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 26, 2020~~September 25, 2021

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’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 ~~registrant~~registrant: (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 every Interactive Data File required to be submitted 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 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 accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” 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 ~~January~~October 29, 2021 was ~~7,445,797.~~7,518,798.

Table of Contents

	Page(s)
PART I.FINANCIAL INFORMATION
Item 1.Consolidated Financial Statements:
Statements of Income for the ~~Third~~Second Quarter and ~~Nine~~Six Months Ended ~~December~~September 25, 2021 and September 26, ~~2020 and December 28,~~ ~~2019~~2020	1
Statements of Comprehensive Income for the ~~Third~~Second Quarter and ~~Nine~~Six Months Ended ~~December~~September 25, 2021 and September 26, 2020 ~~and~~ ~~December 28, 2019~~	2
Balance Sheets as of ~~December 26, 2020~~September 25, 2021 and March ~~28, 2020~~27, 2021	3
Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~December~~September 25, 2021 and September 26, 2020 ~~and December 28, 2019~~	4
Statements of Shareholders’ Equity for the ~~Third~~Second Quarter and ~~Nine~~Six Months Ended ~~December 26, 2020~~September 25, 2021 and ~~December 28, 2019~~September 26, 2020	5
Notes to Consolidated Financial Statements	76

	(Unaudited)				(Unaudited)
	Third Quarter Ended				Nine Months Ended				(Unaudited)				(Unaudited)
	December 26,		December 28,		December 26,		December 28,		Second Quarter Ended				Six Months Ended
	2020		2019		2020		2019		September 25,		September 26,		September 25,		September 26,
									2021		2020		2021		2020
Service Revenue	$	24,776	$	22,087	$	72,297	$	67,987	$	29,544	$	24,554	$	57,101	$	47,521
Distribution Sales		19,286		21,092		52,276		59,350		20,843		17,053		41,076		32,990
Total Revenue		44,062		43,179		124,573		127,337		50,387		41,607		98,177		80,511

Cost of Service Revenue		17,861		17,221		51,413		51,737		19,832		16,654		38,637		33,552
Cost of Distribution Sales		14,956		16,030		41,012		45,175		15,944		13,459		31,409		26,056
Total Cost of Revenue		32,817		33,251		92,425		96,912		35,776		30,113		70,046		59,608

Gross Profit		11,245		9,928		32,148		30,425		14,611		11,494		28,131		20,903

Selling, Marketing and Warehouse Expenses		4,675		4,463		13,040		13,166		4,974		4,291		9,971		8,365
General and Administrative Expenses		4,051		3,374		12,547		10,151		6,059		4,125		10,893		8,496
Total Operating Expenses		8,726		7,837		25,587		23,317		11,033		8,416		20,864		16,861

Operating Income		2,519		2,091		6,561		7,108		3,578		3,078		7,267		4,042

Interest and Other Expense, net		219		194		779		776		250		317		445		560

Income Before Income Taxes		2,300		1,897		5,782		6,332		3,328		2,761		6,822		3,482
Provision for Income Taxes		539		420		1,199		758		313		737		119		660

Net Income	$	1,761	$	1,477	$	4,583	$	5,574	$	3,015	$	2,024	$	6,703	$	2,822

Basic Earnings Per Share	$	0.24	$	0.20	$	0.62	$	0.76	$	0.40	$	0.27	$	0.90	$	0.38
Average Shares Outstanding		7,437		7,367		7,415		7,316		7,482		7,417		7,473		7,405

Diluted Earnings Per Share	$	0.23	$	0.20	$	0.61	$	0.75	$	0.40	$	0.27	$	0.88	$	0.38
Average Shares Outstanding		7,580		7,557		7,532		7,470		7,595		7,549		7,578		7,525

	(Unaudited)				(Unaudited)
	Third Quarter Ended				Nine Months Ended				(Unaudited)					(Unaudited)
	December 26,		December 28,		December 26,		December 28,		Second Quarter Ended					Six Months Ended
	2020		2019		2020		2019		September 25,			September 26,		September 25,			September 26,
									2021			2020		2021			2020
Net Income	$	1,761	$	1,477	$	4,583	$	5,574	$	3,015		$	2,024	$	6,703		$	2,822

Other Comprehensive Income:
Other Comprehensive (Loss) Income:
Currency Translation Adjustment		251		73		505		119		(242	)		128		(81	)		253
Other, net of tax effects		21		22		95		48		9			37		30			75
Total Other Comprehensive Income		272		95		600		167
Total Other Comprehensive (Loss) Income										(233	)		165		(51	)		328

Comprehensive Income	$	2,033	$	1,572	$	5,183	$	5,741	$	2,782		$	2,189	$	6,652		$	3,150

	(Unaudited)			(Audited)
	December 26,			March 28,			(Unaudited) September 25,			(Audited) March 27,
	2020			2020			2021			2021
ASSETS
Current Assets:
Cash	$	1,034		$	499		$	2,551		$	560
Accounts Receivable, less allowance for doubtful accounts of $640 and $480 as of December 26, 2020 and March 28, 2020, respectively		30,562			30,952
Accounts Receivable, less allowance for doubtful accounts of $698 and $526 as of September 25, 2021 and March 27, 2021, respectively								36,464			33,950
Other Receivables		860			1,132			448			428
Inventory, net		12,437			14,180			10,205			11,636
Prepaid Expenses and Other Current Assets		2,317			1,697			4,105			2,354
Total Current Assets		47,210			48,460			53,773			48,928
Property and Equipment, net		21,292			20,833			23,034			22,203
Goodwill		43,945			41,540			59,441			43,272
Intangible Assets, net		7,325			7,977			12,753			7,513
Right Of Use Assets, net		10,205			8,593
Right To Use Asset, net								8,393			9,392
Other Assets		793			719			919			808
Total Assets	$	130,770		$	128,122		$	158,313		$	132,116

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable	$	9,844		$	11,947		$	10,983		$	12,276
Accrued Compensation and Other Liabilities		7,856			6,907			8,455			10,417
Income Taxes Payable		289			86			0-			382
Current Portion of Long-Term Debt		2,046			1,982			2,134			2,067
Total Current Liabilities		20,035			20,922			21,572			25,142
Long-Term Debt		22,317			28,362			40,917			17,494
Deferred Tax Liabilities		3,100			3,025			4,914			3,201
Lease Liabilities		8,753			6,832			6,705			7,958
Other Liabilities		4,058			1,894			3,461			3,243
Total Liabilities		58,263			61,035			77,569			57,038

Shareholders' Equity:
Common Stock, par value $0.50 per share, 30,000,000 shares authorized; 7,441,571 and 7,381,180 shares issued and outstanding as of December 26, 2020 and March 28, 2020, respectively		3,721			3,691
Common Stock, par value $0.50 per share, 30,000,000 shares authorized; 7,518,159 and 7,458,251 shares issued and outstanding as of September 25, 2021 and March 27, 2021, respectively								3,759			3,729
Capital in Excess of Par Value		18,820			17,929			22,713			19,287
Accumulated Other Comprehensive Loss		(410	)		(1,010	)		(502	)		(451	)
Retained Earnings		50,376			46,477			54,774			52,513
Total Shareholders' Equity		72,507			67,087			80,744			75,078
Total Liabilities and Shareholders' Equity	$	130,770		$	128,122		$	158,313		$	132,116

	(Unaudited)
	Nine Months Ended						(Unaudited) Six Months Ended
	December 26,			December 28,			September 25,			September 26,
	2020			2019			2021			2020
Cash Flows from Operating Activities:
Net Income	$	4,583		$	5,574		$	6,703		$	2,822
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Net Loss on Disposal of Property and Equipment		65			253			84			68
Deferred Income Taxes		75			22			7			47
Depreciation and Amortization		5,596			4,951			4,131			3,736
Provision for Accounts Receivable and Inventory Reserves		699			311			499			523
Stock-Based Compensation		875			610
Stock-Based Compensation Expense								1,057			678
Changes in Assets and Liabilities:
Accounts Receivable and Other Receivables		902			398			(374	)		3,543
Inventory		2,072			341			1,739			623
Prepaid Expenses and Other Assets		(678	)		(689	)		(1,847	)		(625	)
Accounts Payable		(2,103	)		(3,679	)		(1,293	)		(892	)
Accrued Compensation and Other Liabilities		3,391			347			(2,812	)		1,626
Income Taxes Payable		170			(204	)		(392	)		327
Net Cash Provided by Operating Activities		15,647			8,235			7,502			12,476

Cash Flows from Investing Activities:
Purchases of Property and Equipment		(4,295	)		(5,001	)		(3,770	)		(3,116	)
Proceeds from Sale of Property and Equipment		0-			184
Business Acquisitions, net of cash acquired		(3,447	)		(452	)		(20,910	)		0-
Payment of Holdbacks Related to Business Acquisitions		0-			(864	)
Net Cash Used in Investing Activities		(7,742	)		(6,133	)		(24,680	)		(3,116	)

Cash Flows from Financing Activities:
(Repayments of) Proceeds from Revolving Credit Facility, net		(4,504	)		122
Proceeds from Term Loan		0-			0-
Repayments of Term Loan		(1,477	)		(1,416	)
Proceeds from (Repayment of) Revolving Credit Facility, net								24,511			(6,632	)
Repayment of Term Loan								(1,021	)		(979	)
Issuance of Common Stock		649			1,625			1,238			474
Repurchase of Common Stock		(1,287	)		(2,822	)		(5,649	)		(1,287	)
Net Cash Used in Financing Activities		(6,619	)		(2,491	)
Net Cash Provided by (Used in) Financing Activities								19,079			(8,424	)

Effect of Exchange Rate Changes on Cash		(751	)		(195	)		90			(473	)

Net Increase (Decrease) in Cash		535			(584	)
Net Increase in Cash								1,991			463
Cash at Beginning of Period		499			788			560			499
Cash at End of Period	$	1,034		$	204		$	2,551		$	962

Supplemental Disclosure of Cash Flow Activity:
Cash paid during the period for:
Interest	$	679		$	723		$	357		$	466
Income Taxes	$	1,018		$	944
Income Taxes, net							$	1,531		$	332
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Common stock issued for NEXA acquisition							$	2,368		$	0-
Assets acquired and liabilities assumed in business combinations:
Fair value of assets acquired, net of cash acquired							$	24,885		$	0-
Fair value of liabilities assumed							$	2,159		$	0-
Accrued contingent consideration related to NEXA acquisition							$	153		$	0-
Accrued estimated working capital adjustment related to NEXA acquisition							$	226		$	0-

						Capital																	Capital
	Common Stock					In			Accumulated									Common Stock					In			Accumulated
	Issued					Excess			Other									Issued					Excess			Other
	$0.50 Par Value					of Par			Comprehensive			Retained						$0.50 Par Value					of Par			Comprehensive			Retained
	Shares		Amount			Value			Loss			Earnings			Total			Shares		Amount			Value			Income (Loss)			Earnings			Total
Balance as of March 30, 2019	7,211		$	3,605		$	16,467		$	(611	)	$	40,169		$	59,630
Balance as of March 28, 2020																		7,381		$	3,691		$	17,929		$	(1,010	)	$	46,477		$	67,087
Issuance of Common Stock	28			14			355			-			-			369		28			14			369			-			-			383
Repurchase of Common Stock	(55	)		(27	)		(561	)		-			(758	)		(1,346	)	(48	)		(24	)		(579	)		-			(684	)		(1,287	)
Stock-Based Compensation	120			60			143			-			-			203		50			25			287			-			-			312
Other Comprehensive Income	-			-			-			129			-			129		-			-			-			163			-			163
Net Income	-			-			-			-			1,718			1,718		-			-			-			-			798			798
Balance as of June 29, 2019	7,304		$	3,652		$	16,404		$	(482	)	$	41,129		$	60,703

Issuance of Common Stock	117			59			944			-			-			1,003
Repurchase of Common Stock	(63	)		(32	)		(443	)		-			(1,001	)		(1,476	)
Stock-Based Compensation	-			-			102			-			-			102
Other Comprehensive (Loss)	-			-			-			(55	)		-			(55	)
Net Income	-			-			-			-			2,379			2,379
Balance as of September 28, 2019	7,358		$	3,679		$	17,007		$	(537	)	$	42,507		$	62,656
Balance as of June 27, 2020																		7,411		$	3,706		$	18,006		$	(847	)	$	46,591		$	67,456

