	Page(s)
PART I.FINANCIAL INFORMATION
Item 1.Consolidated Financial Statements:
Statements of Income for the ~~Second~~First Quarter Ended June 26, 2021 and ~~Six Months Ended September 26,~~June 27, 2020 ~~and September 28,~~ ~~2019~~	1
Statements of Comprehensive Income for the ~~Second~~First Quarter Ended June 26, 2021 and ~~Six Months Ended September 26,~~June 27, 2020~~and September 28, 2019~~	2
Balance Sheets as of ~~September~~June 26, ~~2020~~2021 and March ~~28, 2020~~27, 2021	3
Statements of Cash Flows for the ~~Six Months~~First Quarter Ended ~~September~~June 26, ~~2020~~2021 and ~~September 28, 2019~~June 27, 2020	4
Statements of Shareholders’ Equity for the ~~Second~~First Quarter Ended June 26, 2021 and ~~Six Months Ended September 26,~~June 27, 2020 ~~and~~ ~~September 28, 2019~~	5
Notes to Consolidated Financial Statements	6

Description of Business: Transcat, Inc. (“Transcat,” “we,” “us,” ~~“our,”~~“our” or the “Company”) is a leading provider of accredited calibration and laboratory instrument services and a value-added distributor of professional grade test, measurement and control instrumentation. The Company is focused on providing services and products to highly regulated industries, particularly the life science industry, which includes pharmaceutical, biotechnology, medical device and other FDA-regulated businesses. Additional industries served include industrial manufacturing; energy and utilities, including oil and gas; chemical manufacturing; FAA-regulated businesses, including aerospace and defense and other industries that require accuracy in their processes, confirmation of the capabilities of their equipment, and for which the risk of failure is very costly.

Basis of Presentation: Transcat’s unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8-03 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, the Consolidated Financial Statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of the Company’s management, all adjustments considered necessary for a fair presentation (consisting of normal recurring adjustments) have been included. The results for the interim periods are not necessarily indicative of what the results will be for the fiscal year. The accompanying Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements as of and for the fiscal year ended March ~~28, 2020~~27, 2021 (“fiscal year ~~2020”~~2021”) contained in the Company’s ~~2020~~2021 Annual Report on Form 10-K filed with the SEC.

Revenue Recognition: Distribution sales are recorded when an order’s title and risk of loss transfers to the customer. The Company recognizes the majority of its Service revenue based upon when the calibration or other activity is performed and then shipped and/or delivered to the customer. The majority of the Company’s revenue generating activities have a single performance obligation and are recognized at the point in time when control transfers and/or our obligation has been fulfilled. Some Service revenue is generated from managing customers’ calibration programs in which the Company recognizes revenue over ~~time.~~time using the output method-time elapsed as this portrays the transfer of control to the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for product shipped or services performed. Sales taxes and other taxes billed and collected from customers are excluded from revenue. The Company generally invoices its customers for freight, shipping, and handling charges. Provisions for customer returns are provided for in the period the related revenue is recorded based upon historical data.

Revenue recognized from prior period performance obligations for the ~~second~~first quarter of the fiscal year ending March ~~28, 2020~~26, 2022 (“fiscal year ~~2020”~~2022”) was immaterial. As of ~~September~~June 26, ~~2020,~~2021, the Company had no unsatisfied performance obligations for contracts with an original expected duration of greater than one year. Pursuant to ~~the Financial Accounting Standard Board’s (“FASB”)~~ Accounting Standards Codification (“ASC”), Topic 606, Revenue from Contracts with Customers, ~~(Topic 606),~~ the Company applied the practical expedient with respect to disclosure of the deferral and future expected timing of revenue recognition for transaction price allocated to remaining performance obligations. Deferred revenue, unbilled revenue and deferred contract costs recorded on our Consolidated Balance Sheets as of ~~September~~June 26, ~~2020~~2021 and March ~~28, 2020~~27, 2021 were immaterial. Payment terms are generally 30 to 45 days. See Note 4 for disaggregated revenue information.

Fair Value of Financial Instruments: Transcat has determined the fair value of debt and other financial instruments using a valuation hierarchy. The hierarchy, which prioritizes the inputs used in measuring fair value, consists of three levels. Level 1 uses observable inputs such as quoted prices in active markets; Level 2 uses inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, which is defined as unobservable inputs in which little or no market data exists, requires the Company to develop its own assumptions. The carrying amount of debt on the Consolidated Balance Sheets approximates fair value due to variable interest rate pricing, and the carrying amounts for cash, accounts receivable, ~~and~~other receivables, accounts payable and accrued compensation and other liabilities approximate fair value due to their short-term nature. Investment assets, which fund the Company’s non-qualified deferred compensation plan, consist of mutual funds and are valued based on Level 1 inputs. At ~~September~~each of June 26, ~~2020~~2021 and March ~~28, 2020,~~27, 2021, investment assets totaled $0.4 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 ~~expense~~cost related to unvested equity awards by recognizing, on a straight-line basis, the unamortized grant date fair value over the remaining service period of each award. Excess tax benefits for ~~stock-based~~share-based award activity are reflected in the Consolidated Statements of Income as a component of the provision for income taxes. Excess tax benefits are realized benefits from tax deductions for exercised awards in excess of the deferred tax asset attributable to stock-based compensation costs for such awards. The Company did not capitalize any stock-based compensation costs as part of an asset. The Company estimates forfeiture rates based on its historical experience. During the first ~~six months~~quarter of fiscal year ~~2021~~2022 and fiscal year ~~2020,~~2021, the Company recorded non-cash stock-based compensation expense of ~~$0.7~~$0.4 million and $0.3 million, respectively, in the Consolidated Statements of Income.

