with Customers, we use judgments that could potentially impact both the timing of our satisfaction of performance obligations and our determination of transaction prices used in determining revenue derivedrecognized. 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 contracts with customers. Transcat is required to adopt ASU 2014-09 in itsprior period performance obligations for the third quarter of the fiscal year ending March 30, 2019 (“2024 (“fiscal year 2019”2024”). This new standard supercedes previous guidance on was immaterial. As of December 23, 2023, 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 requires the usedeferred contract costs recorded on our Consolidated Balance Sheets as of more estimates December 23, 2023 and judgments than the present standards. It also requires additional disclosures. We are continuing to evaluate certain contracts to determine their treatment under ASU 2014—09. The Company does not expect the adoption of this ASU to have a material impact on the Consolidated Financial Statements.March 25, 2023 were immaterial. See Note 4 for disaggregated revenue information.
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 the 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, 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 December 23, 2017 2023 and March 25, 2017,2023, investment assets totaled $0.8$0.2 million, and $0.7 million, respectively and are included as a component of other assets (non-current) on the Consolidated Balance Sheets.
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 expensecost related to unvested equity awards by recognizing, on a straight-line basis, the unamortized grant date fair value over the remaining service period of each award. In 2016, FASB issued ASU 2016-09awards expected to simplify certain aspects of the accounting for share-based payment transactions to employees. The Company elected to early adopt this ASU in the fourth quarter of fiscal year 2017. Upon adoption, excessvest. Excess tax benefits for share-based award activity are reflected in the statementConsolidated Statements of incomeIncome 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 firstnine months of the fiscal year ending March 31, 2018 (“fiscal year 2018”)2024 and fiscal year 2017,2023, the Company recorded non-cash stock-based compensation expensecost of $1.1$3.3 million and $0.3$2.8 million, respectively, in the Consolidated Statements of Income.
Foreign Currency Translation and Transactions:The accounts of Cal OpEx Limited (d/b/a Transcat Ireland), an Irish company, and Transcat Canada Inc., aboth of which are wholly-owned subsidiarysubsidiaries of the Company, are maintained in the local currency (Canadian dollars)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 its Canadian business transactions.transactions denominated in foreign currency. The net foreign currency was a net loss was less thanof $0.1 million duringfor each of the firstnine months of each of fiscal years 2018year 2024 and 2017.fiscal year 2023. The Company continually utilizes short-term foreign exchange forward contracts to reduce the risk that its future earnings willdenominated in Canadian dollars would be adversely affected by changes in currency exchange rates. The Company does not apply hedge accounting and therefore the net change in the fair value of the contracts, which totaled a loss of $0.1 million during the first nine months of fiscal year 2018 and a gain of $0.1$0.3 million during the firstnine months of fiscal year 2017,years 2024 and 2023, respectively, was recognized as a component of other expenseInterest and Other Expenses, 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 December 23, 2017,2023, the Company had a foreign exchange contract, which matured in January 2018, 2024, outstanding in the notional amount of $5.4$2.0 million. The foreign exchangeThis contract was subsequently renewed in January 2018 and continues to beremains in place. The Company does not use hedging arrangements for speculative purposes.
Earnings Per Share:Basic earnings per share of the Company's common stock, par value $0.50 per share ("common stock"), are computed based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share of common stock reflect the assumed conversion of stock options and unvested restricted stock units using the treasury stock method in periods in which they have a dilutive effect. In computing the per share effect of assumed conversion, funds which would have beenproceeds received from the exercise of options and unvested restricted stock units and the related tax benefits are considered to have been used to purchase shares of common stock at the average market prices during the period, and the resulting net additional shares of common stock are included in the calculation of average shares of common stock outstanding.
For the third quarter of fiscal year 20182024, the net additional common stock equivalents had a $0.01($0.01) effect on the calculation of diluted earnings per share. For the third quarter of fiscal year 2017,2023, the net additional common stock equivalents had no effect on the calculation of dilutivediluted earnings per share. For the firstnine months of each of the first nine months of fiscal year 2018years 2024 and fiscal year 2017,2023, the net additional common stock equivalents had a $0.01($0.01) effect on the calculation of diluted earnings per share. The average shares outstanding used to compute basic and diluted earnings per share are as follows:follows (amounts in thousands):
Third Quarter Ended | Nine Months Ended | |||||||
December 23, | December 24, | December 23, | December 24, | |||||
2017 | 2016 | 2017 | 2016 | |||||
Average Shares Outstanding – Basic | 7,142 | 7,010 | 7,115 | 6,984 | ||||
Effect of Dilutive Common Stock Equivalents | 177 | 194 | 158 | 177 | ||||
Average Shares Outstanding – Diluted | 7,319 | 7,204 | 7,273 | 7,161 | ||||
Anti-dilutive Common Stock Equivalents | - | - | - | - |
Third Quarter Ended | Nine Months Ended | |||||||||||||||
December 23, | December 24, | December 23, | December 24, | |||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Average Shares Outstanding – Basic | 8,615 | 7,559 | 8,060 | 7,547 | ||||||||||||
Effect of Dilutive Common Stock Equivalents | 137 | 107 | 127 | 97 | ||||||||||||
Average Shares Outstanding – Diluted | 8,752 | 7,666 | 8,187 | 7,644 | ||||||||||||
Anti-dilutive Common Stock Equivalents | 37 | 148 | 46 | 163 |
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. 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 25, 2023 | $ | 11,458 | $ | 57,902 | $ | 69,360 | $ | 448 | $ | 13,351 | $ | 13,799 | ||||||||||||
Additions | 26,707 | 9,416 | 36,123 | 7,900 | 3,983 | 11,883 | ||||||||||||||||||
Amortization | - | - | - | (910 | ) | (3,317 | ) | (4,227 | ) | |||||||||||||||
Currency Translation Adjustment | - | 217 | 217 | - | 4 | 4 | ||||||||||||||||||
Net Book Value as of December 23, 2023 | $ | 38,165 | $ | 67,535 | $ | 105,700 | $ | 7,438 | $ | 14,021 | $ | 21,459 |
Other Liabilities: A summary of other current and non-current liabilities is as follows (amounts in thousands):
(Unaudited) | (Audited) | |||||||
December 23, | March 25, | |||||||
2023 | 2023 | |||||||
Current Liabilities: | ||||||||
Accrued Payroll and Employee Benefits | $ | 4,056 | $ | 3,243 | ||||
Accrued Incentives | 3,095 | 2,507 | ||||||
Current Portion of Lease Liabilities | 2,878 | 2,333 | ||||||
Accrued Acquisition Holdbacks | 2,749 | 252 | ||||||
Accrued Contingent Consideration | 1,029 | - | ||||||
Other Current Liabilities | 1,876 | 1,866 | ||||||
Accrued Compensation and Other Current Liabilities | $ | 15,683 | $ | 10,201 | ||||
Non-Current Liabilities: | ||||||||
Postretirement Benefit Obligation | $ | 1,238 | $ | 1,266 | ||||
Accrued Acquisition Holdbacks | 1,647 | - | ||||||
Accrued Contingent Consideration | 2,402 | - | ||||||
Other Non-Current Liabilities | 240 | 168 | ||||||
Other Liabilities | $ | 5,527 | $ | 1,434 |
Recently IssuedAdopted Accounting Pronouncements:In May 2017, June 2016, the FASBFinancial Accounting Standard Board (“FASB”) issued ASU 2017-09, Scope of Modification Accounting, Compensation—Stock Compensation2016-13, Financial Instruments - Credit Losses (Topic 718). This326), which significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The ASU provides clarity and reduces both diversity in practice and cost and complexity when applyingreplaces the guidance in Topic 718"incurred loss" model with an "expected credit loss" model that requires entities to a change to the terms or conditions of a share-based payment award. Thisestimate an expected lifetime credit loss on financial assets, including trade accounts receivable. The ASU is effective for annual reportingfiscal years, and interim periods within those fiscal years, beginning after December 15, 2017 and should be applied prospectively. Early2022. Allowance for credit losses for accounts receivable is the most significant item for the Company under this ASU. The Company adopted ASU 2016-13 effective on March 26, 2023. The adoption of this ASU is permitted. The Company does standard did not expect adoption of this ASU to have a material impact on its Consolidated Financial Statements.our consolidated financial statements.
NOTE 2– LONG-TERM DEBT
Description:
On October 30, 2017, July 7, 2021, the Company entered into anthe Second Amended and Restated Credit Facility Agreement (the “2017“Credit Agreement”) with Manufacturers and Traders Trust Company (“M&T”), whichthat amended and restated ourin its entirety the Company’s prior credit facility agreement. agreement with M&T.
The 2017Credit Agreement extendedprovides for 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. The Company's 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 the Company to use up to $50.0 million under the Revolving Credit Commitment for acquisitions in any single fiscal year. The Credit Agreement restricts the Company's 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 Company’s $30.0Credit Agreement, if the acquisition is financed directly or indirectly with the Revolving Credit Commitment.
Under the Credit Agreement, the Company 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.
As of December 23, 2023, $80.0 million was available for borrowing under the revolving credit facility. As of December 23, 2023, there were no amounts outstanding under the revolving credit facility. During the firstnine months of fiscal year 2024, $12.9 million was drawn from the revolving credit facility (the “Revolving Credit Facility”) to October 29, 2021. and used for business acquisitions.
As of December 23, 2017, $30.0 million was available under the Revolving Credit Facility, of which $11.6 million was outstanding and included in long-term debt on the Consolidated Balance Sheet. The 2017 Agreement also increased the amount of the Company’s outstanding term loan to $15.0 million (the “2017 Term Loan”)2023, replacing the previous term loan. As of December 23, 2017, $14.6$4.7 million was outstanding on the 20172018 Term Loan, of which $2.1$2.3 million was included in current liabilities on the Consolidated Balance SheetSheets with the remainder included in long-term debt. The 20172018 Term Loan requires principaltotal amortizing repayments (principal plus interest) of $0.2 million per month plus interest through September 2022 with a $4.3 million repayment required on October 29, 2022. Under the 2017 Agreement, borrowings that may be used for business acquisitions are limited to $20.0 million per fiscal year. During the first nine months of fiscal year 2018, no borrowings were used for business acquisitions.
Table of Contentsits maturity date in December 2025.
The allowable leverage ratio under the 2017 Agreement remains at a maximum multiple of 3.0 of total debt outstanding compared to earnings before income taxes, depreciation and amortization, and non-cash stock-based compensation expense for the preceding four consecutive fiscal quarters. The excess funds of the 2017 Term Loan over the previous term loan were used to repay amounts outstanding under the Revolving Credit Facility.
Previously, on March 31, 2016, the Company entered into Amendment 3 (“Amendment 3”) to the prior credit agreement. Under Amendment 3, borrowings that could be used for business acquisitions were limited to $15.0 million in fiscal years 2018 and 2019. Amendment 3 also provided the Company with a $10.0 million term loan. The term loan required principal repayments of $0.1 million per month plus interest. Total annual repayment amounts of $1.4 million were required in fiscal years 2017 through 2021 with a $3.0 million repayment required in fiscal year 2022. Amendment 3 also increased the allowable leverage ratio to a maximum of 3.0 from 2.75. As described above, in the third quarter of fiscal year 2018, we entered into the 2017 Agreement that amended and restated the prior credit agreement, including Amendment 3.
Interest and Other Costs:Interest Effective July 1, 2023, interest on outstanding borrowings ofunder the Revolving Credit Facility and term loanrevolving credit facility accrue, at Transcat’s election, at either the variable one-month London Interbank Offered Rate (“LIBOR”)Daily Simple SOFR or a fixed rate for a designated period at the LIBORSOFR corresponding to such period (subject to a 0.25% floor), in each case, plus a margin. CommitmentUnused fees accrue based on the average daily amount of unused credit available on the Revolving Credit Facility.revolving credit facility. Interest rate margins and commitmentunused fees are determined on a quarterly basis based upon the Company’s calculated leverage ratio, as defined in the 2017 Agreement. The one-month LIBOR at December 23, 2017 was 1.6%.ratio. The Company’s interest rate for the revolving credit facility for the firstnine months of fiscal year 20182024 ranged from 3.2%6.4% to 3.4%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.