Issuance of Common Stock	18			9			244			-			-			253		3			1			90			-			-			91
Stock-Based Compensation	-			-			305			-			-			305		18			9			357			-			-			366
Other Comprehensive Income	-			-			-			93			-			93		-			-			-			165			-			165
Net Income	-			-			-			-			1,477			1,477		-			-			-			-			2,024			2,024
Balance as of December 28, 2019	7,376		$	3,688		$	17,556		$	(444	)	$	43,984		$	64,784
Balance as of September 26, 2020																		7,432		$	3,716		$	18,453		$	(682	)	$	48,615		$	70,102

						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 27, 2021	7,458		$	3,729		$	19,287		$	(451	)	$	52,513		$	75,078
Issuance of Common Stock	52			26			673			-			-			699
Repurchase of Common Stock	(62	)		(31	)		(755	)		-			(2,591	)		(3,377	)
Stock-Based Compensation	21			10			427			-			-			437
Other Comprehensive Income	-			-			-			182			-			182
Net Income	-			-			-			-			3,688			3,688
Balance as of June 26, 2021	7,469		$	3,734		$	19,632		$	(269	)	$	53,610		$	76,707

Issuance of Common Stock	72			36			2,871			-			-			2,907
Repurchase of Common Stock	(35	)		(18	)		(403	)		-			(1,851	)		(2,272	)
Stock-Based Compensation	12			7			613			-			-			620
Other Comprehensive Loss	-			-			-			(233	)		-			(233	)
Net Income	-			-			-			-			3,015			3,015
Balance as of September 25, 2021	7,518		$	3,759		$	22,713		$	(502	)	$	54,774		$	80,744

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 28, 2020
7,381
$
3,691
$
17,929
$
(1,010
)
$
46,477
$
67,087

Issuance of Common Stock
28
14
369
-
-
383

Repurchase of Common Stock
(48
)
(24
)
(579
)
-
(684
)
(1,287
)
Stock-Based Compensation
50
25
287
-
-
312

Other Comprehensive Income
-
-
-
163
-
163

Net Income
-
-
-
-
798
798

Balance as of June 27, 2020
7,411
$
3,706
$
18,006
$
(847
)
$
46,591
$
67,456

Issuance of Common Stock
3
1
90
-
-
91

Stock-Based Compensation
18
9
357
-
-
366

Other Comprehensive Income
-
-
-
165
-
165

Net Income
-
-
-
-
2,024
2,024

Balance as of September 26, 2020
7,432
$
3,716
$
18,453
$
(682
)
$
48,615
$
70,102

Issuance of Common Stock
9
5
170
-
-
175

Stock-Based Compensation
0-
-
197
-
-
197

Other Comprehensive Income
-
-
-
272
-
272

Net Income
-
-
-
-
1,761
1,761

Balance as of December 26, 2020
7,441
$
3,721
$
18,820
$
(410
)
$
50,376
$
72,507

Description of Business: Transcat, Inc. (“Transcat,” “we,” “us,” ~~“our,”~~“our” or the “Company”) is a leading provider of accredited calibration and laboratory instrument services and a value-added distributor of professional grade 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 for which the risk of 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-Q and Article 8-03 of Regulation S-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 ~~28, 2020~~27, 2021 (“fiscal year ~~2020”~~2021”) contained in the Company’s ~~2020~~2021 Annual Report on Form 10-K filed with the SEC.

Revenue Recognition: Distribution sales are recorded when an order’s title and risk of loss transfers 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.~~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 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. Provisions for customer returns are provided for in the period the related revenue is recorded based upon historical data.

Revenue recognized from prior period performance obligations for the ~~third~~second quarter of the fiscal year ending March ~~27, 2021~~26, 2022 (“fiscal year ~~2021”~~2022”) was immaterial. As of ~~December 26, 2020,~~September 25, 2021, the Company had no unsatisfied performance obligations for contracts with an original expected duration of greater than one year. Pursuant to ~~the Financial Accounting Standard Board’s (“FASB”)~~ Accounting Standards Codification (“ASC”), Topic 606, Revenue from Contracts with Customers, ~~(Topic 606),~~ the Company applied the practical expedient with respect to disclosure of the deferral and future expected timing of revenue recognition for transaction price allocated to remaining performance obligations. Deferred revenue, unbilled revenue and deferred contract costs recorded on our Consolidated Balance Sheets as of ~~December 26, 2020~~September 25, 2021 and March ~~28, 2020~~27, 2021 were immaterial. Payment terms are generally 30 to 45 days. 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 variable interest rate pricing, and the carrying amounts for cash, accounts receivable, ~~and~~other receivables, accounts payable and accrued compensation and other liabilities 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 ~~December 26, 2020~~each of September 25, 2021 and March ~~28, 2020,~~27, 2021, investment assets totaled ~~$0.5 million and~~ $0.4 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 ~~expense~~cost 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. Excess tax benefits for ~~stock-based~~share-based award activity are reflected in the Consolidated Statements of Income as a component of the provision for income taxes. Excess tax benefits are realized benefits from tax deductions for exercised awards in excess of the deferred tax asset attributable to stock-based compensation costs for such awards. ~~The~~During the first six months of fiscal year 2022 and fiscal year 2021, the Company did not capitalize any stock-based compensation costs as part of an asset. The Company estimates forfeiture rates based on its historical experience. During the first ~~nine~~six months of fiscal year ~~2021~~2022 and fiscal year ~~2020,~~2021, the Company recorded non-cash stock-based compensation expense of ~~$0.9~~$1.1 million and ~~$0.6~~$0.7 million, respectively, in the Consolidated Statements of Income.

Foreign Currency Translation and Transactions: The accounts of Cal OpEx Limited (d/b/a NEXA Enterprise Asset Management), an Irish company, and Transcat Canada Inc., aboth of which are wholly-owned ~~subsidiary~~subsidiaries of the Company, are maintained in the local currency, 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 Irish and Canadian business transactions. The net foreign currency loss was less than $0.1 million ~~during~~in each of the first ~~nine~~six months of ~~each of~~ fiscal ~~years 2021~~year 2022 and ~~2020.~~fiscal year 2021. The Company continually utilizes short-term foreign exchange forward contracts to reduce the risk that its earnings denominated in Canadian dollars will 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 gain of less than $0.1 million during the ~~first nine~~six months of fiscal year ~~2021~~2022 and a loss of $0.1 million during the first ~~nine~~six months of fiscal year ~~2020,~~2021, was recognized as a component of other expense 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 26, 2020,~~September 25, 2021, the Company had a foreign exchange contract, which matured in ~~January~~October 2021, outstanding in the notional amount of ~~$4.5~~$3.1 million. The foreign exchange contract was renewed in ~~January~~October 2021 and continues to be in place. The Company does not use hedging arrangements for speculative purposes.

Earnings Per Share: Basic earnings per share of 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 been 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~~second quarter of fiscal ~~year~~years 2022 and 2021, the net additional common stock equivalents had ~~a ($0.01) effect on the calculation of diluted earnings per share. For the third quarter of fiscal year 2020, the net additional common stock equivalents had 0no~~no effect on the calculation of diluted earnings per share. For the first ~~nine~~six months of ~~each of~~ fiscal ~~years 2021 and 2020,~~year 2022, the net additional common stock ~~equivalents~~ had a ($~~0.01)~~0.02) effect on the calculation of diluted earnings per share. For the first six months of fiscal year 2021, the net additional common stock had 0no 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		Second Quarter Ended		Six Months Ended
	December 26,	December 28,	December 26,	December 28,	September 25,	September 26,	September 25,	September 26,
	2020	2019	2020	2019	2021	2020	2021	2020
Average Shares Outstanding – Basic	7,437	7,367	7,415	7,316	7,482	7,417	7,473	7,405
Effect of Dilutive Common Stock Equivalents	143	190	117	154	113	132	105	120
Average Shares Outstanding – Diluted	7,580	7,557	7,532	7,470	7,595	7,549	7,578	7,525
Anti-dilutive Common Stock Equivalents	0-	35	30	35	111	38	131	56

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 on an annual basis during the fourth quarter of its fiscal year, or immediately if conditions indicate that such impairment could exist. The Company evaluates qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying value and whether it is necessary to perform the goodwill impairment process.

Intangible assets, namely customer base and covenants not to compete, represent an allocation of purchase price to identifiable intangible assets of an acquired business. The Company estimates the fair value of its reporting units using the fair market value measurement requirement. 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 (in thousands):

	Goodwill
Net Book Value as of March 27, 2021	$	11,458	$	31,814		$	43,272		$	920		$	6,593		$	7,513
Additions		0-		16,206			16,206			0-			6,690			6,690
Amortization		-		-			-			(136	)		(1,213	)		(1,349	)
Currency Translation Adjustment		0-		(37	)		(37	)		0-			(101	)		(101	)
Net Book Value as of September 25, 2021	$	11,458	$	47,983		$	59,441		$	784		$	11,969		$	12,753

~~Leases:~~ In February 2016, the FASB issued ASU No. 2016-02, Leases (ASC Topic 842), which requires lessees to recognize substantially all leases on the balance sheet and disclose key information about leasing arrangements. The new standard establishes a right of use ("ROU") model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

In July 2018, FASB issued ASU 2018-11, Leases (ASC Topic 842), which provides entities with an additional transition method to adopt the new leases standard. Under this method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, the prior comparative period's financials will remain the same as those previously presented.

The Company adopted the new leasing standard on March 31, 2019. The Company adopted the package of practical expedients permitted under the transition guidance which allowed us to carry forward the historical lease classification. Upon adoption, the Company used hindsight in determining lease term. The most significant impact of adoption was adding ROU lease assets and lease liabilities on the Consolidated Balance Sheets by the present value of the Company’s leasing obligations, which are primarily related to facility and vehicle leases. The present value of the remaining lease payments is recognized as lease liabilities on the Consolidated Balance Sheets with a corresponding ROU asset. At the time of adoption, the value of the assets and liabilities added to the Consolidated Balance Sheets was approximately $8 million. The ROU asset is shown separately on the face of the Consolidated Balance Sheets. $1.7 million of the lease liabilities was included in Accrued Compensation and Other Liabilities on the Consolidated Balance Sheets with the remainder included in Lease Liabilities. Adopting the new standard did not have a material impact on our Consolidated Statement of Income or Consolidated Statement of Cash Flows.

~~Credit Losses:~~ In June 2016, the ~~FASB~~Financial Accounting Standard Board (“FASB”) issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), 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 replaces the "incurred loss" model with an "expected credit loss" model that requires entities to estimate an expected lifetime credit loss on financial assets, including trade accounts receivable. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. As credit losses from the Company's trade receivables have not historically been significant, the Company ~~does not expect~~anticipates that the adoption of the ~~new standard to~~ASU will not have a material impact on its consolidated financial statements.

~~Description:~~On ~~May 18, 2020, the Company~~July 7, 2021, we entered into the Second Amended and Restated Credit Facility Agreement (the “2021 Credit Agreement”) with Manufacturers and Traders Trust Company (“M&T”), that amended and restated in its entirety the Company’s Amended and Restated Credit Facility Agreement dated as of October 30, 2017, as amended by Amended and Restated Credit Facility Agreement Amendment 1 dated December 10, 2018 and Amended and Restated Credit Facility Agreement Amendment 2 (“Amendment Two”) ~~with Manufacturers and Traders Trust Company that~~dated May 18, 2020 (as amended, the ~~Company’s~~“Prior Credit Agreement”).

The 2021 Credit Agreement ~~(as~~increased the revolving credit commitment (the “Revolving Credit Commitment”) from $40.0 million to $80.0 million, with a letter of credit subfacility increased from $2.0 million to $10.0 million, and extended the term of the Revolving Credit Commitment to June 2026. The 2021 Credit Agreement amended the definition of Applicable Margin (formerly Applicable Rate under the Prior Credit Agreement), which is based upon the Company’s then current leverage ratio and is used to determine interest charges on outstanding and unused borrowings under the revolving credit facility; the amendments reduced the Applicable Margins payable at the two highest leverage ratio levels. The 2021 Credit Agreement also amended the definition of Permitted Acquisitions, that is, acquisitions which are permitted under, and may be financed with proceeds of, the revolving credit facility, including increasing the aggregate purchase price for acquisitions consummated in any fiscal year from $1.0 million to $65.0 million during the current fiscal year and $50.0 million during any subsequent fiscal year, and adding an aggregate purchase price of $40.0 million for acquisitions consummated at any time during the term of the 2021 Credit Agreement related to businesses with a principal place of business located in the United Kingdom or the European Union.

