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 24, 2022

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

~~____________~~

~~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 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)

~~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: (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 ~~28, 2022~~27, 2023 was ~~7,521,284.~~7,561,512.

Table of Contents

									(Unaudited)				(Unaudited)
	(Unaudited)				(Unaudited)				*Third Quarter Ended*				*Nine Months Ended*
	Third Quarter Ended				Nine Months Ended				*December 24,*		*December 25,*		*December 24,*		*December 25,*
	December 25,		December 26,		December 25,		December 26,		*2022*		*2021*		*2022*		*2021*
	2021		2020		2021		2020
Service Revenue	$	30,237	$	24,776	$	87,338	$	72,297	$	35,977	$	30,237	$	105,120	$	87,338
Distribution Sales		20,665		19,286		61,741		52,276		21,425		20,665		63,382		61,741
Total Revenue		50,902		44,062		149,079		124,573		57,402		50,902		168,502		149,079

Cost of Service Revenue		21,254		17,861		59,891		51,413		25,184		21,254		72,005		59,891
Cost of Distribution Sales		16,012		14,956		47,421		41,012		15,818		16,012		47,292		47,421
Total Cost of Revenue		37,266		32,817		107,312		92,425		41,002		37,266		119,297		107,312

Gross Profit		13,636		11,245		41,767		32,148		16,400		13,636		49,205		41,767

Selling, Marketing and Warehouse Expenses		5,051		4,675		15,022		13,040		6,595		5,051		18,315		15,022
General and Administrative Expenses		6,224		4,051		17,117		12,547		6,642		6,224		20,497		17,117
Total Operating Expenses		11,275		8,726		32,139		25,587		13,237		11,275		38,812		32,139

Operating Income		2,361		2,519		9,628		6,561		3,163		2,361		10,393		9,628

Interest and Other Expense, net		136		219		581		779		1,039		136		1,732		581

Income Before Income Taxes		2,225		2,300		9,047		5,782		2,124		2,225		8,661		9,047
Provision for Income Taxes		596		539		715		1,199		523		596		1,631		715

Net Income	$	1,629	$	1,761	$	8,332	$	4,583	$	1,601	$	1,629	$	7,030	$	8,332

Basic Earnings Per Share	$	0.22	$	0.24	$	1.11	$	0.62	$	0.21	$	0.22	$	0.93	$	1.11
Average Shares Outstanding		7,519		7,437		7,487		7,415		7,559		7,519		7,547		7,487

Diluted Earnings Per Share	$	0.21	$	0.23	$	1.10	$	0.61	$	0.21	$	0.21	$	0.92	$	1.10
Average Shares Outstanding		7,653		7,580		7,599		7,532		7,666		7,653		7,644		7,599

(Unaudited)
(Unaudited)
Third Quarter Ended
Nine Months Ended
December 25,
December 26,
December 25,
December 26,
2021
2020
2021
2020
Net Income
$
1,629
$
1,761
$
8,332
$
4,583

Other Comprehensive (Loss) Income:
Currency Translation Adjustment
(233
)
251
(314
)
505
Other, net of tax effects
18
21
48
95
Total Other Comprehensive (Loss) Income
(215
)
272
(266
)
600

Comprehensive Income
$
1,414
$
2,033
$
8,066
$
5,183

							(Unaudited)			(Audited)
	(Unaudited) December 25,			(Audited) March 27,			*December 24,*			*March 26,*
	2021			2021			*2022*			*2022*
ASSETS
Current Assets:
Cash	$	2,779		$	560		$	1,593		$	1,396
Accounts Receivable, less allowance for doubtful accounts of $505 and $526 as of December 25, 2021, and March 27, 2021, respectively		34,702			33,950
Accounts Receivable, less allowance for doubtful accounts of $488 and $460 as of December 24, 2022 and March 26, 2022, respectively								37,702			39,737
Other Receivables		628			428			377			558
Inventory, net		13,868			11,636			16,884			12,712
Prepaid Expenses and Other Current Assets		5,572			2,354			4,141			5,301
Total Current Assets		57,549			48,928			60,697			59,704
Property and Equipment, net		23,781			22,203			28,334			26,439
Goodwill		59,133			43,272			68,826			65,074
Intangible Assets, net		11,503			7,513			14,843			14,692
Right to Use Assets, net		8,738			9,392
Right To Use Assets, net								14,874			11,026
Other Assets		896			808			895			827
Total Assets	$	161,600		$	132,116		$	188,469		$	177,762

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable	$	12,965		$	12,276		$	13,845		$	14,171
Accrued Compensation and Other Liabilities		9,514			10,417
Income Taxes Payable		0-			382
Accrued Compensation and Other Current Liabilities								9,012			11,378
Current Portion of Long-Term Debt		2,140			2,067			2,227			2,161
Total Current Liabilities		24,619			25,142			25,084			27,710
Long-Term Debt		38,616			17,494			46,941			46,291
Deferred Tax Liabilities		4,912			3,201
Deferred Tax Liabilities, net								6,672			6,724
Lease Liabilities		7,123			7,958			12,998			9,194
Other Liabilities		3,432			3,243			1,490			1,667
Total Liabilities		78,702			57,038			93,185			91,586

Shareholders' Equity:
Common Stock, par value $0.50 per share, 30,000,000 shares authorized; 7,520,719 and 7,458,251 shares issued and outstanding as of December 25, 2021, and March 27, 2021, respectively		3,760			3,729
Common Stock, par value $0.50 per share, 30,000,000 shares authorized; 7,560,420 and 7,529,078 shares issued and outstanding as of December 24, 2022 and March 26, 2022, respectively								3,780			3,765
Capital in Excess of Par Value		23,452			19,287			27,123			23,900
Accumulated Other Comprehensive Loss		(717	)		(451	)		(1,123	)		(233	)
Retained Earnings		56,403			52,513			65,504			58,744
Total Shareholders' Equity		82,898			75,078			95,284			86,176
Total Liabilities and Shareholders' Equity	$	161,600		$	132,116		$	188,469		$	177,762

							(Unaudited)
	(Unaudited) Nine Months Ended						*Nine Months Ended*
	December 25,			December 26,			*December 24,*			*December 25,*
	2021			2020			*2022*			*2021*
Cash Flows from Operating Activities:
Net Income	$	8,332		$	4,583		$	7,030		$	8,332
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Net Loss on Disposal of Property and Equipment		113			65			62			113
Deferred Income Taxes		5			75			(52	)		5
Depreciation and Amortization		6,899			5,596			8,243			6,899
Provision for Accounts Receivable and Inventory Reserves		417			699			174			417
Stock-Based Compensation		1,681			875
Changes in Assets and Liabilities:
Stock-Based Compensation Expense								2,757			1,681
Changes in Assets and Liabilities, net of acquisitions:
Accounts Receivable and Other Receivables		1,185			902			1,850			1,185
Inventory		(1,794	)		2,072			(3,589	)		(1,794	)
Prepaid Expenses and Other Assets		(3,280	)		(678	)
Prepaid Expenses and Other Current Assets								1,074			(3,280	)
Accounts Payable		689			(2,103	)		(424	)		689
Accrued Compensation and Other Liabilities		(1,470	)		3,391
Accrued Compensation and Other Current Liabilities								(3,150	)		(1,470	)
Income Taxes Payable		(399	)		170			-			(399	)
Net Cash Provided by Operating Activities		12,378			15,647			13,975			12,378

Cash Flows from Investing Activities:
Purchases of Property and Equipment		(5,861	)		(4,295	)		(7,149	)		(5,861	)
Proceeds from Sale of Property and Equipment		12			0-			10			12
Business Acquisitions, net of cash acquired		(20,910	)		(3,447	)		(8,306	)		(20,910	)
Net Cash Used in Investing Activities		(26,759	)		(7,742	)		(15,445	)		(26,759	)

Cash Flows from Financing Activities:
Proceeds from (Repayments of) Revolving Credit Facility, net		22,760			(4,504	)
Proceeds from Revolving Credit Facility, net								2,286			22,760
Repayments of Term Loan		(1,565	)		(1,477	)		(1,570	)		(1,565	)
Issuance of Common Stock		1,354			649			503			1,354
Repurchase of Common Stock		(5,649	)		(1,287	)		(437	)		(5,649	)
Net Cash Provided by (Used in) Financing Activities		16,900			(6,619	)
Net Cash Provided by Financing Activities								782			16,900

Effect of Exchange Rate Changes on Cash		(300	)		(751	)		885			(300	)

Net Increase in Cash		2,219			535			197			2,219
Cash at Beginning of Period		560			499			1,396			560
Cash at End of Period	$	2,779		$	1,034		$	1,593		$	2,779

Supplemental Disclosure of Cash Flow Activity:
Cash paid during the period for:
Interest	$	531		$	679		$	1,510		$	531
Income Taxes, net	$	3,263		$	1,018		$	957		$	3,263
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Common stock issued for NEXA acquisition	$	2,368		$	0-
Common stock issued for acquisitions							$	145		$	2,368
Assets acquired and liabilities assumed in business combinations:
Accrued contingent consideration related to NEXA acquisition	$	153		$	0-		$	-		$	153
Accrued holdback consideration related to Alliance acquisition							$	518		$	-

CONSOLIDATED STATEMENTS OF ~~SHAREHOLDERS’~~CHANGES IN SHAREHOLDERS’ EQUITY

						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			Income (Loss)			Earnings			Total			*Shares*			*Amount*			*Value*			*Income (Loss)*			*Earnings*			*Total*
Balance as of March 28, 2020	7,381		$	3,691		$	17,929		$	(1,010	)	$	46,477		$	67,087
Balance as of March 27, 2021																			7,458		$	3,729		$	19,287		$	(451	)	$	52,513		$	75,078
Issuance of Common Stock	28			14			369			-			-			383			52			26			673			-			-			699
Repurchase of Common Stock	(48	)		(24	)		(579	)		-			(684	)		(1,287	)		(62	)		(31	)		(755	)		-			(2,591	)		(3,377	)
Stock-Based Compensation	50			25			287			-			-			312			21			10			427			-			-			437
Other Comprehensive Income	-			-			-			163			-			163			-			-			-			182			-			182
Net Income	-			-			-			-			798			798			-			-			-			-			3,688			3,688
Balance as of June 27, 2020	7,411		$	3,706		$	18,006		$	(847	)	$	46,591		$	67,456

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
Issuance of Common Stock	3			1			90			-			-			91			2			1			115			-			-			116
Stock-Based Compensation	18			9			357			-			-			366			1			-			624			-			-			624
Other Comprehensive Income	-			-			-			165			-			165
Other Comprehensive Loss																			-			-			-			(215	)		-			(215	)
Net Income	-			-			-			-			2,024			2,024			-			-			-			-			1,629			1,629
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	-			-			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
Balance as of December 25, 2021																			7,521		$	3,760		$	23,452		$	(717	)	$	56,403		$	82,898

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

Issuance of Common Stock
2
1
115
-
-
116
Stock-Based Compensation
1
-
624
-
-
624
Other Comprehensive Loss
-
-
-
(215
)
-
(215
)
Net Income
-
-
-
-
1,629
1,629
Balance as of December 25, 2021
7,521
$
3,760
$
23,452
$
(717
)
$
56,403
$
82,898

Description of Business: Transcat, Inc. (“Transcat,” “we,” “us,” “our” or the “Company”) is a leading provider of accredited calibration ~~and laboratory instrument~~services, enterprise asset management services, and a value-added distributor of professional grade handheld test, measurement and control instrumentation. The Company is focused on providing services and products to highly regulated industries, particularly the life science industry, which includes pharmaceutical, biotechnology, medical device and other FDA-regulated businesses. Additional industries served include industrial manufacturing; energy and utilities, including oil and gas; chemical manufacturing; FAA-regulated businesses, including aerospace and defense and other industries that require accuracy in their processes, confirmation of the capabilities of their equipment, and 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~~10-Q and ~~Article 8-03~~Rule 10-01 of Regulation ~~S-X~~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 ~~27, 2021~~26, 2022 (“fiscal year ~~2021”~~2022”) contained in the Company’s ~~2021~~ Annual Report on Form ~~10-K~~10-K for fiscal year 2022 filed with the SEC.