Covenants:The 2017Credit Agreement has certain covenants with which the Company has tomust comply, including a fixed charge coverage ratio covenant, which prohibits the Company's fixed charge ratio from being less than 1.15 to 1.00, and a leverage ratio covenant.covenant, which prohibits the Company's leverage ratio from exceeding 3.00 to 1.00. The Company was in compliance with all loan covenants and requirements during the third quarterfirstnine months of fiscal year 2018.2024. The Company's leverage ratio, as defined in the Credit Agreement, was 0.12 at December 23, 2023, compared with 1.60 at March 25, 2023.
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.revolving credit facility.
NOTE 3– STOCK-BASED COMPENSATION
The
In September 2021, the Transcat, Inc. 20032021 Stock Incentive Plan as Amended(the “2021 Plan”) was approved by shareholders and Restatedbecame effective. The 2021 Plan replaced the Transcat, Inc. 2003 Incentive Plan (the “2003“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 December 23, 2017, 1.12023, 0.6 million shares of common stock were available for future grant under the 20032021 Plan.
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 firstnine months of fiscal year 2024 and fiscal year 2023 were $0.7 million and $0.5 million, respectively.
Restricted Stock Units:The Company generally grants time-based and performance-based restricted stock units as a primary 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 generallyare either time vested, or vest following the third fiscal year from the date of grant subject to certain cumulative diluted earnings per share growthor cumulative adjusted EBITDA targets over the eligible period. The restricted stock units granted in June 2017 were time vested.
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 Company achieved 50% of the target level for the performance-based restricted stock units granted in the fiscal year ended March 28, 2015 and as a result, issued 25 shares of common stock to executive officers and certain key employees during the first quarter of fiscal year 2018.
The following table summarizes the non-vested performance-based restricted stock units outstanding as of December 23, 2017:2023 (in thousands, except per unit data):
Total | Grant Date | Estimated | |||||||
Number | Fair | Level of | |||||||
Date | Measurement | of Units | Value | Achievement at | |||||
Granted | Period | Granted | Per Unit | December 23, 2017 | |||||
April 2015 | April 2015 - March 2018 | 63 | $ | 9.59 | 50% of target level | ||||
April 2016 | April 2016 - March 2019 | 84 | $ | 10.13 | 115% of target level | ||||
April 2017 | April 2017 – March 2020 | 77 | $ | 12.90 | 100% of target level | ||||
June 2017 | July 2017 – June 2020 | 3 | $ | 12.00 | Time Vested |
Total | Grant Date | Estimated | ||||||||
Number | Fair | Level of | ||||||||
Date | Measurement | of Units | Value | Achievement at | ||||||
Granted | Period | Outstanding | Per Unit | December 23, 2023 | ||||||
October 2018 | October 2018 – September 2028 | 6 | $ | 20.81 | Time Vested | |||||
June 2021 | June 2021 – March 2024 | 10 | $ | 53.17 | 136% of target level | |||||
June 2021 | June 2021 – March 2024 | 11 | $ | 53.17 | Time Vested | |||||
September 2021 | September 2021 – September 2024 | 4 | $ | 67.76 | Time Vested | |||||
January 2022 | January 2022 – March 2024 | 1 | $ | 90.92 | 136% of target level | |||||
January 2022 | January 2022 – March 2024 | 1 | $ | 90.92 | Time Vested | |||||
January 2022 | January 2022 – January 2025 | 1 | $ | 90.41 | Time Vested | |||||
March 2022 | March 2022 – March 2025 | 1 | $ | 76.31 | Time Vested | |||||
May 2022 | May 2022 – March 2025 | 11 | $ | 63.17 | 64% of target level | |||||
May 2022 | May 2022 – March 2025 | 12 | $ | 63.17 | Time Vested | |||||
August 2022 | August 2022 – August 2025 | 1 | $ | 78.04 | Time Vested | |||||
December 2022 | December 2022 – December 2025 | 1 | $ | 81.26 | Time Vested | |||||
December 2022 | December 2022 – December 2025 | 1 | $ | 67.48 | Time Vested | |||||
May 2023 | May 2023 – March 2026 | 10 | $ | 89.70 | 150% of target level | |||||
May 2023 | May 2023 – March 2026 | 11 | $ | 89.70 | Time Vested | |||||
May 2023 | May 2023 – May 2026 | 19 | $ | 89.70 | Time Vested | |||||
August 2023 | August 2023 – August 2024 | 6 | $ | 90.56 | Time Vested | |||||
September 2023 | September 2023 – September 2024 | 4 | $ | 109.55 | Time Vested |
Total expense relating to performance-based restricted stock units, based on grant date fair value and the achievement criteria, was $0.6$2.4 million and $0.2$1.7 million respectively in the firstnine months of fiscal years 2018 and 2017. Total expense relating to time vested restricted stock units was less than $0.1 million for the first nine months of fiscal year 2018.2024 and fiscal year 2023, respectively. As of December 23, 2017,2023, unearned compensation, to be recognized over the grants’ respective service periods, totaled $1.2$4.4 million.
Stock Options:Options vest either immediately or over a periodThe Company grants stock options to employees and directors with an exercise price equal to the quoted market price of up to four years using a straight-line basis and expire either five years or ten years fromthe Company’s stock at the date of the grant. The expense relating tofair 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 five years using a straight-line basis and expire either five years or ten years from the entire award.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 firstthree and nine months of fiscal year 2024 and fiscal year 2023:
Third Quarter Ended | Nine Months Ended | |||||||||||||||
December 23, | December 24, | December 23, | December 24, | |||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Risk-Free Interest Rate | 4.84 | % | N/A | 4.09 | % | 2.65 | % | |||||||||
Volatility Factor | 37.31 | % | N/A | 37.12 | % | 37.62 | % | |||||||||
Expected Term (in Years) | 6.50 | N/A | 6.30 | 4.58 | ||||||||||||
Annual Dividend Rate | 0.00 | % | N/A | 0.00 | % | 0.00 | % |
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 no expected dividends. Under FASB ASC Topic 718, “Compensation – Stock Compensation”, the Company has elected to account for forfeitures as they occur.
During the firstnine months of fiscal year 2024, the Company granted options for 7,000 shares of common stock in the aggregate to Company employees that vest over three years, an option for 10,000 shares of common stock to a Company employee that vests over five years and options for 20,000 shares of common stock (10,000 each) to two Company directors that vest over five years.
During the firstnine months of fiscal year 2023, the Company granted options for 46,000 shares of common stock in the aggregate to Company employees that vest over three years and an option for 10,000 shares of common stock to a Company director that vests over five years.
The expense related to all stock option awards was $0.9 million in the firstnine months of fiscal year 2024 and $1.1 million in the firstnine months of fiscal year 2023.
The following table summarizes the Company’s options as of and for the firstnine months of fiscal year 2018:ended December 23, 2023 (in thousands, except price per option data and years):
Weighted | Weighted | |||||||||||
Average | Average | |||||||||||
Number | Exercise | Remaining | Aggregate | |||||||||
Of | Price Per | Contractual | Intrinsic | |||||||||
Shares | Share | Term (in years) | Value | |||||||||
Outstanding as of March 25, 2017 | 241 | $ | 7.48 | |||||||||
Granted | 165 | 12.00 | ||||||||||
Exercised | (89 | ) | 7.29 | |||||||||
Forfeited | (15 | ) | 7.36 | |||||||||
Redeemed | (20 | ) | 7.72 | |||||||||
Outstanding as of December 23, 2017 | 282 | $ | 10.17 | 5 | $ | 1,167 | ||||||
Exercisable as of December 23, 2017 | 282 | $ | 10.17 | 5 | $ | 1,167 |
Weighted | Weighted | |||||||||||||||
Average | Average | |||||||||||||||
Number | Exercise | Remaining | Aggregate | |||||||||||||
Of | Price Per | Contractual | Intrinsic | |||||||||||||
Options | Option | Term (in years) | Value | |||||||||||||
Outstanding as of March 25, 2023 | 217 | $ | 56.25 | |||||||||||||
Granted | 37 | $ | 93.18 | |||||||||||||
Exercised | (4 | ) | $ | 24.30 | ||||||||||||
Forfeited | (5 | ) | $ | 68.13 | ||||||||||||
Outstanding as of December 23, 2023 | 245 | $ | 62.06 | 6 | $ | 11,180 | ||||||||||
Exercisable as of December 23, 2023 | 82 | $ | 41.17 | 6 | $ | 4,984 |
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 third quarter of fiscal year 20182024 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 December 23, 2017.2023. The amount of aggregate intrinsic value will change based on the fair market value of the Company’s common stock.
Total expense related to stock options was $0.4 million and $0.1 million during each of the first nine months of fiscal years 2018 and 2017, respectively. There was no unrecognized compensation cost related to non-vested stock options as of December 23, 2017.2023 was $2.4 million, which is expected to be recognized over a period of three years. The aggregate intrinsic value of stock options exercised induring the firstnine months of fiscal year 20182024 was $0.6$0.3 million and during the firstnine months of fiscal year 2023 was $0.2 million. Cash received from the exercise of options in the firstnine months of fiscal year 20182024 and fiscal year 2023 was $0.6 million.$0.1 million and less than $0.1 million, respectively.
NOTE 4– SEGMENT INFORMATION
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 two 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 Service.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 informationand geographic data for the third quarter and firstnine months of fiscal years 2018year 2024 and 2017:fiscal year 2023 (dollars in thousands):
Third Quarter Ended | Nine Months Ended | |||||||||||
December 23, | December 24, | December 23, | December 24, | |||||||||
2017 | 2016 | 2017 | 2016 | |||||||||
Revenue: | ||||||||||||
Service | $ | 18,769 | $ | 17,455 | $ | 55,490 | $ | 51,577 | ||||
Distribution | 21,714 | 20,358 | 57,199 | 53,868 | ||||||||
Total | 40,483 | 37,813 | 112,689 | 105,445 | ||||||||
Gross Profit: | ||||||||||||
Service | 4,699 | 4,306 | 13,655 | 13,175 | ||||||||
Distribution | 5,002 | 4,609 | 12,891 | 12,013 | ||||||||
Total | 9,701 | 8,915 | 26,546 | 25,188 | ||||||||
Operating Expenses: | ||||||||||||
Service (1) | 3,636 | 3,365 | 10,917 | 10,399 | ||||||||
Distribution (1) | 3,411 | 3,197 | 10,106 | 9,420 | ||||||||
Total | 7,047 | 6,562 | 21,023 | 19,819 | ||||||||
Operating Income: | ||||||||||||
Service | 1,063 | 941 | 2,738 | 2,776 | ||||||||
Distribution | 1,591 | 1,412 | 2,785 | 2,593 | ||||||||
Total | 2,654 | 2,353 | 5,523 | 5,369 | ||||||||
Unallocated Amounts: | ||||||||||||
Interest and Other Expense, net | 311 | 188 | 854 | 547 | ||||||||
Provision for Income Taxes | 512 | 895 | 1,201 | 1,729 | ||||||||
Total | 823 | 1,083 | 2,055 | 2,276 | ||||||||
Net Income | $ | 1,831 | $ | 1,270 | $ | 3,468 | $ | 3,093 |
Third Quarter Ended | Nine Months Ended | |||||||||||||||
December 23, | December 24, | December 23, | December 24, | |||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Revenue: | ||||||||||||||||
Service | $ | 41,509 | $ | 35,977 | $ | 122,793 | $ | 105,120 | ||||||||
Distribution | 23,657 | 21,425 | 65,775 | 63,382 | ||||||||||||
Total | 65,166 | 57,402 | 188,568 | 168,502 | ||||||||||||
Gross Profit: | ||||||||||||||||
Service | 13,494 | 10,793 | 40,549 | 33,115 | ||||||||||||
Distribution | 7,442 | 5,607 | 19,222 | 16,090 | ||||||||||||
Total | 20,936 | 16,400 | 59,771 | 49,205 | ||||||||||||
Operating Expenses: | ||||||||||||||||
Service (1) | 10,528 | 8,957 | 33,649 | 26,240 | ||||||||||||
Distribution (1) | 6,114 | 4,280 | 15,545 | 12,572 | ||||||||||||
Total | 16,642 | 13,237 | 49,194 | 38,812 | ||||||||||||
Operating Income: | ||||||||||||||||
Service | 2,966 | 1,836 | 6,900 | 6,875 | ||||||||||||
Distribution | 1,328 | 1,327 | 3,677 | 3,518 | ||||||||||||
Total | 4,294 | 3,163 | 10,577 | 10,393 | ||||||||||||
Unallocated Amounts: | ||||||||||||||||
Interest and Other Expense, net | 23 | 1,039 | 1,742 | 1,732 | ||||||||||||
Provision for Income Taxes | 923 | 523 | 2,078 | 1,631 | ||||||||||||
Total | 946 | 1,562 | 3,820 | 3,363 | ||||||||||||
Net Income | $ | 3,348 | $ | 1,601 | $ | 6,757 | $ | 7,030 | ||||||||
Geographic Data: | ||||||||||||||||
Revenues to Unaffiliated Customers (2) | ||||||||||||||||
United States (3) | $ | 59,090 | $ | 51,209 | $ | 170,466 | $ | 151,241 | ||||||||
Canada | 4,083 | 4,221 | 12,226 | 12,075 | ||||||||||||
Other International | 1,993 | 1,972 | 5,876 | 5,186 | ||||||||||||
Total | $ | 65,166 | $ | 57,402 | $ | 188,568 | $ | 168,502 |
(1) | Operating expense allocations between segments |
(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
During fiscal year 2017,
Axiom: Effective August 8, 2023, Transcat acquired substantiallypurchased all of the assetsoutstanding capital stock of Excalibur Engineering,Axiom Test Equipment, Inc. (“Excalibur”Axiom”), a California-basedprivately-held California rental provider of calibration services, new and usedelectronic test equipment sales, and equipment rentals.