In addition, the 2021 Credit Agreement provides that, assuming no event of default, restricted payments up to $25.0 million (increased from $10.0 million in the Prior Credit Agreement) in the aggregate and $10.0 million (increased from $3.0 million in the Prior Credit Agreement) in any single fiscal year may be used by us to repurchase our shares and pay dividends. The 2021 Credit Agreement modified the leverage ratio and fixed charge coverage ratio covenants with which we are required to comply. The 2021 Credit Agreement also reduced the London Interbank Offered Rate (“LIBOR”) floor from 1.0% to 0.25% and included a mechanism for adoption of a different benchmark rate in the event LIBOR is discontinued. Pursuant to the 2021 Credit Agreement, the fixed interest rate on our term loan (the “2018 Term Loan”) was reduced from 4.15% to 3.90%.

The 2021 Credit Agreement superseded in its entirety, the Prior Credit Agreement. Amendment Two to the ~~“Credit Agreement”). Amendment Two~~Prior Credit Agreement had previously extended the term of the revolving credit facility ~~(the “Revolving Credit Facility”)~~ to October 20, 2022 and increased the revolving credit commitment to $40 million.

Amendment Two had modified the definition of the applicable rate used to determine interest charges on outstanding and unused borrowings under the ~~Revolving Credit Facility~~revolving credit facility and it amended the definition of permitted acquisitions to amend borrowings available under the ~~Revolving Credit Facility~~revolving credit facility for acquisitions. In addition, Amendment Two had amended the definition of restricted payments to exclude amounts up to $2.5 million during each fiscal year used to pay certain employee tax obligations associated with share-based payment and stock option activity, and modified certain restrictions to the Company’s ability to repurchase its shares and pay dividends. Amendment Two also had modified the leverage ratio and fixed charge coverage ratio covenants with which the Company iswas required to comply ~~for the fiscal year ending March 27, 2021. Amendment Two also established a London Interbank Offered Rate (“LIBOR”) floor of 1%~~ and included a mechanism for adoption of a different benchmark rate when LIBOR is discontinued. During the third quarter of fiscal year 2021, Manufacturers and Traders Trust Company eliminated the prior requirement included in Amendment Two that limited capital expenditures to $5.5 million for the fiscal year ending March 27, 2021. Amendment Two also had established a LIBOR floor of 1.0% and included a mechanism for adoption of a different benchmark rate in the event LIBOR was discontinued.

~~On December 10, 2018, the Company entered into an Amended and Restated Credit Agreement Amendment 1 (the “2018 Agreement”). The 2018 Agreement has~~We have a term loan, ~~(the “2018~~the 2018 Term ~~Loan”)~~Loan, in the amount of $15.0 million. As of ~~December 26, 2020, $11.1~~September 25, 2021, $9.6 million was outstanding on the 2018 Term Loan, of which ~~$2.0~~$2.1 million was

included in current liabilities on the Consolidated Balance Sheets with the remainder included in long-term debt. The 2018 Term Loan requires total repayments (principal plus interest) of $0.2 million per month through December 2025.

As of ~~December 26, 2020, $40.0~~September 25, 2021, $80.0 million was available under the ~~Revolving Credit Facility,~~revolving credit facility, of which ~~$13.2~~$33.4 million was outstanding and included in long-term debt on the Consolidated Balance Sheets. During the first ~~nine~~six months of fiscal year ~~2021, $3.4~~2022, $20.9 million ~~of borrowings were~~was used for business acquisitions.

The allowable leverage ratio under the Prior Credit Agreement for the second, third and fourth fiscal quarter of fiscal year 2021 and the first quarter of fiscal year 2022 iswas a maximum multiple of 5.0, 5.5, 7.0 and 4.0, respectively, of total debt outstanding compared to EBITDA and non-cash stock-based compensation expense for the preceding four consecutive fiscal quarters. After the first quarter of fiscal 2022, pursuant to the 2021 Credit Agreement, the allowable leverage ratio is a maximum multiple of 3.0. The Prior Credit Agreement ~~provides~~also had provided that the trailing twelve-month pro forma EBITDA of an acquired business iswas included in the allowable leverage calculation.

Interest and Other Costs: Interest on outstanding borrowings under the ~~Revolving Credit Facility~~revolving credit facility accrue, at Transcat’s election, at either the variable one-month LIBOR or a fixed rate for a designated period at the LIBOR corresponding to such period, in each case (subject to a 1% ~~floor)~~floor during the first quarter of fiscal year 2022 and a 0.25% floor for subsequent periods), plus a margin. Interest on outstanding borrowings under the 2018 Term Loan ~~accrue~~accrued at a fixed rate of 4.15% over the term of the ~~loan.~~loan during the first quarter of fiscal year 2022 and 3.90% during the second quarter of fiscal year 2022 and over the term of the loan for subsequent periods. Unused fees accrue based on the average daily amount of unused credit available on the ~~Revolving Credit Facility.~~revolving credit facility. Interest rate margins and unused fees are determined on a quarterly basis based upon the Company’s calculated leverage ~~ratio, as defined in the Credit Agreement.~~ratio. The Company’s interest rate for the ~~Revolving Credit Facility~~revolving credit facility for the first ~~nine~~six months of fiscal year ~~2021~~2022 ranged from ~~1.4%~~1.0% to ~~2.7%~~2.2%.

Covenants: The 2021 Credit Agreement has certain covenants with which the Company must comply with, including a fixed charge ratio covenant and a leverage ratio covenant. The Company was in compliance with all loan covenants and requirements during the ~~third~~second quarter of fiscal year ~~2021.~~2022. Our leverage ratio, as defined in the 2021 Credit Agreement, was ~~1.24~~1.54 at ~~December 26, 2020,~~September 25, 2021, compared with ~~1.53~~0.94 at ~~the end of fiscal year 2020.~~March 27, 2021.

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.

In September 2021, the Transcat, Inc. 2021 Stock Incentive Plan (the “2021 Plan”) was approved by shareholders and became effective. The ~~Company has a stock-based incentive plan~~2021 Plan replaced the Transcat, Inc. 2003 Incentive Plan (the “2003 Plan”). Shares available for grant under the 2021 Plan include any shares remaining available for issuance under the 2003 Plan and any shares that are subject to outstanding awards under the 2003 Plan that are subsequently canceled, expired, forfeited, or otherwise not issued or are settled in cash. The 2021 Plan provides for, among other awards, grants of restricted stock units and stock options to directors, officers and key employees at the fair market value at the date of grant. At ~~December 26, 2020, 0.9~~September 25, 2021, 0.7 million shares of common stock were available for future grant under the ~~2003~~2021 Plan.

The Company receives an excess tax benefit related to restricted stock vesting and stock options exercised and redeemed. The discrete tax ~~benefit~~benefits related to ~~stock-based~~share-based compensation and stock option activity during the first ~~nine~~six months of fiscal year 2022 and 2021 ~~and 2020 was $0.3~~were $1.7 million and ~~$0.9~~$0.3 million, respectively.

Restricted Stock Units: The Company grants time-based and performance-based restricted stock units as a component of executive and key employee compensation. Expense for restricted stock unit grants is recognized on a straight-line basis for the service period of the stock award based upon fair value of the award on the date of grant. The fair value of the restricted stock unit grants is the quoted market price for the Company’s common stock on the date of grant. These restricted stock units are either time vested, or vest following the third fiscal year from the date of grant subject to cumulative diluted earnings per share targets over the eligible period.

Compensation cost ultimately recognized for performance-based restricted stock units will equal the grant date fair market value of the unit that coincides with the actual outcome of the performance conditions. On an interim basis, the Company records compensation cost based on the estimated level of achievement of the performance conditions. The expense relating to the time vested restricted stock units is recognized on a straight-line basis over the requisite service period for the entire award.

The Company achieved ~~79%~~64% of the target level for the performance-based restricted stock units granted in the fiscal year ended March ~~31, 2018~~30, 2019 and as a result, issued 4919 thousand shares of common stock to executive officers and certain key

employees during the first quarter of fiscal year ~~2021.~~2022. The following table summarizes the non-vested restricted stock units outstanding as of ~~December 26, 2020:~~September 25, 2021 (in thousands, except per unit data):

		Total	Grant Date
April 2018	April 2018 – March 2021	1	$	15.65	Time Vested
May 2018	April 2018 – March 2021	22	$	15.30	55% of target level
May 2018	April 2018 – March 2021	22	$	15.30	Time Vested
October 2018	October 2018 – September 2027	8	$	20.81	Time Vested
March 2019	April 2019 – March 2022	23	$	23.50	55% of target level
March 2019	April 2019 – March 2022	23	$	23.50	Time Vested
August 2019	August 2019 – August 2022	1	$	23.00	Time Vested
March 2020	April 2020 – March 2023	2	$	26.25	Time Vested
July 2020	July 2020 – March 2023	46	$	27.08	Time Vested
September 2020	September 2020 – September 2021	14	$	28.52	Time Vested
September 2020	September 2020 –July 2023	4	$	28.54	Time Vested
September 2020	September 2020 –July 2023	5	$	29.76	Time Vested
September 2020	September 2020 – September 2023	3	$	29.76	Time Vested

Total
Grant Date
Estimated
Number
Fair
Level of
Date
Measurement
of Units
Value
Achievement at
Granted
Period
Outstanding
Per Unit
December 26, 2020
April 2018
April 2018 – March 2021
1
$
15.65
Time Vested
May 2018
April 2018 – March 2021
22
$
15.30
55% of target level
May 2018
April 2018 – March 2021
22
$
15.30
Time Vested
October 2018
October 2018 – September 2027
8
$
20.81
Time Vested
March 2019
April 2019 – March 2022
23
$
23.50
55% of target level
March 2019
April 2019 – March 2022
23
$
23.50
Time Vested
August 2019
August 2019 – August 2022
1
$
23.00
Time Vested
March 2020
April 2020 – March 2023
2
$
26.25
Time Vested
July 2020
July 2020 – March 2023
46
$
27.08
Time Vested
September 2020
September 2020 – September 2021
14
$
28.52
Time Vested
September 2020
September 2020 –July 2023
4
$
28.54
Time Vested
September 2020
September 2020 –July 2023
5
$
29.76
Time Vested
September 2020
September 2020 – September 2023
3
$
29.76
Time Vested

		Total	Grant Date		Estimated
		Number	Fair		Level of
Date	Measurement	of Units	Value		Achievement at
Granted	Period	Outstanding	Per Unit		September 25, 2021
October 2018	October 2018 – September 2027	8	$	20.81	Time Vested
March 2019	April 2019 – March 2022	21	$	23.50	80% of target level
March 2019	April 2019 – March 2022	21	$	23.50	Time Vested
March 2020	April 2020 – March 2023	2	$	26.25	Time Vested
July 2020	July 2020 – March 2023	38	$	27.08	Time Vested
September 2020	September 2020 –July 2023	4	$	28.54	Time Vested
September 2020	September 2020 –July 2023	5	$	28.54	Time Vested
September 2020	September 2020 – September 2023	3	$	29.76	Time Vested
January 2021	January 2021 – January 2024	2	$	34.62	Time Vested
May 2021	May 2021 – May 2024	1	$	54.21	Time Vested
June 2021	June 2021 – May 2024	14	$	53.17	100% of target level
June 2021	June 2021 – May 2024	14	$	53.17	Time Vested
September 2021	September 2021 – August 2024	4	$	67.76	Time Vested
September 2021	September 2021 – September 2022	7	$	66.09	Time Vested

Total expense relating to restricted stock units, based on grant date fair value and the achievement criteria, was ~~$0.7~~$0.9 million and $0.6 million ~~respectively,~~ in the first ~~nine~~six months of fiscal ~~years~~year 2022 and fiscal year 2021, ~~and 2020.~~respectively. As of ~~December 26, 2020,~~September 25, 2021, unearned compensation, to be recognized over the grants’ respective service periods, totaled ~~$2.1~~$3.0 million.

Stock Options: The Company grants stock options to employees and directors with an exercise price equal to the quoted market price of the Company’s stock at the date of the grant. The fair value of stock options is estimated using the Black-Scholes option pricing formula that requires assumptions for expected volatility, expected dividends, the risk-free interest rate and the expected term of the option. Expense for stock options is recognized on a straight-line basis over the requisite service period for each award. Options vest either immediately or over a period of up to five years using a straight-line basis and expire either five years or ten years from the date of grant.