Foreign Currency Translation and Transactions: The accounts of Transcat Canada Inc., a wholly-owned subsidiary of the Company, are maintained in the local currency 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 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 Canadian business transactions. The net foreign currency ~~loss~~gain was less than $0.1 million ~~during~~in each of the first ~~six months~~quarter of fiscal ~~years 2021~~year 2022 and ~~2020.~~fiscal year 2021. The Company continually utilizes short-term foreign exchange forward contracts to reduce the risk that its earnings will be adversely affected by changes in currency exchange rates. The Company does not apply hedge accounting and therefore the net change in the fair value of the contracts, which totaled a loss of $0.1 million during ~~each of~~ the first ~~six months~~quarter of each of fiscal years ~~2021~~2022 and ~~2020,~~2021, was recognized as a component of other expense in the Consolidated Statements of Income. The change in the fair value of the contracts is offset by the change in fair value on the underlying accounts receivables denominated in Canadian dollars being hedged. On ~~September~~June 26, ~~2020,~~2021, the Company had a foreign exchange contract, which matured in ~~October 2020,~~July 2021, outstanding in the notional amount of ~~$4.5~~$4.0 million. The foreign exchange contract was renewed in ~~October 2020~~July 2021 and continues to be in place. The Company does not use hedging arrangements for speculative purposes.

Earnings Per Share: Basic earnings per share of common stock are computed based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share of common stock reflect the assumed conversion of stock options and unvested restricted stock units using the treasury stock method in periods in which they have a dilutive effect. In computing the per share effect of assumed conversion, funds which would have been received from the exercise of options and unvested restricted stock units and the related tax benefits are considered to have been used to purchase shares of common stock at the average market prices during the period, and the resulting net additional shares of common stock are included in the calculation of average shares of common stock outstanding.

For both the ~~second~~first quarter of fiscal ~~years~~year 2022 and fiscal year 2021, ~~and 2020,~~ the net additional common stock equivalents had no effect on the calculation of diluted earnings per share. For the first six months of fiscal year 2021, the net additional common stock had no effect on the calculation of diluted earnings per share. For the first six months of fiscal year 2020, the net additional common stock 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:~~follows (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 on an annual basis during the fourth quarter of its fiscal year, or immediately if conditions indicate that such impairment could exist. The Company evaluates qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying value and whether it is necessary to perform the goodwill impairment process.

Intangible assets, namely customer base and covenants not to compete, represent an allocation of purchase price to identifiable intangible assets of an acquired business. The Company estimates the fair value of its reporting units using the fair market value measurement requirement. Intangible assets are evaluated for impairment when events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. A summary of changes in the Company’s goodwill and intangible assets is as follows (in thousands):

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

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

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

~~Credit Losses:~~In June 2016, the ~~FASB~~Financial Accounting Standard Board (“FASB”) issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), which significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The ASU replaces the "incurred loss" model with an "expected credit loss" model that requires entities to estimate an expected lifetime credit loss on financial assets, including trade accounts receivable. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, ~~2023.~~2022. As credit losses from the Company's trade receivables have not historically been significant, the Company ~~does not expect~~anticipates that the adoption of the ~~new standard to~~ASU will not have a material impact on its consolidated financial statements.

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

The 2021 Credit Agreement ~~(as~~increased the revolving credit commitment (the “Revolving Credit Commitment”) from $40.0 million to $80.0 million, with a letter of credit subfacility increased from $2.0 million to $10.0 million, and extended the term of the Revolving Credit Commitment to June 2026. The 2021 Credit Agreement amended the definition of Applicable Margin (formerly Applicable Rate under the Prior Credit Agreement), which is based upon the Company’s then current leverage ratio and is used to determine interest charges on outstanding and unused borrowings under the revolving credit facility; the amendments reduced the Applicable Margins payable at the two highest leverage ratio levels. The 2021 Credit Agreement also amended the definition of Permitted Acquisitions, that is, acquisitions which are permitted under, and may be financed with proceeds of, the revolving credit facility, including increasing the aggregate purchase price for acquisitions consummated in any fiscal year from $1.0 million to $65 million during the current fiscal year and $50 million during any subsequent fiscal year, and adding an aggregate purchase price of $40.0 million for acquisitions consummated at any time during the term of the 2021 Credit Agreement related to businesses with a principal place of business located in the United Kingdom or the European Union.

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

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

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

~~On December 10, 2018, the Company entered into an Amended and Restated Credit Agreement Amendment 1 (the “2018 Agreement”). The 2018 Agreement has~~We have a term loan, ~~(the “2018~~the 2018 Term ~~Loan”)~~Loan, in the amount of $15.0 million. As of ~~September~~June 26, ~~2020, $11.6~~2021, $10.0 million was outstanding on the 2018 Term Loan, of which ~~$2.0~~$2.1 million was included in current liabilities on the Consolidated Balance Sheets with the remainder included in long-term debt. The 2018 Term Loan requires total repayments (principal plus interest) of $0.2 million per month through December 2025.

As of ~~September~~June 26, ~~2020,~~2021, $40.0 million was available under the ~~Revolving Credit Facility,~~revolving credit facility, of which ~~$11.1~~$12.1 million was outstanding and included in long-term debt on the Consolidated Balance Sheets. During the first ~~six~~ quarter of fiscal year ~~2021, no borrowings were~~2022, $0.9 million was used for a business ~~acquisitions.~~acquisition.

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

Interest and Other Costs: Interest on outstanding borrowings under the ~~Revolving Credit Facility~~revolving credit facility accrue, at Transcat’s election, at either the variable one-month LIBOR or a fixed rate for a designated period at the LIBOR corresponding to such period, in each case (subject to a 1% ~~floor)~~floor during the first quarter of fiscal year 2022 and a 0.25% floor for subsequent periods), plus a margin. Interest on outstanding borrowings under the 2018 Term Loan accrue at a fixed rate of 4.15% over the term of the ~~loan.~~loan during the first quarter of fiscal year 2022 and 3.90% over the term of the loan for subsequent periods. Unused fees accrue based on the average daily amount of unused credit available on the ~~Revolving Credit Facility.~~revolving credit facility. Interest rate margins and unused fees are determined on a quarterly basis based upon the Company’s calculated leverage ~~ratio, as defined in the Credit Agreement.~~ratio. The Company’s interest rate for the ~~Revolving Credit Facility~~revolving credit facility for the first ~~six months~~quarter of fiscal year ~~2021~~2022 ranged from ~~1.4%~~1.8% to ~~2.7%~~2.2%.