Revenue Recognition: Distribution sales are recorded when an order’s title and risk of loss transfers to the ~~customer.~~customer, which is generally upon shipment. The Company recognizes the majority of its Service revenue based upon when the calibration or other activity is performed and then shipped and/or delivered to the customer. The majority of the Company’s revenue generating activities have a single performance obligation and are recognized at the point in time when control transfers and/or our obligation has been fulfilled. Some Service revenue is generated from managing customers’ calibration programs in which the Company recognizes revenue over time using the output method-time elapsed as this portrays the transfer of control to the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for product shipped or services performed. Sales taxes and other taxes billed and collected from customers are excluded from revenue. The Company generally invoices its customers for freight, shipping, and handling charges. Freight billed to customers is included in revenue. Shipping and handling is not included in revenue. Provisions for customer returns are provided for in the period the related revenue is recorded based upon historical data.

Under Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, we use judgments that could potentially impact both the timing of our satisfaction of performance obligations and our determination of transaction prices used in determining revenue recognized. Such judgments include considerations in determining our transaction prices and when our performance obligations are satisfied for our standard product sales that include general payment terms that are between net 30 and 90 days.

Revenue recognized from prior period performance obligations for the third quarter of the fiscal year ending March ~~26, 2022 (“~~25, 2023 (“fiscal year ~~2022”~~2023”) was immaterial. As of December ~~25, 2021,~~24, 2022, the Company had no unsatisfied performance obligations for contracts with an original expected duration of greater than one year. Pursuant to ~~Accounting Standards Codification (“ASC”)~~ Topic 606, ~~Revenue from Contracts with Customers,~~ 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 ~~25, 2021~~ 24, 2022 and March ~~27, 2021~~26, 2022 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 on a portion of the debt with the balance bearing an interest rate approximating current market rates, and the carrying amounts for cash, accounts receivable ~~other receivables,~~and 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 each of December ~~25, 2021~~ 24, 2022 and March ~~27, 2021,~~26, 2022, investment assets totaled ~~$0.4~~$0.2 million, 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 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 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. ~~During the first nine months of each of fiscal year 2022 and fiscal year 2021, the~~The Company did not capitalize any stock-based compensation costs as part of an asset. The Company estimates forfeiture rates based on its historical experience. During the firstnine months of fiscal year ~~2022~~2023 and fiscal year ~~2021,~~2022, the Company recorded non-cash stock-based compensation expense of ~~$1.7~~$2.8 million and ~~$0.9~~$1.7 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, Galium Limited (d/b/a Complete Calibrations), an Irish company, and Transcat Canada Inc., ~~both~~all of which are wholly-owned subsidiaries of the Company, are maintained in the local ~~currency,~~currencies, the Euro, 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, Galium 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.~~transactions denominated in foreign currency. The net foreign currency loss was less than $0.1 million in each of the firstnine months of fiscal year ~~2022~~2023 and fiscal year ~~2021.~~2022. The Company continually utilizes short-term foreign exchange forward contracts to reduce the risk that its future earnings denominated in Canadian dollars ~~will~~would be adversely affected by changes in currency exchange rates. The Company does not apply hedge accounting and therefore the net change in the fair value of the contracts, which totaled a gain of $0.3 million and less than $0.1 million during the firstnine months of fiscal ~~year 2022~~years 2023 and ~~a gain of $0.1 million during the first nine months of fiscal year 2021,~~2022, respectively, was recognized as a component of ~~other expense~~Interest and Other Expenses, net in the Consolidated Statements of Income. The change in the fair value of the contracts is offset by the change in fair value on the underlying accounts receivables denominated in Canadian dollars being hedged. On December ~~25, 2021,~~24, 2022, the Company had a foreign exchange contract, which matured in January ~~2022,~~ 2023, outstanding in the notional amount of ~~$2.6~~$3.0 million. ~~The foreign exchange~~This contract was subsequently renewed ~~in January 2022~~ and ~~continues to be~~remains in place. The Company does not use hedging arrangements for speculative purposes.

Earnings Per Share: Basic earnings per share of common stock ~~are~~is 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~~proceeds 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 ~~each of~~ the third quarter of fiscal ~~years~~ year 2023, the net additional common stock equivalents had no effect on the calculation of diluted earnings per share. For the third quarter of fiscal year 2022, ~~and 2021,~~ the net additional common stock equivalents had a ($0.01) effect on the calculation of diluted earnings per share. For the firstnine months ~~of each~~ of fiscal year ~~2022~~2023, and ~~2021,~~fiscal year 2022, the net additional common stock equivalents had a ($0.01) effect on the calculation of diluted earnings per share. The average shares outstanding used to compute basic and diluted earnings per share are as follows (amounts in thousands):

Goodwill and Intangible Assets: Goodwill represents the excess of the purchase price over the fair values of the underlying net assets of an acquired business. The Company tests goodwill for impairment for each reporting unit on an annual basis during the fourth quarter of its fiscal year, or immediately if conditions indicate that such impairment could exist. The Company ~~evaluates qualitative factors~~is permitted, but not required, to ~~determine if it is more likely than not that the fair value~~qualitatively assess indicators of a reporting ~~unit is less than its carrying~~unit’s fair value ~~and~~to determine whether it is necessary to perform the two-step goodwill impairment ~~process.~~test. If a quantitative test is deemed necessary, a discounted cash flow analysis is prepared to estimate fair value.

Intangible assets, namely customer base and covenants not to compete, represent an allocation of purchase price to identifiable intangible assets of an acquired business. ~~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~~(amounts in thousands):

Recently Issued Accounting Pronouncements:In June 2016, the Financial Accounting Standard Board (“FASB”) issued ASU ~~2016-13,~~2016-13, Financial Instruments - Credit Losses (Topic ~~326)~~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. Allowance for doubtful accounts is the most significant item for the Company under this ASU. As credit losses from the Company's trade receivables have not historically been significant, the Company anticipates that the adoption of the ASU will not have a material impact on its consolidated financial statements.

On July 7, 2021, we entered into the Second Amended and Restated Credit Facility Agreement (the ~~“2021~~“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”) dated May 18, 2020 ~~(as~~(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 Commitment to June ~~2026~~. 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 year2022 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 upon the discontinuation of LIBOR. The 2021 Credit Agreement also reduced the fixed interest rate on our term loan in the amount of $15.0 million (the ~~“2018~~“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, 2022and increased the revolving credit commitment to ~~$40~~$40.0 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 and it amended the definition of permitted acquisitions to amend borrowings available under the 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 was required to comply and limited capital expenditures to $5.5 million for fiscal year 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.

As of December ~~25, 2021,~~24, 2022, $80.0 million was available under the revolving credit facility, of which ~~$31.7~~$42.2 million was outstanding and included in long-term debt on the Consolidated Balance Sheets. During the firstnine months of fiscal year ~~2022, $20.9~~2023, $8.3 million was used for threebusiness acquisitions.

As of December ~~25, 2021, $9.1~~24, 2022, $7.0 million was outstanding on the 2018 Term Loan, of which ~~$2.1~~$2.2 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.

Interest and Other Costs:Interest on outstanding borrowings under the revolving credit facility accrue, at Transcat’s election, at either the variable ~~one-month~~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 during the first quarter of fiscal year 2022 and a 0.25% floor for subsequent periods), in each case, plus a margin. Interest on outstanding borrowings under the 2018 Term Loan accrued at a fixed rate of 4.15% ~~over the term of the loan~~ during the first quarter of fiscal year 2022 and accrued at a fixed rate of 3.90% during the second quarter of fiscal year 2022 and accrues at a fixed rate of 3.90% 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. Interest rate margins and unused fees are determined on a quarterly basis based upon the Company’s calculated leverage ratio. The Company’s interest rate for the revolving credit facility for the firstnine months of fiscal year ~~2022~~2023 ranged from ~~1.0%~~1.6% to ~~2.2%~~6.0%.

Covenants:The 2021 Credit Agreement has certain covenants with which the Company must comply, 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 quarter of fiscal year ~~2022.~~2023. Our leverage ratio, ~~was 1.47 at December 25, 2021,~~ as defined in the 2021 Credit Agreement, was 1.66 at December 24, 2022, compared with ~~0.94~~1.74 at March ~~27, 2021, as defined in the Prior Credit Agreement.~~26, 2022.

Pursuant to the Prior Credit Agreement, we were required to comply with a fixed charge ratio covenant and a leverage ratio covenant, which were modified by the 2021 Credit Agreement. The allowable leverage ratio under the Prior Credit Agreement for the ~~second, third and fourth fiscal~~first quarter of fiscal year ~~2021 and the first quarter of fiscal year~~ 2022 was 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. The Prior Credit Agreement also had provided that the trailing ~~twelve-month~~twelve-month pro forma EBITDA of an acquired business was included in the allowable leverage calculation. After the first quarter of fiscal year 2022, pursuant to the 2021 Credit Agreement, the allowable leverage ratio is a maximum multiple of 3.0.

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.

