Transcat (TRNS) 24 May 222022 Q4 Earnings call transcript

Greetings, and welcome to Transcat Incorporated Fourth Quarter and Full Fiscal Year 2022 Financial Results. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Tom Barbato, Senior Vice President of Finance. you. Thank

begin. may You

Rudow; and interest everyone. here in is CEO, call Rob, Mark time on appreciate and today Lee and President your Transcat. our our good you, CFO, We Doheny. morning, your the and Thank With me

begin some prepared the will then remarks questions. for with the up it call call will and we We open

The today's Relations Our be found can are earnings yesterday section our on closed of and our release accompany crossed markets the slides website, posted also transcat.com. the discussion wire Investor that after website. in

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any to those conjunction whether update can sec.gov. we these about the information We as events, post in of or our precautionary forward-looking required website well review as otherwise, factors. website by this statements with no the Company our contained as new undertake obligation You regularly in statements the as correct at call, where forward-looking or on on of find except result a information, SEC's future law. Please publicly

measures, in our will useful today's call, evaluating which certain we we during will believe non-GAAP Additionally, discuss performance. be

accordance or non-GAAP results of turn the in provided presentation the for information I'll to GAAP with earnings over that, not in in With to measures tables comparable GAAP. Lee. substitute a of the accompanying We've release. isolation You call should reconciliations prepared as additional the consider this

products as we strong and year important milestone fiscal for XXX $XXX Consolidated and you everyone. a remained our strong. demand for new and Transcat, to delivered expansion us the revenue today. call year, driven was past financial performance services XX% year in Consolidated Tom. the basis XX% as remains metric was and Thank XXXX fiscal a both services strategic Board. for morning, the fragmented Adjusted margin you, segments. to Transcat by Good to prior Transcat calibration up acquisition rounded Throughout that. year In for across mark Fiscal has as consolidate to from for expanded operating Okay. million. Thank gross our a industry. joining the record Appreciate first $XX.X execute grew the EBITDA adjusted continue very for time. margin into the on was XX.X% our well we new EBITDA the crossed we to $XXX million, plan points million XXXX,

Service revenue of we our full-year, and organic segment increased XX.X% XX.X%. the generated double-digit For service growth

service benefit demand of end and mission-critical resonates where in strong and regulated the including aerospace defense markets manufacturing to continue failure medical device the We from unique Transcat's pharmaceutical markets and These cost high and is manufacturing. most. our high-end highly

pipeline service and is current Our active of opportunities growing. new

in new the increased in synergistic the Indianapolis end at other customers pleased the schedule, our independent the and the by allowed by has integrated to acquisition our to is our The pipeline our geographic markets of generation and pipeline us impressive closed towards and was to of year, hit we capabilities NEXA an the a In new the performance. Tangent have we new year grow three Huntsville, perform beginning we business Throughout NEXA further pace. immediately ahead expansion. Management early second to XXXX, market markets, service of Tangent attractive The one Huntsville revenue. the companies expectations. fiscal two margin Labs. Tangent existing XX.X%. The are acquisition fourth consistent an with our acquired well the continued addition science service in Enterprise that local has record gives large service and and and gross of of with pleased market. gross Asset growth, a another Transcat company's us expanded In acquisition defense level the acquisition, successfully Indianapolis points current of continues quarter, to addressable XXX Alabama. ahead and and market which business Both The and revenue new the we announced aerospace of life infrastructure. in margins are At combined integration basis increasing NEXA the capabilities, supported leverage received quarter,

fourth the quarter Turning fourth quarter to results. the and

from the absent work. late demand Nearly remain fourth December. Our markets quarter, XX% January, Service regulated year-over-year segment service we highly In reported level and a fourth impacted of impacted. variant was generated lab perform by experienced a to COVID-XX recorded a growth. number of of strong service the of lab our from into technicians quarter negatively administrators margin causing was XXnd margin to the fourth case we at record personnel high end in revenue quarter in strong. In quarter, particularly a as perspective The continued carried its a significant and momentum gross revenue the be surge growth onset organic and straight growth We X% XX.X%. of XX%