Covenants: ~~The~~Pursuant to the Prior Credit Agreement, ~~has certain covenants~~we were required to comply with ~~which the Company must comply, including~~ a fixed charge ratio covenant and a leverage ratio covenant. ~~The Company was~~M&T waived the requirement for the fixed charge ratio for the first fiscal quarter ending June 26, 2021. We were in compliance with all other loan covenants and requirements during the ~~second~~first quarter of fiscal year ~~2021.~~2022. Our leverage ratio, as defined in the Prior Credit Agreement, was ~~1.19~~0.96 at ~~September~~June 26, ~~2020,~~2021, compared with ~~1.53~~0.94 at March 27, 2021. The 2021 Credit Agreement modified the ~~end of fiscal year 2020.~~leverage ratio and fixed charge coverage ratio covenants with which we are required to comply.

Other Terms: The Company has pledged all of its U.S. tangible and intangible personal property, the equity interests of its U.S.-based subsidiaries, and a majority of the common stock of Transcat Canada Inc. as collateral security for the loans made under the ~~Revolving Credit Facility.~~revolving credit facility.

The Company has a ~~stock-based~~share-based incentive plan (the “2003 Plan”) that 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 ~~September~~June 26, ~~2020,~~2021, 0.9 million shares of common stock were available for future grant under the 2003 Plan.

The Company receives an excess tax benefit related to restricted stock vesting and stock options exercised and redeemed. The discrete tax ~~benefit~~benefits related to ~~stock-based~~share-based compensation and stock option activity during the first ~~six months~~quarter of fiscal year 2022 and 2021 ~~and 2020 was $0.3~~were $1.1 million and ~~$0.8~~$0.3 million, respectively.

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

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

The Company achieved ~~79%~~64% of the target level for the performance-based restricted stock units granted in the fiscal year ended March ~~31, 2018~~30, 2019 and as a result, issued 4919 shares of common stock to executive officers and certain key employees during the first quarter of fiscal year ~~2021.~~2022. The following table summarizes the non-vested restricted stock units outstanding as of ~~September~~June 26, ~~2020:~~2021 (in thousands, except per unit data):

		Total	Grant Date
April 2018	April 2018 – March 2021	1	$	15.65	Time Vested
May 2018	April 2018 – March 2021	22	$	15.30	90% of target level
May 2018	April 2018 – March 2021	22	$	15.30	Time Vested
October 2018	October 2018 – September 2027	9	$	20.81	Time Vested
March 2019	April 2019 – March 2022	23	$	23.50	90% of target level
March 2019	April 2019 – March 2022	23	$	23.50	Time Vested
August 2019	August 2019 – July 2022	1	$	23.00	Time Vested
March 2020	April 2020 – March 2023	2	$	26.25	Time Vested
July 2020	July 2020 – March 2023	46	$	27.08	Time Vested
September 2020	September 2020 – September 2021	14	$	28.52	Time Vested
September 2020	September 2020 –July 2023	4	$	28.54	Time Vested
September 2020	September 2020 –July 2023	5	$	29.76	Time Vested
September 2020	September 2020 – September 2023	3	$	29.76	Time Vested

		Total	Grant Date
October 2018	October 2018 – September 2027	8	$	20.81	Time Vested
March 2019	April 2019 – March 2022	21	$	23.50	70% of target level
March 2019	April 2019 – March 2022	21	$	23.50	Time Vested
August 2019	August 2019 – July 2020	1	$	23.00	Time Vested
March 2020	April 2020 – March 2023	2	$	26.25	Time Vested
July 2020	July 2020 – July 2023	38	$	27.08	Time Vested
September 2020	September 2020 – September 2021	12	$	28.52	Time Vested
September 2020	September 2020 – July 2023	4	$	28.54	Time Vested
September 2020	September 2020 – July 2023	5	$	29.76	Time Vested
September 2020	September 2020 – September 2023	3	$	29.76	Time Vested
January 2021	January 2021 – January 2024	2	$	34.62	Time Vested
May 2021	May 2021 – January 2024	1	$	54.21	Time Vested
June 2021	June 2021 – May 2024	13	$	53.17	100% of target level
June 2021	June 2021 – May 2024	13	$	53.17	Time Vested

Total expense relating to ~~performance-based~~ restricted stock units, based on grant date fair value and the achievement criteria, was ~~$0.6~~$0.4 million and $0.3 million ~~respectively,~~ in the first ~~six months~~quarter of fiscal ~~years~~year 2022 and fiscal year 2021, ~~and 2020.~~respectively. As of ~~September~~June 26, ~~2020,~~2021, unearned compensation, to be recognized over the grants’ respective service periods, totaled ~~$2.6~~$2.7 million.

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

The following table summarizes the Company’s options as of and for the first ~~six months of fiscal year 2021:~~quarter ended June 26, 2021 (in thousands, except per share data and years):

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 ~~second~~first quarter of fiscal year ~~2021~~2022 and the exercise price, multiplied by the number of in-the-money stock options) that would have been received by the option holders had all holders exercised their options on ~~September~~June 26, ~~2020.~~2021. 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 ~~$0.1 million during the first six months of fiscal year 2021. Total expense related to stock options was~~ less than $0.1 million ~~during~~in both the first ~~six months~~quarter of fiscal year ~~2020.~~2022 and the first quarter of fiscal year 2021. Total unrecognized compensation cost related to non-vested stock options as of ~~September~~June 26, ~~2020~~2021 was ~~$0.2~~$0.4 million, which is expected to be recognized over a period of five years. The aggregate intrinsic value of stock options exercised induring the first ~~six months~~quarter of fiscal ~~years~~year 2022 and fiscal year 2021 ~~and 2020~~ was ~~$0.3~~$2.3 million and ~~$2.2~~$0.3 million, respectively. Cash received from the exercise of options in the first ~~six months~~quarter of fiscal ~~years~~year 2022 and fiscal year 2021 was $0.6 million and ~~2020 was~~ $0.3 million, ~~and $1.2 million,~~ respectively. During the first quarter of fiscal year 2022, the Company repurchased the stock options exercised by the Chief Executive Officer for $2.8 million.