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 Company’s geographic reach and leverage its infrastructure while also increasing the depth and breadth of the Company’s serviceDistribution capabilities. In addition, Excalibur provided an established equipment rental and used equipment business, which are complimentary
The Axiom goodwill is primarily attributable to the Company’s traditional Distribution segment sales.
The Company appliesworkforce acquired, as well as operational synergies and other intangibles that do not qualify for separate recognition. All the acquisition method of accounting for business acquisitions. Under the acquisition method, the purchase price of an acquisition is assigned to the underlying tangiblegoodwill and intangible assets acquired and liabilities assumed based on their respective fair values atrelating to the date of acquisition. The Company uses a valuation hierarchy, as further described under Fair Value of Financial Instruments in Note 1 above, and typically utilizes independent third-party valuation specialistsAxiom acquisition has been allocated to determine the fair values used in this allocation. Purchase price allocations are subject to revision within the measurement period, not to exceed one year from the date of acquisition.Distribution segment. Intangible assets related to the ExcaliburAxiom acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up to 10twelve years and arenot deductible for tax purposes. Amortization of goodwill related to the Axiom acquisition is not deductible for tax purposes.
The total purchase price paid for the assets of ExcaliburAxiom was approximately $7.6$38.6 million netand was paid with $10.0 million in cash and the issuance of our common stock valued at $28.6 million. Pursuant to the asset purchase agreement, the Company held back approximately $3.9 million of the purchase price for certain potential post-closing adjustments.
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, and liabilities assumed. The amount of goodwill changed since September 23, 2023 due to the finalization of inventory and property and equipment values. The following is a summary of the preliminary 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 | $ | 26,707 | |||
Intangible Assets – Customer Base & Contracts | 7,900 | ||||
34,607 | |||||
Plus: | Cash | 37 | |||
Accounts Receivable | 962 | ||||
Inventory | 1,796 | ||||
Other Current Assets | 84 | ||||
Property and Equipment | 4,965 | ||||
Less: | Current Liabilities | (631 | ) | ||
Deferred Tax Liability | (3,256 | ) | |||
Total Purchase Price | $ | 38,564 |
From the date of acquisition through the end of the third quarter of fiscal year 2024, Axiom has contributed revenue of $4.3 million and operating income of $0.4 million, which includes the negative impact of amortization of the acquired intangible assets.
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 $4.3 million and was paid by the issuance of our common stock. Pursuant to the asset purchase agreement, the Company held back approximately $0.9 million of the purchase price for certain potential post-closing adjustments. Pursuant to the asset purchase agreement, the purchase price is subject to reduction by $0.5 million if certain revenue targets are not met through July 12, 2024. This contingent consideration is remeasured quarterly. If, as a result of remeasurement, the value of the contingent consideration changes, any charges or income will be included in the Company’s Consolidated Statements of Income. The purchase price was reduced to $3.8 million as of December 23, 2023 as the Company recorded a receivable in the amount of $0.5 million related to the revenue target contingent consideration. This receivable was recognized based on the facts and circumstances at the date of acquisition and is recognized as a component of goodwill and not recorded in the Consolidated Statement of Income.
The purchase price allocation is subject to revision based upon our final review of intangible asset valuation assumptions, working capital adjustments, assets acquired, and liabilities assumed. The amount of goodwill changed since September 23, 2023 due to the accounts receivable balance as part of the contingent consideration. The following is a summary of the preliminary 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 | $ | 2,163 | |||
Intangible Assets – Customer Base & Contracts | 1,062 | ||||
Intangible Assets – Covenant Not to Compete | 392 | ||||
Intangible Assets – Sales Backlog | 95 | ||||
3,712 | |||||
Plus: | Accounts Receivable | 666 | |||
Less: | Current Liabilities | (211 | ) | ||
Deferred Tax Liability | (383 | ) | |||
Total Purchase Price | $ | 3,784 |
From the date of acquisition through the end of the third quarter of fiscal year 2024, SteriQual has contributed revenue of $1.9 million and operating income of less than $0.1 million, which includes the negative impact of amortization of the acquired intangible assets.
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 fifteen 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 $9.8 million and was paid with $2.9 million in cash, acquired. including $0.5 million placed in escrow for contingent consideration, certain post-closing adjustments and indemnification claims, if any, and the issuance of 77,387 shares of our common stock valued at $6.9 million. Pursuant to the asset purchase agreement, the purchase price will be subject to reduction by up to $0.5 million if a key customer relationship is not retained through March 27, 2024. This contingent consideration is remeasured quarterly. If, as a result of remeasurement, the value of the contingent consideration changes, any charges or income will be included in the Company’s Consolidated Statements of Income. As of December 23, 2023, we continued to retain this key customer relationship. As a result, there has not been a receivable recognized relating to the $0.5 million contingent consideration.
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 duringon March 27, 2023 (in thousands):
Goodwill | $ | 7,253 | |||
Intangible Assets – Customer Base & Contracts | 2,303 | ||||
Intangible Assets – Covenant Not to Compete | 132 | ||||
9,688 | |||||
Plus: | Accounts Receivable | 499 | |||
Property and Equipment | 356 | ||||
Less: | Current Liabilities | (128 | ) | ||
Deferred Tax Liability | (636 | ) | |||
Total Purchase Price | $ | 9,779 |
From the period presented:date of acquisition through the end of the third quarter of fiscal year 2024, TIC-MS has contributed revenue of $2.7 million and operating income of $1.1 million, which includes the negative impact of amortization of the acquired intangible assets.
FY 2017 | |||||
Goodwill | $ | 3,455 | |||
Intangible Assets – Customer Base | 1,990 | ||||
Intangible Assets – Covenant Not to Compete | 100 | ||||
5,545 | |||||
Plus: | Current Assets | 973 | |||
Non-Current Assets | 1,652 | ||||
Less: | Current Liabilities | (606 | ) | ||
Total Purchase Price | $ | 7,564 |
Elite All the goodwill related to the Elite acquisition has been allocated to the Service segment. Amortization of goodwill related to the Elite acquisition is deductible for The total purchase price for the assets of Elite was approximately $0.9 million, of which $0.8 million was paid in cash. Pursuant to the asset purchase agreement, the Company Goodwill Plus: Accounts Receivable Total Purchase Price Since this operation was integrated immediately into our existing operations, its separate contributed revenue and operating income is undeterminable. Complete Calibrations: Effective September 28, 2022, Transcat purchased all of the outstanding capital stock of Galium Limited (d/b/a Complete Calibrations) ("Complete Calibrations"), an Irish company. 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. All the goodwill related to the Complete Calibrations acquisition has been allocated to the Service segment. Amortization of goodwill related to the Complete Calibrations acquisition is not deductible for tax purposes. The goodwill is primarily attributable to the workforce acquired, as well as operational synergies and other intangibles that do not qualify for separate recognition. The total purchase price paid for Complete Calibrations was approximately $1.2 million in cash. In connection with this transaction, the Company also entered into a Technology License Agreement with Calibration Robots Limited, an Irish company and related party to Complete Calibrations, for the use of their proprietary robotics in completing calibrations. The Technology License Agreement includes transactional royalties in the amount of 3 Euros ($3.19) per calibration performed by technology covered under this license agreement, with a royalty term of up to ten years commencing from the earlier of (i) the date on which cumulative revenue earned from technology covered under this license agreement equals 0.75 million Euros ($0.80 million), and (ii) March 28, 2024. In addition to the transactional royalties, as long as a key employee is employed by the Company, there is an annual royalty fee of 0.1 million Euros ($0.11 million). For purposes of this paragraph, we used a conversion rate of 1.1014 to convert Euro to U.S. dollar as of December 23, 2023. As of December 23, 2023, the key employee is still employed by the Company. The following is a summary of the purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of Complete Calibrations’ assets and liabilities acquired on September 28, 2022 (in thousands): Goodwill Plus: Cash Inventory Total Purchase Price During the firstnine months of fiscal year 2024, Complete Calibrations has contributed revenue of $0.3 million and operating loss of less than $0.1 million. e2b: Effective September 27, 2022, Transcat acquired substantially all of the assets of e2b Calibration (“e2b”), an Ohio 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 e2b 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 e2b acquisition has been allocated to the Service segment. Intangible assets related to the e2b acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up to fifteen years and are deductible for tax purposes. Amortization of goodwill related to the e2b acquisition is deductible for tax purposes. The total purchase price paid for the assets of e2b was approximately $3.1 million in cash. Pursuant to the asset purchase agreement, the Company held back $0.9 million of the purchase price in escrow for certain potential post-closing adjustments. During the third quarter of fiscal year 2023, $0.6 million of the escrow was released to the sellers. During the third quarter of fiscal year 2024, $0.3 million was released to the sellers. As of December 23, 2023, there is no money remaining in escrow. The following is a summary of the purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of e2b’s assets and liabilities acquired on September 27, 2022 (in thousands): Goodwill Intangible Assets – Customer Base & Contracts Intangible Assets – Covenant Not to Compete Plus: Accounts Receivable Other Current Assets Property and Equipment Less: Current Liabilities Total Purchase Price During the firstnine months of fiscal year 2024,e2b has contributed revenue of $2.6 million and operating income of $0.4 million, which includes the negative impact of amortization of the acquired intangible assets. Alliance: Effective May 31, 2022, Transcat acquired substantially all of the assets of Charlton Jeffmont Inc., Raitz Inc. and Toolroom Calibration Inc. d/b/a Alliance Calibration (“Alliance”), an Ohio 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 Alliance 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 Alliance acquisition has been allocated to the Service segment. Intangible assets related to the Alliance acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up to fifteen years and are deductible for tax purposes. Amortization of goodwill related to the Alliance acquisition is deductible for tax purposes. The purchase price for Alliance was approximately $4.7 million and was paid with $4.0 million in cash and the issuance of 2,284 shares of our common stock valued at $0.1 million. Pursuant to the asset purchase agreement, the Company held back $0.5 million of the purchase price for certain potential post-closing adjustments, and the purchase price would have been subject to reduction by $0.5 million if a key customer relationship was not retained. During the first quarter of fiscal year 2024, $0.5 million of the holdback was released to the sellers. The following is a summary of the purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of Alliance’s assets and liabilities acquired on May 31, 2022 (in thousands): Goodwill Intangible Assets – Customer Base & Contracts Intangible Assets – Covenant Not to Compete Plus: Accounts Receivable Property and Equipment Less: Current Liabilities Total Purchase Price During the firstnine months of fiscal year 2024, Alliance has contributed revenue of $2.0 million and operating income of $0.6 million, which includes the negative impact of amortization of the acquired intangible assets. NEXA: Effective August 31, 2021, Transcat purchased all of the outstanding capital stock of Cal OpEx Limited (d/b/a NEXA Enterprise Asset Management), an Irish company, which owns all of the issued and outstanding capital stock of its U.S.