The following table summarizes the Company’s options as of and for the first ~~nine~~six months of fiscal year ~~2021:~~2022:

Weighted
Weighted
Average
Average
Number
Exercise
Remaining
Aggregate
of
Price Per
Contractual
Intrinsic
Shares
Share
Term (in years)
Value
Outstanding as of March 28, 2020
150
$
14.63
Granted
20
$
27.48
Exercised
(30
)
$
12.75
Forfeited
0-
0-
Redeemed
0-
0-
Outstanding as of December 26, 2020
140
$
16.87
3
$
2,263
Exercisable as of December 26, 2020
85
$
17.04
2
$
1,788

					Weighted
			Weighted Average		Average Remaining
	Number		Exercise		Contractual	Aggregate
	of		Price Per		Term (in	Intrinsic
	Shares		Share		years)	Value
Outstanding as of March 27, 2021	125		$	15.47
Granted	125		$	59.87
Exercised	(85	)	$	12.00
Forfeited	(5	)	$	24.30
Outstanding as of September 25, 2021	160		$	51.72	9	$	2,045
Exercisable as of September 25, 2021	2		$	26.27	8	$	76

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~~second quarter of fiscal year ~~2021~~2022 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 26, 2020.~~September 25, 2021. The amount of aggregate intrinsic value will change based on the fair market value of the Company’s common stock.

fiscal year 2022. Total expense related to stock options was $0.1 million during the first ~~nine~~six months of ~~each of~~ fiscal ~~years 2021 and 2020.~~year 2021. Total unrecognized compensation cost related to non-vested stock options as of ~~December 26, 2020~~September 25, 2021 was ~~$0.2~~$2.3 million, which is expected to be recognized over a period of ~~three~~five years. The aggregate intrinsic value of stock options exercised in the first ~~nine~~six months of fiscal years 2022 and 2021 ~~and 2020~~ was ~~$0.3~~$4.5 million and ~~$3.5~~$0.3 million, respectively. Cash received from the exercise of options in the first ~~nine~~six months of fiscal years 2022 and 2021 ~~and 2020~~ was ~~$0.4~~$1.0 million and ~~$1.4~~$0.3 million, respectively.

Transcat has 2 reportable segments: ~~Distribution~~Service and ~~Service.~~Distribution. The Company has no inter-segment sales. The following table presents segment information for the ~~third~~second quarter and first ~~nine~~six months of fiscal years 2022 and 2021 ~~and 2020:~~(dollars in thousands):

	Third Quarter Ended				Nine Months Ended				Second Quarter Ended				Six Months Ended
	December 26,		December 28,		December 26,		December 28,		September 25,		September 26,		September 25,		September 26,
	2020		2019		2020		2019		2021		2020		2021		2020
Revenue:
Service	$	24,776	$	22,087	$	72,297	$	67,987	$	29,544	$	24,554	$	57,101	$	47,521
Distribution		19,286		21,092		52,276		59,350		20,843		17,053		41,076		32,990
Total		44,062		43,179		124,573		127,337		50,387		41,607		98,177		80,511

Gross Profit:
Service		6,915		4,866		20,884		16,250		9,712		7,900		18,464		13,969
Distribution		4,330		5,062		11,264		14,175		4,899		3,594		9,667		6,934
Total		11,245		9,928		32,148		30,425		14,611		11,494		28,131		20,903

Operating Expenses:
Service ⁽¹⁾		4,959		4,378		14,822		13,187		7,065		4,923		12,843		9,863
Distribution ⁽¹⁾		3,767		3,459		10,765		10,130		3,968		3,493		8,021		6,998
Total		8,726		7,837		25,587		23,317		11,033		8,416		20,864		16,861

Operating Income:
Service		563		488		6,062		3,063
Distribution		1,956		1,603		499		4,045
Operating Income (Loss):
Service ⁽¹⁾										2,647		2,977		5,621		4,106
Distribution ⁽¹⁾										931		101		1,646		(64	)
Total		2,519		2,091		6,561		7,108		3,578		3,078		7,267		4,042

Unallocated Amounts:
Interest and Other Expense, net		219		194		779		776		250		317		445		560
Provision for Income Taxes		539		420		1,199		758		313		737		119		660
Total		758		614		1,978		1,534		563		1,054		564		1,220

Net Income	$	1,761	$	1,477	$	4,583	$	5,574	$	3,015	$	2,024	$	6,703	$	2,822

NEXA:Effective August 31, 2021, Transcat purchased all of the outstanding capital stock of Cal OpEx Limited (d/b/a NEXA Enterprise Asset Management), a private 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”). NEXA provides calibration optimization and other technical solutions to improve asset and reliability management programs to pharmaceutical, biotechnology, and medical device companies worldwide. 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 ~~Company applies~~NEXA goodwill is primarily attributable to the workforce acquired, as well as operational synergies and other intangibles that do not qualify for separate recognition. All of the goodwill and intangible assets relating to the NEXA acquisition ~~method~~has been allocated to the Service segment. Intangible assets related to the NEXA acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of ~~accounting~~up to five years and are deductible for ~~business acquisitions. Under~~tax purposes. Amortization of goodwill related to the NEXA acquisition ~~method,~~is not deductible for tax purposes.

The total purchase price for NEXA was approximately $26.5 million and was paid with $24.1 million in cash and the issuance of 34,943 shares of our common stock valued at $2.4 million. Additionally, there are potential earn-out payments of up to $7.5 million over the next four years based upon NEXA achieving certain annual revenue and EBITDA goals. If achieved, the earn-out payments will also be made in shares of common stock unless certain criteria is met for cash payment. As of September 25, 2021, the estimated fair value for the contingent earn-out payments is $0.2 million and included in the preliminary purchase price allocation below. $0.1 million of the purchase price has been put into escrow as a holdback for indemnification claims, if any.

The purchase price allocation is subject to revision based upon our final review of ~~an acquisition is assigned to~~intangible asset valuation assumptions, working capital adjustments and true-up of the ~~underlying tangible and intangible~~fair value of the contingent consideration, assets acquired and liabilities ~~assumed~~assumed. The following is a summary of the preliminary purchase price allocation, in the aggregate, to the fair value, based on ~~their respective fair values at the date~~Level 3 inputs, of ~~acquisition. The Company uses a valuation hierarchy, as further described under Fair Value of Financial Instruments in Note 1 above,~~NEXA’s assets and typically utilizes independent third-party valuation specialists 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.liabilities acquired on August 31, 2021 (in thousands):

From the date of acquisition, NEXA has contributed revenue of $0.6 million and operating loss of l $0.1 million for the second quarter and for the first six months of fiscal year 2022.

Upstate Metrology: Effective April 29, 2021, Transcat acquired substantially all of the assets of Upstate Metrology Inc. (“Upstate Metrology”), a New York 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.

All of the goodwill related to the Upstate Metrology acquisition has been allocated to the Service segment. Amortization of goodwill related to the Upstate Metrology acquisition is deductible for tax purposes.

The total purchase price for the assets of Upstate Metrology was approximately $0.9 million. The following is a summary of the purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of Upstate Metrology’s assets and liabilities acquired on April 29, 2021 (in thousands):

BioTek: Effective December 16, 2020, Transcat acquired substantially all of the assets of BioTek Services, Inc. (“BioTek”), a Virginia based provider of pipette 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~~Service capabilities. BioTek’s focus on pipettes complements the current offerings Transcat provides to the ~~Life Science~~life science sector.

~~100%~~All of the goodwill and intangible assets relating to the BioTek acquisition has been allocated to the Service segment. Intangible assets related to the BioTek acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up to 10 years and are deductible for tax purposes. Amortization of goodwill related to the BioTek acquisition is deductible for tax purposes.

The total purchase price ~~paid~~ for the assets of BioTek was approximately $~~3.4~~$3.5 million. $0.4 million of the purchase price has been put into escrow as a holdback for indemnification claims, if any. The following is a preliminary summary of the purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of BioTek’s assets and liabilities acquired during the period presented:

~~TTE:~~ Effective, February 21, 2020, Transcat acquired substantially all of the assets of TTE Laboratories, Inc. (“TTE") a Boston, MA-based provider of pipette calibration services and equipment. 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. TTE’s focus on pipettes complements the current offerings Transcat provides to the life science sector. We will refer to TTE as “pipettes.com”.

75% of the goodwill and intangible assets relating to the pipettes.com acquisition has been allocated to the Service segment with the remaining 25% allocated to the Distribution segment. Intangible assets related to the pipettes.com acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up to 10 years and are deductible for tax purposes. Amortization of goodwill related to the pipettes.com acquisition is deductible for tax purposes.

~~The total purchase price paid for the assets of pipettes.com was approximately $12.2~~ ~~million. $1.2~~ million of the purchase price has been put into escrow as a holdback for indemnification claims, if any. The following is a summary of the purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of ~~pipettes.com~~BioTek’s assets and liabilities acquired during the period ~~presented:~~presented (in thousands):

		FY 2021
Goodwill	Goodwill	$	6,751		Goodwill	$	1,063
Intangible Assets – Customer Base & Contracts	Intangible Assets – Customer Base & Contracts		4,410		Intangible Assets – Customer Base & Contracts		1,930
Intangible Assets – Covenant Not to Compete	Intangible Assets – Covenant Not to Compete		120		Intangible Assets – Covenant Not to Compete		100
			11,281				3,093
Plus:	Current Assets		928		Current Assets		406
	Non-Current Assets		261		Non-Current Assets		8
Less:	Current Liabilities		(239	)
Total Purchase Price	Total Purchase Price	$	12,231		Total Purchase Price	$	3,507

The results of acquired businesses are included in Transcat’s consolidated operating results as of the dates the businesses were acquired. The following unaudited pro forma information presents the Company’s results of operations as if the ~~acquisition~~acquisitions of ~~pipettes.com~~NEXA, Upstate Metrology and BioTek had occurred at the beginning of fiscal year ~~2020.~~2021. The pro forma results do not purport to represent what the Company’s results of operations actually would have been if the ~~transaction~~transactions had occurred at the beginning of the period presented or what the Company’s operating results will be in future periods.

	(Unaudited)
Total Revenue	$	51,989	$	43,821	$	102,109	$	84,060
Net Income	$	3,342	$	2,891	$	7,360	$	3,237
Basic Earnings Per Share	$	0.45	$	0.39	$	0.98	$	0.44
Diluted Earnings Per Share	$	0.44	$	0.38	$	0.97	$	0.43

	(Unaudited)
Total Revenue	$	126,121	$	135,115
Net Income	$	4,843	$	6,493
Basic Earnings Per Share	$	0.65	$	0.89
Diluted Earnings Per Share	$	0.64	$	0.87

~~IIS:~~ Effective July 19, 2019, Transcat acquired Infinite Integral Solutions Inc. (“IIS”). IIS, headquartered in Mississauga, Ontario, Canada, is the owner and developer of the CalTree™ suite of software solutions for the automation of calibration procedures and datasheet generation. Total consideration for the shares of IIS was 1.4 million Canadian dollars, subject in part to the achievement of certain milestones. 1.0 million Canadian dollars was paid during fiscal year 2020 and was included as a business acquisition in the Consolidated Statement of Cash Flows. 1.0 million Canadian dollars has been allocated to software and property and equipment and 0.3 million Canadian has been allocated to goodwill. Due to the immaterial amount of pre-acquisition revenue and expenses, no pro forma table of results has been presented.

~~GRS:~~ Effective April 1, 2019, Transcat acquired substantially all of the assets of Gauge Repair Service (“GRS”), a California-based provider of calibration services. This transaction leveraged the Company’s infrastructure while also increasing the depth and breadth of the Company’s service capabilities. Due to the immaterial amount of the purchase price of the GRS assets, it has been included in the purchases of property and equipment in the Consolidated Statement of Cash Flows.

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. As of ~~December 26, 2020, there was~~September 25, 2021, $0.2 million of contingent consideration and $0.1 million of other holdback amounts were unpaid and reflected in current liabilities on the Consolidated Balance Sheets. During the ~~third quarter of each~~first six months of fiscal year ~~2021~~2022 and fiscal year ~~2020, 00no~~2021, no contingent consideration or other holdback amounts were paid.