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

~~TTE:~~ Upstate Metrology:Effective ~~February 21, 2020,~~April 29, 2021, Transcat acquired substantially all of the assets of ~~TTE Laboratories,~~Upstate Metrology Inc. (“~~TTE"~~Upstate Metrology”), a ~~Boston, MA-based~~New York based provider of ~~pipette~~ calibration ~~services and equipment.~~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. ~~TTE’s~~

100% of the goodwill related to the Upstate Metrology acquisition has been allocated to the Service segment. Amortization of goodwill related to the Upstate Metrology acquisition is deductible for tax purposes.

The total purchase price paid 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 during the period presented (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. ~~Going forward, we will refer to TTE as “pipettes.com”.~~

The Company applies the acquisition method of accounting for business acquisitions. Under the acquisition method, the purchase price of an acquisition is assigned to the underlying tangible and intangible assets acquired and liabilities assumed based on their respective fair values at the date of acquisition. The Company uses a valuation hierarchy, as further described under Fair Value of Financial Instruments in Note 1 above, and typically utilizes independent third-party valuation specialists to determine the fair values used in this allocation. Purchase price allocations are subject to revision within the measurement period, not to exceed one year from the date of acquisition. 75%100% of the goodwill and intangible assets relating to the ~~TTE~~BioTek acquisition has been allocated to the Service ~~segment with the remaining 25% allocated to the Distribution~~ segment. Intangible assets related to the ~~TTE~~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 ~~TTE~~BioTek acquisition is deductible for tax purposes.

The total purchase price paid for the assets of ~~TTE~~BioTek was approximately ~~$12.2~~$3.5 million. ~~$1.2~~$0.4 million of the purchase price has been put into escrow as a holdback for indemnification claims, if any. The following is a ~~preliminary~~ summary of the purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of ~~TTE’s~~BioTek’s assets and liabilities acquired during the period ~~presented:~~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 ~~acquisition~~acquisitions of ~~TTE~~Upstate Metrology and BioTek had occurred at the beginning of fiscal year ~~2020.~~2021. The pro forma results do not purport to represent what the Company’s results of operations actually would have been if the ~~transaction~~transactions had occurred at the beginning of the period presented or what the Company’s operating results will be in future periods.

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

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

Certain of the Company’s acquisition agreements include provisions for contingent consideration and other holdback amounts. The Company accrues for contingent consideration and holdback provisions based on their estimated fair value at the date of acquisition. As of ~~September~~June 26, ~~2020,~~2021, there was no contingent consideration or other holdback amounts unpaid and reflected in current liabilities on the Consolidated Balance Sheets. During the ~~second~~first quarter of fiscal year ~~2021~~2022 and fiscal year ~~2020, no~~2021, 0no contingent consideration or other holdback amounts were paid.

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

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

Forward-Looking Statements. This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to expectations, estimates, beliefs, assumptions and predictions of future events and are identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “projects,” “seek,” “strategy,” “target,” “intends,” “could,” ~~“plans,~~“may,” ~~“may”~~“will,” “would,” and other similar words. Forward-looking statements are not statements of historical fact and thus are subject to risks, uncertainties and other factors that could cause actual results to differ materially from historical results or those expressed in such forward-looking statements. You should evaluate forward-looking statements in light of important risk factors and uncertainties that may affect our operating and financial results and our ability to achieve our financial objectives. These factors include, but are not limited to, the impact of and our response to the ~~coronavirus (“COVID-19”)~~COVID-19 pandemic, ~~on our business,~~ the highly competitive nature of the industries in which we compete and in the nature of our two business segments, cybersecurity risks, the risk of significant disruptions in our information technology systems, our inability to recruit, train and retain quality employees, skilled technicians and senior management, fluctuations in our operating results, competition in the rental market, the volatility of our stock price, our ability to adapt our technology, reliance on our enterprise resource planning system, technology updates, risks related to our acquisition strategy and the integration of the businesses we acquire, volatility in our customers’ industries, changes in vendor rebate programs, our vendors’ abilities to provide desired inventory, the risks related to current and future indebtedness, the relatively low trading volume of our common stock, foreign currency rate fluctuations and the impact of general economic conditions on our business. These risk factors and uncertainties are more fully described by us under the heading “Risk Factors” in our reports filed with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the fiscal year ended March ~~28, 2020.~~27, 2021. You should not place undue reliance on our forward-looking statements, which speak only as of the date they are made. Except as required by law, we

Table of Contents

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.

~~Table of Contents~~

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

There have been no material changes to our critical accounting policies and estimates from the information provided in our Annual Report on Form 10-K for the fiscal year ended March ~~28, 2020.~~27, 2021.

RESULTS OF OPERATIONS

During our ~~second~~first quarter of fiscal year ~~2021,~~2022, we ~~achieved~~had consolidated revenue of ~~$41.6~~$47.8 million. This represented ~~a decrease~~an increase of ~~0.4%~~$8.9 million or ~~$0.2 million~~22.8% versus the ~~second~~first quarter of fiscal year ~~2020.~~2021. This ~~decrease is~~increase was due to the economic ~~downturn from~~rebound and the lower customer demand in the prior year first quarter due to the COVID-19 pandemic, ~~that has impacted customer demand,~~ especially in the Distribution segment.

~~Gross profit for the second~~

Our first quarter of fiscal year ~~2021~~2022 gross profit was ~~$11.5 million,~~$13.5 million. This was an increase of ~~$1.1~~$4.1 million or ~~10.0%~~43.7% versus the ~~second~~first quarter of fiscal year ~~2020. Gross~~2021. In addition, consolidated gross margin ~~expanded by 260~~was 28.3%, an increase of 410 basis points, ~~from 25.0% to 27.6%. The~~versus the first quarter of fiscal year 2021. This increase ~~in gross profit~~was the result of operating leverage on our fixed costs and ~~gross margin were positively affected by~~ continued ~~increases in~~ productivity improvements in the Service segment, ~~strategic customer price increases,~~and a favorable ~~changes~~mix of products sold in ~~sales product and channel mix and various cost reduction efforts implemented in response to~~ the ~~COVID-19 pandemic.~~Distribution segment.