-based subsidiary, Cal OpEx Inc., a Delaware corporation (collectively, “NEXA”). On September 11, 2023, the Company entered into an amendment (the “Amendment”) to a Share Purchase Agreement dated August 31, 2021 (the “Purchase Agreement”) with John Cummins and Ross Lane (the “Sellers”) associated with the Company’s purchase of all of the outstanding capital stock of NEXA. As described below, the Amendment changes the conditions necessary for the Sellers to receive potential earn-out payments, changes the lines of business included in the calculation of earnings before income taxes, depreciation and amortization (“EBITDA”), and changes the outside due date of any potential earn-out payments. Pursuant to the Purchase Agreement, the Sellers were entitled to potential earn-out payments in an aggregate amount of up to $7.5 million for the calendar years ending December 31, 2022, 2023,2024, and 2025 (each, an “Earn-Out Year”) if NEXA’s consolidated gross revenue, as defined in the Purchase Agreement, equaled or exceeded 70% of the target revenue specified in the Purchase Agreement and NEXA’s consolidated EBITDA percentage, as defined in the Purchase Agreement, equaled or exceeded 25% for a given earn-out year. The potential earn-out payment of up to $0.4 million for the 2022 Earn-Out Year was not earned under the Purchase Agreement. Pursuant to the Amendment, the Sellers are now entitled to potential earn-out payments in an aggregate amount of up to $7.1 million for the remaining Earn-Out Years (2023,2024 and 2025) if NEXA’s consolidated EBITDA, as defined in the Amendment, equals or exceeds 70% of the target EBITDA specified in the Amendment for a given earn-out year. Pursuant to the Amendment, the definition of EBITDA was revised to include EBITDA from the Commissioning, Qualification and Validation business ("CQV") and incremental EBITDA from the SteriQual, Inc. business. The maximum earn-out payment will be received if NEXA’s consolidated EBITDA equals or exceeds 150% of the target EBITDA specified in the Amendment. The earn-out payments, if any, will be paid in shares of common stock, calculated using the volume-weighted average closing price of the common stock for 30 consecutive trading days ending on the trading day that is two days prior to the date the earn-out payment is to be paid (“VWAP”). If the VWAP is less than $45.07 per share, then the Company may pay the earn-out payment in cash in lieu of shares of common stock. As of March 25, 2023, the estimated fair value Certain: Effective February 2, 2023, Transcat acquired substantially all of the assets of Elite Calibration LLC (“Elite”), a California based provider of calibration services. This transaction aligned with a key component of the Company’s acquisition agreements have included provisionsstrategy of targeting businesses that can leverage the Company’s already existing operating infrastructure.contingent considerationtax purposes. The goodwill is primarily attributable to the workforce acquired, as well as operational synergies and other holdback amounts. intangibles that do not qualify for separate recognition.accruesheld back $0.1 million of the purchase price for contingent consideration and holdback provisionscertain potential post-closing adjustments. As of December 23, 2023, no amounts have been paid. The following is a summary of the purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of Elite’s assets and liabilities acquired on February 2, 2023 (in thousands): $ 820 62 $ 882 $ 1,123 10 44 $ 1,177 $ 1,367 746 396 2,509 361 24 326 (121 ) $ 3,099 $ 1,783 2,320 114 4,217 343 170 (27 ) $ 4,703 atdate of acquisition.total earn-out obligations under the Purchase Agreement, classified as Level 3 in the fair value hierarchy, was zero. As of September 23, 2023, the estimated fair value for the total earn-out obligations under the Amendment, classified as Level 3 in the fair value hierarchy, was approximately $2.8 million. This amount was calculated using a Geometric Brownian motion distribution that was then used in a Monte Carlo simulation model. Assumptions used in the Monte Carlo simulation model included: 1) discount rate of 9.00%, 2) risk-free interest rate of 5.00%, 3) asset volatility of 25.00%, and 4) forecasted revenue and EBITDA. This contingent consideration is remeasured quarterly. If, as a result of remeasurement, the value of the contingent consideration changes, any charges or income will be included in the Company’s Consolidated Statements of Income. 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 Company recognized a non-cash expense of $2.8 million, which was recorded in general and administrative expenses in its Consolidated Statement of Income for the quarter ended September 23, 2023. As of December 23, 20172023, the estimated fair value of the total earn-out obligations under the Amendment was approximately $2.9 million. The change in accrual is due to the actual results of the 2023 calendar Earn-Out Year and March 25, 2017, no contingent consideration or other holdback amountsthe accretion of the 2024 and 2025 Earn-Out Years. As a result, the Company recognized a non-cash expense of $0.1 million, which was recorded in general and administrative expenses in its Consolidated Statement of Income for the quarter ended December 23, 2023. There were outstanding.no material changes in assumptions that would impact the valuation as of December 23, 2023.
The results of the 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 acquisitionacquisitions of ExcaliburAxiom, SteriQual, TIC-MS, Elite, Complete Calibrations, e2b and Alliance had occurred at the beginning of fiscal year 2017.2023. The pro forma results do not purport to represent what the Company’s results of operations actually would have been if the transactiontransactions had occurred at the beginning of the period presented or what the Company’s operating results will be in future periods.
(Unaudited) | |||
Nine Months | |||
Ended | |||
December 24, | |||
2016 | |||
Total Revenue | $ | 105,595 | |
Net Income | $ | 3,013 | |
Basic Earnings Per Share | $ | 0.43 | |
Diluted Earnings Per Share | $ | 0.42 |
During each
(Unaudited) | (Unaudited) | |||||||||||||||
Third Quarter Ended | Nine Months Ended | |||||||||||||||
(in thousands except per share information) | December 23, 2023 | December 24, 2022 | December 23, 2023 | December 24, 2022 | ||||||||||||
Total Revenue | $ | 65,166 | $ | 62,868 | $ | 192,613 | $ | 186,276 | ||||||||
Net Income | $ | 3,348 | $ | 1,383 | $ | 6,548 | $ | 5,801 | ||||||||
Basic Earnings Per Share | $ | 0.39 | $ | 0.18 | $ | 0.81 | $ | 0.77 | ||||||||
Diluted Earnings Per Share | $ | 0.38 | $ | 0.18 | $ | 0.80 | $ | 0.76 |
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 December 23, 2023, $1.0 million contingent consideration and $2.7 million of other holdback amounts unpaid are reflected in current liabilities on the Consolidated Balance Sheets and $2.4 million of contingent consideration and $1.6 million of other holdback amounts unpaid are reflected in other liabilities on the Consolidated Balance Sheets. During the firstnine months of fiscal years 2018year 2024, $0.8 million of holdback amounts were paid. During the firstnine months of fiscal year 2023, no contingent consideration or other holdback amounts were paid.
During the firstnine months of fiscal year 2024 and 2017,fiscal year 2023, acquisition costs of less than$0.7 million and $0.1 million, respectively, were recorded as incurred as general and administrative expenses in the Consolidated Statements of Income.
NOTE 6– INCOME TAXES STOCK OFFERING
On December 22, 2017, September 21, 2023, the Tax Cuts Company entered into an underwriting agreement with Oppenheimer & Co. Inc., as representative of several underwriters, for the sale of common stock in an underwritten public offering at a public offering price of $95.00 per share (the “Offering”). The Offering closed on September 25, 2023 and Jobs Act (H.R. 1), the tax reform bill (the "Act"), was signed into law. The Act includes numerous changes to existing tax law, including a permanent reductionCompany sold an aggregate of 847,371 shares in the federal corporate income tax rate from 35% to 21%. SinceOffering, which included 110,526 shares issued upon the Company is a fiscal year taxpayer,exercise by the lower corporate income tax rate will be phasedunderwriters of their over-allotment option, for total gross proceeds of $80.5 million. Net proceeds received after direct costs in and the U.S. federal tax rate recorded is a blended rateOffering were $75.2 million. A portion of the old rates and the new rates for fiscal year 2018. The result was a $0.1 million reduction of the Company’s provision for income taxes in the third quarter of fiscal year 2018.
The Company has concluded that the Act will cause the Company’s U.S. deferred tax assets and liabilities to be revalued. Deferred income taxes result from temporary differences between the tax basis of assets and liabilities and their reported basis in the financial statements that will result in taxable or deductible amounts in future years. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in years in which those temporary differences are expected to be recovered or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are revalued and any change is adjusted through the provision for income tax expense in the reporting period of the enactment. The Act required the Company to do such a revaluation and record a reduction in its net deferred tax liability of approximately $0.2 million, which reduced the provision for income taxes during the third quarter of fiscal year 2018.
In addition, the Act provides for a one-time “deemed repatriation” of accumulated foreign earnings. The Company has estimated the additional provision for income tax expense on the repatriation to be less than $0.1 million. The Company will pay any amounts owed over eight years.
The reduction in the Company’s provision for income taxes due to the Act in the third quarter of fiscal year 2018 was approximately $0.3 million or $0.04 per share.
The impact of the Act may differproceeds from this estimate, possibly materially, dueOffering were used to among other things, changespay off the Revolving Credit Facility in interpretations and assumptions the Company has made, guidance that may be issued and actions the Company may take as a resultfull.
ITEM 2. MANAGEMENT’SMANAGEMENT’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 “anticipates,” “believes,” “estimates,” “expects,” “projects,“potential,” “intends,“outlook,” “seek,” “strategy,” “target,” “could,” “may”“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, the impact of widespread public health crises, 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 one vendor toour enterprise resource planning system, technology updates, supply a significant amount of inventory purchases,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 or natural disasters, 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 acquisition strategy and the integration of the businesses we acquire, the impact of economic conditions, risks related to the accuracy of the estimates and assumptions we use to revalue our U.S. deferred tax assets and liabilities in accordance with the Act, volatility in the oil and gas industry, the highly competitive nature of our two business segments, foreign currency rate fluctuations and cybersecurity risks.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 25, 2017.2023. You should not place undue reliance on our forward-looking statements.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 25, 2017.2023.
RESULTS OF OPERATIONS
Recent Developments
On September 25, 2023, we closed an underwritten public offering of our common stock for aggregate gross proceeds of $80.5 million (the “Offering”). In the Offering, we sold an aggregate of 847,371 shares at $95.00 per share. We received net proceeds of $75.2 million in the Offering, a portion of which was used during the third quarter of fiscal year 2024 to repay in full our revolving credit facility. See “Liquidity and Capital Resources” below for more information.
Executive Summary
We achieved record
During our third quarter of fiscal year 2024, we had consolidated revenue of $40.5$65.2 million. This represented an increase of $2.7$7.8 million or 7.1%13.5% versus the third quarter of fiscal year 2017. Revenue growth2023. This increase was led byprimarily due to recently completed acquisitions, strong demand in our Service segment,segment’s highly-regulated end markets and increased rental sales, which increased 7.5%includes incremental revenue from an acquisition completed in fiscal year 2024. See Note 5 – “Business Acquisitions” to $18.8 million. Sales growthour unaudited consolidated financial statements in this report for more information about the impact of our Distribution segment was 6.7% to $21.7 million, a recordacquisitions.
Our third quarter for that segment. The growth achieved in both segments was all organic.
Grossof fiscal year 2024 gross profit was $9.7 million,$20.9 million. This was an increase of $0.8$4.5 million or 8.8%27.7% versus the third quarter of fiscal year 2017. Gross2023. In addition, consolidated gross margin increased 40 basis points due to improved productivity in the Service segment and changes in the Distribution segment sales mix, with more rental revenues and opportunistic strategic pricing being applied to our core industrial customer base.
Operating expenses were $7.0 million,was 32.1%, an increase of $0.5 million or 7.4% as compared to350 basis points versus the third quarter of fiscal year 2017. General and administrative expenses increased as we continued to invest in our technology infrastructure and operational excellence initiatives.2023. This increase was partially offset by a decrease in selling, marketing and warehouse expenses which was alargely the result of reduced acquired customer amortization expense. Operatingoperating leverage on our fixed costs, increased technician productivity and accretive gross margins from our rental business.
Total operating expenses as a percentage of total revenue were 17.4%, the same as in the third quarter of fiscal year 2017.
Net income was $1.8 million for the third quarter of fiscal year 2018 for the reasons stated above, up from $1.3$16.6 million in the third quarter of fiscal year 2017.2024, an increase of $3.4 million or 25.7% when compared to the prior year third quarter. Included in operating expenses during the third quarter of fiscal year 2024 were incremental operating expenses from the acquisitions of Axiom, SteriQual, TIC-MS, investments in technology and higher incentive-based employee costs due to higher sales. As a percentage of total revenue, operating expenses were 25.5% in the third quarter of fiscal year 2024, up 240 basis points from 23.1% in the third quarter of fiscal year 2023. Operating income was $4.3 million, an increase of $1.1 million, or 35.8% and operating margin increased from 5.5% to 6.6% in the third quarter of fiscal year 2024.