During ~~each of~~ the first ~~nine~~six months of fiscal ~~years~~year 2022, acquisition costs of $0.8 million were recorded as incurred as general and administrative expenses in the Consolidated Statements of Income. During the first six months of fiscal year 2021, ~~and 2020,~~ acquisition costs of less than $0.1 million were recorded as incurred as general and administrative expenses in the Consolidated Statements of Income.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements. This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to expectations, estimates, beliefs, assumptions and predictions of future events and are identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “projects,” “seek,” “strategy,” “target,” “intends,” “could,” ~~“plans,~~“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, the impact of and our response to the COVID-19 pandemic, ~~on our business,~~ the highly competitive nature of the industries in which we compete and in the nature of our two business segments, cybersecurity risks, the risk of significant disruptions in our information technology systems, our inability to recruit, train and retain quality employees, skilled technicians and senior management, fluctuations in our operating results, competition in the rental market, the volatility of our stock price, our ability to adapt our technology, reliance on our enterprise resource planning system, technology updates, risks related to our acquisition strategy and the integration of the businesses we acquire, volatility in our customers’ industries, changes in vendor rebate programs, our vendors’ abilities to provide desired inventory, ~~our~~the risks related to current and future indebtedness, the relatively low trading volume of our common stock, foreign currency rate fluctuations and the impact of general economic conditions on our business. 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 this quarterly report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended March ~~28, 2020.~~27, 2021. You should not place undue reliance on our forward-looking statements, which speak only as of the date they are made. Except as required by law, we undertake no obligation to update 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.

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 ~~28, 2020.~~27, 2021.

During ~~the third~~our second quarter of fiscal year ~~2021,~~2022, we ~~recorded~~achieved consolidated revenue of ~~$44.1~~$50.4 million. This represented an increase of ~~$0.9~~$8.8 million or ~~2.0%~~21.1% versus the ~~third~~second quarter of fiscal year ~~2020. Revenue growth~~2021. This increase was primarily due to ~~our Service segment, which increased 12.2% or $2.7 million to $24.8 million. Our Distribution segment showed a sales decrease of 8.6% to $19.3 million. This decrease is due to~~ the economic ~~downturn from~~rebound in the ~~COVID-19 pandemic that has impacted customer demand.~~

~~Gross profit for the third~~second quarter of fiscal year ~~2021~~2022 and the lower customer demand in the prior year second quarter due to the COVID-19 pandemic, especially in the Distribution segment.

Second quarter of fiscal year 2022 gross profit was ~~$11.2~~$14.6 million, an increase of ~~$1.3~~$3.1 million or ~~13.3%~~27.1% versus the ~~third~~second quarter of fiscal year ~~2020.~~2021. In addition, consolidated gross margin expanded by ~~250~~140 basis points from 27.6% to ~~25.5% from 23.0%~~29.0%. ~~The~~This increase ~~in gross profit~~was largely the result of operating leverage on our fixed costs and ~~gross margin were positively affected by continued increases in productivity~~a favorable mix of products sold in the ~~Service segment, strategic customer price increases, favorable changes in sales product and channel mix and various cost reduction efforts implemented in response to the COVID-19 pandemic.~~Distribution segment.

Total operating expenses were ~~$8.7~~$11.0 million, an increase of ~~$0.9~~$2.6 million or ~~11.3%~~31.1% as compared to the ~~third~~second quarter of fiscal year ~~2020, as we continued to invest in our technology initiatives. Also, included~~2021. Included in operating expenses during the ~~third~~second quarter of fiscal year ~~2021~~2022 were incremental operating expenses related to acquired businesses, investments in technology, higher incentive-based employee costs due to higher sales and $0.8 million of one-time transaction expenses related to the acquisition of ~~pipettes.com and BioTek which closed in December 2020.~~NEXA. As a percentage of total revenue, operating expenses were ~~19.8%, up 160 basis points from 18.2%~~21.9% in the ~~third~~second quarter of fiscal year ~~2020.~~2022, up 170 basis points from 20.2% in the second quarter of fiscal year 2021. Operating income increased by $0.5 million and operating margin decreased by 30 basis points in the second quarter of fiscal year 2022.

Net income was ~~$1.8 million, a 19.2% increase as compared to $1.5~~$3.0 million in the ~~third~~second quarter of fiscal year ~~2020.~~2022, up 49.0% as compared to $2.0 million in the second quarter of fiscal year 2021. The increase in net income was due to higher operating income ~~which was offset by higher~~and lower provision for income taxes. ~~The higher provision for income taxes was a result of decreased discrete income tax benefits related to stock-based awards.~~

The following table presents, for the ~~third~~second quarter and first ~~nine~~six months of fiscal years ~~2021~~2022 and ~~2020,~~2021, the components of our Consolidated Statements of Income:

(Unaudited)
(Unaudited)
Third Quarter Ended
Nine Months Ended
December 26,
December 28,
December 26,
December 28,
2020
2019
2020
2019
As a Percentage of Total Revenue:
Service Revenue
56.2
%
51.2
%
58.0
%
53.4
%
Distribution Sales
43.8
%
48.8
%
42.0
%
46.6
%
Total Revenue
100.0
%
100.0
%
100.0
%
100.0
%

Gross Profit Percentage:
Service Gross Profit
27.9
%
22.0
%
28.9
%
23.9
%
Distribution Gross Profit
22.5
%
24.0
%
21.5
%
23.9
%
Total Gross Profit
25.5
%
23.0
%
25.8
%
23.9
%

Selling, Marketing and Warehouse Expenses
10.6
%
10.3
%
10.5
%
10.3
%
General and Administrative Expenses
9.2
%
7.9
%
10.0
%
8.0
%
Total Operating Expenses
19.8
%
18.2
%
20.5
%
18.3
%

Operating Income
5.7
%
4.8
%
5.3
%
5.6
%

Interest and Other Expense, net
0.5
%
0.4
%
0.6
%
0.6
%

Income Before Income Taxes
5.2
%
4.4
%
4.7
%
5.0
%
Provision for Income Taxes
1.2
%
1.0
%
1.0
%
0.6
%

Net Income
4.0
%
3.4
%
3.7
%
4.4
%

SECOND QUARTER ENDED ~~DECEMBER~~SEPTEMBER 25, 2021 COMPARED TO SECOND QUARTER ENDED SEPTEMBER 26, 2020 ~~COMPARED TO THIRD QUARTER ENDED~~ ~~DECEMBER 28, 2019~~ ~~(dollars in thousands)~~:

	Third Quarter Ended				Change					Second Quarter Ended				Change
	December 26,		December 28,
(dollars in thousands)										September 25,		September 26,
	2020		2019		$			%		2021		2020		$		%
Revenue:
Service	$	24,776	$	22,087	$	2,689		12.2	%	$	29,544	$	24,554	$	4,990		20.3	%
Distribution		19,286		21,092		(1,806	)	(8.6	%)		20,843		17,053		3,790		22.2	%
Total	$	44,062	$	43,179	$	883		2.0	%	$	50,387	$	41,607	$	8,780		21.1	%

Total revenue increased ~~$0.9~~$8.8 million, or ~~2.0%~~21.1%, in our second quarter of fiscal year ~~2021 third quarter~~2022 compared to the prior fiscal year ~~third~~second quarter. ~~Excluding acquired revenue of $2.1 million, organic revenue declined by 3.0%.~~

Service revenue, which accounted for ~~56.2%~~58.6% and ~~51.2%~~59.0% of our total revenue in the ~~third~~second quarter of fiscal years ~~2021~~2022 and ~~2020,~~2021, respectively, increased ~~12.2%~~20.3% from the ~~third~~second quarter of fiscal year ~~2020~~2021 to the ~~third~~second quarter of fiscal year ~~2021.~~2022. This year-over-year increase ~~reflected new Life Science business and, combined with $1.4~~included $1.6 million ~~of incremental~~in revenue from ~~pipettes.com~~acquisitions and ~~BioTek, more than offset reduced demand from other markets caused primarily~~organic revenue growth of 14.0% and was driven by improvement in end market conditions, continued market share gains and an easier comparison versus the second quarter of fiscal year 2021 which was adversely impacted by the COVID-19 pandemic. ~~Excluding acquired revenue of $1.4 million, the Service segment organic revenue increased by 5.9%.~~

Our fiscal years ~~2021~~2022 and ~~2020~~2021 quarterly Service revenue growth, in relation to prior fiscal year quarter comparisons, was as follows:

		FY 2021			FY 2020
Service Revenue Growth			12.2	%		4.5	%		2.5	%			2.9	%		7.8	%		18.1	%		15.9	%

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 an indication of the progress of this segment. The following table presents the trailing twelve-month Service segment revenue for each quarter in fiscal years ~~2021~~2022 and ~~2020~~2021, as well as the trailing twelve-month revenue growth as a comparison to that of the prior fiscal year ~~period:~~period (dollars in thousands):

The growth in Service segment revenue during the ~~third~~second quarter of ~~each of~~ fiscal ~~years 2021 and 2020 reflected~~year 2022 was due both to organic growth and acquisitions, while the growth in the second quarter of fiscal year 2021 reflected acquisitions.

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 each quarter during fiscal years ~~2021~~2022 and ~~2020:~~2021:

	FY 2021						FY 2020								FY 2022		FY 2021
	Q3		Q2		Q1		Q4		Q3		Q2		Q1		Q2	Q1	Q4	Q3	Q2	Q1
Percent of Service Revenue:
In-House	83.1	%	83.7	%	82.9	%	84.9	%	82.9	%	82.9	%	83.3	%	83.2%	83.1%	83.6%	83.1%	83.7%	82.9%
Outsourced	15.3	%	14.7	%	15.6	%	13.5	%	15.6	%	15.6	%	15.1	%	15.3%	15.4%	14.9%	15.3%	14.7%	15.6%
Freight Billed to Customers	1.6	%	1.6	%	1.5	%	1.6	%	1.5	%	1.5	%	1.6	%	1.5%	1.5%	1.5%	1.6%		1.5%
	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0%		100.0%

Our Distribution sales accounted for ~~43.8%~~41.4% of our total revenue in the ~~third~~second quarter of fiscal year ~~2021~~2022 and ~~48.8%~~41.0% of our total revenue in the ~~third~~second quarter of fiscal year ~~2020.~~2021. During the ~~third~~second quarter of fiscal year 2022, Distribution segment sales showed an increase of 22.2% to $20.8 million. This increase was due to increased orders in the second quarter of fiscal year 2022 and an easier comparison to the second quarter of fiscal year 2021, ~~Distribution segment sales decreased 8.6% to $19.3 million. These results were~~which was adversely impacted by the COVID-19 pandemic, with reduced demand from oil and gas related businesses and most other industrial manufacturing sectors. However, rental revenue increased by 12.2% to $1.4 million compared to the third quarter of fiscal year 2020.pandemic.

Our fiscal years ~~2021~~2022 and ~~2020~~2021 Distribution sales (decline) growth, in relation to prior fiscal year quarter comparisons, was as follows:

		FY 2021			FY 2020
Distribution Sales (Decline) Growth		(8.6	%)		(6.6	%)		(20.3	%)			2.9	%		3.5	%		(3.8	%)		15.4	%

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. 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. We believe pending product shipments is an important measure of trends in demand in the Distribution segment.

Our total pending product shipments at the end of the ~~third~~second quarter of fiscal year 2022 were $7.6 million, an increase of $3.4 million versus the end of the second quarter of fiscal year 2021 ~~were $5.5 million,~~and an increase of ~~$1.8~~$1.3 million ~~from~~since March 27, 2021. The year-over-year increase in pending product shipments was a result of the ~~third~~COVID-19 pandemic and its disruptive impact to the supply of products in the second quarter of fiscal year ~~2020.~~ 2022 as well as overall increased demand.

The following table presents our total pending product shipments and the percentage of total pending product shipments that were backorders at the end of each quarter of fiscal years ~~2021~~2022 and ~~2020:~~2021:

Total gross profit for the ~~third~~second quarter of fiscal year 2022 was $14.6 million, an increase of $3.1 million or 27.1% versus the second quarter of fiscal year 2021. Total gross margin was 29.0% in the second quarter of fiscal year 2022, up from 27.6% in the second quarter of fiscal year 2021, was $11.2 million, an increase of $1.3 million or 13.3% versus the third quarter of fiscal year 2020. Total gross margin was 25.5% in the third quarter of fiscal year 2021, up from 23.0% in the third quarter of fiscal year 2020, an increase of 250a 140 basis ~~points.~~point expansion.