In September 2021, the Transcat, Inc. 2021 Stock Incentive Plan (the ~~“2021~~“2021 Plan”) was approved by shareholders and became effective. The 2021 Plan replaced the Transcat, Inc. 2003 Incentive Plan (the ~~“2003~~“2003 Plan”). Shares available for grant under the 2021 Plan include any shares remaining available for issuance under the 2003 Plan and any shares that are subject to outstanding awards under the 2003 Plan that are subsequently canceled, expired, forfeited, or otherwise not issued or are settled in cash. The 2021 Plan provides for, among other awards, grants of restricted stock units and stock options to directors, officers and key employees at the fair market value at the date of grant. At December ~~25, 2021,~~24, 2022, 0.7 million shares of common stock were available for future grant under the 2021 Plan.

The Company receives an excess tax benefit related to restricted stock vesting and stock options exercised and redeemed. The discrete tax benefits related to share-based compensation and stock option activity during the firstnine months of fiscal year ~~2022~~2023 and ~~2021~~fiscal year 2022 were $0.5 million and $1.7 million, ~~and $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 ~~64%~~82% of the target level for the performance-based restricted stock units granted in the fiscal year ended March ~~30, 2019~~ 28, 2020 and as a result, issued 1916 thousand shares of common stock to executive officers and certain key employees during the first quarter of fiscal year ~~2022.~~2023. The following table summarizes the non-vested restricted stock units outstanding as of December ~~25, 2021~~24, 2022 (in thousands, except per unit data):

		Total	Grant Date
October 2018	October 2018 – September 2027	7	$	20.81	Time Vested
March 2019	April 2019 – March 2022	20	$	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	31	$	27.08	Time Vested
September 2020	September 2020 –July 2023	9	$	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	12	$	53.17	100% of target level
June 2021	June 2021 – May 2024	12	$	53.17	Time Vested
September 2021	September 2021 – September 2024	4	$	67.76	Time Vested
September 2021	September 2021 – September 2022	7	$	66.09	Time Vested

Total
Grant Date
Estimated
Number
Fair
Level of
Date
Measurement
of Units
Value
Achievement at
Granted
Period
Outstanding
Per Unit
December 25, 2021
October 2018
October 2018 – September 2027
7
$
20.81
Time Vested
March 2019
April 2019 – March 2022
20
$
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
31
$
27.08
Time Vested
September 2020
September 2020 –July 2023
9
$
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
12
$
53.17
100% of target level
June 2021
June 2021 – May 2024
12
$
53.17
Time Vested
September 2021
September 2021 – September 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 ~~$1.2~~$1.7 million and ~~$0.7~~$1.2 million in the firstnine months of fiscal year ~~2022~~2023 and fiscal year ~~2021,~~2022, respectively. As of December ~~25, 2021,~~24, 2022, unearned compensation, to be recognized over the grants’ respective service periods, totaled ~~$2.4~~$2.7 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.

We calculate the fair value of the stock options granted using the Black-Scholes model. There were no stock options granted during the three months ended December 24, 2022 and December 25, 2021. The following weighted-average assumptions were used to value options granted during the firstnine months of fiscal year 2023 and fiscal year 2022:

We calculate expected volatility for stock options by taking an average of historical volatility over the expected term. The computation of expected term was determined based on safe harbor rules, giving consideration to the contractual terms of the stock-based awards and vesting schedules. The interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield in effect at the time of grant. We assume no expected dividends. Under FASB ASC Topic 718, “Compensation – Stock Compensation”, the Company has elected to account for forfeitures as they occur.

During the firstnine months of fiscal year 2023, the Company granted options for 46,000 shares of common stock in the aggregate to Company employees that vest over three years and an option for 10,000 shares of common stock to a Board of Directors member that vests over five years.

During the firstnine months of fiscal year 2022, the Company granted options for 25,000 shares of common stock in the aggregate to Company employees that vest over three to five years, an option for 2,000 shares of common stock each to five employees (10,000 shares in the aggregate) that vests over three years and options for 90,000 shares of common stock in the aggregate to Company employees that vest over five years.

The expense related to all stock option awards was $1.1 million in the firstnine months of fiscal year 2023 and $0.4 million in the firstnine months of fiscal year 2022.

The following table summarizes the Company’s options as of and for the firstnine months ~~of fiscal year 2022:~~ended December 24, 2022 (in thousands, except price per option data and years):

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
Redeemed
0-
Outstanding as of December 25, 2021
160
$
51.72
9
$
6,589
Exercisable as of December 25, 2021
2
$
26.27
8
$
133

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the third quarter of fiscal year ~~2022~~2023 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 ~~25, 2021.~~24, 2022. The amount of aggregate intrinsic value will change based on the fair market value of the Company’s common stock.

Total expense related to stock options was $0.4 million during the first nine months of fiscal year 2022. Total expense related to stock options was $0.1 million during the first nine months of fiscal year 2021.

Total unrecognized compensation cost related to non-vested stock options as of December ~~25, 2021~~24, 2022 was ~~$2.0~~$2.2 million, which is expected to be recognized over a period of ~~five~~three years. The aggregate intrinsic value of stock options exercised induring the firstnine months of fiscal ~~years 2022~~year 2023 and ~~2021~~fiscal year 2022 was ~~$6.9~~$0.2 million and ~~$0.3~~$6.9 million, respectively. Cash received from the exercise of options in the firstnine months of fiscal ~~years 2022~~year 2023 and ~~2021~~fiscal year 2022 was less than $0.1 million and $1.0 million, ~~and $0.4 million,~~ respectively.

The basis for determining our operating segments is the manner in which financial information is used in monitoring our operations. Transcat has 2two reportable segments: Service and Distribution. Through our Service segment, we offer calibration, repair, inspection, analytical qualifications, preventative maintenance, consulting and other related services. Through our Distribution segment, we sell and rent national and proprietary brand instruments to customers globally. The Company has no inter-segment sales. We believe that reporting performance at the operating income level is the best indicator of segment performance. The following table presents segment ~~information~~and geographic data for the third quarter and firstnine months of fiscal ~~years 2022~~year 2023 and ~~2021~~fiscal year 2022 (dollars in thousands):

	Third Quarter Ended				Nine Months Ended				*Third Quarter Ended*				*Nine Months Ended*
	December 25,		December 26,		December 25,		December 26,		*December 24,*		*December 25,*		*December 24,*		*December 25,*
	2021		2020		2021		2020		*2022*		*2021*		*2022*		*2021*
Revenue:
Service	$	30,237	$	24,776	$	87,338	$	72,297	$	35,977	$	30,237	$	105,120	$	87,338
Distribution		20,665		19,286		61,741		52,276		21,425		20,665		63,382		61,741
Total		50,902		44,062		149,079		124,573		57,402		50,902		168,502		149,079

Gross Profit:
Service		8,983		6,915		27,447		20,884		10,793		8,983		33,115		27,447
Distribution		4,653		4,330		14,320		11,264		5,607		4,653		16,090		14,320
Total		13,636		11,245		41,767		32,148		16,400		13,636		49,205		41,767

Operating Expenses:
Service ⁽¹⁾		7,322		4,959		20,165		14,822		8,957		7,322		26,240		20,165
Distribution ⁽¹⁾		3,953		3,767		11,974		10,765		4,280		3,953		12,572		11,974
Total		11,275		8,726		32,139		25,587		13,237		11,275		38,812		32,139

Operating Income:
Service		1,661		1,956		7,282		6,062		1,836		1,661		6,875		7,282
Distribution		700		563		2,346		499		1,327		700		3,518		2,346
Total		2,361		2,519		9,628		6,561		3,163		2,361		10,393		9,628

Unallocated Amounts:
Interest and Other Expense, net		136		219		581		779		1,039		136		1,732		581
Provision for Income Taxes		596		539		715		1,199		523		596		1,631		715
Total		732		758		1,296		1,978		1,562		732		3,363		1,296

Net Income	$	1,629	$	1,761	$	8,332	$	4,583	$	1,601	$	1,629	$	7,030	$	8,332

Geographic Data:
Revenues to Unaffiliated Customers ⁽²⁾
United States ⁽³⁾									$	51,209	$	46,005	$	151,242	$	136,359
Canada										4,221		3,749		12,075		10,849
Other International										1,972		1,148		5,185		1,871
Total									$	57,402	$	50,902	$	168,502	$	149,079

Complete Calibrations: Effective ~~December 31, 2021,~~ September 28, 2022, Transcat purchased all of the outstanding capital stock of Galium Limited (d/b/a Complete Calibrations) ("Complete Calibrations"), an Irish company. This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that expand the depth and breadth of the Company’s Service capabilities.

All the goodwill related to the Complete Calibrations acquisition has been allocated to the Service segment. Amortization of goodwill related to the Complete Calibrations acquisition is not deductible for tax purposes. The goodwill is primarily attributable to the workforce acquired, as well as operational synergies and other intangibles that do not qualify for separate recognition.

The total purchase price paid for Complete Calibrations was approximately $1.2 million in cash. In connection with this transaction, the Company also entered into a Technology License Agreement with Calibration Robots Limited, an Irish company and related party to Complete Calibrations, for the use of their proprietary robotics in completing calibrations. The Technology License Agreement includes transactional royalties in the amount of 3 Euros ($3) per calibration performed by technology covered under this license agreement, with a royalty term of up to ten years commencing from the earlier of (i) the date on which cumulative revenue earned from technology covered under this license agreement equals 0.75 million Euros ($0.80 million), and (ii) March 28, 2024. In addition to the transactional royalties, as long as a key employee is employed by the Company, there is an annual royalty fee of 0.1 million Euros ($0.1 million). For purposes of this paragraph, we used a conversion rate of 1.0617 to convert Euro to U.S. dollar as of December 24, 2022.

The purchase price allocation is subject to revision based upon our final review of assets acquired, and liabilities assumed. The following is a summary of the preliminary purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of Complete Calibrations’ assets and liabilities acquired on September 28, 2022 (in thousands):

From the date of acquisition, Complete Calibrations has contributed revenue of $0.1 million and operating income of less than $0.1 million.

e2b: Effective September 27, 2022, Transcat acquired substantially all of the assets of e2b Calibration (“e2b”), an Ohio based provider of calibration services. This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that expand the depth and breadth of the Company’s Service capabilities.

The e2b goodwill is primarily attributable to the workforce acquired, as well as operational synergies and other intangibles that do not qualify for separate recognition. All the goodwill and intangible assets relating to the e2b acquisition has been allocated to the Service segment. Intangible assets related to the e2b acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up to fifteen years and are deductible for tax purposes. Amortization of goodwill related to the e2b acquisition is deductible for tax purposes.

The total purchase price paid for the assets of e2b was approximately $3.1 million in cash. Pursuant to the asset purchase agreement, the Company has $0.9 million of the purchase price in escrow for certain potential post-closing adjustments.