our of needs our dedicated operation created customers. the the put challenge overtime in high rallied, our January, calibration team While month entire throughout in critical of the met levels inefficiencies of and

to As did gross COVID quarter recover fully expected, spike. service fourth returned not the Those in from margin gross March. margins January's and February expansion in we

revenue demand Distribution record more and grew balanced levels is XX% as shortages will COVID the it vendor move grew fiscal near lead prior revenue back and as X%, to We create XXXX, orders. periods. at backlog our challenging chain distribution times segment. distribution levels from quarter, for to Turning a fill fourth demand recover tailwind open made In supply In impacted current level, a towards the future scenario. customer when supply anticipate which even

the Transcat call, growth EBITDA the in front the conjunction only acquisition a the market are reframed on also validated expanded our fiscal acquisition at said The and in and with Significant progress NEXA already execution. sense pleased we very in effectiveness of not with Transcat improved margins revenue, addressable value impactful story. strategy but of performance. our and its strong proposition, I beginning XXXX As the

to two just business, facility. ago, which the an acquired pace. at in relocated continued Pipettes.com expanded Boston To growth, Our we accelerated area we grow to an XXXX, fiscal accommodate years

Florida. calibration advantage of take work attractive lab Southeast lab also will on and We The began new leased a newly calibration Florida's markets. growing organic in

the new expect early We open to lab to mid-summer. be

us detailed strong balance fiscal turn things over and fiscal more fourth to well remains continue Our provide strategy performance. sheet throughout X.Xx, the XXXX which to over leverage just year who'll ratio positions our that, XXXX Mark, and beyond. look acquisition with quarter And I'll a financial with at full-year

our start to quarter fourth of products. Thanks, full-year. Lee. our our X and on quarter detail on we XX% of will continue posted see website, for regarding by consolidated was provides earnings Fourth up deck and I both $XX.X consolidated services million revenue segment revenue the which the demand basis a from Slide strong as and on

of Service from the coming acquisition. other approximately at by the very organically growth it XX% strong segment. growth at remained Looking revenue and X% XX% with

We highly the end very mentioned to our Lee and strong off continue NEXA start. robust acquisition is recent continues across regulated well our business demand markets to perform as see and a Tangent earlier, to

business we extended X% from of improved distribution. very conditions our as Rentals year-end million lead was saw Revenue to approximately well. base up end remain prior year. be from very $XX.X vendor backlog prior was our Turning Supply of fiscal up to challenged our continued the and as to perform continue year in business XX% the and times chain demand

million, revenue an prior full-year to record basis, XX% represents of high year, on Transcat. increase compared consolidated fiscal Finally, the total new over a a $XXX which for was

The we grew service year, demand, distribution full-year reported advantage XX% XXXX. importantly, the demands the over the year-over-year of consistently conditions. challenging fiscal as for was throughout business the supply even every Our growth with strong we take we to in able as over of XX% XX% full-year, saw chain were quarter up business and for improved

X. Slide to Turning

impact, of the profit gross a margin service January severity the increased To XX% quarter expanded highs COVID from technician fourth in January. year by $XX.X surge and COVID margin of XX.X%. was reported XX.X% year our prior from little result to than to for up and million XX Our QX a January gross more that our around prior points pandemic was discussed prior basis year, consolidated earlier. to cases XXX% spiked from color this easily gross of and more contracted Lee XXX the basis points put

even and high year favorable by Rentals our margin as a and was able returned over at we driven to up from vacation prior of segment level taken level increased from quarter. XX.X% expansion in costs margin time the and And margin we the recover gross February to of drove fully the temporarily gross worked result, March. Distribution basis a not in were lower As XXX margin shortfall, January sales points strength up our was the time of business and ultimately mix.