Net income was $3.3 million in the third quarter of fiscal year 2024 versus $1.6 million in the third quarter of fiscal year 2023. The Company also benefitted from reducedincrease was primarily due to higher operating income and lower interest expense associated with the repayment of our revolving credit facility, partially offset by higher provision for income taxestaxes.
The following table presents, for the third quarter and for the first nine months of fiscal years 2018year 2024 and 2017,fiscal year 2023, the components of our Consolidated Statements of Income:
(Unaudited) | (Unaudited) | |||||||
Third Quarter Ended | Nine Months Ended | |||||||
December 23, | December 24, | December 23, | December 24, | |||||
2017 | 2016 | 2017 | 2016 | |||||
As a Percentage of Total Revenue: | ||||||||
Service Revenue | 46.4% | 46.2% | 49.2% | 48.9% | ||||
Distribution Sales | 53.6% | 53.8% | 50.8% | 51.1% | ||||
Total Revenue | 100.0% | 100.0% | 100.0% | 100.0% | ||||
Gross Profit Percentage: | ||||||||
Service Gross Profit | 25.0% | 24.7% | 24.6% | 25.5% | ||||
Distribution Gross Profit | 23.0% | 22.6% | 22.5% | 22.3% | ||||
Total Gross Profit | 24.0% | 23.6% | 23.6% | 23.9% | ||||
Selling, Marketing and Warehouse Expenses | 10.2% | 11.0% | 10.9% | 12.0% | ||||
General and Administrative Expenses | 7.2% | 6.4% | 7.8% | 6.8% | ||||
Total Operating Expenses | 17.4% | 17.4% | 18.7% | 18.8% | ||||
Operating Income | 6.6% | 6.2% | 4.9% | 5.1% | ||||
Interest and Other Expense, net | 0.8% | 0.5% | 0.8% | 0.5% | ||||
Income Before Income Taxes | 5.8% | 5.7% | 4.1% | 4.6% | ||||
Provision for Income Taxes | 1.3% | 2.3% | 1.0% | 1.6% | ||||
Net Income | 4.5% | 3.4% | 3.1% | 2.9% |
(Unaudited) | (Unaudited) | |||||||||||||||
Third Quarter Ended | Nine Months Ended | |||||||||||||||
December 23, | December 24, | December 23, | December 24, | |||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
As a Percentage of Total Revenue: | ||||||||||||||||
Service Revenue | 63.7 | % | 62.7 | % | 65.1 | % | 62.4 | % | ||||||||
Distribution Sales | 36.3 | % | 37.3 | % | 34.9 | % | 37.6 | % | ||||||||
Total Revenue | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Gross Profit Percentage: | ||||||||||||||||
Service Gross Profit | 32.5 | % | 30.0 | % | 33.0 | % | 31.5 | % | ||||||||
Distribution Gross Profit | 31.5 | % | 26.2 | % | 29.2 | % | 25.4 | % | ||||||||
Total Gross Profit | 32.1 | % | 28.6 | % | 31.7 | % | 29.2 | % | ||||||||
Selling, Marketing and Warehouse Expenses | 11.5 | % | 11.5 | % | 11.1 | % | 10.9 | % | ||||||||
General and Administrative Expenses | 14.0 | % | 11.6 | % | 15.0 | % | 12.2 | % | ||||||||
Total Operating Expenses | 25.5 | % | 23.1 | % | 26.1 | % | 23.0 | % | ||||||||
Operating Income | 6.6 | % | 5.5 | % | 5.6 | % | 6.2 | % | ||||||||
Interest and Other Expense, net | 0.0 | % | 1.8 | % | 0.9 | % | 1.0 | % | ||||||||
Income Before Income Taxes | 6.6 | % | 3.7 | % | 4.7 | % | 5.1 | % | ||||||||
Provision for Income Taxes | 1.5 | % | 0.9 | % | 1.1 | % | 1.0 | % | ||||||||
Net Income | 5.1 | % | 2.8 | % | 3.6 | % | 4.2 | % |
THIRD QUARTER ENDED DECEMBERThird Quarter Ended December 23, 20172023 COMPARED TO THIRD QUARTER ENDED DECEMBERThird Quarter Ended December 24, 20162022(dollars (dollars in thousands):
Revenue:
Third Quarter Ended | Change | |||||||||||
December 23, | December 24, | |||||||||||
2017 | 2016 | $ | % | |||||||||
Revenue: | ||||||||||||
Service | $ | 18,769 | $ | 17,455 | $ | 1,314 | 7.5% | |||||
Distribution | 21,714 | 20,358 | 1,356 | 6.7% | ||||||||
Total | $ | 40,483 | $ | 37,813 | $ | 2,670 | 7.1% |
Third Quarter Ended | Change | |||||||||||||||
December 23, | December 24, | |||||||||||||||
2023 | 2022 | $ | % | |||||||||||||
Revenue: | ||||||||||||||||
Service | $ | 41,509 | $ | 35,977 | $ | 5,532 | 15.4 | % | ||||||||
Distribution | 23,657 | 21,425 | 2,232 | 10.4 | % | |||||||||||
Total | $ | 65,166 | $ | 57,402 | $ | 7,764 | 13.5 | % |
Total revenue was $40.5$65.2 million, an increase of $2.7$7.8 million, or 7.1%13.5%, in our fiscal year 20182024 third quarter compared to the prior fiscal year third quarter. This year-over-year growth was purely organic.
Service revenue, which accounted for 46.4%63.7% and 46.2%62.7% of our total revenue in the third quarter of fiscal years 20182024 and 2017,2023, respectively, increased 7.5%$5.5 million or 15.4% from the third quarter of fiscal year 20172023 to the third quarter of fiscal year 2018.2024. This year-over-year increase included $2.2 million in Service revenue was comprised of new business from the life scienceacquisitions of TIC-MS, SteriQual and Axiom, and also included organic revenue growth of 9.1% driven by strong end-market demand and continued market and growth in general industrial manufacturing customers, which includes the defense and aerospace market.share gains.
Our fiscal years 20182024 and 2017 quarterly2023 Service revenue growth, in relation to prior fiscal year quarter comparisons, was as follows:
FY 2018 | FY 2017 | ||||||||||||||
Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | |||||||||
Service Revenue Growth | 7.5% | 7.6% | 7.6% | 11.2% | 25.4% | 19.4% | 26.9% |
Fiscal
FY 2024 | FY 2023 | |||||||||||||||||||||||||||
Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||||||
Service Revenue Growth | 15.4 | % | 17.5 | % | 17.6 | % | 14.7 | % | 19.0 | % | 19.4 | % | 22.9 | % |
The growth in Service segment revenue during the third quarter of fiscal year 2017 quarterly2024 versus the third quarter of fiscal year 2023 reflected both organic growth comparisons include organic and acquisition related growthincreased revenue from the acquisitions of TIC-MS, SteriQual and Axiom.
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, second and third quartersquarter of fiscal year 2018 include no acquisition related growth. Our goal is to deliver mid-to-high single digit organic Service2024 and each quarter in fiscal year 2023 as well as the trailing twelve-month revenue growth each quarter overas a comparison to that of the same quarter prior year.fiscal year period:
FY 2024 | FY 2023 | |||||||||||||||||||||||||||
Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||||||
Trailing Twelve-Month: | ||||||||||||||||||||||||||||
Service Revenue | $ | 162,556 | $ | 157,024 | $ | 150,860 | $ | 144,883 | $ | 139,787 | $ | 134,047 | $ | 128,324 | ||||||||||||||
Service Revenue Growth | 16.3 | % | 17.1 | % | 17.6 | % | 18.8 | % | 20.2 | % | 20.9 | % | 21.2 | % |
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, second and third quarter of fiscal year 2024 and for each quarter during fiscal years 2018 and 2017:year 2023:
FY 2018 | FY 2017 | ||||||||||||||
Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | |||||||||
Percent of Service Revenue: | |||||||||||||||
In-House | 83.9% | 83.6% | 83.5% | 85.1% | 84.3% | 83.6% | 84.3% | ||||||||
Outsourced | 14.4% | 14.7% | 14.7% | 13.0% | 13.9% | 14.6% | 13.8% | ||||||||
Freight Billed to Customers | 1.7% | 1.7% | 1.8% | 1.9% | 1.8% | 1.8% | 1.9% | ||||||||
100.0% | 100.0% | 100.0% | 100.0% | 100.0% | 100.0% | 100.0% |
FY 2024 | FY 2023 | |||||||||||||||||||||||||||
Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||||||
Percent of Service Revenue: | ||||||||||||||||||||||||||||
In-House | 86.2 | % | 85.8 | % | 87.3 | % | 86.9 | % | 86.2 | % | 86.2 | % | 85.4 | % | ||||||||||||||
Outsourced | 12.6 | % | 13.0 | % | 11.6 | % | 11.9 | % | 12.6 | % | 12.6 | % | 13.2 | % | ||||||||||||||
Freight Billed to Customers | 1.2 | % | 1.2 | % | 1.1 | % | 1.2 | % | 1.2 | % | 1.2 | % | 1.4 | % | ||||||||||||||
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
Our Distribution sales accounted for 53.6%36.3% of our total revenue in the third quarter of fiscal year 20182024 and 53.8%37.3% of our total revenue in the third quarter of fiscal year 2017.2023. During the third quarter of fiscal year 2018,2024, Distribution segment sales were $23.7 million which was an increase of 10.4% or $2.2 million . This increase was due to $2.9 million of incremental revenue from the acquisition of Axiom offset by slower demand for our non-rental products.
The following table presents the quarterly historical trend of Distribution sales growth reflected higher demand from industrial customers, especially those sold through our independentin fiscal years 2024 and 2023 compared to the prior year fiscal quarter:
FY 2024 | FY 2023 | |||||||||||||||||||||||||||
Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||||||
Distribution Sales Growth (Decline) | 10.4 | % | 0.9 | % | (0.2 | )% | 5.1 | % | 3.7 | % | 1.6 | % | 2.7 | % |
The Distribution segment sales representative network, increased rental business and web-based sales. Rental revenue was $1.0 million and $0.7 million inincrease for the third quartersquarter of fiscal years 2018 and 2017, respectively.
Our fiscal years 2018 and 2017 Distribution sales growth (decline), in relation to prioryear 2024 versus the third quarter of fiscal year quarter comparisons,2023 was as follows. Thedue to sales growth in fiscal year 2017 over fiscal year 2016 reflectsfrom the recoveryacquisition of sales in the oil and gas market which were severely impacted by oil price drops and the ripple effects to that sector in fiscal year 2016.Axiom.
FY 2018 | FY 2017 | |||||||||||||
Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||
Distribution Sales Growth (Decline) | 6.7% | 0.9% | 11.4% | 23.7% | 25.4% | 14.7% | (1.0%) |
Distribution sales 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. Our totalManagement uses pending product shipments atand backorders as measures of our future business performance and financial performance within the end of the third quarter of fiscal year 2018 were $3.9 million, a decrease of $0.1 million from $4.0 million at the end of the third quarter of fiscal year 2017. 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, second and third quarter of fiscal year 2024 and each quarter of fiscal years 2018year 2023:
FY 2024 | FY 2023 | |||||||||||||||||||||||||||
Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||||||
Total Pending Product Shipments | $ | 4,652 | $ | 6,332 | $ | 7,109 | $ | 8,101 | $ | 9,543 | $ | 9,116 | $ | 9,034 | ||||||||||||||
% of Pending Product | ||||||||||||||||||||||||||||
Shipments that were Backorders | 82.0 | % | 87.4 | % | 85.0 | % | 84.8 | % | 78.4 | % | 80.8 | % | 78.1 | % |
Our total pending product shipments at the end of the third quarter of fiscal year 2024 were $4.7 million, a decrease of $4.9 million versus the end of the third quarter of fiscal year 2023 and 2017:a decrease of $3.5 million since March 25, 2023. The decrease in pending product shipments and backorders was a result of improved fulfillment of existing orders.