Total operating expenses were ~~$8.4~~$9.8 million ~~an increase of $1.0 million or 13.9% as compared to~~in the ~~second~~first quarter of fiscal year ~~2020, as we continued~~2022, an increase of $1.4 million when compared to ~~invest in our technology initiatives. Also, included~~the prior year first quarter. Included in operating expenses during the ~~second~~first quarter of fiscal year ~~2021~~2022 were incremental operating expenses related to the acquisition of ~~TTE, which we now~~Upstate Metrology, investments in technology and ~~going forward refer~~higher incentive-based employee costs due to ~~as pipettes.com.~~higher sales. As a percentage of total revenue, operating expenses were ~~20.2%, up 250 basis points from 17.7%~~20.6% in the ~~second~~first quarter of fiscal year ~~2020.~~2022, down 110 basis points from 21.7% in the first quarter of fiscal year 2021. Operating income increased by $2.7 million and operating margin increased by 520 basis points in the first quarter of fiscal year 2022.

Net income was ~~$2.0~~$3.7 million ~~down 14.9% as compared to $2.4 million in~~for the ~~second~~first quarter of fiscal year ~~2020. The decline~~2022, up from $0.8 million in ~~net income was~~the first quarter of fiscal year 2021 primarily due to higher operating income ~~which was offset by~~and a higher ~~provision for~~benefit from income taxes. ~~The higher provision for income taxes was a result of decreased discrete income tax benefits related to stock-based awards.~~

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

	(Unaudited)						(Unaudited)
	Second Quarter Ended						Six Months Ended						(Unaudited) First Quarter Ended
	September 26,			September 28,			September 26,			September 28,			June 26,		June 27,
	2020			2019			2020			2019			2021		2020
As a Percentage of Total Revenue:
Service Revenue		59.0	%		56.3	%		59.0	%		54.5	%	57.7	%	59.0	%
Distribution Sales		41.0	%		43.7	%		41.0	%		45.5	%	42.3	%	41.0	%
Total Revenue		100.0	%		100.0	%		100.0	%		100.0	%	100.0	%	100.0	%

Gross Profit Percentage:
Service Gross Profit		32.2	%		25.6	%		29.4	%		24.8	%	31.8	%	26.4	%
Distribution Gross Profit		21.1	%		24.3	%		21.0	%		23.8	%	23.6	%	21.0	%
Total Gross Profit		27.6	%		25.0	%		26.0	%		24.4	%	28.3	%	24.2	%

Selling, Marketing and Warehouse Expenses		10.3	%		10.1	%		10.4	%		10.3	%	10.5	%	10.5	%
General and Administrative Expenses		9.9	%		7.6	%		10.6	%		8.1	%	10.1	%	11.2	%
Total Operating Expenses		20.2	%		17.7	%		21.0	%		18.4	%	20.6	%	21.7	%

Operating Income		7.4	%		7.3	%		5.0	%		6.0	%	7.7	%	2.5	%

Interest and Other Expense, net		0.8	%		0.7	%		0.7	%		0.7	%	0.4	%	0.6	%

Income Before Income Taxes		6.6	%		6.6	%		4.3	%		5.3	%	7.3	%	1.9	%
Provision for Income Taxes		1.7	%		0.9	%		0.8	%		0.4	%
Benefit from Income Taxes													(0.4	%)	(0.2	%)

Net Income		4.9	%		5.7	%		3.5	%		4.9	%	7.7	%	2.1	%

Table of Contents

~~SECOND~~FIRST QUARTER ENDED ~~SEPTEMBER~~JUNE 26, ~~2020~~2021 COMPARED TO ~~SECOND~~FIRST QUARTER ENDED

~~SEPTEMBER 28, 2019~~ ~~(dollars~~ JUNE 27, 2020
(dollars in thousands):

~~Revenue:~~

Revenue:

Second Quarter Ended
Change
September 26,
September 28,
2020
2019
$
%
Revenue:
Service
$
24,554
$
23,502
$
1,052
4.5
%
Distribution
17,053
18,261
(1,208
)
(6.6
%)
Total
$
41,607
$
41,763
$
(156
)
(0.4
%)

	Second Quarter Ended
Revenue:
Service	$	24,554	$	23,502	$	1,052		4.5	%
Distribution		17,053		18,261		(1,208	)	(6.6	%)
Total	$	41,607	$	41,763	$	(156	)	(0.4	%)

		First Quarter Ended				Change
		June 26,		June 27,
		2021		2020		$		%
Revenue:
	Service	$	27,557	$	22,967	$	4,590	20.0%
	Distribution		20,233		15,937		4,296	27.0%
	Total	$	47,790	$	38,904	$	8,886	22.8%

Total revenue ~~decreased $0.2~~increased $8.9 million, or ~~0.4%~~22.8%, in our fiscal year ~~2021 second~~2022 first quarter compared to the prior fiscal year ~~second~~first quarter. ~~Excluding acquired revenue of $2.2 million, organic revenue declined by 5.7%.~~

Service revenue, which accounted for ~~59.0%~~57.7% and ~~56.3%~~59.0% of our total revenue in the ~~second~~first quarter of fiscal years ~~2021~~2022 and ~~2020,~~2021, respectively, increased ~~4.5%~~20.0% from the ~~second~~first quarter of fiscal year ~~2020~~2021 to the ~~second~~first quarter of fiscal year ~~2021.~~2022. This year-over-year increase ~~reflected new Life Science business and, combined with $1.2~~included $0.6 million ~~of incremental~~in revenue from ~~pipettes.com, more than offset reduced demand from other markets caused primarily~~acquisitions and organic revenue growth of 16.6% and was driven by improvement in end market conditions, continued market share gains and an easier comparison versus the first quarter of fiscal year 2021 which was the quarter most significantly impacted by the COVID-19 pandemic. ~~Excluding acquired revenue of $1.2 million, the Service segment had an organic revenue decline of 0.8%.~~

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

FY 2021
FY 2020
Q2
Q1
Q4
Q3
Q2
Q1
Service Revenue Growth
4.5
%
2.5
%
2.9
%
7.8
%
18.1
%
15.9
%