increased the points profit to to and to our $XX.X XXX improved gross our XX.X%. margin basis For gross XX% consolidated full-year, million

the period model, over which our business margin impressive points of which advantage to of service point our technician basis of XXX to high hit basis margins. in time, increase improvements accretive fiscal of XXXX. to inherent full-year gross productivity, well an as XX.X%, gross ability margin from prior our extended year operating Our leverage complete increase take a The made and service the acquisitions, have improve our an are record we represents continued as year an our from XXX demonstrates

negatively acquisition Acquisitions income go-forward X. per costs per income modestly higher important year to from X% came year. tax as part Slide our accounting diluted by and a compared to at will share rate were well $X $X.XX, of to strategy. of but earnings Turning both our as and prior earnings impacted continue an be net prior net million share QX the increased in decreased

share have diluted in and full normalizes introduced increase adjusted in found QX the to per was adjusted an A costs. for fiscal compared ongoing related section reconciliation year the of income fiscal diluted diluted and this metric, earnings this with which per earnings acquisition to of XXXX earnings be share impact earnings net a QX of represents So $X.XX, can the which per our X% supplemental share, presentation. and prior mind, per of upfront we share QX adjusted year.

to Finally, net our million. $XX.X prior year income XX% full-year from increased

As aided tax tax rate was related our full-year reminder, a largely by XXXX XX.X% discrete benefits, exercises. income to of fiscal effective stock-option

tax expect fiscal the income year we of range rates our XXXX, For XX%. to in XX% our

X% use of We EBITDA margin. it X, best we EBITDA, non-GAAP Slide quarter where segments performance performance adjusted our of Fourth EBITDA adjusted generate million adjusted operating believe up to same and EBITDA of our the year. ability measures the of quarter we because Turning $X.X gauge the our and which in was one show from prior the to is cash. adjusted to is consolidated

strong in service by EBITDA as of declined up year-over-year both Our Distribution the million $XX.X year and was segment compared was COVID showed January result future the surge improvement prior segment a the EBITDA and segments. driven XX% Full-year our investments prior slightly operating year for improvement of profit to significant from while growth.

adjusted EBITDA in supplemental the income be section and reconciliation income of found a operating can of net this always presentation. As to

as expenditures million was from were automation, revenue working in strong Moving be X. with and support line pool segment to centered future investments expectations and to capital growth. operations rental capabilities, Full-year to increased very continued around our organic $XX.X service capital including on assets, Slide growth. flow the Cash

facility, growth. of earlier, mentioned positioned Toronto-based relocation lab, in fourth a made strong particular, improve investments pipettes, leave our work lab Lee our Boston-area revenue new year capacity and beginning our as us recent facility throughout organic footprint believe These on relocation investments we of Southeast included future well for and lab well increase We these and As Florida. as several capabilities in our quarter. the to the the the

anticipate million to the to million. $X CapEx For XXXX, fiscal be year $X range of we in

little revolving the to And total balance acquired funded debt net from of of Turning announced, fourth end had the credit quarter, of million X.Xx. year. Slide ratio Tangent our we the and sheet. which at At We $XX.X previously $XX.X X, million the at million year-end, credit with Labs our had leverage over a was as $X facility we for beginning of largely facility. from available the

Lee. turn file to you, With to expect or we our Lastly, June on FormXX-K around that, X. it back I'll

you, Thank Mark. Okay.

profitable for growth, are we As we XXXX, well continue and to fiscal expect proposition of increase. we strength value entered our positioned the to

of now attractive We past a attribute consistent various streams. highly economic growth through recurring consistency regulated service and nature the and to XX business, cycles revenue Transcat pandemic, long-term For by delivered driven is revenue the our years has the margins. inherent which

We will continue. organic of are remains confident and strategy. expect our Strong centerpiece this growth the

business how knows pipeline range. XXXX, growth is new to very Our and win. high we expect service single-digit fiscal the in team In active this organic

We gains by term. automation builder the also Future process the continue over business program. be service our longer expect sustainable service continuous fostered tech leverage to margin inherent will new improvement, operating in model, and our improvement

our of front, acquisition pursue and continue the markets, will the we increase expand addressable infrastructure acquisition the identify business. On our that trajectory leverage to opportunities current and

our M&A pipeline. better on fiscal decade. entered Rob, new journey the sustainable the conclude that, strong than position that sheet Our for to of accelerate can in a continue saying is and the we acquisition ever even growth been with our year past active lines supportive And questions. you our XXXX we've that I'll by and balance up open for strategy