The purchase price allocation is subject to revision based upon our final review of intangible asset valuation assumptions, working capital adjustments, assets acquired, and liabilities assumed. The following is a summary of the preliminary purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of e2b’s assets and liabilities acquired on September 27, 2022 (in thousands):

From the date of acquisition, e2b has contributed revenue of $0.9 million and operating income of $0.2 million, which includes the negative impact of amortization of the acquired intangible assets.

Alliance: Effective May 31, 2022, Transcat acquired substantially all of the assets of Charlton Jeffmont Inc., Raitz Inc. and Toolroom Calibration Inc. d/b/a Alliance Calibration (“Alliance”), an Ohio based provider of calibration services. This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that expand the depth and breadth of the Company’s service capabilities.

The Alliance goodwill is primarily attributable to the workforce acquired, as well as operational synergies and other intangibles that do not qualify for separate recognition. All the goodwill and intangible assets relating to the Alliance acquisition has been allocated to the Service segment. Intangible assets related to the Alliance acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up to fifteen years and are deductible for tax purposes. Amortization of goodwill related to the Alliance acquisition is deductible for tax purposes.

The purchase price for Alliance was approximately $4.7 million and was paid with $4.0 million in cash and the issuance of 2,284 shares of our common stock valued at $0.1 million. Pursuant to the asset purchase agreement, the Company held back $0.5 million of the purchase price for certain potential post-closing adjustments, and the purchase price will be subject to reduction by $0.5 million if a key customer relationship is not retained.

The purchase price allocation is subject to revision based upon our final review of intangible asset valuation assumptions, working capital adjustments, assets acquired, and liabilities assumed. The following is a summary of the preliminary purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of Alliance’s assets and liabilities acquired on May 31, 2022 (in thousands):

From the date of acquisition, Alliance has contributed revenue of $1.3 million and operating income of $0.1 million, which includes the negative impact of amortization of the acquired intangible assets.

Tangent: Effective December 31, 2021, Transcat purchased all the outstanding membership units of Tangent Labs, LLC ~~a privately-held company~~ (“Tangent”). Tangent provides in-house and on-site calibrations of precision measurement and control instrumentation to customers in the life science, aerospace and other regulated industries, and has lab locations in Indianapolis, Indiana and Huntsville, Alabama. This transaction aligned with a key component of the Company’s strategy of acquiring local capabilities in attractive geographies.

The Tangent goodwill is primarily attributable to the workforce acquired, as well as operational synergies and other intangibles that do not qualify for separate recognition. All the goodwill and intangible assets relating to the Tangent acquisition has been allocated to the Service segment. Intangible assets related to the Tangent acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up to fifteen years and are deductible for tax purposes. Amortization of goodwill related to the Tangent acquisition is not deductible for tax purposes.

The purchase price for Tangent was approximately ~~$9.0~~$8.9 million, all paid in cash, and is subject to certain customary holdback provisions and a portion of which was placed in escrow to secure the sellers’ obligations in the event that a key employee terminates employment with Tangent on or before the first anniversary of the closing of the transaction.

~~The purchase price allocation has not been finalized, due to the timing of the acquisition date~~ $7.9 million was paid in cash and ~~the filing date of this Quarterly Report on Form 10-Q. Therefore, the allocation~~$1.0 million of the purchase price has been put into escrow for indemnification claims, if any.

During the second quarter of fiscal year 2023, the key employee terminated their employment with the Company. As a result, the Company took $0.2 million out of the escrow account and it was recorded as a gain in the Company's Consolidated Statement of Income.

During the second quarter of fiscal year 2023, a measurement period adjustment was recorded to recognize the fair value of Property and Equipment acquired, with a corresponding reduction to Goodwill. There was no remeasurement period adjustment in the third quarter of fiscal year 2023. The following is a summary of the purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of Tangent’s assets ~~acquired~~ and liabilities ~~assumed, including values to be recognized for goodwill and other intangible assets, will be disclosed~~ acquired on December 31, 2021 (in thousands):

During the ~~Annual Report on Form 10-K for the~~firstnine months of fiscal year ~~ending March 26, 2022. The pro forma results~~2023, Tangent contributed revenue of ~~operations from~~$1.7 million and operating loss of less than $0.1 million, which includes the Tangent acquisition, will be disclosed in the Annual Report on Form 10-K for the fiscal year ending March 26, 2022. The goodwill related to Tangent is not expected to be deductible for income tax purposes. Allnegative impact of amortization of the ~~goodwill and~~acquired intangible ~~assets relating to the Tangent acquisition will be allocated to the Service segment.~~assets.

NEXA: Effective August 31, 2021, Transcat purchased all of the outstanding capital stock of Cal OpEx Limited (d/b/a NEXA Enterprise Asset Management), ~~a private~~an Irish company, which owns all of the issued and outstanding capital stock of its U.S.-based subsidiary, Cal OpEx Inc., a Delaware corporation (collectively, “NEXA”). 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 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 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 up to five years and are deductible for tax purposes. Amortization of goodwill related to the NEXA acquisition is not deductible for tax purposes.

The ~~total~~ purchase price for NEXA was approximately $26.2 million and was paid with $23.9 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 ~~four-year~~four-year period following the closing of the transaction 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 ~~December 25,~~August 31, 2021 the estimated fair value for the contingent earn-out payments, classified as Level 3 in the fair value hierarchy, was $0.2 million and included in the ~~preliminary~~ purchase price allocation below. This amount was calculated using a Geometric Brownian motion distribution that was then used in a Monte Carlo simulation model. Assumptions used in the Monte Carlo simulation model included: 1) weighted-average cost of capital of 6.60%, 2) risk-free interest rate of 0.58%, 3) asset volatility of 20.00%, and 4) forecasted revenue and EBITDA. This contingent consideration is remeasured quarterly. If, as a result of remeasurement, the value of the contingent consideration changes, any charges or income will be included in the Company's Consolidated Statements of Income. During the second quarter of fiscal year 2023, the Company reduced the contingent consideration down to zero. As a result of remeasurement, the change was included in the Company’s Consolidated Statements of Income. There were no remeasurement adjustments during the third quarter of fiscal year 2023. $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 intangible asset valuation assumptions, working capital adjustments and true-up of the fair value of the contingent consideration, assets acquired and liabilities assumed.

The following is a summary of the ~~preliminary~~ purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of NEXA’s assets and liabilities acquired on August 31, 2021 ~~(in~~(in thousands):

~~From the date of acquisition,~~fiscal year 2023, NEXA ~~has~~ contributed revenue of ~~$2.9~~$9.8 million and operating ~~loss~~income of ~~$0.3~~$0.2 million, which includes the negative impact of amortization of the acquired intangible ~~assets, for the first nine months of fiscal year 2022.~~assets.

Upstate ~~Metrology:~~ 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 can leverage the Company’s already existing operating infrastructure.

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 goodwill is primarily attributable to the workforce acquired, as well as operational synergies and other intangibles that do not qualify for separate recognition.

The total purchase price 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~~(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 capabilities. BioTek’s focus on pipettes complements the current offerings Transcat provides to the life science sector.

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.Since this operation was integrated immediately into our existing operation, Upstate Metrology’s separate operating income in undeterminable.

The total purchase price for the assets of BioTek was approximately $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 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 (in thousands):

The results of acquired businesses are included in Transcat’s consolidated operating results as of the dates the businesses were acquired. The following unaudited pro forma information presents the Company’s results of operations as if the acquisitions of Complete Calibrations, e2b, Alliance, Tangent, NEXA and Upstate Metrology ~~and BioTek~~ had occurred at the beginning of fiscal year ~~2021.~~2022. The pro forma results do not purport to represent what the Company’s results of operations actually would have been if the transactions had occurred at the beginning of the period presented or what the Company’s operating results will be in future periods.

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. There is uncertainty of the fair value measurement from the use of significant unobservable inputs if those inputs reasonably could have been different at the reporting date. Changes in those significant unobservable inputs to a different amount might result in a significantly higher or lower fair value. As of December ~~25, 2021, $0.2 million of contingent consideration and $0.1~~24, 2022, $0.5 million of other holdback amounts ~~were~~ unpaid ~~and~~are reflected in current liabilities on the Consolidated Balance Sheets. During the firstnine months of fiscal year ~~2022~~2023 and fiscal year ~~2021,~~2022, no contingent consideration or other holdback amounts were paid.

During the firstnine months of fiscal year ~~2022,~~2023, acquisition costs of ~~$0.9~~$0.1 million were recorded as incurred as general and administrative expenses in the Consolidated Statements of Income. During the firstnine months of fiscal year ~~2021,~~2022, acquisition costs ~~of less than $0.1 million~~ were ~~recorded as incurred as general and administrative expenses in the Consolidated Statements of Income.~~$0.9 million.

ITEM 2. ~~MANAGEMENT’S~~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,” “may,” “will,” “would,” and other similar words. Forward-looking statements are not statements of historical fact and thus are subject to risks, uncertainties and other factors that could cause actual results to differ materially from historical results or those expressed in such forward-looking statements. You should evaluate forward-looking statements in light of important risk factors and uncertainties that may affect our operating and financial results and our ability to achieve our financial objectives. These factors include, but are not limited to, general economic conditions applicable to our business, the impact of ~~and our response to~~ the COVID-19 pandemic, inflationary impacts, the highly competitive nature of the industries in which we compete and in the nature of our two business segments, the concentration of Service segment customers in the life science and other regulated and industrial manufacturing industries, tariffs and trade relations, any impairment of our goodwill or intangible assets, cybersecurity risks, the risk of significant disruptions in our information technology systems, our ~~inability~~ability 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,~~supply chain delays or disruptions, the risks related to current and future indebtedness, risks related to our intellectual property, the relatively low trading volume of our common stock, foreign currency rate fluctuations, adverse weather events or other catastrophes or natural disasters, changes in tax rates, and ~~the impact of general economic conditions on our business.~~changes in accounting standards, legal requirements and listing standards. 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 ~~27, 2021.~~26, 2022. 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 ~~27, 2021.~~26, 2022.

During our third quarter of fiscal year ~~2022,~~2023, we ~~achieved~~had consolidated revenue of ~~$50.9~~$57.4 million. This represented an increase of ~~$6.8~~$6.5 million or ~~15.5%~~12.8% versus the third quarter of fiscal year ~~2021.~~2022. This increase was primarily due to the recently completed acquisitions, strong demand in our Service segment’s highly-regulated end markets and improved market conditions in our Distribution segment, ~~compared to the prior fiscal year period, which was impacted significantly by the COVID-19 pandemic.~~especially rentals.