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

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

The growth in Service segment revenue during the first quarter of fiscal year 2022 versus the first quarter of fiscal year 2021 reflected both organic growth and acquisitions, and the growth in the first quarter of fiscal year 2021 versus the first quarter of fiscal year 2020 was also both organic and from 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 each quarter in fiscal years 2021 and 2020 as well as the trailing twelve-month revenue growth as a comparison to that of the prior fiscal year period:

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

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

~~Table of Contents~~

The growth in Service segment revenue during the second quarter of fiscal year 2021 reflected acquisitions, while the growth in the second quarter of fiscal year 2020 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

Table of Contents

revenue and the percentage of Service revenue derived from each source for each quarter during fiscal years ~~2021~~2022 and ~~2020:~~2021:

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

	FY 2021		FY 2020
Percent of Service Revenue:
In-House	83.7	%	82.9	%	84.9	%	82.9	%	82.9	%	83.3	%
Outsourced	14.7	%	15.6	%	13.5	%	15.6	%	15.6	%	15.1	%
Freight Billed to Customers	1.6	%	1.5	%	1.6	%	1.5	%	1.5	%	1.6	%
	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%

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

Our Distribution sales accounted for 42.3% of our total revenue in the first quarter of fiscal year 2022 and 41.0% of our total revenue in the ~~second~~first quarter of fiscal year 2021. During the first quarter of fiscal year 2022, Distribution segment sales showed an increase of 27.0% to $20.2 million. This increase was due to increased orders in the first quarter of fiscal year 2022 and an easier comparison to the first quarter of fiscal year 2021, ~~and 43.7% of our total revenue in~~which was the ~~second~~ quarter ~~of fiscal year 2020. During the second quarter of fiscal year 2021, Distribution segment sales decreased 6.6% to $17.1 million. These results were~~most significantly impacted by the COVID-19 ~~pandemic, with reduced demand from oil and gas related businesses and most other industrial manufacturing sectors. However,~~pandemic. In addition, rental revenue increased by ~~1.2%~~61.3% to ~~$1.3 million compared to the second quarter of fiscal year 2020.~~$1.6 million.

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

FY 2021
FY 2020
Q2
Q1
Q4
Q3
Q2
Q1
Distribution Sales (Decline) Growth
(6.6
%)
(20.3
%)
2.9
%
3.5
%
(3.8
%)
15.4
%

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

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

The change in the first quarter of fiscal year 2022 versus the first quarter of fiscal year 2021 for the Distribution segment reflected just organic growth and the change in the first quarter of fiscal year 2021 versus the first quarter of fiscal year 2020 for the Distribution segment reflected both organic growth and acquisitions.

Distribution sales orders include orders for instruments that we routinely stock in our inventory, customized products, and other products ordered less frequently, which we do not stock. Pending product shipments are primarily backorders, but also include products that are requested to be calibrated in our service centers prior to shipment, orders required by the customer to be shipped complete or at a future date, and other orders awaiting final credit or management review prior to shipment.

Our total pending product shipments at the end of the ~~second~~first quarter of fiscal year ~~2021~~2022 were ~~$4.3~~$8.2 million, an increase of ~~$0.1~~$4.3 million versus the end of the ~~second~~first quarter of fiscal year ~~2020~~2021 and ~~a decrease~~an increase of ~~$0.1~~$1.9 million since March ~~28, 2020.~~27, 2021. The year-over-year increase in pending product shipments and backorders was a result of the COVID-19 pandemic and its disruption to the supply of products as well as increased orders for the wind power generation market. The following table presents our total pending product shipments and the percentage of total pending product shipments that were backorders at the end of each quarter of fiscal years ~~2021~~2022 and ~~2020:~~2021:

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

Gross Profit:

		First Quarter Ended				Change
		June 26,		June 27,
		2021		2020		$		%
Gross Profit:
	Service	$	8,752	$	6,069	$	2,683	44.2%
	Distribution		4,768		3,340		1,428	42.8%
	Total	$	13,520	$	9,409	$	4,111	43.7%

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

~~Gross Profit:~~

Second Quarter Ended
Change
September 26,
September 28,
2020
2019
$
%
Gross Profit:
Service
7,900
$
6,012
$
1,888
31.4
%
Distribution
3,594
4,433
(839
)
(18.9
%)
Total
$
11,494
$
10,445
$
1,049
10.0
%

Table of Contents

Total gross profit for the ~~second~~first quarter of fiscal year 2022 was $13.5 million, an increase of $4.1 million or 43.7% versus the first quarter of fiscal year 2021. Total gross margin was 28.3% in the first quarter of fiscal year 2022, up from 24.2% in the first quarter of fiscal year 2021, was $11.5 million, an increase of $1.1 million or 10.0% versus the second quarter of fiscal year 2020. Total gross margin was 27.6% in the second quarter of fiscal year 2021, up from 25.0% in the second quarter of fiscal year 2020, a ~~260~~410 basis point ~~expansion.~~increase.

Service gross profit in the ~~second~~first quarter of fiscal year ~~2021~~2022 increased ~~$1.9~~$2.7 million, or ~~31.4%~~44.2%, from the ~~second~~first quarter of fiscal year ~~2020.~~2021. Service gross margin was ~~32.2%~~31.8% in the ~~second~~first quarter of fiscal year ~~2021,~~2022, a ~~660~~540 basis point increase versus the ~~second~~first quarter of fiscal year ~~2020.~~2021. This increase in gross margin was primarily due to ~~ongoing productivity improvements,~~operating leverage on our fixed cost ~~controls, along with strategic pricing~~base and ~~a favorable mix of services performed.~~continued strong technician productivity.

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

FY 2021
FY 2020
Q2
Q1
Q4
Q3
Q2
Q1
Service Gross Margin
32.2
%
26.4
%
28.9
%
22.0
%
25.6
%
24.0
%

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

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

Our Distribution gross margin includes net sales less the direct cost of inventory sold and the direct costs of equipment rental revenues, primarily depreciation expense for the fixed assets in our rental equipment pool, as well as the impact of rebates and cooperative advertising income we receive from vendors, freight billed to customers, freight expenses and direct shipping costs. In general, our Distribution gross margin can vary based upon the mix of products sold, price discounting, and the timing of periodic vendor rebates offered and cooperative advertising programs from suppliers.