At first Capital. question your with proceed from Our you. question. comes session. Sweeney this Please be [Operator we conducting with time, will a Instructions] Thank question-and-answer ROTH Gerry

Good and Mark. morning, the for Thanks taking Lee call.

morning. Good

Gerry. Hey,

you like confidence Lee, forward this year. it in sounded organic the going very have some good growth

visibility but know multiple with your just end Obviously scheduled events, Just much et we have [monsoon if markets, curious you to all stops] have you it's curious as cetera. how clients. regulated

the get I Yes. question.

– but tends when so. a of quarter of to transactional even a on amount up we've pretty in or can or the think, the from into times, size the a be beyond it future visibility In cycle probably turn the depending fair segment, business, this the at So opportunity, quarter months business got quote-to-order least extended to Gerry, decent Service our I XX at to two. comes

at not even three and [indiscernible] look our at couple a pretty color, pipelines So we quarter. least much out, if quarters

pretty and a good distribution. not we in So visibility the It's service. get good with pulse feel the case of

days is less much decent to XX have different. out, We but visibility, visibility. pretty XX maybe We've got service

there's highly – – Well, is Lee have, piece our other certainly Gerry the it's rates mentioned we retention that so a that monitored revenue we pretty we Mark. recurring stream this I'd above – closely a and our mid-XXs. mentioned XX%,

going gives the forward books”, it's in confidence it's likelihood to that as repeat extra though even and “in all look you're quarters. So not us we

going as service Switching Got prepared sort has is gears to to remarks, you of could bit you a give How your NEXA, clients that you're asset How a little product about different we management it. how of bit the rolling sort maybe But well it's offering. the that? forward… well. of that or In some more going alluded that's out? progressing how think or little by detail to uptake should

data NEXA, of did value When of all calibration, nice around the services, reliability, services a what management, business service five around other acquired was type but liked all have tracks and we that managed the really what six or around they calibration, job those growing we the their services. they proposition the itself, offered calibration not ancillary call compliance,

we at to let's so they accelerate the that to just possibility say, some ours. performance. services by rate, made when to access very by having expected of the their their so we at, growth future X suite acquisition having believed that them based of our point And that that growth could and also customer complimentary historical our upon that we accelerate base virtue in are could We existed the grow

months for only to year, them that we've has or a and come so – nine so, we've under fruition. And had about

seeing so services are their a our and narrative we speak, large we tried to developed access release in having around has pipeline our press services to vacuum, So ancillary the a due at definitely to in convey their the in customers accepting customers. rate higher is what that their measure to

comment, – we been use So there that, being I'll very absolutely I with that it's would well. is beat synergies stick and going that And our met expectations think the I are and executed.

bundle a your Is opportunities prospective NEXA the having of offering? existing competitive or Could even customers? advantage brings it. to your you of some Got there some your – with that

that Without question, stronger. the our use the value strong that that communicate a person is what our growth increase when ability to proposition line value million increase and a line and that is proposition with a sit and increase. front stronger. gets value, of have We anticipate synergistic intended mean help our rates, $X.XX customer, the combined rates. And And million at us, today, specifically in $X.X do get it'd chances continues we we use we our growth ability going NEXA to will be the value to by our is our customer, of that to we whether and that proposition those winning table to customer order

that's So happening. yes, we believe the that's absolutely case and

just of for XX% a that margins the with associated quarter, question, final the backed sorry, little over points, to like I’m bit COVID. one was was margin, down of year-over-year. for or Then time? been basis they're lot Would attributable better spike Mark. inefficiencies this the all It on headwinds in have XX if COVID out know that maybe those some gross I But this more a sounds you

would Yes. constantly shortfall. COVID the saw if The news say margin it gross margin in have we is and February January and for good that expansion March we wasn't expanded, wouldn't that

Got it.