Our third quarter of fiscal year ~~2022~~2023 gross profit was ~~$13.6 million,~~$16.4 million. This was an increase of ~~$2.4~~$2.8 million or ~~21.3%~~20.3% versus the third quarter of fiscal year ~~2021.~~2022. In addition, consolidated gross margin ~~expanded by 130~~was 28.6%, an increase of 180 basis points, ~~from 25.5% to 26.8%.~~versus the third quarter of fiscal year 2022. This increase was largely the result of operating leverage on our fixed costs and accretive gross margins from ~~recent acquisitions.~~our rental business.

Total operating expenses were ~~$11.3~~$13.2 million ~~an increase of $2.5 million or 29.2% as compared to~~in the third quarter of fiscal year ~~2021.~~2023, an increase of $2.0 million or 17.4% when compared to the prior year third quarter. Included in operating expenses during the third quarter of fiscal year ~~2022~~2023 were incremental operating expenses related to ~~acquired businesses,~~the acquisitions of Alliance, e2b and Complete Calibrations, investments in technology and higher incentive-based employee costs due to higher sales. As a percentage of total revenue, operating expenses were 23.1% in the third quarter of fiscal year 2023, up 90 basis points from 22.2% in the third quarter of fiscal year ~~2022, up 240 basis points~~2022. Operating income was $3.2 million, an increase of $0.8 million, or 34.0% and operating margin increased from ~~19.8%~~4.6% to 5.5% in the third quarter of fiscal year ~~2021. Operating income decreased by $0.2 million and operating margin decreased by 110 basis points in the third quarter of fiscal year 2022.~~2023.

Net income was $1.6 million infor each of the third quarter of fiscal year ~~2022, down 7.5% as~~2023 and fiscal year 2022. The difference between higher operating income and flat net income compared to ~~$1.8 million in~~ the ~~third quarter of fiscal year 2021. The decrease in net income was~~prior period is due to higher ~~operating expenses, which included a higher level of intangibles amortization and other expenses from recently completed acquisitions.~~interest expense.

The following table presents, for the third quarter ~~and first nine months~~ of fiscal ~~years~~year 2023 and fiscal year 2022, ~~and 2021,~~ the components of our Consolidated Statements of Income:

~~THIRD QUARTER ENDED DECEMBER~~Third Quarter Ended December 24, 2022 COMPARED TO Third Quarter Ended December 25, 2021 ~~COMPARED TO THIRD QUARTER ENDED DECEMBER 26, 2020~~ (dollars in thousands):

Total revenue ~~increased $6.8~~was $57.4 million, an increase of $6.5 million, or ~~15.5%~~12.8%, in our ~~third quarter of~~ fiscal year ~~2022~~2023 third quarter compared to the prior fiscal year third quarter.

Service revenue, which accounted for ~~59.4%~~62.7% and ~~56.2%~~59.4% of our total revenue in the third quarter of fiscal years ~~2022~~2023 and ~~2021,~~2022, respectively, increased ~~22.0%~~19.0% from the third quarter of fiscal year ~~2021~~2022 to the third quarter of fiscal year ~~2022.~~2023. This year-over-year increase included ~~$2.9~~$2.1 million in revenue from acquisitions, and also included organic revenue growth of ~~10.2%~~12.0% driven by improvement in end market conditions and continued market share gains.

Our fiscal years ~~2022~~2023 and ~~2021 quarterly~~2022 Service revenue growth, in relation to prior fiscal year quarter comparisons, was as follows:

The growth in Service segment revenue during the third quarter of fiscal year 2023 versus the third quarter of fiscal year 2022 reflected both organic growth and acquisitions.

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 ana better indication of the progress of this segment.

The following table presents the trailing twelve-month Service segment revenue for the first, second and third quarter of fiscal year 2023 and each quarter in fiscal ~~years~~year 2022 ~~and 2021~~ as well as the trailing twelve-month revenue growth as a comparison to that of the prior fiscal year ~~period (dollars in thousands):~~period:

~~The growth in Service segment revenue during the third quarter of each of fiscal years 2022 and 2021 reflected both organic growth and 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 the first, second and third quarter of fiscal year 2023 and for each quarter during fiscal ~~years 2022 and 2021:~~year 2022:

Our Distribution sales accounted for 37.3% of our total revenue in the third quarter of fiscal year 2023 and 40.6% of our total revenue in the third quarter of fiscal year ~~2022 and 43.8% of our total revenue in the third quarter of fiscal year 2021.~~2022. During the third quarter of fiscal year ~~2022,~~2023, Distribution segment sales ~~increased 7.2%~~showed an increase of 3.7% or $0.8 million to ~~$20.7~~$21.4 million. This increase was primarily due to ~~increased orders in the third quarter of fiscal year 2022 and an easier comparison to the third quarter of fiscal year 2021, which was adversely impacted by the COVID-19 pandemic.~~strong demand for rental orders.

Our fiscal years ~~2022~~2023 and ~~2021~~2022 Distribution sales growth, ~~(decline),~~ in relation to prior fiscal year quarter comparisons, was as follows:

The change in the third quarter of fiscal year 2023 versus the third quarter of fiscal year 2022 for the Distribution segment reflected organic growth.

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. Backorders are the total dollar value of orders received for which revenue has not yet been recognized. Pending product shipments are primarily backorders, but also include products that are requested to be calibrated in our service centers prior to shipment, orders required by the customer to be shipped complete or at a future date, and other orders awaiting final credit or

management review prior to shipment. ~~We believe~~Management uses pending product shipments ~~is an important measure~~and backorders as measures of ~~trends in demand in~~our future business performance and financial performance within the ~~Distribution~~distribution segment.

Our total pending product shipments at the end of the third quarter of fiscal year ~~2022~~2023 were ~~$8.9~~$9.5 million, an increase of ~~$3.3~~$0.6 million versus the end of the third quarter of fiscal year ~~2021~~2022 and an increase of ~~$2.6~~$1.8 million since March ~~27, 2021.~~26, 2022. The year-over-year increase in pending product shipments and backorders was a result of the ~~COVID-19 pandemic and its disruptive impact~~disruption to the supply of products ~~in the third quarter of fiscal year 2022~~ as well as ~~overall~~ increased ~~demand.~~orders.

The following table presents our total pending product shipments and the percentage of total pending product shipments that were backorders at the end of the first, second and third quarter of fiscal year 2023 and each quarter of fiscal ~~years 2022 and 2021:~~year 2022:

Total gross profit for the third quarter of fiscal year ~~2022~~2023 was ~~$13.6~~$16.4 million, an increase of ~~$2.4~~$2.8 million or ~~21.3%~~20.3% versus the third quarter of fiscal year ~~2021.~~2022. Total gross margin was 28.6% in the third quarter of fiscal year 2023, up from 26.8% in the third quarter of fiscal year 2022, ~~up from 25.5% in the third quarter of fiscal year 2021,~~ a ~~130~~180 basis point ~~expansion.~~increase.

Service gross profit in the third quarter of fiscal year ~~2022~~2023 increased ~~$2.1~~$1.8 million, or ~~29.9%~~20.1%, from the third quarter of fiscal year ~~2021.~~2022. Service gross margin was ~~29.7%~~30.0% in the third quarter of fiscal year ~~2022~~2023, a 30 basis point increase versus ~~27.9% in~~ the third quarter of fiscal year ~~2021, a 180 basis point increase.~~2022. This increase in gross margin was the result of ~~operating leverage on our fixed~~improved productivity offset by increased start-up costs ~~and accretive gross margins~~ from ~~recent acquisitions.~~new client-based lab implementations.

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

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:

Distribution segment gross margin was 26.2% in the third quarter of fiscal year 2023 versus 22.5% in ~~both~~ the third quarter of fiscal year 2022, a 370 basis point increase. The increase in segment gross margin was primarily due to a favorable mix of higher margin products sold and ~~the third quarter of fiscal year 2021.~~rented.

Total operating expenses were ~~$11.3~~$13.2 million in the third quarter of fiscal year ~~2022~~2023 versus ~~$8.7~~$11.3 million during the third quarter of fiscal year ~~2021.~~2022. The year-over-year increase in selling, marketing and warehouse expenses is due to increased expenses related to recent acquisitions, especially acquisition related amortization expense, and higher ~~performance-based sales incentives and direct marketing costs.~~incentive-based employee costs due to higher sales. The increase in general and administrative expenses ~~is due to one-time transaction related expenses related to the business acquisitions,~~includes incremental expenses related to acquired companies, increased payroll costs ~~from~~for new employees and continued investments in technology.

Our effective tax rates for the third quarter of fiscal years 2022 and 2021 were 26.8% and 23.4%, respectively. The increase in the tax provision is due to increases in non-deductible expenses. Our quarterly provision for income taxes is affected by discrete items that may occur in any given year but are not consistent from year to year. The discrete benefits related to share-based compensation activity in both the third quarter of fiscal years 2022 and 2021 was less than $0.1 million.

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 2022 effective tax rate to be approximately 14% to 15%.

Net income for the third quarter of fiscal year 2022 decreased $0.1 million from the third quarter of fiscal year 2021 primarily due to the lower operating income and a higher 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, 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 quarter of fiscal year 2022 was $5.5 million, an increase of $0.9 million or 19.8% versus the third quarter of fiscal year 2021. As a percentage of revenue, Adjusted EBITDA increased to 10.7% for the third quarter of fiscal year 2022 versus 10.4% for the third quarter of fiscal year 2021. The increase in Adjusted EBITDA during the third quarter of fiscal year 2022 was primarily driven by increases in depreciation and amortization expense and non-cash stock compensation expense which offset the lower net income.

~~NINE MONTHS ENDED DECEMBER 25, 2021 COMPARED TO NINE MONTHS ENDED DECEMBER 26, 2020~~:

Service revenue, which accounted for 58.6% and 58.0% of our total revenue during the first nine months of fiscal years 2022 and 2021, respectively, increased $15.0 million, or 20.8%, from the first nine months of fiscal year 2021 compared to the first nine months of fiscal year 2022. This year-over-year increase reflected increased demand from the life sciences and other highly-regulated end markets and included $5.3 million of incremental revenue from acquisitions.

Our Distribution sales accounted for 41.4% and 42.0% of our total revenue in the first nine months of fiscal years 2022 and 2021, respectively. For the first nine months of fiscal year 2022, Distribution sales increased $9.5 million, or 18.1%, compared to the first nine months of fiscal year 2021. This increase in sales was due to increased orders in the first nine months of fiscal year 2022 and an easier comparison to the first nine months of fiscal year 2021, which was adversely impacted by the COVID-19 pandemic.