Service gross profit in the ~~third~~second quarter of fiscal year 2022 increased $1.8 million, or 22.9%, from the second quarter of fiscal year 2021. Service gross margin was 32.9% in the second quarter of fiscal year 2022 versus 32.2% in the second quarter of fiscal year 2021, increased $2.1 million, or 42.1%, from the third quarter of fiscal year 2020. Service gross margin was 27.9% in the third quarter of fiscal year 2021 versus 22.0% in the third quarter of fiscal year 2020, an increase of 590a 700 basis ~~points.~~point increase. This increase in gross margin was primarily due to ~~ongoing productivity improvements,~~operating leverage on our fixed cost ~~controls implemented in response to the COVID-19 pandemic and strategic pricing.~~base.

The following table presents the quarterly historical trend of our Service gross margin as a percent of Service revenue:

		FY 2021			FY 2020
Service Gross Margin		27.9	%		32.2	%		26.4	%			28.9	%		22.0	%		25.6	%		24.0	%

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 2021			FY 2020
Distribution Gross Margin		22.5	%		21.1	%		21.0	%			23.2	%		24.0	%		24.3	%		23.4	%

Distribution segment gross margin was ~~22.5%~~23.5% in the ~~third~~second quarter of fiscal year 2022 versus 21.1% in the second quarter of fiscal year 2021, ~~versus 24.0% in the third quarter of fiscal year 2020,~~ a ~~150~~240 basis point ~~decrease.~~increase. The ~~decrease~~increase in segment gross margin was primarily due to ~~lower volume, less demand from core product sales~~a favorable mix of higher margin products sold and ~~reduced cooperative advertising and rebate programs as certain vendors reduced these programs to lower their own costs~~increases in ~~response to the COVID-19 pandemic.~~rental revenue.

Total operating expenses were ~~$8.7~~$11.0 million in the ~~third~~second quarter of fiscal year ~~2021~~2022 versus ~~$7.8~~$8.4 million during the ~~third~~second quarter of fiscal year ~~2020.~~2021. The year-over-year increase in selling, marketing and warehouse expenses is due to ~~incremental costs related to the acquisition of pipettes.com and BioTek, especially increased acquisition related amortization expense offset by reduced~~higher performance-based sales incentives and direct marketing costs. The increase in general and administrative expenses includes $0.8 million in one-time transaction related expenses related to the NEXA acquisition, incremental expenses related to ~~the acquisition of pipettes.com~~acquired companies, increased payroll costs from new employees and ~~BioTek and increased expenses related to our~~ continued ~~investment~~investments in ~~technology and operational infrastructure. Operating expenses as~~technology.

As a percentage of total revenue, operating expenses were ~~19.8%~~21.9% in the ~~third~~second quarter of fiscal year 2022 and 20.2% in the second quarter of fiscal year 2021, ~~up from 18.2% in the third quarter~~an increase of ~~fiscal year 2020.~~170 basis points.

Our effective tax rates for the ~~third~~second quarter of fiscal years 2022 and 2021 were 9.4% and ~~2020 were 23.4% and 22.1%~~26.7%, respectively. The decrease in the tax provision is due to the increased amount of discrete tax benefit from share-based compensation activity. Our quarterly provision for income taxes is affected by discrete items that may occur in any given ~~period~~year but are not consistent from year to year. The discrete benefits related to ~~stock-based~~share-based compensation activity in the ~~third~~second quarter ~~of each~~ of fiscal years 2022 and 2021 was $0.6 million and ~~2020, were~~ less than $0.1 ~~million.~~ million, respectively.

We continue to evaluate our tax provision on a quarterly basis and adjust, as deemed necessary, our effective tax rate given changes in facts and circumstances expected for the entire fiscal year. We expect our total fiscal year ~~2021~~2022 effective tax rate to be approximately ~~22.0%~~14% to ~~23.0%~~15%.

		Third Quarter Ended		Change
Net Income		$	1,761		$	1,477		$	284		19.2	%

Net income for the ~~third~~second quarter of fiscal year 2022 increased $1.0 million from the second quarter of fiscal year 2021 ~~was $1.8 million, an increase of $0.3 million or 19.2% versus the third quarter of fiscal year 2020. The increase is~~ primarily due to the increased operating income ~~discussed above offset by increased~~and a lower provision for income taxes.

In addition to reporting net income, a GAAP measure, we present Adjusted EBITDA (earnings before interest, income taxes, depreciation and amortization, non-cash stock compensation expense,acquisition related transaction expenses, 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, stock-based compensation expense and other items, which is not always commensurate with the reporting period in which it is included. As such, our management uses Adjusted EBITDA as a measure of performance when evaluating our business segments and as a basis for planning and forecasting. Adjusted EBITDA is also commonly used by rating agencies, lenders and other parties to evaluate our credit worthiness.

Adjusted EBITDA is not a measure of financial performance under GAAP and is not calculated through the application of GAAP. As such, it should not be considered as a substitute or alternative for the GAAP measure of net income and, therefore, should not be used in isolation of, ~~rather~~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.

Total Adjusted EBITDA for the ~~third~~second quarter of fiscal year ~~2021~~2022 was ~~$4.6~~$7.1 million, an increase of $1.9 million or 35.5% versus ~~$4.1 million during~~ the ~~third~~second quarter of fiscal year ~~2020, a $0.5 million or 12.2% increase.~~2021. As a percentage of revenue, Adjusted EBITDA ~~was 10.4%~~increased to 14.0% for the ~~third~~second quarter of fiscal year ~~2021 and 9.4%~~2022 versus 12.6% for the ~~third~~second quarter of fiscal year ~~2020.~~2021. The ~~difference between the fiscal year 2021 third quarter~~ increase in Adjusted EBITDA ~~and~~during the second quarter of fiscal year 2022 was primarily driven by the increase in net ~~income was primarily driven by increased provision for income taxes and depreciation and amortization offset by lower non-cash stock compensation expense.~~income.

SIX MONTHS ENDED ~~DECEMBER~~SEPTEMBER 25, 2021 COMPARED TO SIX MONTHS ENDED SEPTEMBER 26, 2020 ~~COMPARED TO NINE MONTHS ENDED DECEMBER 28, 2019(dollars in thousands)~~:

Service revenue, which accounted for ~~58.0% and 53.4%~~58.2% of our total revenue during the first ~~nine~~six months of fiscal ~~years 2021~~year 2022 and ~~2020, respectively. For~~59.0% of our total revenue during the first ~~nine~~six months of fiscal year 2021, ~~Service revenue~~ increased ~~$4.3~~$9.6 million, or ~~6.3%~~20.2%, from the first six months of fiscal year 2021 compared to the first ~~nine~~six months of fiscal year ~~2020.~~2022. This year-over-year increase reflected increased demand from the ~~Life Sciences market~~life sciences and ~~combined with $3.8~~other highly-regulated end markets and included $2.3 million of incremental revenue from ~~pipettes.com and BioTek, more than offset reduced demand from other markets caused primarily by the COVID-19 pandemic.~~acquisitions.

Our Distribution sales accounted for ~~42.0%~~41.8% and ~~46.6%~~41.0% of our total revenue in the first ~~nine~~six months of fiscal years ~~2021~~2022 and ~~2020,~~2021, respectively. For the first ~~nine~~six months of fiscal year 2022, Distribution sales increased $8.1 million, or 24.5%, compared to the first six months of fiscal year 2021. This increase in revenue was due to increased orders in the first six months of fiscal year 2022 and an easier comparison to the first six months of fiscal year 2021, ~~Distribution sales decreased $7.1 million, or 11.9%, compared to the first nine months of fiscal year 2020. These results were~~which was adversely impacted by the COVID-19 ~~pandemic, with reduced demand from oil and gas related businesses and most other industrial manufacturing sectors. In addition, rental revenue decreased during the first nine months~~pandemic.

Total gross profit for the first ~~nine~~six months of fiscal year ~~2021~~2022 was ~~$32.1~~$28.1 million, an increase of ~~$1.7~~$7.2 million or ~~5.7%~~34.6% versus the first ~~nine~~six months of fiscal year ~~2020.~~2021. Total gross margin was ~~25.8%~~28.7%, a ~~190~~270 basis ~~point~~points increase compared to ~~23.9%~~26.0% in the first ~~nine~~six months of fiscal year ~~2020.~~2021. This increase in gross margin was primarily due to ~~increased Service revenues, primarily from pipettes.com~~operating leverage on our fixed cost base and ~~BioTek, and ongoing~~continued strong technician productivity ~~improvements~~ in the Service segment ~~which more than offset~~and a ~~decrease~~favorable mix of products sold in the Distribution ~~gross profit from lower Distribution sales.~~segment.

	Nine Months Ended				Change					Six Months Ended				Change
	December 26,		December 28,
(dollars in thousands)										September 25,		September 26,
	2020		2019		$			%		2021		2020		$		%
Operating Expenses:
Selling, Marketing and Warehouse	$	13,040	$	13,166	$	(126	)	(1.0	%)	$	9,971	$	8,365	$	1,606		19.2	%
General and Administrative		12,547		10,151		2,396		23.6	%		10,893		8,496		2,397		28.2	%
Total	$	25,587	$	23,317	$	2,270		9.7	%	$	20,864	$	16,861	$	4,003		23.7	%

Total operating expenses for the first ~~nine~~six months of fiscal year ~~2021~~2022 were ~~$25.6~~$20.9 million, an increase of ~~$2.3~~$4.0 million or ~~9.7% compared to~~23.7% versus the first ~~nine~~six months of fiscal year ~~2020.~~2021. The year-over-year ~~decrease~~increase in selling, marketing and warehouse expenses iswas due to ~~reduced~~higher performance-based sales incentives and direct marketing ~~costs offset by increased expenses related to the acquisition of pipettes.com and BioTek, especially acquisition related amortization expense.~~costs. The increase in general and administrative expenses includes ~~incremental increased expenses~~$0.8 million of one-time transaction related ~~to our continued investment in technology and operational infrastructure, increased~~ expenses related to the NEXA acquisition, ~~of pipettes.com~~incremental expenses related to acquired companies, increased payroll costs from new employees and ~~BioTek and approximately $0.4 million of severance expenses.~~continued investments in technology. As a percentage of total revenue, operating expenses during the first ~~nine~~six months of fiscal year 2022 were 21.3%, compared to 20.9% in the first six months of fiscal year 2021, ~~were 20.5%, compared to 18.3% during the first nine months~~an increase of ~~fiscal year 2020, a 220~~40 basis ~~point increase.~~points.

Our effective tax rates for the first ~~nine~~six months of fiscal years 2022 and 2021 were 1.7% and ~~2020 were 20.7% and 12.0%~~19.0%, respectively. The ~~increase~~decrease in our tax rate is due to the ~~decreased~~increased discrete tax benefits from ~~stock-based~~share-based compensation activity. 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 ~~stock-based~~share-based compensation activity in the first ~~nine~~six months of fiscal years 2022 and 2021 were $1.7 million and ~~2020 were~~ $0.3 million, ~~and $0.9 million,~~ respectively. We continue to evaluate our tax provision on a quarterly basis and adjust, as deemed necessary, our effective tax rate given changes in facts and circumstances expected for the entire fiscal year. We expect our total fiscal year 2021 effective tax rate to be approximately 22.0% to 23.0%.

Net income for the first ~~nine~~six months of fiscal year ~~2021~~2022 was ~~$4.6~~$6.7 million, ~~a decrease~~an increase of ~~$1.0~~$3.9 million ~~or 17.8%~~ versus the first ~~nine~~six months of fiscal year ~~2020.~~2021. The year over year ~~decrease~~increase in net income iswas due to ~~lower~~the higher operating income and ~~an increase in~~lower provision for income taxes.

is an important measure of our operating performance because it allows management, investors and others to evaluate and compare the performance of our core operations from period to period by removing the impact of the capital structure (interest), tangible and intangible asset base (depreciation and amortization), taxes, stock-based compensation expense and other items, which is not always commensurate with the reporting period in which it is included. As such, our management uses Adjusted EBITDA as a measure of performance when evaluating our business segments and as a basis for planning and forecasting. Adjusted EBITDA is also commonly used by rating agencies, lenders and other parties to evaluate our credit worthiness.