Okay. in back I'll you. jump queue. Thank

Thanks, Gerry.

Thanks.

proceed with your comes Greg Group. question Palm from Craig-Hallum with Our Please question. next Capital

Thanks everyone. Good here. Yes. for morning, questions taking the

Greg. Hey,

Greg.

trends, quarter-to-date starting is real have margin that of in seeing on within you're that within continued curious the of is in comment commentary weeks few and whether what at you kind service, May? can terms and revenue you're for what just fair with guess it least those your into kind time. if I the increases to I'm seeing guidance with service say of April year. And of maybe consistent first gross

Yes, would. I

add that the and guide of degree can we bit confidence having year. We high a the of I be color, the Greg guidance throughout do single-digit growth. able we'll achieve little is the to amount thinking that So range in this course to that we year, offer of that that fair

So pipeline, into a we we flow nice so have of go service, nice organically a first revenue. a business, new quarter, on

at is not is we the every the You're growth to to I going pretty have from service. be think done and organic said – not all but visibility grow going we with range when not it's same quarter to going rate, linear comfortable feel the for high today, single-digit

into do QX, or in some heading We mean this from said upward time. and the the QX into that. necessarily to can mid-XXs to that far believe to And single that As for when QX every we've this for be positive of as it an throughout business now. we're this expect be our improvement listed margin it years have but margins. operation is improve would things our but increasing us. We're or necessarily improvement, sort It's to goes, quarter, all we same get our doesn't trend margin confident the several have done, basis was, been margin going time continuing. year but has the not Again, over been over gross the we rate direction still going consistent can at of We sort the to gradual not commentary. see want we in in annual right all

yes, think our from that see I as a consistent we So message perspective.

after so of to of first that's customer sort lab mean, And region? you there to don't guess open, big new it by that, a in that's secondly, when ready opening to maybe driven you you pipeline do much is you when of my do is any think decide that because demand. Okay, digging acquisition is actual theoretically, the that of question case? do I of go business or Florida. got have go, in the good win opportunities And into a then how new are that greenfield lab that good. I sort

– goals. if of factors sense, in that we And our Yes, acquisition a a met preference. without it, longer. thought could enough it's done made had that area our Southeast couldn't question. just an a one that was there's we that. that make probably Florida, business made science That life really strategic But combination drive question the just we that would've to We is of territory, we any that made great wait good that we There's case in is, we be decision, value in there.

So finding of it's also customers not area. that a we in the acquisition, right but have combination anchor

So meaningful we of Florida. servicing several inefficiently with customers are that somewhat are volume from outside there

organic down so just to and current if cases enough opening but And from mean, customers there's customers it literally think, street don't some lab, by decent volume, up labs, enough the sense. you I anchor like a I with you open have in growth. made up

entire of opportunities, opportunities we of really have a coast-to-coast from factors we And at a grow region, look the we yes, but open see acquisition, like an Southeast pipeline to lab. right to customers, the lot So drove us that our we really or the business. organic and what anchor also find didn't three what so Florida. opportunity existing combination up like when those of – customers, we There's we in

just, guess, just pipeline of thoughts progressed then update sort and you I Okay. there as are And CBL we here? what year the last calendar one, can on sense. Makes throughout your the us

and pipeline prior about we We had talked had like of anticipated We years when a said entered opportunities done the to just the we selling very Right. CBL for active couple the CBLs these year, for was pandemic. our prior hot to some market we we COVID.

year will out this this pipeline We several so year. impact have that play a already we've solid deals won far CBLs, for

of think on track. the And sort I CBL we're back so

to sort value. type get win get very a higher It make. remind sticky we – of lifetime people, a Now very just we just one long CBLs to that be embedded embedded, We is tends with very of volume. sale it's

with we're And pipeline. wins with CBLs so I doing well and with say yes, would

Best right. in All queue. forward. going hop I'll of luck back Thanks. the Great. Okay.

