Transcat Reports Nearly 16% Revenue Growth for Fiscal 2020 First Quarter

Transcat, Inc. (Nasdaq: TRNS) (“Transcat” or the “Company”), a leading provider of accredited calibration, repair, inspection and laboratory instrument services and value-added distributor of professional grade handheld test, measurement and control instrumentation, today reported financial results for its first quarter ended June 29, 2019 (the “first quarter”) of fiscal year 2020, which ends March 28, 2020 (“fiscal 2020”). Results include the previously-reported acquisitions of Angel’s Instrumentation, Inc (“Angel’s”), effective as of August 31, 2018 and Gauge Repair Service ("GRS"), effective April 1, 2019.

“Our first quarter double-digit organic growth validates the successful execution of our growth strategy. We believe our investment in growth is gaining us greater market share although also constricting margin expansion as we continue to hire new technicians who need mentoring and training to achieve full productivity levels. Our operational excellence initiatives, combined with automation initiatives provided by our acquisition last week of Infinite Integral Solutions Inc. (“IIS”), are expected to help offset this impact. We believe in our plan and are intent upon improving our margin profile, but believe that expanding our market position is paramount,” commented Lee D. Rudow, President and CEO.

Mr. Rudow added, “Our acquisition of IIS is a unique opportunity to own technology that is expected to advance our Service segment efficiencies and aid productivity improvement throughout our lab network by automating a number of calibration disciplines.”

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

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

Transcat achieved record first quarter fiscal 2020 revenue of $42.4 million, up 15.7%. Excluding acquired revenue, organic revenue growth was 13.1%. Gross margin reflected continued investments to support the strong Service revenue growth and product mix changes within Distribution. As a percentage of revenue, consolidated operating expenses were 19.1%, down 20 basis points. Included in operating expenses was a $0.2 million loss on the sale of a Company-owned building in Montana that was no longer needed for operations. The Company owns no other real estate. Net income grew 20.3% and fully diluted earnings per share increased to $0.23 from $0.19. The growth in net income was aided by the discrete income tax accounting required for share-based awards that were greater than expected, largely from pre-tax income being lower than anticipated, and the stock option exercise by a Company officer in conjunction with his departure in the first quarter.

Service segment shows significant revenue growth

Represents the accredited calibration, repair, inspection and laboratory instrument services business (53% of total revenue for the first quarter of fiscal 2020).

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

Service revenue increased 15.9% to $22.4 million, inclusive of acquired revenue from Angel’s. Organic Service revenue growth was 11.9% in the first quarter, reflecting new business from the highly-regulated life sciences market and growth in other regulated sectors. On a trailing twelve-month basis, Service segment revenue was $87.1 million, up 11.3% when compared with the trailing twelve-month period ending with the prior-fiscal year first quarter.

While improvements are being made, the segment gross margin was still impacted by strong revenue growth, largely from the need to continue to recruit, on-board and develop new hires into fully-productive technicians. Productivity initiatives associated with process improvement and automation are expected to help combat these margin pressures over time.

Distribution segment shows improved sales and operating margin

Represents the sale and rental of new and used professional grade handheld test, measurement and control instrumentation (47% of total revenue for the first quarter of fiscal 2020).

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

Distribution sales increased 15.4% to $20.0 million, and were driven by solid demand in all channels, especially in the alternative energy sector and equipment rental business, which grew 34.4% to $1.2 million.

Strong Balance Sheet to Support Growth Strategy

At June 29, 2019, the Company had total debt of $22.4 million, with $21.7 million available for borrowing under its secured revolving credit facility. The Company’s leverage ratio, as defined in its credit agreement, was 1.22 at June 29, 2019, compared with 1.12 at fiscal 2019 year-end.

Capital expenditures were $1.4 million for the first quarter of fiscal 2020, with investments focused on customer-driven expansion of Service segment capabilities and the Company’s rental business.

Outlook

Mr. Rudow concluded, “All signs point to continued strength on the Service revenue front as our pipelines for new business and acquisitions remain robust. We still expect our operational excellence initiatives to benefit gross and operating margins during this fiscal year, and certainly more so over the long term.

“While we saw strong Distribution sales growth in the first quarter, a good portion was from the alternative energy sector and sales of used equipment, both of which can vary quarter-to-quarter.”

Transcat slightly adjusted its expected income tax rate for full year fiscal 2020 down to 21% to 22% from the previously provided range of 22% to 23%.