FY 2018 | FY 2017 | |||||||||||||||||||||
Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||
Total Pending Product Shipments | $ | 3,929 | $ | 3,940 | $ | 3,513 | $ | 3,662 | $ | 3,989 | $ | 3,530 | $ | 3,469 | ||||||||
% of Pending Product Shipments that were Backorders | 71.4% | 74.2% | 69.6% | 73.5% | 66.1% | 74.9% | 69.8% |
Gross Profit:
Third Quarter Ended | Change | ||||||||||
December 23, | December 24 | ||||||||||
2017 | 2016 | $ | % | ||||||||
Gross Profit: | |||||||||||
Service | $ | 4,699 | $ | 4,306 | $ | 393 | 9.1% | ||||
Distribution | 5,002 | 4,609 | 393 | 8.5% | |||||||
Total | $ | 9,701 | $ | 8,915 | $ | 786 | 8.8% |
Third Quarter Ended | Change | |||||||||||||||
December 23, | December 24, | |||||||||||||||
2023 | 2022 | $ | % | |||||||||||||
Gross Profit: | ||||||||||||||||
Service | $ | 13,494 | $ | 10,793 | $ | 2,701 | 25.0 | % | ||||||||
Distribution | 7,442 | 5,607 | 1,835 | 32.7 | % | |||||||||||
Total | $ | 20,936 | $ | 16,400 | $ | 4,536 | 27.7 | % |
Total gross profit for the third quarter of fiscal year 20182024 was $9.7$20.9 million, an increase of $0.8$4.5 million or 8.8%27.7% versus the third quarter of fiscal year 2017.2023. Total gross margin was 24.0%32.1% in the third quarter of fiscal year 2018, a 40 basis point increase versus2024, up from 28.6% in the third quarter of fiscal year 2017.2023, a 350 basis point increase.
Service gross profit in the third quarter of fiscal year 20182024 increased $0.4$2.7 million, or 9.1%25.0%, from the third quarter of fiscal year 2017.2023. Service gross margin was 25.0%32.5% in the third quarter of fiscal year 2018,2024, a 30250 basis point increase versus the third quarter of fiscal year 2017.2023. This improvedincrease in gross margin was largely duethe result of increased revenue, which allows us to productivity improvements, including the ramp-up productivity from service technicians hired earlierleverage our fixed-costs, and continued increases in fiscal year 2018.technician productivity.
The following table presents the quarterly historical trend of our Service gross margin as a percent of Service revenue:
FY 2018 | FY 2017 | |||||||||||||
Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||
Service Gross Margin | 25.0% | 23.7% | 25.1% | 30.0% | 24.7% | 24.4% | 27.5% |
FY 2024 | FY 2023 | |||||||||||||||||||||||||||
Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||||||
Service Gross Margin | 32.5 | % | 34.0 | % | 32.5 | % | 34.0 | % | 30.0 | % | 32.6 | % | 32.0 | % |
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 sales:
FY 2018 | FY 2017 | ||||||||||||||
Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | |||||||||
Total Distribution Gross Margin | 23.0% | 21.7% | 22.8% | 20.7% | 22.6% | 22.2% | 22.0% |
FY 2024 | FY 2023 | |||||||||||||||||||||||||||
Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||||||
Distribution Gross Margin | 31.5 | % | 28.3 | % | 27.7 | % | 25.2 | % | 26.2 | % | 24.9 | % | 25.0 | % |
Distribution segment gross margin was 23.0%31.5% in the third quarter of fiscal year 2018, a 40 basis point increase2024 versus 26.2% in the third quarter of fiscal year 2017.2023, a 530 basis point increase. The increase in segment gross margin was driven by the sales mix which offset a decrease in volume-based vendor rebates.
Operating Expenses:
Third Quarter Ended | Change | |||||||||||
December 23, | December 24, | |||||||||||
2017 | 2016 | $ | % | |||||||||
Operating Expenses: | ||||||||||||
Selling, Marketing and Warehouse | $ | 4,150 | $ | 4,159 | $ | (9 | ) | (0.2% | ) | |||
General and | ||||||||||||
Administrative | 2,897 | 2,403 | 494 | 20.6% | ||||||||
Total | $ | 7,047 | $ | 6,562 | $ | 485 | 7.4% |
The year-over-year increase in operating expenses was primarily due to incremental generalincreased margins from rental revenue, which now includes Axiom and administrativea favorable mix of higher margin products sold.
Operating Expenses:
Third Quarter Ended | Change | |||||||||||||||
December 23, | December 24, | |||||||||||||||
2023 | 2022 | $ | % | |||||||||||||
Operating Expenses: | ||||||||||||||||
Selling, Marketing and Warehouse | $ | 7,519 | $ | 6,595 | $ | 924 | 14.0 | % | ||||||||
General and Administrative | 9,123 | 6,642 | 2,481 | 37.4 | % | |||||||||||
Total | $ | 16,642 | $ | 13,237 | $ | 3,405 | 25.7 | % |
Total operating expenses related to our continued investmentwere $16.6 million in technology infrastructure improvements and operational excellence initiatives.the third quarter of fiscal year 2024 versus $13.2 million during the third quarter of fiscal year 2023. The year-over-year decreaseincrease in selling, marketing and warehouse expenses is due to reduced acquisitionincreased expenses related amortization expense. to recent acquisitions and higher incentive-based employee costs due to higher sales. The increase in general and administrative expenses includes 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 17.4%25.5% in the third quarter of fiscal year 2018, the same as2024 and 23.1% in the third quarter of fiscal year 2017.2023, an increase of 240 basis points.
Provision for
Income Taxes:
Third Quarter Ended | Change | |||||||||||
December 23, | December 24, | |||||||||||
2017 | 2016 | $ | % | |||||||||
Provision for Income Taxes | $ | 512 | $ | 895 | $ | (383 | ) | (42.8% | ) |
Third Quarter Ended | Change | |||||||||||||||
December 23, | December 24, | |||||||||||||||
2023 | 2022 | $ | % | |||||||||||||
Provision for Income Taxes | $ | 923 | $ | 523 | $ | 400 | 76.5 | % |
Our effective tax ratesrate for the third quarter of fiscal years 20182024 and 2017 were 21.9%2023 was 21.6% and 41.3%24.6%, respectively. The year-over-yearincrease in the tax provision is due to higher operating income and lower interest expense associated with the repayment of our revolving credit facility. The decrease largely reflectsin effective tax rate is due to the enactmentmix of the Act which was signed into law on December 22, 2017. The Act required a reduction in our U.S. net deferred tax liability of approximately $0.2 million, which reduced theincome by country. Our quarterly provision for income taxes duringis 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 third quarter of fiscal year 2018. The Act also required us to use a blended U.S. federal tax rateyears 2024 and 2023 was less than $0.1 million.
Net Income:
Third Quarter Ended | Change | |||||||||
December 23, | December 24, | |||||||||
2017 | 2016 | $ | % | |||||||
Net Income | $ | 1,831 | $ | 1,270 | $ | 561 | 44.2% |
Third Quarter Ended | Change | |||||||||||||||
December 23, | December 24, | |||||||||||||||
2023 | 2022 | $ | % | |||||||||||||
Net Income | $ | 3,348 | $ | 1,601 | $ | 1,747 | 109.1 | % |
Net income for the third quarter of fiscal year 2018 was up 44.2%2024 increased from the third quarter of fiscal year 20172023 primarily due to higher operating income and lower interest expense associated with the repayment of our revolving credit facility, partially offset by a higher provision for income taxes.
Adjusted EBITDA:
Total Adjusted EBITDA, a non-GAAP measure, for the reasons stated above.third quarter of fiscal year 2024 was $9.1 million, an increase of $2.5 million or 38.5% versus the third quarter of fiscal year 2023. 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 increased to 14.0% for the third quarter of fiscal year 2024 from 11.5% for the third quarter of fiscal year 2023. The increase in Adjusted EBITDA during the third quarter of fiscal year 2024 was primarily driven by increases in operating income, depreciation and amortization expense and non-cash stock compensation.
nine months ended December 23, 2023 COMPARED TO nine months ended December 24, 2022(dollars in thousands):
Revenue:
Nine Months Ended | Change | |||||||||||||||
(dollars in thousands) | December 23, | December 24, | ||||||||||||||
2023 | 2022 | $ | % | |||||||||||||
Revenue: | ||||||||||||||||
Service | $ | 122,793 | $ | 105,120 | $ | 17,673 | 16.8 | % | ||||||||
Distribution | 65,775 | 63,382 | 2,393 | 3.8 | % | |||||||||||
Total | $ | 188,568 | $ | 168,502 | $ | 20,066 | 11.9 | % |
Service revenue, which accounted for 65.1% and 62.4% of our total revenue in the first nine months of fiscal years 2024 and 2023, respectively, increased $17.7 million, or 16.8%, from the first nine months of fiscal year 2023 to the first nine months of fiscal year 2024. This year-over-year increase included $7.1 million of incremental revenue from the acquisitions of TIC-MS, SteriQual and Axiom, and also included organic revenue growth of 10.0% driven by strong end-market demand and continued market share gains.
Distribution revenue, which accounted for 34.9% and 37.6% of our total revenue in the first nine months of fiscal years 2024 and 2023, respectively, increased $2.4 million, or 3.8%, from the first nine months of fiscal year 2023 to the first nine months of fiscal year 2024. This year-over-year increase is primarily due to $4.2 million of incremental revenue from the acquisition of Axiom offset by slower demand for our non-rental products.
Gross Profit:
Nine Months Ended | Change | |||||||||||||||
(dollars in thousands) | December 23, | December 24, | ||||||||||||||
2023 | 2022 | $ | % | |||||||||||||
Gross Profit: | ||||||||||||||||
Service | $ | 40,549 | $ | 33,115 | $ | 7,434 | 22.4 | % | ||||||||
Distribution | 19,222 | 16,090 | 3,132 | 19.5 | % | |||||||||||
Total | $ | 59,771 | $ | 49,205 | $ | 10,566 | 21.5 | % |
Total gross profit for the first nine months of fiscal year 2024 was $59.8 million, an increase of $10.6 million or 21.5% versus the first nine months of fiscal year 2023. Total gross margin was 31.7% in the first nine months of fiscal year 2024, up from 29.2% in the first nine months of fiscal year 2023, a 250 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 sales in the Distribution segment.
Operating Expenses:
Nine Months Ended | Change | |||||||||||||||
(dollars in thousands) | December 23, | December 24, | ||||||||||||||
2023 | 2022 | $ | % | |||||||||||||
Operating Expenses: | ||||||||||||||||
Selling, Marketing and Warehouse | $ | 20,844 | $ | 18,315 | $ | 2,529 | 13.8 | % | ||||||||
General and Administrative | 28,350 | 20,497 | 7,853 | 38.3 | % | |||||||||||
Total | $ | 49,194 | $ | 38,812 | $ | 10,382 | 26.7 | % |
Total operating expenses were $49.2 million in the first nine months of fiscal year 2024 versus $38.8 million during the first nine months of fiscal year 2023, an increase of $10.4 million or 26.7%. 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 increase in general and administrative expenses includes the non-cash charge related to the NEXA earn-out, 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 26.1% in the first nine months of fiscal year 2024 and 23.0% in the first nine months of fiscal year 2023, an increase of 310 basis points.
Income Taxes:
Nine Months Ended | Change | |||||||||||||||
(dollars in thousands) | December 23, | December 24, | ||||||||||||||
2023 | 2022 | $ | % | |||||||||||||
Provision for Income Taxes | $ | 2,078 | $ | 1,631 | $ | 447 | 27.4 | % |
Our effective tax rate for the first nine months of fiscal years 2024 and 2023 was 23.5% and 18.8%, respectively. The increase in the effective rate and tax provision is due to the discrete tax treatment of the non-cash charge related to the NEXA earn-out. Our 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 nine months of fiscal years 2024 and 2023 was $0.7 million and $0.5 million, respectively.
Net Income:
Nine Months Ended | Change | |||||||||||||||
December 23, | December 24, | |||||||||||||||
2023 | 2022 | $ | % | |||||||||||||
Net Income | $ | 6,757 | $ | 7,030 | $ | (273 | ) | (3.9 | )% |
Net income for the first nine months of fiscal year 2024 was $6.8 million, a decrease of $0.3 million versus the first nine months of fiscal year 2023. The year over year decrease in net income was primarily due to flat operating income and a higher provision for income taxes.