During the first ~~nine~~six months of fiscal year ~~2021,~~2022, Adjusted EBITDA was ~~$13.3~~$13.2 million, an increase of ~~$0.5~~$4.5 million or ~~3.7%~~51.4% versus the first ~~nine~~six months of fiscal year ~~2020.~~2021. As a percentage of revenue, Adjusted EBITDA was ~~10.7%~~13.4% for the first ~~nine~~six months of fiscal year ~~2021~~2022 and ~~10.0%~~10.8% for the first ~~nine~~six months of fiscal year ~~2020.~~2021. The increase in Adjusted EBITDA during the first ~~nine~~six months of fiscal year ~~2021~~2022 was primarily driven by the increase in ~~provision for~~net income ~~taxes, non-cash stock compensation expense~~ and ~~depreciation and amortization.~~acquisition transaction expenses.

We expect that foreseeable liquidity and capital resource requirements will be met through anticipated cash flows from operations and borrowings from our ~~Revolving Credit Facility.~~revolving credit facility. We believe that these sources of financing will be adequate to meet our future requirements.

On ~~May 18, 2020,~~July 7, 2021, we entered into ~~Amendment Two~~the Second Amended and Restated Credit Facility Agreement (the “2021 Credit Agreement”) with Manufacturers and Traders Trust Company (“M&T”), that amended ~~our~~and restated in its entirety the Company’s Amended and Restated Credit ~~Agreement.~~Facility Agreement dated as of October 30, 2017, as amended by Amended and Restated Credit Facility Agreement Amendment ~~Two~~1 dated December 10, 2018 and Amended and Restated Credit Facility Agreement Amendment 2 (“Amendment Two”) dated May 18, 2020 (as amended, the “Prior Credit Agreement”).

The 2021 Credit Agreement increased the revolving credit commitment (the “Revolving Credit Commitment”) from $40.0 million to $80.0 million, with a letter of credit subfacility increased from $2.0 million to $10.0 million, and extended the term of the Revolving Credit ~~Facility~~Commitment to June 2026. The 2021 Credit Agreement amended

the definition of Applicable Margin (formerly Applicable Rate under the Prior Credit Agreement), which is based upon the Company’s then current leverage ratio and is used to determine interest charges on outstanding and unused borrowings under the revolving credit facility; the amendments reduced the Applicable Margins payable at the two highest leverage ratio levels. The 2021 Credit Agreement also amended the definition of Permitted Acquisitions, that is, acquisitions which are permitted under, and may be financed with proceeds of, the revolving credit facility, including increasing the aggregate purchase price for acquisitions consummated in any fiscal year from $1.0 million to $65 million during the current fiscal year and $50 million during any subsequent fiscal year, and adding an aggregate purchase price of $40.0 million for acquisitions consummated at any time during the term of the 2021 Credit Agreement related to businesses with a principal place of business located in the United Kingdom or the European Union.

In addition, the 2021 Credit Agreement provides that, assuming no event of default, restricted payments up to $25.0 million (increased from $10.0 million in the Prior Credit Agreement) in the aggregate and $10.0 million (increased from $3.0 million in the Prior Credit Agreement) in any single fiscal year may be used by us to repurchase our shares and pay dividends. The 2021 Credit Agreement modified the leverage ratio and fixed charge coverage ratio covenants with which we are required to comply. The 2021 Credit Agreement also reduced the LIBOR floor from 1.0% to 0.25% and included a mechanism for adoption of a different benchmark rate in the event LIBOR is discontinued. Pursuant to the 2021 Credit Agreement, the fixed interest rate on our term loan (the “2018 Term Loan”) was reduced from 4.15% to 3.90%.

The 2021 Credit Agreement superseded in its entirety, the Prior Credit Agreement. Amendment Two to the Prior Credit Agreement had previously extended the term of the revolving credit facility to October 20, 2022 and increased the revolving credit commitment to $40 million.

Amendment Two also had modified the definition of the applicable rate used to determine interest charges on outstanding and unused borrowings under the ~~Revolving Credit Facility~~revolving credit facility and it amended the definition of permitted acquisitions to amend borrowings available under the ~~Revolving Credit Facility~~revolving credit facility for acquisitions. In addition, Amendment Two had amended the definition of restricted payments to exclude amounts up to $2.5 million during each fiscal year used to pay certain employee tax obligations ~~related to stock-based~~associated with share-based payment and stock option activity, and modified certain restrictions to ~~our~~the Company’s ability to repurchase ~~our~~its shares and pay dividends. Amendment Two also had modified the leverage ratio and fixed charge coverage ratio covenants with which ~~we are~~the Company was required to ~~comply. Amendment Two also established a LIBOR floor of 1%~~comply and included a mechanism for adoption of a different benchmark rate when LIBOR is discontinued. During the third quarter of fiscal year 2021, Manufacturers and Traders Trust Company eliminated the prior requirement included in Amendment Two that limited capital expenditures to $5.5 million for the fiscal year ending March 27, 2021. Amendment Two also had established a LIBOR floor of 1.0% and included a mechanism for adoption of a different benchmark rate in the event LIBOR was discontinued.

~~On December 10, 2018, we entered into the 2018 Agreement that has~~We have a term loan, the 2018 Term Loan, in the amount of $15.0 ~~million, which replaced the previous 2017 Term Loan.~~million. As of ~~December 26, 2020, $11.1~~September 25, 2021, $9.6 million was outstanding on the 2018 Term Loan, of which ~~$2.0~~$2.1 million was included in current liabilities on the Consolidated Balance Sheets with the remainder included in long-term debt. The 2018 Term Loan requires total repayments (principal plus interest) of $0.2 million per month through December 2025.

During the ~~third quarter~~first six months of fiscal year ~~2021, $3.4~~2022, we used $20.9 million ~~of borrowings were used~~ for business acquisitions.

Pursuant to the Prior Credit Agreement, ~~has certain covenants~~we were required to comply with ~~which we must comply, including~~ a fixed charge ratio covenant and a leverage ratio covenant. M&T waived the requirement for the fixed charge ratio for the first fiscal quarter ending June 26, 2021. We were in compliance with all loan covenants and requirements during the ~~third~~second quarter of fiscal year ~~2021.~~2022. Our leverage ratio, as defined in the Prior Credit Agreement, was ~~1.24~~1.54 at ~~December 26, 2020,~~September 25, 2021, compared with ~~1.53~~0.94 at March 27, 2021. The 2021 Credit Agreement modified the ~~end~~leverage ratio and fixed charge coverage ratio covenants with which we are required to comply.

Interest on the ~~Revolving Credit Facility~~revolving credit facility continues to accrue, at our election, at either the variable one-month LIBOR (subject to a 1% ~~floor)~~floor during the first quarter of fiscal year 2022) or a fixed rate for a designated period at the LIBOR corresponding to such period, in each case, plus a margin. Interest on outstanding borrowings of the 2018 Term Loan ~~accrues~~accrued at a fixed rate of ~~4.15%~~3.90% over the term of the loan during the second quarter of fiscal year 2022 with principal and interest payments made monthly. Unused fees ~~accrue~~accrued based on the average daily amount of unused credit available under the ~~Credit Agreement.~~revolving credit facility. Interest rate margins and unused fees ~~are~~were determined on a quarterly basis based upon our calculated leverage ~~ratio, as defined in the Credit Agreement.~~ratio.

Cash Flows: The following table is a summary of our Consolidated Statements of Cash ~~Flows:~~Flows (in thousands):

	Nine Months Ended						Six Months Ended
	December 26,			December 28,			September 25,			September 26,
	2020			2019			2021			2020
Cash Provided by (Used in):
Operating Activities	$	15,647		$	8,235		$	7,502		$	12,476
Investing Activities	$	(7,742	)	$	(6,133	)	$	(24,680	)	$	(3,116	)
Financing Activities	$	(6,619	)	$	(2,491	)	$	19,079		$	(8,424	)

Activities: Net cash provided by operating activities was ~~$15.6~~$7.5 million during the first ~~nine~~six months of fiscal year ~~2021~~2022 compared to ~~$8.2~~$12.5 million during the first ~~nine~~six months of fiscal year ~~2020.~~2021. The year-over-year increase in cash provided by operations is 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 decreased by a net amount of $0.4 million during the first nine months of fiscal year 2021, inclusive of $0.4 million of accounts receivable acquired as part of the BioTek acquisition completed during the period. During the first nine months of fiscal year 2020, accounts receivable decreased by $0.8 million. The year-over-year variation reflects the impact of acquisitions and changes in the timing of collections. The following table illustrates our days sales outstanding as of December 26, 2020 and December 28, 2019:

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 SKU’s stocked in anticipation of customer demand, reducing backorders for products with long lead times and optimizing vendor purchase and sales volume discounts. As a result, inventory levels may vary from quarter-to-quarter based on the timing of these large orders in relation to our quarter end. Our inventory balance decreased $1.7 million duringInvesting Activities: During the first ~~nine~~six months of fiscal year ~~2021. Inventory increased $0.1 million during the first nine months of fiscal year 2020.~~

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 $2.1 million during the first nine months of fiscal year 2021. Accounts payable decreased by $3.7 million during the first nine months of fiscal year 2020.

Accrued Compensation and Other Liabilities: Accrued compensation and other liabilities include, among other things, amounts to be paid to employees for non-equity performance-based compensation. At the end of any particular period, the amounts accrued for such compensation may vary due to many factors including, but not limited to, changes in expected performance levels, the performance measurement period, and timing of payments to employees. During the first nine months of fiscal year 2021, accrued compensation and other liabilities increased by $0.9 million, due primarily to increased accrued incentives and payroll related expense. During the first nine months of fiscal year 2020, accrued compensation and other liabilities increased by $1.4 million, due primarily to the adoption of the new lease accounting standard.

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 year 2021, income taxes payable increased by $0.2 million whereas in the first nine months of fiscal year 2020, income taxes payable decreased by $0.2 million. The year-over-year difference is due to timing of income tax payments.

~~During the first nine months of fiscal year 2021,~~2022, we invested ~~$4.3~~$3.8 million in capital expenditures that was used primarily for customer-driven expansion of Service segment capabilities and ~~our~~the Company’s rental business.

During the first ~~nine~~six months of fiscal year ~~2020,~~2021, we invested ~~$5.0~~$3.1 million in capital expenditures that was ~~also largely~~ used primarily for ~~assets for our rental business and~~ customer-driven expansion of Service segment ~~capabilities. The purchase of assets from GRS during~~capabilities and the Company’s rental business.

During the first ~~nine~~six months of fiscal year ~~2020 are included in our capital expenditures above~~2022, we used $20.9 million for ~~that prior year period.~~

business acquisitions. During the first ~~nine~~six months of fiscal year 2021, we ~~used $3.4 million~~did not use any funds for a business ~~acquisition.~~ acquisitions.

Financing Activities: During the first ~~nine~~six months of fiscal year ~~2020, we used $0.5~~2022, $24.5 million ~~for a business acquisition. During the first nine months~~was borrowed from our revolving line of fiscal year 2021, no contingent consideration or other holdback amounts were paid related to a business acquisition. During the first nine months of fiscal year 2020, we used $0.9 million for a holdback payment related to a business acquisition.

~~During the first nine months of fiscal year 2021, $0.6~~credit and $1.2 million in cash was generated from the issuance of ~~our~~ common stock. In addition, we ~~repaid $4.5 million of our Revolving Credit Facility, we~~ used ~~$1.5~~$1.0 million for scheduled repayments of our term loan and $5.6 million for the “net” awarding of certain share awards to cover employee tax-withholding obligations for share award and stock option activity in the second quarter of fiscal year 2022, which are shown as a repurchase of shares of our common stock.

During the first six months of fiscal year 2021, $0.4 million in cash was generated from the issuance of common stock. In addition, we used $6.6 million to reduce the balance on our revolving line of credit, $1.0 million for scheduled repayments of our term loan and $1.3 million for the “net” ~~award~~awarding of certain share awards to

cover employee tax-withholding obligations for share award and stock option activity in the ~~period~~second quarter of fiscal year 2021, which are shown as a repurchase of shares of our common stock.

For the ~~first nine months~~third quarter of fiscal year 2020, $1.6 million in cash was generated from the issuance of our common stock and we received $0.1 million from our Revolving Credit Facility. In addition, we used $1.4 million for scheduled repayments of our term loan and used $2.8 million for the “net” award of certain share awards to cover tax-withholding obligations for share award activity in the period which are shown as a repurchase of shares of our common stock.