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

Webcast and Conference Call

Transcat will host a conference call and webcast on Wednesday, July 24, 2019 at 11:00 a.m. ET. Management will review the financial and operating results for the first quarter, as well as the Company’s strategy and outlook. A question and answer session will follow the formal discussion. The review will be accompanied by a slide presentation, which will be available at www.transcat.com/investor-relations. The conference call can be accessed by calling (201) 689-8471. Alternatively, the webcast can be monitored at www.transcat.com/investor-relations.

A telephonic replay will be available from 2:00 p.m. ET on the day of the call until Wednesday, July 31, 2019. To listen to the archived call, dial (412) 317-6671 and enter conference ID number 13691912, or access the webcast replay at www.transcat.com/investor-relations, where a transcript will be posted once available.

NOTE 1 – Non-GAAP Financial Measures

In addition to reporting net income, a U.S. generally accepted accounting principle (“GAAP”) measure, we present Adjusted EBITDA (earnings before interest, income taxes, depreciation and amortization, non-cash stock-based compensation expense, and non-cash loss on sale of building), which is a non-GAAP measure. The Company’s management believes Adjusted EBITDA is an important measure of operating performance because it allows management, investors and others to evaluate and compare the performance of its core operations from period to period by removing the impact of the capital structure (interest), tangible and intangible asset base (depreciation and amortization), taxes, and stock-based compensation expense, which is not always commensurate with the reporting period in which it is included. As such, the Company uses Adjusted EBITDA as a measure of performance when evaluating its business segments and as a basis for planning and forecasting. Adjusted EBITDA is not a measure of financial performance under GAAP and is not calculated through the application of GAAP. As such, it should not be considered as a substitute for the GAAP measure of net income and, therefore, should not be used in isolation of, but in conjunction with, the GAAP measure. Adjusted EBITDA, as presented, may produce results that vary from the GAAP measure and may not be comparable to a similarly defined non-GAAP measure used by other companies. See the attached Adjusted EBITDA Reconciliation table on page 9.

ABOUT TRANSCAT

Transcat, Inc. is a leading provider of accredited calibration, repair, inspection and laboratory instrument services. The Company is focused on providing best-in-class services and products to highly regulated industries, including life science, aerospace and defense, pharmaceutical, medical device manufacturing and biotechnology. Transcat provides permanent and periodic on-site services, mobile calibration services and in-house services through 21 Calibration Service Centers strategically located across the United States, Puerto Rico and Canada. The breadth and depth of measurement parameters addressed by Transcat’s ISO/IEC 17025 scopes of accreditation are believed to be the best in the industry.

Transcat also operates as a leading value-added distributor that markets, sells and rents new and used national and proprietary brand instruments to customers primarily in North America. The Company believes its combined Service and Distribution segment offerings, experience, technical expertise and integrity create a unique and compelling value proposition for its customers.

Transcat’s growth strategy is to leverage the complementary nature of its two operating segments, its comprehensive service capabilities, strong brand, enhanced e-commerce capabilities and leading distribution platform to drive organic sales growth. The Company will also look to expand its addressable calibration market through acquisitions and capability investments to further realize its inherent leverage of its business model.

More information about Transcat can be found at: Transcat.com.

Safe Harbor Statement

This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact and thus are subject to risks, uncertainties and assumptions. Forward-looking statements are identified by words such as “expects,” “estimates,” “projects,” “anticipates,” “believes,” “could,” and other similar words. All statements addressing operating performance, events or developments that Transcat, Inc. expects or anticipates will occur in the future, including but not limited to statements relating to anticipated revenue, profit margins, the commercialization of software products, sales operations, capital expenditures, cash flows, operating income, growth strategy, segment growth, potential acquisitions, integration of acquired businesses, market position, customer preferences, outlook and changes in market conditions in the industries in which Transcat operates are forward-looking statements. Forward-looking statements should be evaluated in light of important risk factors and uncertainties. These risk factors and uncertainties are more fully described in Transcat’s Annual Report and Quarterly Reports filed with the Securities and Exchange Commission, including under the heading entitled “Risk Factors.” Should one or more of these risks or uncertainties materialize, or should any of the Company’s underlying assumptions prove incorrect, actual results may vary materially from those currently anticipated. In addition, undue reliance should not be placed on the Company’s forward-looking statements. Except as required by law, the Company disclaims any obligation to update, correct or publicly announce any revisions to any of the forward-looking statements contained in this news release.

FINANCIAL TABLES FOLLOW.

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