Thank All right, you. Greg.

comes your question [Operator next Ramgopal Mitra Instructions] with Please Sidoti. Our proceed question. from with

taking morning. And Hi, for the Yes. questions. good thanks

for couple a Just me.

and Just being in the on coming and of not labor terms also there the to get maybe or you back some but margins, impacted given the obviously alluded created able the impact as work revenue Omicron, it done quarter, to any the inefficiencies impact would've the and much to, shortage surge all liked? you in was as

would I stage in January strong, February the Yes. worked say, in growth quarter. throughout overtime, this the demand said, higher opening will comments. it's consistently Lee was say the more in as that I the and March, as we particularly

So have the say didn't impact it was on basis, the an the timing demand strong I the got just it on when overall there, still I in would quarter, the would really for an shipped was revenue say. quarter, of revenue

great. on it's expected than relocation, pipettes et you business, and the cetera. growing you And the Okay. hence mentioned then Thanks. headquarter That's faster

expecting? Just as today curious how growth you you for see a you look you're out organic that business as catalyst growth

our proposition. we We criticality liked we it. when a for. Well, the the oriented look the again, life value well it that business, we liked with recurring revenue streams, has business. It Right. It's really acquired fits science

and business So we we look when was call service now formally would looking markets. we at bolt-on that do. we biotech, that, These markets NEXA, what are we're we at and look at didn't expanded addressable the and the Pipettes.com which to

in. us to message market that up I we're it otherwise that a it And be would And so we the will in looking growth the opens think help for business.

our strategy. growth So they're very rates of overall supportive the and we like

And then I finally, have Thanks. this. Okay. might missed

on what's the just You distribution side, was like? mentioned the curious into strong now really know that looking it I backlog went quarter, as fourth fiscal earlier you XXXX, heading

a bookings we day look new opportunity be Again, we needs hand won, every we've a issue, the to we that call but backlog in business at have and order shipped. booking

so no levels so our stable I solid and bookings far, surprises. so big being and And really, characterize would

So say chain our continue, a bigger will we're have it industry, and everybody position we get even movement a because in but I challenge. in challenges cases, side. we there as some the as in haven't product, same on and still the backlog of is buys to booking some those strategic our expect out. seen some at we'll make more ability our But we a size favorable get just would point, supply But of yet

stable. So been the bookings pretty have

hiring And then last of quarter, training labor of more in-house sort techs? the Okay. be given inclined you in that's more made to aggressive in-house shortage more this or experienced you terms

it that away, program Mitra The in operate part script, strategizing. we who call to technicians full in And to are in not how to University. I sure keep of technicians. here, people really And of XX hungry It's We January, to put years think it's degree program through shortage I'm thinking past of we yes. long-term, Transcat pandemic-related. a directly and makes need that we build There's And build are our through, guess labor we and applicants. excited them be to was These program degree, Houston labor. these finding a own to technician mentioned proven doing that going industry two are planning of tech the years would about here done But many very something started this to this already we people. quarters. program They Well, the have be productive short is these year we're going many cost. work and the that in be in. related the be much I the out that always after we're started I pandemics think answer a the To about our lab. well. our which right versus lower can operators them automation continue that. We status. come advantages teach last to to of lots We've at

differentiator, well don't I that for anybody think doing us. else know we to that's are. it it, I especially I think degree the a bodes also

that techs, help build It's opportunities growth so degree positions us. that these we'll very for support And us to need to service and can we that'll a the well. a differentiator

Okay. question. for taking a again Thanks Thanks lot. the

Take pleasure. my care. Oh,

closing for turn now We session. question-and-answer of comments. the back have call end like reached I'd management to to the the over

your Well, thanks us today's interest call. in Rob. appreciate on Thanks, for Transcat. everybody We joining continued

we'll Craig-Hallum our at participating us. be check-in on forward Feel X. Conference course results. when speaking on the Wednesday, with us one-on-one to look Investor everybody, sign-up at for talk first XXth conference to Otherwise, with or that a Institutional we quarter June Of after free we

again for participating. thanks So

today's conference. This concludes

disconnect time, may thank at You lines for you your your and we participation. this