Adjusted EBITDA:
Total Adjusted EBITDA, a non-GAAP measure, for the first nine months of fiscal year 2024 was $26.9 million, an increase of $5.5 million or 25.7% versus the first nine months of fiscal year 2023. 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 increased to 14.3% for the first nine months of fiscal year 2024 from 12.7% for the first nine months of fiscal year 2023. The increase in Adjusted EBITDA during the first nine months of fiscal year 2024 was primarily driven by the NEXA earn-out adjustment and increases in depreciation and amortization expense and non-cash stock compensation.
Non-GAAP Financial Measures
Adjusted EBITDA:EBITDA
In addition to reporting net income, a GAAP measure, we present Adjusted EBITDA (earnings before interest, income taxes, depreciation and amortization, and non-cash stock compensation expense, acquisition related transaction expenses, non-cash loss on sale of building, and restructuring 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, and 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 operating income or 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.
Third Quarter Ended | |||||||
December 23, | December 24, | ||||||
2017 | 2016 | ||||||
Net Income | $ | 1,831 | $ | 1,270 | |||
+ Interest Expense | 250 | 184 | |||||
+ Other Expense | 61 | 4 | |||||
+ Tax Provision | 512 | 895 | |||||
Operating Income | $ | 2,654 | $ | 2,353 | |||
+ Depreciation & Amortization | 1,543 | 1,562 | |||||
+ Other Expense | (61 | ) | (4 | ) | |||
+ Noncash Stock Compensation | 264 | (10 | ) | ||||
Adjusted EBITDA | $ | 4,400 | $ | 3,901 |
Adjusted EBITDA for the third quarter of fiscal year 2018 was $4.4 million, a $0.5 million or 12.8% increase versus the third quarter of fiscal year 2017. As a percentage of revenue, Adjusted EBITDA was 10.9% for the third quarter of fiscal year 2018 and 10.3% for the third quarter of fiscal year 2017. The difference between the increase in Adjusted EBITDA and increase in net income during the third quarter of fiscal year 2018 is primarily driven by increased non-cash stock compensation expense and the impact of the Act on our tax provision.
Third Quarter Ended | Nine Months Ended | |||||||||||||||
(dollars in thousands) | December 23, | December 24, | December 23, | December 24, | ||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Net Income | $ | 3,348 | $ | 1,601 | $ | 6,757 | $ | 7,030 | ||||||||
+ Interest (Income) Expense | (266 | ) | 726 | 1,438 | 1,636 | |||||||||||
+ Other Expense | 289 | 313 | 304 | 96 | ||||||||||||
+ Tax Provision | 923 | 523 | 2,078 | 1,631 | ||||||||||||
Operating Income | 4,294 | 3,163 | 10,577 | 10,393 | ||||||||||||
+ Depreciation & Amortization | 3,783 | 2,824 | 9,842 | 8,243 | ||||||||||||
+ Transaction Expense | 78 | 96 | 591 | 126 | ||||||||||||
+ Acquisition Earn-Out Adjustment | 87 | - | 2,887 | - | ||||||||||||
+ Other (Expense) | (289 | ) | (313 | ) | (304 | ) | (96 | ) | ||||||||
+ Noncash Stock Compensation | 1,167 | 815 | 3,338 | 2,757 | ||||||||||||
Adjusted EBITDA | $ | 9,120 | $ | 6,585 | $ | 26,931 | $ | 21,423 |
NINE MONTHS ENDED DECEMBER 23, 2017 COMPARED TO NINE MONTHS ENDED DECEMBER 24, 2016(dollars in thousands):
Revenue:
Nine Months Ended | Change | |||||||||
December 23, | December 24, | |||||||||
2017 | 2016 | $ | % | |||||||
Revenue: | ||||||||||
Service | $ | 55,490 | $ | 51,577 | $ | 3,913 | 7.6% | |||
Distribution | 57,199 | 53,868 | 3,331 | 6.2% | ||||||
Total | $ | 112,689 | $ | 105,445 | $ | 7,244 | 6.9% |
Service revenue, which accounted for 49.2% of our total revenue during the first nine months of fiscal year 2018 and 48.9% of our total revenue during the first nine months of fiscal year 2017, increased $4.0 million, or 7.6%, from the first nine months of fiscal year 2017 to the first nine months of fiscal year 2018. The year-over-year increase was all organic as we took market share in the life science sector and general industrial manufacturing sector which includes both the defense and aerospace markets and raised prices where appropriate.Adjusted Diluted Earnings Per Share
Our Distribution sales accounted for 50.8% and 51.1% of our total revenue in the first nine months of fiscal years 2018 and 2017, respectively. For the first nine months of fiscal year 2018, Distribution sales increased $3.3 million, or 6.2%, compared to the first nine months of fiscal year 2017. This year-over-year increase in sales reflects higher demand from industrial customers, including those sold through our independent representative network and increased rental revenues.
Gross Profit:
Nine Months Ended | Change | |||||||||
December 23, | December 24, | |||||||||
2017 | 2016 | $ | % | |||||||
Gross Profit: | ||||||||||
Service | $ | 13,655 | $ | 13,175 | $ | 480 | 3.6% | |||
Distribution | 12,891 | 12,013 | 878 | 7.3% | ||||||
Total | $ | 26,546 | $ | 25,188 | $ | 1,358 | 5.4% |
Total gross profit increased $1.4 million or 5.4% for the first nine months of fiscal year 2018 versus the first nine months of fiscal year 2017. Total gross margin was 23.6%, a 30 basis points reduction compared to 23.9% in the first nine months of fiscal year 2017. This year-over-year decline was primarily due to Service segment technician productivity challenges earlier in fiscal year 2018.
Operating Expenses:
Nine Months Ended | Change | |||||||||||
December 23, | December 24, | |||||||||||
2017 | 2016 | $ | % | |||||||||
Operating Expenses: | ||||||||||||
Selling, Marketing and Warehouse | $ | 12,247 | $ | 12,612 | $ | (365 | ) | (2.9% | ) | |||
General and Administrative | 8,776 | 7,207 | 1,569 | 21.8% | ||||||||
Total | $ | 21,023 | $ | 19,819 | $ | 1,204 | 6.1% |
The year-over-year increase in operating expenses was primarily due to incremental general and administrative expenses related to our continued investment in technology infrastructure improvements and operational excellence initiatives. The year-over-year decrease in selling, marketing and warehouse expenses is due to reduced acquisition related amortization expense. As a percentage of total revenue, operating expenses during the first nine months of fiscal year 2018 were 18.7%, compared to 18.8% in the first nine months of fiscal year 2017.
Provision for Income Taxes:
Nine Months Ended | Change | |||||||||
December 23, | December 24, | |||||||||
2017 | 2016 | $ | % | |||||||
Provision for Income Taxes | $ | 1,201 | $ | 1,729 | $ | (528) | (30.5%) |
Our effective tax rates for the first nine months of fiscal years 2018 and 2017 were 25.7% and 35.9%, respectively. The year-over-year decrease largely reflects the enactment of the Act which was signed into law on December 22, 2017. The Act required a reduction in our net U.S. deferred tax liability of approximately $0.2 million, which reduced the provision for income taxes during the third quarter of fiscal year 2018. The Act also required us to use a blended U.S. federal tax rate of the old rates and the new rates because we are a fiscal year taxpayer and, as a result, we will phase in the lower corporate income tax rate. This use of a blended rate reduced the provision for income taxes during the third quarter of fiscal year 2018 by $0.1 million. Due to the Act, we now expect our total fiscal year 2018 effective tax rate to be approximately 28.0% to 29.0%. The impact of the Act may differ from this estimate, possibly materially, due to, among other things, changes in interpretations and assumptions we have made, guidance that may be issued and actions we may take as a result of the Act.
Net Income:
Nine Months Ended | Change | |||||||||
December 23, | December 24, | |||||||||
2017 | 2016 | $ | % | |||||||
Net Income | $ | 3,468 | $ | 3,093 | $ | 375 | 12.1% |
Net income for the first nine months of fiscal year 2018 was up 12.1% from the first nine months of fiscal year 2017 as increased interest and other expense more than offset a lower provision for income taxes.
Adjusted EBITDA:
In addition to reporting net income,Diluted Earnings Per Share, a GAAP measure, we present Adjusted EBITDA (earnings before interest,Diluted Earnings Per Share (net income taxes, depreciationplus acquisition related amortization expense, acquisition related transaction expenses, acquisition related stock-based compensation, acquisition amortization of backlog and amortization, and non-cash stock compensation expense)restructuring expense; divided by the average diluted shares outstanding during the period), which is a non-GAAP measure. Our management believes Adjusted EBITDADiluted Earnings Per Share is an important measure of our 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, our management uses Adjusted EBITDA as a measure of performance when evaluating our business segments and asprovides a basis for planningcomparison of our business operations between current, past and forecasting. Adjusted EBITDA is also commonly usedfuture periods by rating agencies, lenders and other parties to evaluateexcluding items that we do not believe are indicative of our credit worthiness.core operating performance.
Adjusted EBITDADiluted 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 operating income or net incomeDiluted Earnings Per Share and, therefore, should not be used in isolation of, but in conjunction with, the GAAP measure. Adjusted EBITDA,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.
Third Quarter Ended | Nine Months Ended | |||||||||||||||
December 23, | December 24, | December 23, | December 24, | |||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Net Income | $ | 3,348 | $ | 1,601 | $ | 6,757 | $ | 7,030 | ||||||||
+ Amortization of Intangible Assets | 1,674 | 1,180 | 4,183 | 3,411 | ||||||||||||
+ Acquisition Amortization of Backlog | 24 | - | 43 | - | ||||||||||||
+ Acquisition Deal Costs | 343 | 254 | 1,312 | 792 | ||||||||||||
+ Income Tax Effect @ 25% | (532 | ) | (359 | ) | (1,406 | ) | (1,051 | ) | ||||||||
+ Acquisition Earn-Out Adjustment | 87 | - | 2,887 | - | ||||||||||||
Adjusted Net Income | 4,944 | 2,676 | 13,776 | 10,182 | ||||||||||||
Average Diluted Shares Outstanding | 8,752 | 7,666 | 8,187 | 7,644 | ||||||||||||
Diluted Earnings Per Share – GAAP | $ | 0.38 | $ | 0.21 | $ | 0.83 | $ | 0.92 | ||||||||
Adjusted Diluted Earnings Per Share | $ | 0.56 | $ | 0.35 | $ | 1.68 | $ | 1.33 |
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.
Nine Months Ended | |||||||
December 23, | December 24, | ||||||
2017 | 2016 | ||||||
Net Income | $ | 3,468 | $ | 3,093 | |||
+ Interest Expense | 767 | 501 | |||||
+ Other Expense | 87 | 46 | |||||
+ Tax Provision | 1,201 | 1,729 | |||||
Operating Income | $ | 5,523 | $ | 5,369 | |||
+ Depreciation & Amortization | 4,527 | 4,667 | |||||
+ Other Expense | (87 | ) | (46 | ) | |||
+ Noncash Stock Compensation | 1,095 | 316 | |||||
Adjusted EBITDA | $ | 11,058 | $ | 10,306 |
During
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 nine months of fiscal year 2024 ranged from 6.4% to 7.1%. Interest on outstanding borrowings under the 2018 Adjusted EBITDA was $11.1 million, an increaseTerm Loan accrue at a fixed rate of $0.8 million or 7.3% versus the first nine months of fiscal year 2017. As a percentage of revenue, Adjusted EBITDA was 9.8% for each of the first nine months of fiscal year 2018 and 2017. The difference between the increase in Adjusted EBITDA and increase in net income during the first nine months of fiscal year 2018 is primarily driven by increased non-cash stock compensation expense and the impact of the Act on our tax provision.
LIQUIDITY AND CAPITAL RESOURCES
On October 30, 2017, the Company entered into an Amended and Restated Credit Agreement (the “2017 Agreement”), which amended and restated our prior credit facility agreement. The 2017 Agreement extended3.90% over the term of the Company’s $30.0 million revolving credit facility (the “Revolving Credit Facility”) to October 29, 2021. As of December 23, 2017, $30.0 million was available under the Revolving Credit Facility, of which $11.6 million was outstanding and included in long-term debt on the Consolidated Balance Sheet.loan.