Total gross profit for the first nine months of fiscal year 2022 was $41.8 million, an increase of $9.6 million or 29.9% versus the first nine months of fiscal year 2021. Total gross margin was 28.0%, a 220 basis points increase compared to 25.8% in the first nine months of fiscal year 2021. This increase in gross margin was primarily due to operating leverage on our fixed cost base, accretive margins from recent acquisitions and continued strong technician productivity in the Service segment and a favorable mix of products sold in the Distribution segment.

Total operating expenses for the first nine months of fiscal year 2022 were $32.1 million, an increase of $6.6 million or 25.6% versus the first nine months of fiscal year 2021. The year-over-year increase in selling, marketing and warehouse expenses was due to higher performance-based sales incentives and direct marketing costs. The increase in general and administrative expenses includes $0.9 million of one-time transaction related expenses related to business acquisitions, incremental expenses related to acquired companies, increased payroll costs from new employees and continued investments in technology. As a percentage of total revenue, operating expenses ~~during~~were 23.1% in the ~~first nine months~~third quarter of fiscal year 2023 and 22.2% in the third quarter of fiscal year 2022, ~~were 21.6%, compared to 20.5% in the first nine months of fiscal year 2021,~~ an increase of ~~110~~90 basis points.

Our effective tax ~~rates~~rate for the ~~first nine months~~third quarter of fiscal years 2023 and 2022 was 24.6% and ~~2021 were 7.9% and 20.7%~~26.8%, respectively. The decrease in ~~our~~the tax ~~rate~~provision is due to the ~~increased discrete tax benefits from share-based compensation activity.~~mix of net income by country. Our quarterly provision for income taxes is affected by discrete items that may occur in any given period but are not consistent from year to year. The discrete benefits related to share-based compensation activity in each of the ~~first nine months~~third quarter of fiscal years 2023 and 2022 ~~and 2021 were $1.7 million and $0.3 million, respectively.~~was less than $0.1 million.

Net income for the ~~first nine months~~third quarter of fiscal year ~~2022~~2023 was ~~$8.3 million, an increase of $3.7 million versus~~flat compared to the ~~first nine months~~third quarter of fiscal year ~~2021. The year over year increase in net income was~~2022. This is primarily due to ~~the~~ higher operating income ~~and lower provision for income taxes.~~

Total Adjusted EBITDA for the third quarter of fiscal year 2023 was $6.6 million, an increase of $1.1 million or 20.5% versus the third quarter of fiscal year 2022. As a percentage of revenue, Adjusted EBITDA increased to 11.5% for the third quarter of fiscal year 2023 from 10.7% for the third quarter of fiscal year 2022. The increase in Adjusted EBITDA during the third quarter of fiscal year 2023 was primarily driven by the increase in depreciation and amortization expense and interest expense.

In addition to reporting Diluted Earnings Per Share, a GAAP measure, we present Adjusted Diluted Earnings Per Share (net income plus acquisition related amortization expense, acquisition related transaction expenses, acquisition related stock-based compensation, acquisition amortization of backlog and restructuring expense, on a diluted per share basis), which is a non-GAAP measure. Our management believes Adjusted Diluted Earnings Per Share is an important measure of our operating performance because it provides a basis for comparison of our business operations between current, past and future periods by excluding items that we do not believe are indicative of our core operating performance.

Adjusted Diluted Earnings Per Share is not a measure of financial performance under GAAP and is not calculated through the application of GAAP. As such, it should not be considered as a substitute or alternative for the GAAP measure of Diluted Earnings Per Share and, therefore, should not be used in isolation of, but in conjunction with, the GAAP measure. Adjusted Diluted Earnings Per Share, as presented, may produce results that vary from the GAAP measure and may not be comparable to a similarly defined non-GAAP measure used by other companies.

nine months ended December 24, 2022 COMPARED TO nine months ended December 25, 2021:

Service revenue, which accounted for 62.4% of our total revenue during the first nine months of fiscal year 2023 and 58.6% of our total revenue during the first nine months of fiscal year 2022, increased $17.8 million, or 20.4%, from the first nine months of fiscal year 2022 compared to the first nine months of fiscal year 2023. This year-over-year increase reflected increased demand from the life sciences and other highly-regulated end markets and included $9.0 million of incremental revenue from acquisitions.

Our Distribution sales accounted for 37.6% and 41.4% of our total revenue in the first nine months of fiscal years 2023 and 2022, respectively. For the first nine months of fiscal year 2023, Distribution sales increased $1.6 million, or 2.7%, compared to the first nine months of fiscal year 2022. This increase in revenue was due to increased orders in the first nine months of fiscal year 2023 and strong demand for rental orders.

Total gross profit for the first nine months of fiscal year 2023 was $49.2 million, an increase of $7.4 million or 17.8% versus the first nine months of fiscal year 2022. Total gross margin was 29.2%, a 120 basis points increase compared to 28.0% in the first nine months of fiscal year 2022. This increase in gross margin was primarily due to operating leverage on our fixed cost base in the Service segment and a favorable mix of products sold and rented in the Distribution segment.

Total operating expenses for the first nine months of fiscal year 2023 were $38.8 million, an increase of $6.7 million or 20.8% versus the first nine months of fiscal year 2022. The year-over-year increase in selling, marketing and warehouse was due to increased expenses related to recent acquisitions, especially acquisition related amortization expense, and higher incentive-based employee costs due to higher sales. The increase in general and administrative expenses includes incremental expenses related to acquired companies, increased payroll costs from new employees and continued investments in technology. As a percentage of total revenue, operating expenses during the first nine months of fiscal year 2023 were 23.0%, compared to 21.6% in the first nine months of fiscal year 2022, an increase of 140 basis points.

Our effective tax rates for the first nine months of fiscal years 2023 and 2022 were 18.8% and 7.9%, respectively. The increase in our tax rate is due to the decreased discrete tax benefits from 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 share-based compensation activity in the first nine months of fiscal years 2023 and 2022 were $0.5 million and $1.7 million, respectively.

Net income for the first nine months of fiscal year 2023 was $7.0 million, a decrease of $1.3 million or 15.6% versus the first nine months of fiscal year 2022. The year over year decrease in net income was due higher operating income offset by higher operating expenses, higher interest expense and a higher provision for income taxes.

During the first nine months of fiscal year ~~2022,~~2023, Adjusted EBITDA was ~~$18.7~~$21.4 million, an increase of ~~$5.4~~$2.8 million or ~~40.5%~~14.8% versus the first nine months of fiscal year ~~2021.~~2022. As a percentage of revenue, Adjusted EBITDA was 12.7% for the first nine months of fiscal year 2023 compared to 12.5% for the first nine months of fiscal year ~~2022 and 10.7% for the first nine months of fiscal year 2021.~~2022. The increase in Adjusted EBITDA during the first nine months of fiscal year ~~2022~~2023 was primarily driven by the increase in ~~net income,~~interest expense, tax provision, depreciation and amortization expense ~~non-cash~~and noncash stock compensation expense.

In addition to reporting Diluted Earnings Per Share, a GAAP measure, we present Adjusted Diluted Earnings Per Share (net income plus acquisition related amortization expense, acquisition related transaction expenses, acquisition related stock-based compensation, acquisition amortization of backlog and ~~acquisition transaction expenses.~~restructuring expense, on a diluted per share basis), which is a non-GAAP measure. Our management believes Adjusted Diluted Earnings Per Share is an important measure of our operating performance because it provides a basis for comparison of our business operations between current, past and future periods by excluding items that we do not believe are indicative of our core operating performance.

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. We believe that these sources of financing will be adequate to meet our future requirements.

On 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”) 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 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~~our 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 2022 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 ~~LIBOR~~London Interbank Offered Rate (“LIBOR”) floor from 1.0% to 0.25% and included a mechanism for adoption of a different benchmark rate upon the discontinuation of LIBOR. The 2021 Credit Agreement also reduced the fixed interest rate on our term loan in the amount of $15.0 million (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~~$40.0 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 and it amended the definition of permitted acquisitions to amend borrowings available under the 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~~our ability to repurchase ~~its~~our shares and pay dividends. Amendment Two also had modified the leverage ratio and fixed charge coverage ratio covenants with which ~~the Company was~~we were required to comply and limited capital expenditures to $5.5 million for ~~the~~ fiscal year 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.

As of December ~~25, 2021,~~24, 2022, $80.0 million was available under the revolving credit facility, of which ~~$31.7~~$42.2 million was outstanding and included in long-term debt on the Consolidated Balance Sheets. During the first nine months of fiscal year 2023 and 2022, we used $8.3 million and $20.9 million, respectively, for business acquisitions.

As of December ~~25, 2021, $9.1~~24, 2022, $7.0 million was outstanding on the 2018 Term Loan, of which ~~$2.1~~$2.2 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.

Pursuant to the Prior Credit Agreement, we were required to comply with a fixed charge ratio covenant and a leverage ratio covenant, which were modified by the 2021 Credit Agreement. 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 was 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. The Prior Credit Agreement also had provided that the trailing twelve-month pro forma EBITDA of an acquired business was included in the allowable leverage calculation. After the first quarter of fiscal year 2022, pursuant to the 2021 Credit Agreement, the allowable leverage ratio is a maximum multiple of 3.0. We were in compliance with all loan covenants and requirements during the third quarter of fiscal year ~~2022.~~2023. Our leverage ratio, ~~was 1.47 at December 25, 2021,~~ as defined in the 2021 Credit Agreement, was 1.66 at December 24, 2022, compared with ~~0.94~~1.74 at March ~~27, 2021, as defined in the Prior Credit Agreement.~~26, 2022

Interest on the revolving credit facility continues to accrue, at our election, at either the variable one-month LIBOR or a fixed rate for a designated period at the LIBOR corresponding to such period (subject to a 1% floor during the first quarter of fiscal year 2022 and a 0.25% floor for subsequent periods) ~~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 ofunder the 2018 Term Loan accrued at a fixed rate of 4.15% during the first quarter of fiscal year 2022 and accrue at a fixed rate of 3.90% during the second quarter of fiscal year 2022 and over the term of the loan ~~during the third quarter of fiscal year 2022 with principal and interest payments made monthly.~~for subsequent periods. Unused fees ~~accrued~~accrue based on the average daily amount of unused credit available ~~under~~on the revolving credit facility. Interest rate margins and unused fees ~~were~~are determined on a quarterly basis based upon our calculated leverage ratio.

