Transcat Reports Operating Income Up 13% on Record Revenue for Fiscal 2019

• Record fourth quarter and full fiscal year revenue of $44.5 million and $160.9 million
• Service segment continued to deliver strong organic growth of 13.6% and 8.6% in the fourth quarter and fiscal 2019 period, respectively, when normalizing for a 52-week fiscal year
• Consolidated gross margin expanded 20 basis points in the fourth quarter and 40 basis points for the full fiscal year
• Achieved record net income of $2.7 million, or $0.35 per diluted share, for the fourth quarter and record net income of $7.1 million, or $0.95 per diluted share, for full fiscal 2019
• Generated $12.6 million of cash from operations in fiscal 2019, up $2.7 million or 27% from fiscal 2018

ROCHESTER, N.Y.–(BUSINESS WIRE)–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 fourth quarter and fiscal year ended March 30, 2019 (“fiscal 2019”). Transcat operates on a 52/53 week fiscal year, ending the last Saturday in March. In a 52-week fiscal year, each of the four quarters is a 13-week period. In a 53-week fiscal year (which occurs once every five or six years), the last quarter is a 14-week period. Fiscal 2019 consisted of 52 weeks while the fiscal year ended March 31, 2018 (“fiscal 2018”) consisted of 53 weeks. Results include the previously-reported acquisition of Angel’s Instrumentation, Inc (“Angel’s”), effective as of August 31, 2018.

“The continued execution of our strategic plan, strength of our value proposition and favorable U.S. macro environment drove record sales and net income for the fiscal year,” commented Lee D. Rudow, President and CEO. “The Service segment continued to deliver from a sales perspective, marking an impressive 10 years, or 40 consecutive quarters, of year-over-year quarterly sales growth. Our Service organic growth rate was strong, particularly when normalizing for the extra week from last year, as we have been successful in taking market share, especially within the life science market. Our Distribution business performed well as we continued to execute our strategy of driving higher margin core product sales and rentals, which resulted in enhanced segment profitability.

“We continue to have confidence in our ability to grow Service segment revenue and expect to improve our margins over time as we overcome short-term productivity pressures related to this growth. We are improving our processes around the hiring, training and onboarding of our ever-expanding technical workforce. In addition, we believe automation and improvements of our calibration service process will aid productivity improvement throughout our network of 21 labs.”

Fourth Quarter Fiscal 2019 Review (Results compared with the fourth quarter of fiscal 2018)

Transcat achieved record quarterly revenue of $44.5 million, up 4.8% even with one less week in fiscal 2019. Revenue on a normalized basis increased 12.9%, as strong U.S. sales more than offset continued softness in Canada. Higher gross profit and margin helped to offset continued investments to support growth as operating expenses were up $0.5 million, or 7.0%. As a result, operating income increased $0.1 million. The effective tax rate was 20.7% for the quarter compared with 25.2% for the previous fiscal year’s fourth quarter.

Service segment continues to deliver strong U.S. organic growth

Represents the accredited calibration, repair, inspection and laboratory instrument services business (55% of total revenue for the fourth quarter of fiscal 2019).

Service revenue increased 10.8%, inclusive of acquired revenue from Angel’s. Organic Service revenue growth was 7.0% in the quarter or 13.6% on a normalized basis for 52 weeks versus 53 weeks. Higher revenue was the result of new business from the highly-regulated life sciences market and growth in other regulated sectors.

The segment gross margin was negatively impacted by soft Canada results and the short-term productivity impact from strong revenue growth.

Distribution segment shows strong margins

Represents the sale and rental of new and used professional grade handheld test, measurement and control instrumentation (45% of total revenue for the fourth quarter of fiscal 2019).

Part of the Company’s strategic focus continues to be on improving Distribution segment gross profit by driving higher value and higher margin opportunities. As a result, the segment gross profit improved 4.0% and segment gross margin expanded 130 basis points. This increase was due to a mix of higher margin new product sales and increased rentals which have a higher margin profile, and pricing initiatives as part of the Company’s operational excellence program. Rental revenue was up 21.2% to $1.2 million.