The results of the third quarter were strong and we are pleased with our Service segment’s return to organic growth and its continued margin expansion. Our balance sheet is solid and our acquisition pipeline is growing and active. We believe that our disciplined focus on highly regulated end markets and our new customer pipeline positions us well for strong organic growth as we continue to operate in a very challenging environment.

~~While we have navigated the current operating environment well to date, we remain cautious of the potential impacts of the COVID-19 pandemic on our business. For the fourth quarter of fiscal 2021,~~2022, we expect ~~solid~~ Service total revenue growth as compared to last fiscal year’s fourth quarter. We expect improvement in gross margin year-over-year, but not to the same degree we have experienced in the last two quarters, largely due to more difficult technician productivity comparisons and the anniversary of our acquisition of pipettes.com, which occurred in February 2020. Distribution is expected to continue to be negatively impacted by the current operating environment. We expect operating income for the fourth quarter of fiscal 2021 to be similar to that achieved in the ~~fourth~~second quarter of fiscal ~~2020.~~

year 2022, with approximately half of the expected growth to be generated organically and half from acquisitions. We expect ~~our~~Service gross margin to expand over the prior fiscal year third quarter, similar to the level of year-over-year expansion we achieved in the second quarter of fiscal year 2022. Distribution revenue is expected to grow in the low teens in the third quarter of fiscal year 2022 based on expected improvement in order trends and a prior-year comparison that includes lower levels of demand due to the COVID-19 pandemic.

Transcat revised its fiscal year 2022 income tax rate to a range between ~~22.0%~~14% and ~~23.0% for full fiscal year 2021.~~

~~The Company expects capital expenditures~~15% from the previous estimated range of 16% to be approximately $6.0 million to $6.5 million for fiscal year 2021. Capital investments are expected to be primarily for technology, growth-oriented opportunities within both of its operating segments,18%. This estimate includes Federal, various state, Canadian and ~~rental pool assets. Maintenance~~Irish income taxes and ~~existing asset replacements for fiscal year 2021 are expected to be consistent~~reflects the discrete tax benefit associated with ~~fiscal 2020 at approximately $1.0 million to $1.5 million.~~share-based payment and stock option activity.

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 ~~$0.1~~$0.2 million assuming our average borrowing levels remained ~~constant on our variable rate Revolving Credit Facility.~~constant. As of ~~December 26, 2020, $40.0~~September 25, 2021, $80.0 million was available under our ~~Revolving Credit Facility,~~revolving credit facility, of which ~~$13.2~~$33.4 million was outstanding and included in long-term debt on the Consolidated Balance Sheets. As described above under “Liquidity and Capital Resources,” we also have a $15.0 million (original principal) term loan. The ~~term loan~~2018 Term Loan is considered a fixed interest rate loan. As of ~~December 26, 2020, $11.1~~September 25, 2021, $9.6 million was outstanding on the ~~term loan~~2018 Term Loan and was included in long-term debt and current portion of long-term debt on the Consolidated Balance Sheets. The ~~term loan~~2018 Term Loan requires total (principal and interest) repayments of $0.2 million per month.

At our option, we borrow from our ~~Revolving Credit Facility~~revolving credit facility at the variable one-month LIBOR or at a fixed rate for a designated period at the LIBOR (subject to a 1% ~~floor)~~floor during the first quarter of fiscal year 2022 and a 0.25% floor for subsequent periods) corresponding to such period, in each case, plus a margin. Our interest rate margin is determined on a quarterly basis based upon our calculated leverage ratio. Our interest rate during the first ~~nine~~ six

months of fiscal year ~~2021~~2022 for our ~~Revolving Credit Facility~~revolving credit facility ranged from ~~1.4%~~1.0% to ~~2.7%~~2.2%. Interest on outstanding borrowings ofon the 2018 Term Loan ~~accrue~~accrued at a fixed rate of 4.15% over the term of the ~~loan.~~loan during the first quarter of fiscal year 2022 and 3.90% over the term of the loan for subsequent periods. On ~~December 26, 2020,~~September 25, 2021, we had no hedging arrangements in place for our ~~Revolving Credit Facility~~revolving credit facility to limit our exposure to upward movements in interest rates.

Approximately 90% of our total revenues for each of the first ~~nine~~six months of fiscal years ~~2021~~2022 and ~~2020~~2021 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. and Canadian currencies and the U.S. and Euro currencies 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 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 gain of less than $0.1 million during the first six months of fiscal year 2022 and a loss of $0.1 million during the first ~~nine~~six months of ~~each of the~~ fiscal ~~years~~year 2021, ~~and 2020,~~ was recognized as a component of other expense 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 26, 2020,~~September 25, 2021, we had a foreign exchange contract, which matured in ~~January~~October 2021, outstanding in the notional amount of ~~$4.5~~$3.1 million. The foreign exchange contract was renewed in ~~January~~October 2021 and continues to be in place. We do not use hedging arrangements for speculative purposes.

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~~second fiscal quarter of fiscal year ~~2021)~~2022) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Except as stated below, there have been no material changes from the risk factors previously disclosed in Part I – Item 1A of the Company’s Form 10-K for the fiscal year ended March 27, 2021.

Potential government imposed COVID-19 vaccine mandates could have a material adverse impact on our business and results of operations. On September 9, 2021, President Biden directed the Department of Labor’s Occupational Safety and Health Administration (“OSHA”) to issue an Emergency Temporary Standard requiring that all employers with at least 100 employees ensure that their employees are fully vaccinated for COVID-19 or require employees to obtain a negative COVID-19 test at least once a week. OSHA is drafting an emergency regulation to carry out this mandate, although the timeline remains uncertain. It is unclear, among other things, if the vaccine mandate will apply to all employees and how compliance will be documented. As a company with more than 100 employees, we may be required to mandate COVID-19 vaccination of our workforce or have our unvaccinated employees undergo required weekly

COVID-19 testing, which could be difficult and costly. Further, additional vaccine and testing mandates may be announced in jurisdictions in which we operate our business, and there could be potential conflict with actions by certain states that are in conflict with the federal mandate, the impacts of which remain uncertain. Any requirement to mandate COVID-19 vaccination of our workforce or require our unvaccinated employees to be tested weekly could result in employee attrition and difficulty securing future labor needs, and could have a material adverse effect on our revenues, costs, and results of operations.

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.

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.Quantitative and Qualitative Disclosures about Market Risk	25
Item 4.Controls and Procedures	26
PART II.OTHER INFORMATION
Item 1A.Risk Factors	26
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 6.Exhibits	2627
SIGNATURES	2729

	FY 2022		FY 2021
	Q2	Q1	Q4	Q3	Q2	Q1
Trailing Twelve-Month:
Service Revenue	$110,854	$105,864	$101,274	$97,225	$94,624	$93,572
Service Revenue Growth	17.1%	13.1%	8.9%	5.4%	4.3%	7.4%

	FY 2021									FY 2020
	Q3			Q2			Q1			Q4			Q3			Q2			Q1
Total Pending Product Shipments	$	5,533		$	4,251		$	3,890		$	4,330		$	3,743		$	4,205		$	4,115
% of Pending Product
Shipments that were Backorders		79.3	%		76.6	%		75.8	%		66.5	%		77.6	%		71.7	%		77.2	%

(dollars in thousands)	FY 2022		FY 2021
	Q2	Q1	Q4	Q3	Q2	Q1
Total Pending Product Shipments	$7,612	$8,173	$6,287	$5,533	$4,251	$3,890
% of Pending Product Shipments that were Backorders	78.1%	78.4%	77.6%	79.3%	76.6%	75.8%

			Weighted		Weighted
			Average		Average
	Number		Exercise		Remaining	Aggregate
	of		Price Per		Contractual	Intrinsic
	Shares		Share		Term (in years)	Value
Outstanding as of March 28, 2020	150		$	14.63
Granted	20		$	27.48
Exercised	(30	)	$	12.75
Forfeited	0-			0-
Redeemed	0-			0-
Outstanding as of December 26, 2020	140		$	16.87	3	$	2,263
Exercisable as of December 26, 2020	85		$	17.04	2	$	1,788

Goodwill		$	15,723
Intangible Assets – Customer Base & Contracts			5,600
Intangible Assets – Backlog			490
Intangible Assets – Covenant Not to Compete			600
			22,413
Plus:	Cash		3,732
	Accounts Receivable		2,434
	Non-Current Assets		38
Less:	Current Liabilities		(453	)
	Deferred Tax Liability		(1,706	)
Total Purchase Price		$	26,458

		FY 2021
Goodwill		$	1,927
Intangible Assets – Customer Base & Contracts			1,066
Intangible Assets – Covenant Not to Compete			100
			3,093
Plus:	Current Assets		406
	Non-Current Assets		8
Less:	Current Liabilities		(60	)
Total Purchase Price		$	3,447

	(Unaudited)				(Unaudited)
	Quarter Ended				Six Months Ended
(in thousands except per share information)	September 25, 2021		September 26, 2020		September 25, 2021		September 26, 2020
Total Revenue	$	51,989	$	43,821	$	102,109	$	84,060
Net Income	$	3,342	$	2,891	$	7,360	$	3,237
Basic Earnings Per Share	$	0.45	$	0.39	$	0.98	$	0.44
Diluted Earnings Per Share	$	0.44	$	0.38	$	0.97	$	0.43

	FY 2022		FY 2021
	Q2	Q1	Q4	Q3	Q2	Q1
Distribution Sales Growth (Decline)	22.2%	27.0%	(4.6%)	(8.6%)	(6.6%)	(20.3%)

	FY 2022		FY 2021
	Q2	Q1	Q4	Q3	Q2	Q1
Distribution Gross Margin	23.5%	23.6%	21.0%	22.5%	21.1%	21.0%

	(a)	(b)	(c)	(d)
Period	Total Number of Shares Purchased	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ⁽¹⁾	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs ⁽¹⁾

06/27/21 - 07/24/21	-	-	-	-

07/25/21 - 08/21/21	35,000⁽²⁾	$64.86⁽²⁾	-	-

08/22/21 - 09/25/21	-	-	-	-

Total	35,000	$64.86	-	-

Exhibit No.	Description
10.1	Second Amended and Restated Credit Facility Agreement, dated as of July 7, 2021, by and between Transcat, Inc. and Manufacturers and Traders Trust Company, incorporated herein by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 12, 2021

10.2*	Share Purchase Agreement, dated August 31, 2021, by and among Transcat, Inc., John Cummins and Ross Lane

10.3*	Registration Rights Agreement, dated August 31, 2021, by and among Transcat, Inc., John Cummins and Ross Lane

~~(31)~~ 10.4#	Transcat, Inc. 2021 Stock Incentive Plan is incorporated herein by reference from Exhibit 99.3 to the Company’s Post-Effective Amendment No. 1 to Form S-8 (Registration No. 333-191631) filed on October 13, 2021

10.5#*	Form of Award Agreement of Director Long-Term Compensation Award Granted Pursuant to the Transcat, Inc. 2021 Stock Incentive Plan

(31)	Rule 13a-14(a)/15d-14(a) Certifications

	31.1*	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	31.2*	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

(32)	Section 1350 Certifications

	32.1**	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(101)	Interactive Data File

101.INS*		~~101.INS~~	XBRL Instance Document

101.SCH*		~~101.SCH~~	XBRL Taxonomy Extension Schema Document

101.CAL*		~~101.CAL~~	XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*		~~101.DEF~~	XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*		~~101.LAB~~	XBRL Taxonomy Extension Label Linkbase Document

101.PRE*		~~101.PRE~~	XBRL Taxonomy Extension Presentation Linkbase Document

104		~~(104)~~	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*	Filed herewith
**		Furnished herewith
* #	~~Filed herewith~~ Management contract or compensatory plan or arrangement

	FY 2021									FY 2020
	Q3			Q2			Q1			Q4			Q3			Q2			Q1
Trailing Twelve-Month:
Service Revenue	$	97,225		$	94,624		$	93,572		$	93,003		$	92,309		$	90,714		$	87,114
Service Revenue Growth		5.4	%		4.3	%		7.4	%		10.7	%		13.0	%		13.5	%		11.3	%

		~~TRANSCAT, INC.~~


Date: ~~February~~November 3, 2021		/s/ Lee D. Rudow
		Lee D. Rudow
		President and Chief Executive Officer
		(Principal Executive Officer)


Date: ~~February~~November 3, 2021		/s/ Mark A. Doheny
		Mark A. Doheny
		Vice President of Finance and Chief Financial Officer (Principal Financial Officer)
		~~(Principal Financial Officer)~~