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

Net cash provided by ~~operating activities~~operations was ~~$12.4~~$14.0 million during the first nine months of fiscal year ~~2022~~2023 compared to ~~$15.6~~$12.4 million of net cash provided by operating activities during the first nine months of fiscal year ~~2021.~~2022. The year-over-year ~~decrease~~increase in cash provided by operations iswas primarily the result of changes in net working capital (defined as current assets less current liabilities). The significant working capital fluctuations were as follows:

Accounts payable decreased $0.3 million during the first nine months of fiscal year 2023 inclusive of $0.1 million of accounts payable acquired during the period. Accounts payable increased $0.7 million during the first nine months of fiscal year 2022. The variances are largely due to the timing of inventory and capital expenditures and other payments in the respective periods.

During the first nine months of fiscal year 2023, accrued compensation and other current liabilities decreased by $2.4 million. During the first nine months of fiscal year 2022, accrued compensation and other current liabilities decreased by $1.1 million. The change from the first nine months of fiscal year 2022 was largely due to the annual payment of incentive based compensation accruals.

Investing Activities: During the first nine months of fiscal year 2023, we invested $7.1 million in capital expenditures that was used primarily for customer-driven expansion of Service segment capabilities and our rental business.

During the first nine months of fiscal year 2022, we invested $5.9 million in capital expenditures that was used primarily for customer-driven expansion of Service segment capabilities and ~~the Company’s~~our rental business.

During the first nine months of fiscal year ~~2021,~~2023, we ~~invested $4.3~~used $8.3 million ~~in capital expenditures that was used primarily~~ for ~~customer-driven expansion of Service segment capabilities and the Company’s rental business.~~

business acquisitions. During the first nine months of fiscal year 2022, we used $20.9 million for business acquisitions.

During each of the first nine months of fiscal year 2023 and fiscal year 2022, no contingent consideration or other holdback amounts were paid related to business acquisitions.

Financing Activities: During the first nine months of fiscal year ~~2021,~~2023, $2.3 million was borrowed from our revolving line of credit and $0.5 million in cash was generated from the issuance of common stock. In addition, we used ~~$3.4~~$1.6 million for scheduled repayments of our term loan and $0.4 million for the “net” awarding of certain share awards to cover employee tax-withholding obligations for share award and stock option activity in fiscal year 2023, which are shown as a ~~business acquisition.~~

During the first nine months of fiscal year 2022, $22.8 million was borrowed from our revolving line of credit and $1.4 million in cash was generated from the issuance of common stock. In addition, we used $1.6 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 fiscal year 2022, which isare shown as a repurchase of shares of our common ~~stock on our Consolidated Statements of Cash Flows.~~

~~During the first nine months of fiscal year 2021, $0.6 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 million for scheduled repayments of our term loan and used $1.3 million for the “net” award of certain share awards to cover tax-withholding obligations for share award and stock option activity in fiscal year 2021, which is shown as a repurchase of shares of our common stock on our Consolidated Statements of Cash Flows.

~~For~~We are pleased with the growth across all of our business channels including double-digit organic Service growth in our third quarter of fiscal 2023. We expect our unique value proposition will continue to drive a sustainable competitive advantage in the highly regulated markets that we serve, particularly the Life Science and Aerospace and Defense markets.

We are confident our work around differentiation, including Nexa's service tracks and consulting platform, will foster continued organic revenue growth. Driven by recurring revenue streams and regulation, we expect our Service segment to outperform through various economic cycles.

Our acquisition pipeline is very active. Acquisitions, which have generated compelling returns throughout fiscal year 2023, will continue to be an important component of Service growth. In addition, in both the fourth quarter of fiscal year ~~2022, which is historically the strongest quarter of our~~2023 and fiscal year ~~due to the seasonality of our Service business,~~2024, we expect organic Service revenue growth to beremain in the ~~high-teens.~~high-single digit range. We also expect ~~Service~~ gross margin improvement to continue in ~~the fourth quarter~~those periods as a by-product of ~~fiscal year 2022 to be in the range~~both growth and successful execution of 35% as we expect to benefit from a seasonally higher level of volume. Distribution revenue is expected to grow in the high single-digits in the fourth quarter of fiscal year 2022. Total operating expenses in the fourth quarter of fiscal year 2022 are expected to increase approximately $0.5 million sequentially from the third quarter and will include expenses associated with our recent acquisition of Tangent Labs, LLC.various ongoing productivity enhancement programs.

We expect our income tax rate to range between ~~14%~~21% and ~~15%~~23% for full fiscal year ~~2022.~~2023. This estimate includes Federal, various state, Canadian and Irish income taxes and reflects the discrete tax accounting associated with share-based payment awards.

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 ~~$0.2~~$0.4 million assuming our average borrowing levels remained constant. As of December ~~25, 2021,~~24, 2022, $80.0 million was available under our revolving credit facility, of which ~~$31.7~~$42.2 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 2018 Term Loan is considered a fixed interest rate loan. As of December ~~25, 2021, $9.1~~24, 2022, $7.0 million was outstanding on the 2018 Term Loan and was included in long-term debt and current portion of long-term debt on the Consolidated Balance Sheets. The 2018 Term Loan requires total (principal and interest) repayments of $0.2 million per month.

At our option, we borrow from our revolving credit facility at the variable one-month LIBOR or at a fixed rate for a designated period at the LIBOR corresponding to such period (subject to a 1% 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 months of fiscal year ~~2022~~2023 for our revolving credit facility ranged from ~~1.0%~~1.6% to ~~2.2%~~6.0%. Interest on outstanding borrowings onof the 2018 Term Loan accrued at a fixed rate of 4.15% over the term of the loan during the first quarter of fiscal year 2022 and 3.90% over the term of the loan for subsequent periods. Our revolving credit facility includes a mechanism for adoption of a different benchmark rate upon the discontinuation of LIBOR. On December ~~25, 2021,~~24, 2022, we had no hedging arrangements in place for our 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 months of fiscal ~~years~~year 2023 and 2022 ~~and 2021~~ were denominated in U.S. dollars, with the remainder denominated in Canadian dollars and Euros. A 10% change in the value of the Canadian dollar to the U.S. dollar and the Euro to the U.S. dollar would impact our revenue by approximately 1%. We monitor the relationship between ~~the~~ U.S. and Canadian currencies and the U.S. dollar and the 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 denominated in Canadian dollars would be adversely affected by changes in currency exchange rates. We do not apply hedge accounting and therefore the net change in the fair value of the contracts, which totaled a gain of $0.3 million and less than $0.1 million during the first nine months of each of the fiscal ~~year~~years 2023 and 2022, ~~and a gain of $0.1 million during the first nine months of fiscal year 2021,~~respectively, was recognized as a component of ~~other expense~~Interest and Other Expense, net in the Consolidated Statements of Income. The change in the fair value of the contracts is offset by the change in fair value on the underlying accounts receivables denominated

in Canadian dollars being hedged. On December ~~25, 2021,~~24, 2022, we had a foreign exchange contract, which matured in January ~~2022,~~2023, outstanding in the notional amount of ~~$2.6~~$3.0 million. The foreign exchange contract was renewed in January ~~2022~~2023 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 ~~fiscal~~ quarter of fiscal year ~~2022)~~2023) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

		Page(s)
~~PART I.FINANCIAL INFORMATION~~
PART I.	FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements:

	Statements of Income for the Third Quarter and Nine Months Ended December ~~25, 2021,~~24, 2022 and December ~~26,~~ 25, 2021~~2020~~	1

	Statements of Comprehensive Income for the Third Quarter and Nine Months Ended December ~~25, 2021,~~ 24, 2022 and December ~~26, 2020~~25, 2021	2

	Balance Sheets as of December ~~25, 2021,~~24, 2022 and March ~~27, 2021~~26, 2022	3

	Statements of Cash Flows for the Nine Months Ended December ~~25, 2021,~~24, 2022 and December ~~26, 2020~~25, 2021	4

	Statements of Changes in Shareholders’ Equity for the Third Quarter and Nine Months Ended December 24, 2022 and December 25, 2021 ~~and~~ ~~December 26, 2020~~	5

	Notes to Consolidated Financial Statements	76


Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1619

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	2731

Item 4.	Controls and Procedures	2832
~~PART II.OTHER INFORMATION~~
PART II.	OTHER INFORMATION

Item 6.	Exhibits	2933
~~SIGNATURES~~	30
SIGNATURES		34

	Goodwill								Intangible Assets									*Goodwill*								*Intangible Assets*
	Distribution		Service			Total			Distribution			Service			Total			*Distribution*		*Service*			*Total*			*Distribution*			*Service*			*Total*

Net Book Value as of March 27, 2021	$	11,458	$	31,814		$	43,272		$	920		$	6,593		$	7,513
Net Book Value as of March 26, 2022																		$	11,458	$	53,616		$	65,074		$	647		$	14,045		$	14,692
Additions		0-		15,980			15,980			0-			6,690			6,690			-		4,496			4,496			-			3,576			3,576
Measurement Period Adjustments																			-		(203	)		(203	)		-			-			-
Amortization		0-		0-			0-			(204	)		(2,492	)		(2,696	)		-		-			-			(152	)		(3,259	)		(3,411	)
Currency Translation Adjustment		0-		(119	)		(119	)		0-			(4	)		(4	)		-		(541	)		(541	)		-			(14	)		(14	)
Net Book Value as of December 25, 2021	$	11,458	$	47,675		$	59,133		$	716		$	10,787		$	11,503
Net Book Value as of December 24, 2022																		$	11,458	$	57,368		$	68,826		$	495		$	14,348		$	14,843

		*Total*	*Grant Date*		*Estimated*
		*Number*	*Fair*		*Level of*
Date	*Measurement*	*of Units*	*Value*		*Achievement at*
Granted	*Period*	*Outstanding*	*Per Unit*		*December 24, 2022*
October 2018	October 2018 – September 2027	6	$	20.81	Time Vested
April 2020	April 2020 – March 2023	2	$	26.25	Time Vested
July 2020	July 2020 – July 2023	26	$	27.08	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
January 2021	January 2021 – January 2024	1	$	34.62	Time Vested
May 2021	May 2021 – May 2024	1	$	54.21	Time Vested
June 2021	June 2021 – March 2024	10	$	53.17	150% of target level
June 2021	June 2021 – March 2024	11	$	53.17	Time Vested
September 2021	September 2021 – September 2024	4	$	67.76	Time Vested
December 2021	December 2021 – December 2024	1	$	90.41	Time Vested
January 2022	January 2022 – March 2024	2	$	90.92	Time Vested
March 2022	March 2022 – March 2025	2	$	76.31	Time Vested
May 2022	May 2022-March 2025	12	$	63.17	100% of target level
May 2022	May 2022-March 2025	11	$	63.17	Time Vested
August 2022	August 2022-August 2025	1	$	78.04	Time Vested
December 2022	December 2022 -December 2025	1	$	81.26	Time Vested
December 2022	December 2022 - December 2025	1	$	67.48	Time Vested
September 2022	September 2022-September 2023	5	$	73.80	Time Vested