Full-Year Fiscal 2019 Review (Results compared with fiscal 2018)

Consolidated revenue of $160.9 million was up 6.2% on a normalized basis. Excluding acquired revenue from Angel’s, the Company’s organic Service revenue increased 6.1% or 8.6% on a normalized basis.

As a percentage of revenue, consolidated operating expenses were 18.1%, down 20 basis points. As a result, operating income increased $1.2 million, or 13.3%, to $10.2 million, and operating margin expanded 60 basis points.

The fiscal 2019 effective tax rate was down to 22.6% compared with 25.5% in fiscal 2018, given the full fiscal year benefit of the U.S. Tax Cuts and Jobs Act enacted in the third quarter of fiscal 2018. Transcat achieved record net income of $7.1 million or diluted earnings per share of $0.95, up $0.14 or 17.3%. Adjusted EBITDA improved 8.9% to $17.8 million and as a percent of total revenue was up 50 basis points to 11.1%. See Note 1 on page 5 for a description of this non-GAAP financial measure and page 10 for the Adjusted EBITDA Reconciliation table.

Balance Sheet and Cash Flow Overview

Net cash provided by operating activities increased 27.2% to $12.6 million. Capital expenditures were $7.0 million for fiscal 2019, with investments focused on customer-driven expansion of Service segment capabilities and the Company’s growing rental business.

At March 30, 2019, the Company had total debt of $21.0 million, with $23.5 million available under its secured revolving credit facility. Total debt at fiscal year-end was down $1.8 million from the prior fiscal year end. The Company’s leverage ratio, as defined in its credit agreement, was 1.12 at March 30, 2019, compared with 1.40 at fiscal 2018 year-end.

Outlook

Mr. Rudow concluded, “We are proud of our team for delivering solid growth in revenue and profitability this year as we made significant strides executing our strategic plan. As we have said, we are on a long-term operational excellence journey, which includes a number of initiatives and investments aimed at delivering a differentiated level of service and enhancing our margin profile. We have seen the early benefits within the Distribution business, and the longer-term Service segment initiatives for productivity, including automation, are moving in the right direction. While we would like to accelerate the process, we are confident in the actions we are taking and believe we will begin to see some of the early benefits within Service this upcoming fiscal year.

“We kicked off the new fiscal year with a strong balance sheet and the financial flexibility to continue to execute our strategic growth plan. Combined with our robust pipelines for new business and acquisitions, we believe that fiscal 2020 will be a year of revenue and margin growth.”

Transcat expects its income tax rate to range between 22% and 23% in fiscal 2020. This estimate includes Federal, various state, and Canadian income taxes and reflects the increased discrete tax accounting windfall associated with share-based payment awards. In particular, this impact is expected to result in a significantly lower first quarter fiscal 2020 tax rate of between 10% and 11%.

The Company anticipates total capital expenditures to be approximately $7.8 million to $8.2 million in fiscal 2020, with the majority of the incremental capital expenditures in excess of fiscal 2019 spend levels planned for growth-oriented opportunities within both of its operating segments. Maintenance/existing asset replacements are expected to be consistent with fiscal 2019 at approximately $1.0 million to $1.5 million.

Webcast and Conference Call

Transcat will host a conference call and webcast on Wednesday, May 22, 2019 at 11:00 a.m. Eastern Time. Management will review the financial and operating results for the fourth quarter and full fiscal year, 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. Eastern Time on the day of the call through Wednesday, May 29, 2019. To listen to the archived call, dial (412) 317-6671 and enter conference ID number 13689948, 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, and non-cash stock compensation expense), 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 10.

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 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 the 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, 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.

The Company plans on timely filing its Annual Report on Form 10-K before the required filing date.

Contacts

Michael J. Tschiderer
Chief Financial Officer
(585) 563-5766
[email protected]

Deborah K. Pawlowski
Investor Relations
(716) 843-3908
[email protected]

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