The 2017 Agreement also increased the amount of the Company’s outstanding term loan to $15.0 million (the “2017 Term Loan”), replacing the previous term loan. As of December 23, 2017, $14.6 million was outstanding on the 2017 Term Loan, of which $2.1 million was included in current liabilities on the Consolidated Balance Sheet with the remainder included in long-term debt. The 2017 Term Loan requires principal repayments of $0.2 million per month plus interest through September 2022 with a $4.3 million repayment required on October 29, 2022. Under the 2017 Agreement, borrowings that may be used for business acquisitions are limited to $20.0 million per fiscal year. During the first nine months of fiscal year 2018, no borrowings were used for business acquisitions.
The allowable leverage ratio under the 2017 Agreement remains at a maximum multiple of 3.0 of total debt outstanding compared to earnings before income taxes, depreciation and amortization, and non-cash stock-based compensation expense for the preceding four consecutive fiscal quarters. The excess funds of the 2017 Term Loan over the previous term loan were used to repay amounts outstanding under the Revolving Credit Facility.
Previously, on March 31, 2016, the Company entered into Amendment 3 (“Amendment 3”) to the prior credit agreement. Under Amendment 3, borrowings that could be used for business acquisitions were limited to $15.0 million in fiscal years 2018 and 2019. Amendment 3 also provided the Company with a $10.0 million term loan. The term loan required principal repayments of $0.1 million per month plus interest. Total annual repayment amounts of $1.4 million were required in fiscal years 2017 through 2021 with a $3.0 million repayment required in fiscal year 2022. Amendment 3 also increased the allowable leverage ratio to a maximum of 3.0 from 2.75. As described above, in the third quarter of fiscal year 2018, we entered into the 2017 Agreement that amended and restated the prior credit agreement, including Amendment 3.
The 2017 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.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 third quarterfirst nine months of fiscal year 2018.2024. Our leverage ratio, as defined in the 2017Credit Agreement, was 1.720.12 at December 23, 2017,2023, compared with 1.881.60 at March 25, 2023.
As of December 23, 2023, $80.0 million was available for borrowing under the revolving credit facility. As of December, 23, 2023, there were no amounts outstanding under the revolving credit facility. After the closing of the Offering, we used approximately $50.0 million of the net proceeds to repay in full the amounts outstanding under the revolving credit facility. During the first nine months of fiscal 2017 year-end.year 2024 and 2023, we used $12.9 million and $4.0 million, respectively, drawn from the revolving credit facility for business acquisitions.
Interest
As of December 23, 2023, $4.7 million was outstanding on the 2017 Agreement and 20172018 Term Loan, continues to accrue, at our election, at either the variable one-month London Interbank Offered Rate (“LIBOR”) or a fixed rate for a designated period at the LIBOR corresponding to such period,of which $2.3 million was included in each case, plus a margin. Commitment fees accrue basedcurrent liabilities on the average daily amountConsolidated Balance Sheets with the remainder included in long-term debt. The 2018 Term Loan requires total repayments (principal plus interest) of unused credit available under the 2017 Agreement. Interest rate margins and commitment fees are determined on a quarterly basis based upon our calculated leverage ratio, as defined in the 2017 Agreement.$0.2 million per month through December 2025.
Cash Flows:The following table is a summary of our Consolidated Statements of Cash Flows:Flows (dollars in thousands):
Nine Months Ended | ||||||||
December 23, | December 24, | |||||||
2017 | 2016 | |||||||
Cash (Used in) Provided by: | ||||||||
Operating Activities | $ | 5,817 | $ | 3,874 | ||||
Investing Activities | $ | (5,073 | ) | $ | (11,052 | ) | ||
Financing Activities | $ | (678 | ) | $ | 6,934 |
Nine Months Ended | ||||||||
December 23, | December 24, | |||||||
2023 | 2022 | |||||||
Cash Provided by (Used in): | ||||||||
Operating Activities | $ | 26,889 | $ | 13,975 | ||||
Investing Activities | $ | (22,031 | ) | $ | (15,445 | ) | ||
Financing Activities | $ | 29,076 | $ | 782 |
Operating Activities: Net cash provided by operating activitiesoperations was $5.8$26.9 million during the first nine months of fiscal year 20182024 compared to $3.9$14.0 million of net cash provided by operating activities during the first nine months of fiscal year 2017.2023. The year-over-year increase in cash provided by operations iswas 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 |
December 23, | December 24, | |||||||
2023 | 2022 | |||||||
Net Sales, for the last two fiscal months | $ | 45,501 | $ | 40,088 | ||||
Accounts Receivable, net | $ | 43,307 | $ | 37,702 | ||||
Days Sales Outstanding | 57 | 59 |
December 23, | December 24, | |||||
2017 | 2016 | |||||
Net Sales, for the last two fiscal months | $ | 27,428 | $ | 25,952 | ||
Accounts Receivable, net | $ | 22,700 | $ | 19,967 | ||
Days Sales Outstanding | 49 | 46 |
● | 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 |
● | 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 decreased |
● | Accrued Compensation and Other Current Liabilities: Accrued |
● | Income Taxes Payable: In any given period, net working capital may be affected by the timing and amount of income tax payments. During the first nine months of fiscal |
Investing Activities: During the first nine months of fiscal years 2024 and 2023, we invested $9.1 million and $7.1 million, respectively, in capital expenditures that was used primarily for customer-driven expansion of Service segment capabilities and our rental business.
During the first nine months of fiscal years 2024 and 2023, we used $12.9 million and $8.3 million, respectively, for business acquisitions.
During the first nine months of fiscal year 2018,2024, we invested $5.1paid $0.8 million in capital expenditures, including $1.0 million spent for expanded Service segment capabilities, specifically for our mobile calibration truck fleet and radio-frequency asset capabilities, and $1.5 million spent for rental assets. During the first nine months of fiscal year 2017, we invested $4.1 million in capital expenditures, primarily for additional Service segment capabilities and rental assets. During the first nine months of fiscal year 2018, we had noother holdback amounts relating to business acquisitions. During the first nine months of fiscal year 2017, we used $7.0 million for a2023, no contingent consideration or other holdback amounts were paid related to business acquisition. We generally fund capital expenditures with cash flow from operations and our Revolving Credit Facility.acquisitions.
Financing Activities:During the first nine months of fiscal year 2018, we received $7.12024, $75.7 million in cash was generated from the proceedsissuance of common stock, net of direct costs of the 2017 Term LoanOffering. In addition, we used $42.7 million to repay our revolving line of credit, $1.7 million for scheduled repayments of our term loan and $0.8$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.
During the first nine months of fiscal year 2023, $2.3 million was borrowed from our revolving line of credit and $0.5 million in cash was generated from the issuance of common stock. In addition, we used $7.0$1.6 million to repay our Revolving Credit Facility, we used $1.2 million in cash for repaymentscheduled repayments of our term loan and $0.3$0.4 million for the “net” awarding of certain share awards to cover employee tax-withholding obligations for share award and stock option activity in the quarter, which are shown as a repurchase of shares of our common stock. During the first nine months of fiscal year 2017, we received $9.0 million in net proceeds from a term loan and used approximately $1.9 million in cash for repayment of our Revolving Credit Facility. In addition, we used $0.3 million in cash for payment of holdbacks related to a business acquisition. Commencing in fiscal year 2018, we have revised our non-employee director performance-based compensation program such that any compensation earned under that program will be paid in Company stock awards, rather than in cash. The achievement criteria and the payment parameters (target payment of $20,000 per non-employee director with a maximum payment of $30,000), have not changed.
On December 20, 2017, we filed a universal shelf registration statement on Form S-3 with the SEC. Under the shelf registration statement, we may from time to time in one or more future offerings, issue various types of securities up to an aggregate amount of $50 million. We have no immediate plans to use this registration statement. The SEC declared the shelf registration statement effective on January 5, 2018.
OUTLOOK
The fourth quarter of our fiscal year is an important one as we usually generate approximately one third of our annual operating income in the fourth quarter. We believe we are well positioned and on track for a record year in fiscal 2018. Although still early, we believe our multi-year technology infrastructure and operational excellence initiatives are starting to gain early traction and are positively impacting both segments. Our Service segment continues to strengthen its market position, particularly in the life science space where we believe our value proposition resonates the most, and where regulation and the high cost of failure drive recurring revenue streams. We will continue to focus on leveraging technology as a competitive advantage and a driver of increased margins.
GivenOUTLOOK
We are proud of our dedicated team, which has consistently delivered exceptional results through various economic cycles as can be seen over the changes to the federal corporate income tax rate, Transcat expects its blended income tax rate forpast decade and a half of profitable growth. During this fiscal year, 2018we expect organic Service revenue growth in the high-single digit to low double-digit range between 28% and 29%. For fiscal year 2019,gross margin expansion. Automation of our calibration processes and overall process improvement will be key enablers to future margin expansion in the Company expects its effectiveService segment. We believe the Service segment has substantial runway ahead for growth, both organically and through acquisition. Our robust and diverse acquisition pipeline enables strategic, accretive acquisitions that drive synergistic growth opportunities and will be a key component of our future strategy. We believe our unique value proposition drives a sustainable competitive advantage in the highly regulated markets that we serve, particularly the Life Science, Aerospace, and Defense markets, along with a growing Rentals business. We have a long history of generating sustainable value for our shareholders and providing a dynamic, rewarding workplace for our team.
We expect our income tax rate to be approximatelyrange between 24% and 26%. The Company expects to invest any windfall from for full fiscal year 2024. This estimate includes Federal, various state, Canadian and Irish income taxes and reflects the Act in its people, processes and technology.discrete tax accounting associated with share-based payment awards.
The Company tightened its capital expenditures expectations for the full year fiscal 2018 to a range
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATES
Our exposure to changes in interest rates results from our borrowing activities. In the event interest rates were to move by 1%, our yearly interest expense would increase or decrease by approximately $0.3$0.5 million assuming our average borrowing levels during the first nine months of fiscal year 2024 remained constant.constant under the revolving credit facility. As of December 23, 2017, $30.02023, $80.0 million was available for borrowing under our Revolving Credit Facility,the revolving credit facility. As of which $11.6 million wasDecember 23, 2023, there were no amounts outstanding and included in long-term debt onunder the Consolidated Balance Sheets.revolving credit facility. As described above under “Liquidity and Capital Resources,” we also hadhave a $15.0 million (original principal) term loan during the third quarter of fiscal year 2018.loan. The term loan2018 Term Loan is considered a LIBORfixed interest rate loan. As of December 23, 2017, $14.62023, $4.7 million was outstanding onunder the term loan2018 Term Loan and was included in long-term debt and current portion of long-term debt on the Consolidated Balance Sheet.Sheets. The term loan2018 Term Loan requires principaltotal (principal and interest) repayments of $0.2 million per month plus interest.month.
At
Effective July 1, 2023, at our option, we may borrow from our Revolving Credit Facility and term loanrevolving credit facility at the variable one-month LIBORDaily Simple SOFR or at a fixed rate for a designated period at the LIBORSOFR 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. As of December 23, 2017, the one-month LIBOR was 1.6%. Our interest rate forduring the first nine months of fiscal year 20182024 for our revolving credit facility ranged from 3.2%6.4% to 3.4%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 December 23, 2017,2023, we had no hedging arrangements in place for our revolving credit facility to limit our exposure to upward movements in interest rates.
FOREIGN CURRENCY
Approximately 90% of our total revenues for each of the first nine months of fiscal years 2018year 2024 and 20172023 were denominated in U.S. dollars, with the remainder denominated in Canadian dollars.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 currenciesdollar 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 and a gain of $0.3 million during the first nine months of the fiscal year 2018years 2024 and a gain of $0.1 million for the first nine months of fiscal year 2017,2023, respectively, was recognized as a component of other expenseInterest 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 the fair value on the underlying accounts receivables denominated in Canadian dollars being hedged. On December 23, 2017,2023, we had a foreign exchange contract, which matured in January 2018,2024, outstanding in the notional amount of $5.4$2.0 million. The foreign exchange contract was renewed in January 20182024 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 third quarter of fiscal year 2018)2024) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Index to Exhibits
INDEX TO EXHIBITS
(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: | /s/ Lee D. Rudow | ||
Lee D. Rudow | |||
President and Chief Executive Officer | |||
(Principal Executive Officer) | |||
Date: January 31, 2024 | /s/ Thomas L. Barbato | ||
Thomas L. Barbato | |||
Senior Vice President of Finance and Chief Financial Officer | |||
(Principal Financial Officer) |
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