	Nine Months Ended
	December 24,			December 25,
	2022			2021

Risk-Free Interest Rate		2.65	%		1.00	%
Volatility Factor		37.62	%		29.95	%
Expected Term (in Years)		4.58			6.38
Annual Dividend Rate		0.00	%		0.00	%

					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
Redeemed	0-
Outstanding as of December 25, 2021	160		$	51.72	9	$	6,589
Exercisable as of December 25, 2021	2		$	26.27	8	$	133

				*Weighted*		*Weighted*
				*Average*		*Average*
	*Number*			*Exercise*		*Remaining*		*Aggregate*
	Of			*Price Per*		*Contractual*		*Intrinsic*
	*Options*			*Option*		*Term (in years)*		*Value*
Outstanding as of March 26, 2022		165		$	53.27
Granted		56		$	62.46
Exercised		(4	)	$	6.19
Forfeited		-		$	-
Outstanding as of December 24, 2022		217		$	56.25		7	$	2,980
Exercisable as of December 24, 2022		28		$	53.76		9	$	454

Goodwill		$	1,123
Plus:	Cash		10
	Inventory		44
Total Purchase Price		$	1,177

Goodwill		$	1,590
Intangible Assets – Customer Base & Contracts			746
Intangible Assets – Covenant Not to Compete			396
			2,732
Plus:	Accounts Receivable		361
	Other Current Assets		24
	Property and Equipment		103
Less:	Current Liabilities		(121	)
Total Purchase Price		$	3,099

Goodwill		$	1,783
Intangible Assets – Customer Base & Contracts			2,320
Intangible Assets – Covenant Not to Compete			114
			4,217
Plus:	Accounts Receivable		343
	Property and Equipment		170
Less:	Current Liabilities		(27	)
Total Purchase Price		$	4,703

Goodwill		$	5,385
Intangible Assets – Customer Base & Contracts			4,150
Intangible Assets – Covenant Not to Compete			220
			9,755
Plus:	Cash		26
	Accounts Receivable		187
	Other Current Assets		16
	Property and Equipment		203
Less:	Current Liabilities		(68	)
	Deferred Tax Liability		(1,195	)
Total Purchase Price		$	8,924

Goodwill	Goodwill	$	15,497		Goodwill	$	15,679
Intangible Assets – Customer Base & Contracts	Intangible Assets – Customer Base & Contracts		5,600		Intangible Assets – Customer Base & Contracts		5,600
Intangible Assets – Backlog	Intangible Assets – Backlog		490		Intangible Assets – Backlog		490
Intangible Assets – Covenant Not to Compete	Intangible Assets – Covenant Not to Compete		600		Intangible Assets – Covenant Not to Compete		600
			22,187				22,369
Plus:	Cash		3,732		Cash		3,732
	Accounts Receivable		2,434		Accounts Receivable		2,434
	Non-Current Assets		38		Non-Current Assets		38
Less:	Current Liabilities		(453	)	Current Liabilities		(572	)
	Deferred Tax Liability		(1,706	)	Deferred Tax Liability		(1,769	)
Total Purchase Price	Total Purchase Price	$	26,232		Total Purchase Price	$	26,232

Goodwill		$	483
Plus:	Current Assets		189
	Non-Current Assets		270
Less:	Current Liabilities		(11	)
Total Purchase Price		$	931

Goodwill		$	1,063
Intangible Assets – Customer Base & Contracts			1,930
Intangible Assets – Covenant Not to Compete			100
			3,093
Plus:	Current Assets		406
	Non-Current Assets		8
Total Purchase Price		$	3,507

			(Unaudited)		(Unaudited)
			Third Quarter Ended		Nine Months Ended		(Unaudited)						(Unaudited)
			December 25,	December 26,	December 25,	December 26,	Third Quarter Ended						Nine Months Ended
			2021	2020	2021	2020	December 24,			December 25,			December 24,			December 25,
							2022			2021			2022			2021
As a Percentage of Total Revenue:	As a Percentage of Total Revenue:
	Service Revenue		59.4%	56.2%	58.6%	58.0%
	Distribution Sales		40.6%	43.8%	41.4%	42.0%
		Total Revenue	100.0%		100.0%
Service Revenue								62.7	%		59.4	%		62.4	%		58.6	%
Distribution Sales								37.3	%		40.6	%		37.6	%		41.4	%
Total Revenue								100.0	%		100.0	%		100.0	%		100.0	%

Gross Profit Percentage:	Gross Profit Percentage:
Service Gross Profit								30.0	%		29.7	%		31.5	%		31.4	%
Distribution Gross Profit								26.2	%		22.5	%		25.4	%		23.2	%
Total Gross Profit								28.6	%		26.8	%		29.2	%		28.0	%
	Service Gross Profit		29.7%	27.9%	31.4%	28.9%
Selling, Marketing and Warehouse Expenses								11.5	%		10.0	%		10.9	%		10.1	%
General and Administrative Expenses								11.6	%		12.2	%		12.1	%		11.4	%
Total Operating Expenses								23.1	%		22.2	%		23.0	%		21.5	%
	Distribution Gross Profit		22.5%		23.2%	21.5%
Operating Income								5.5	%		4.6	%		6.2	%		6.5	%
	Total Gross Profit		26.8%	25.5%	28.0%	25.8%
Interest and Other Expense, net								1.8	%		0.2	%		1.0	%		0.4	%

Income Before Income Taxes								3.7	%		4.4	%		5.2	%		6.1	%
Provision for Income Taxes								0.9	%		1.2	%		1.0	%		0.5	%
	Selling, Marketing and Warehouse Expenses		10.0%	10.6%	10.1%	10.5%
	General and Administrative Expenses		12.2%	9.2%	11.4%	10.0%
		Total Operating Expenses	22.2%	19.8%	21.5%	20.5%

	Operating Income		4.6%	5.7%	6.5%	5.3%

	Interest and Other Expense, net		0.2%	0.5%	0.4%	0.6%

	Income Before Income Taxes		4.4%	5.2%	6.1%	4.7%
	Provision for Income Taxes		1.2%		0.5%	1.0%

	Net Income		3.2%	4.0%	5.6%	3.7%
Net Income								2.8	%		3.2	%		4.2	%		5.6	%

	FY 2022			FY 2021
	Q3	Q2	Q1	Q4	Q3	Q2	Q1
Service Revenue Growth	22.0%	20.3%	20.0%	15.8%	12.2%	4.5%	2.5%

	FY 2023									FY 2022
	Q3			Q2			Q1			Q4			Q3			Q2			Q1
Service Revenue Growth		19.0	%		19.4	%		22.9	%		19.6	%		22.1	%		20.4	%		20.0	%

		FY 2022			FY 2021
		Q3	Q2	Q1	Q4	Q3	Q2	Q1
Trailing Twelve-Month:
	Service Revenue	$116,315	$110,854	$105,864	$101,274	$97,225	$94,624	$93,572
	Service Revenue Growth	19.5%	17.1%	13.1%	8.9%	5.4%	4.3%	7.4%

	FY 2023									FY 2022
	Q3			Q2			Q1			Q4			Q3			Q2			Q1
Trailing Twelve-Month:
Service Revenue	$	139,787		$	134,047		$	128,324		$	122,005		$	116,315		$	110,854		$	105,864
Service Revenue Growth		20.2	%		20.9	%		21.2	%		20.5	%		19.5	%		17.2	%		13.1	%

			Third Quarter Ended		Change
(dollars in thousands)			December 25,	December 26,
			2021	2020	$	%
Revenue:
	Service		$ 30,237	$ 24,776	$ 5,461	22.0%
	Distribution		20,665	19,286	1,379	7.2%
		Total	$ 50,902	$ 44,062	$ 6,840	15.5%

	Third Quarter Ended				Change
	December 24,		December 25,
	2022		2021		$		%
Revenue:
Service	$	35,977	$	30,237	$	5,740		19.0	%
Distribution		21,425		20,665		760		3.7	%
Total	$	57,402	$	50,902	$	6,500		12.8	%

	FY 2023									FY 2022
	Q3			Q2			Q1			Q4			Q3			Q2			Q1
Percent of Service Revenue:
In-House		86.2	%		86.2	%		85.4	%		85.4	%		84.1	%		83.2	%		83.1	%
Outsourced		12.6	%		12.6	%		13.2	%		13.1	%		14.4	%		15.3	%		15.4	%
Freight Billed to Customers		1.2	%		1.2	%		1.4	%		1.5	%		1.5	%		1.5	%		1.5	%
		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

	FY 2022			FY 2021
	Q3	Q2	Q1	Q4	Q3	Q2	Q1
Distribution Sales Growth (Decline)	7.2%	22.2%	27.0%	(4.6%)	(8.6%)	(6.6%)	(20.3%)

	FY 2023									FY 2022
	Q3			Q2			Q1			Q4			Q3			Q2			Q1
Distribution Sales Growth		3.7	%		1.6	%		2.7	%		7.2	%		7.2	%		22.2	%		27.0	%

	FY 2023									FY 2022
	Q3			Q2			Q1			Q4			Q3			Q2			Q1
Total Pending Product Shipments	$	9,543		$	9,116		$	9,034		$	7,747		$	8,943		$	7,707		$	8,272
% of Pending Product
Shipments that were Backorders		78.4	%		80.8	%		78.1	%		83.2	%		80.5	%		77.2	%		77.5	%

	FY 2022			FY 2021
	Q3	Q2	Q1	Q4	Q3	Q2	Q1
Service Gross Margin	29.7%	32.9%	31.8%	33.9%	27.9%	32.2%	26.4%

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

10.1* Exhibit No.	~~Membership Unit Purchase Agreement, dated as of December 31, 2021, by and among Transcat, Inc., Kevin M. Broderick and Andrea Broderick~~	Description

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

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

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

(32)		Section 1350 Certifications

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

(101)		Interactive Data File

101.INS**			Inline XBRL Instance Document

101.SCH**			Inline XBRL Taxonomy Extension Schema Document

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

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

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

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

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

	TRANSCAT, INC.


Date: February ~~2, 2022~~1, 2023	/s/ Lee D. Rudow
	Lee D. Rudow
	President and Chief Executive Officer (Principal Executive Officer)


Date: February ~~2, 2022~~1, 2023	/s/ ~~Mark A. Doheny~~Thomas L. Barbato
	~~Mark A. Doheny~~
	Thomas L. Barbato
	Senior Vice President of Finance and Chief Financial Officer (Principal Financial Officer)