The following table reflects the quarterly historical trend of our Distribution gross margin as a percent of Distribution sales:

FY 2021
FY 2020
Q2
Q1
Q4
Q3
Q2
Q1
Distribution Gross Margin
21.1
%
21.0
%
23.2
%
24.0
%
24.3
%
23.4
%

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

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

Distribution segment gross margin was ~~21.1%~~23.6% in the ~~second~~first quarter of fiscal year 2022 versus 21.0% in the first quarter of fiscal year 2021, ~~versus 24.3% in the second quarter of fiscal year 2020,~~ a ~~320~~260 basis point ~~decrease.~~increase. The ~~decrease~~increase in segment gross margin was primarily due to ~~lower volume, less demand from core product sales~~a favorable mix of higher margin products sold and ~~reduced cooperative advertising and rebate programs as certain vendors reduced these programs to lower their own costs.~~rented.

Operating Expenses:

Second Quarter Ended
Change
September 26,
September 28,
2020
2019
$
%
Operating Expenses:
Selling, Marketing and Warehouse
$
4,291
$
4,231
$
60
1.4
%
General and Administrative
4,125
3,155
970
30.7
%
Total
$
8,416
$
7,386
$
1,030
13.9
%

		First Quarter Ended				Change
		June 26,		June 27,
		2021		2020		$		%
Operating Expenses:
	Selling, Marketing and Warehouse	$	4,997	$	4,074	$	923	22.7%
	General and Administrative		4,834		4,371		463	10.6%
	Total	$	9,831	$	8,445	$	1,386	16.4%

Total operating expenses were ~~$8.4~~$9.8 million in the ~~second~~first quarter of fiscal year ~~2021~~2022 versus ~~$7.4~~$8.4 million during the ~~second~~first quarter of fiscal year ~~2020.~~2021. The year-over-year increase in selling, marketing and warehouse expenses is due to ~~incremental costs related to the acquisition of pipettes.com, especially increased acquisition related amortization expense offset by reduced~~higher performance-based sales incentives and direct marketing costs. The increase in general and administrative expenses includes incremental expenses related to ~~the acquisition of pipettes.com~~acquired companies, increased payroll costs from new employees and ~~increased expenses related to our~~ continued ~~investment~~investments in ~~technology and operational infrastructure.~~ technology.

As a percentage of total revenue, operating expenses were ~~20.2%~~20.6% in the ~~second~~first quarter of fiscal year 2022 and 21.7% in the first quarter of fiscal year 2021, ~~up from 17.7% in the second quarter~~a decrease of ~~fiscal year 2020, an increase of 250~~110 basis points.

~~Income Taxes:~~

Second Quarter Ended
Change
September 26,
September 28,
2020
2019
$
%
Provision for Income Taxes
$
737
$
383
$
354
92.4
%

Table of Contents

Income Taxes:

	First Quarter Ended						Change
	June 26,			June 27,
	2021			2020			$			%
Benefit from Income Taxes	$	(194	)	$	(77	)	$	(117	)	(151.9%)

Our effective tax rates for the ~~second~~first quarter of fiscal years 2022 and 2021 were (5.6%) and ~~2020 were 26.7% and 13.9%~~(10.7%), respectively. The increase in ~~our~~the tax ~~rate~~benefit is due to the ~~decreased~~increased amount of discrete tax ~~benefits~~benefit from ~~stock-based~~share-based compensation activity. Our quarterly provision for income taxes is affected by discrete items that may occur in any given ~~period~~year but are not consistent from year to year. The discrete benefits related to ~~stock-based~~share-based compensation activity in the ~~second~~first quarter of fiscal years 2022 and 2021 ~~and 2020, were less than $0.1~~was $1.1 million and $0.3 million, respectively. We continue to evaluate our tax provision on a quarterly basis and adjust, as deemed necessary, our effective tax rate given changes in facts and circumstances expected for the entire fiscal year. We expect our total fiscal year ~~2021~~2022 effective tax rate to be approximately ~~22.0%~~16% to ~~23.0%~~18%.

Net Income:

Second Quarter Ended
Change
September 26,
September 28,
2020
2019
$
%
Net Income
$
2,024
$
2,379
$
(355
)
(14.9
%)

		Second Quarter Ended		Change
Net Income		$	2,024		$	2,379		$	(355	)	(14.9	%)

	First Quarter Ended				Change
	June 26,		June 27,
	2021		2020		$		%
Net Income	$	3,688	$	798	$	2,890	362.2%

Net income for the ~~second~~first quarter of fiscal year 2022 increased $2.9 million from the first quarter of fiscal year 2021 ~~was $2.0 million, a decrease of $0.4 million or 14.9% versus the second quarter of fiscal year 2020. The decrease is~~ primarily due to the increased operating income ~~offset by increased provision for~~and a higher benefit from income taxes.

Adjusted EBITDA:

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

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

Second Quarter Ended
September 26,
September 28,
2020
2019
Net Income
$
2,024
$
2,379
+ Interest Expense
233
243
+ Other Expense
84
54
+ Tax Provision
737
383
Operating Income
3,078
3,059
+ Depreciation & Amortization
1,863
1,681
+ Other (Expense)
(84
)
(54
)
+ Noncash Stock Compensation
366
102
Adjusted EBITDA
$
5,223
$
4,788

Total Adjusted EBITDA for the second quarter of fiscal year 2021 was $5.2 million versus $4.8 million during the second quarter of fiscal year 2020, a $0.4 million or 9.1% increase. As a percentage of revenue, Adjusted EBITDA was 12.6% for the second quarter of fiscal year 2021 and 11.5% for the second quarter of fiscal year 2020. The difference between the fiscal year 2021 second quarter increase in Adjusted EBITDA and the decrease in net income was primarily driven by increased non-cash stock compensation expense, provision for income taxes and depreciation and amortization.

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

~~Revenue:~~

Six Months Ended
Change
September 26,
September 28,
2020
2019
$
%
Revenue:
Service
$
47,521
$
45,900
$
1,621
3.5
%
Distribution
32,990
38,258
(5,268
)
(13.8
%)
Total
$
80,511
$
84,158
$
(3,647
)
(4.3
%)

Service revenue, which accounted for 59.0% of our total revenue during the first six months of fiscal year 2021 and 54.5% of our total revenue during the first six months of fiscal year 2020, increased $1.6 million, or 3.5%, from the first six months of fiscal year 2020 to the first six months of fiscal year 2021. This year-over-year increase reflected increased demand from the Life Sciences market and, combined with $2.2 million of incremental revenue from pipettes.com, more than offset reduced demand from other markets caused primarily by the COVID-19 pandemic.

Distribution sales accounted for 41.0% and 45.5% of our total revenue in the first six months of fiscal years 2021 and 2020, respectively. For the first six months of fiscal year 2021, Distribution sales decreased $5.3 million, or 13.8%, compared to the first six months of fiscal year 2020. These results were impacted by the COVID-19 pandemic, with reduced demand from oil and gas related businesses and most other industrial manufacturing sectors. In addition, rental revenue decreased by 8.2% to $2.3 million compared to the first six months of fiscal year 2020.

~~Table of Contents~~

~~Gross Profit:~~

Six Months Ended
Change
September 26,
September 28,
2020
2019
$
%
Gross Profit:
Service
$
13,969
$
11,384
$
2,585
22.7
%
Distribution
6,934
9,113
(2,179
)
(23.9
%)
Total
$
20,903
$
20,497
$
406
2.0
%

Total gross profit for the first six months of fiscal year 2021 was $20.9 million, an increase of $0.4 million or 2.0% versus the first six months of fiscal year 2020. Total gross margin was 26.0%, a 160 basis points increase compared to 24.4% in the first six months of fiscal year 2020. This increase in gross margin was primarily due to increased Service revenues, primarily from pipettes.com, and ongoing productivity improvements in the Service segment which more than offset a decrease in Distribution gross profit from lower Distribution sales.

~~Operating Expenses:~~

Six Months Ended
Change
September 26,
September 28,
2020
2019
$
%
Operating Expenses:
Selling, Marketing and Warehouse
$
8,365
$
8,703
$
(338
)
(3.9
%)
General and Administrative
8,496
6,777
1,719
25.4
%
Total
$
16,861
$
15,480
$
1,381
8.9
%

Total operating expenses for the first six months of fiscal year 2021 were $16.9 million, an increase of $1.4 million or 8.9% versus the first six months of fiscal year 2020. The year-over-year decrease in selling, marketing and warehouse expenses is due to sales incentives and direct marketing costs offset by increased expenses related to the acquisition of pipettes.com, especially acquisition related amortization expense. The increase in general and administrative expenses includes incremental increased expenses related to our continued investment in technology infrastructure, increased expenses related to the acquisition of pipettes.com and approximately $0.4 million of severance expenses. As a percentage of total revenue, operating expenses during the first six months of fiscal year 2021 were 20.9%, compared to 18.4% in the first six months of fiscal year 2020, an increase of 250 basis points.

~~Provision for Income Taxes:~~

Six Months Ended
Change
September 26,
September 28,
2020
2019
$
%
Provision for Income Taxes
$
660
$
338
$
322
95.3
%

Our effective tax rates for the first six months of fiscal years 2021 and 2020 were 19.0% and 7.6%, respectively. The increase in our tax rate is due to the decreased discrete tax benefits from stock-based compensation activity. Our provision for income taxes is affected by discrete items that may occur in any given period but are not consistent from year to year. The discrete benefits related to stock-based compensation activity in the first six months of fiscal years 2021 and 2020 were $0.3 million and $0.8 million, respectively. We continue to evaluate our tax provision on a quarterly basis and adjust, as deemed necessary, our effective tax rate given changes in facts and circumstances expected for the entire fiscal year. We expect our total fiscal year 2021 effective tax rate to be approximately 22.0% to 23.0%.

~~Net Income:~~

Six Months Ended
Change
September 26,
September 28,
2020
2019
$
%
Net Income
$
2,822
$
4,097
$
(1,275
)
(31.1
%)

Net income for the first six months of fiscal year 2021 was $2.8 million, a decrease of $1.3 million or 31.1% versus the first six months of fiscal year 2020. The year over year decrease in net income is due to lower operating income and an increase in provision for income taxes.

~~Adjusted EBITDA:~~ 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, 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.

~~Table of Contents~~

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

	Six Months Ended					First Quarter Ended
	September 26,			September 28,		June 26,		June 27,
	2020			2019		2021		2020
Net Income	$	2,822		$	4,097	$	3,688	$	798
+ Interest Expense		457			487		189		224
+ Other Expense		103			95
+ Other Expense / (Income)							6		19
+ Tax Provision		660			338		(194)		(77)
Operating Income		4,042			5,017	$	3,689	$	964
+ Depreciation & Amortization		3,734			3,303		1,990		1,871
+ Restructuring Expense		360			-		-		360
+ Other (Expense) Income		(103	)		105
+ Other (Expense) / Income							(6)		(19)
+ Noncash Stock Compensation		679			305		437		312
Adjusted EBITDA	$	8,712		$	8,730	$	6,110	$	3,488

~~During~~

Total Adjusted EBITDA for the first ~~six months~~quarter of fiscal year ~~2021, Adjusted EBITDA~~2022 was ~~$8.7~~$6.1 million, ~~which is flat~~an increase of $2.6 million or 75.2% versus the first ~~six months~~quarter of fiscal year ~~2020.~~2021. As a percentage of revenue, Adjusted EBITDA ~~was 10.8%~~increased to

Table of Contents

12.8% for the first ~~six months~~quarter of fiscal year ~~2021 and 10.4%~~2022 from 9.0% for the first ~~six months~~quarter of fiscal year ~~2020.~~2021. The increase in Adjusted EBITDA during the first quarter of fiscal year 2022 was primarily driven by the increase in net income.

LIQUIDITY AND CAPITAL RESOURCES

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

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

The 2021 Credit Agreement increased the revolving credit commitment (the “Revolving Credit Commitment”) from $40.0 million to $80.0 million, with a letter of credit subfacility increased from $2.0 million to $10.0 million, and extended the term of the Revolving Credit ~~Facility~~Commitment to June 2026. The 2021 Credit Agreement amended the definition of Applicable Margin (formerly Applicable Rate under the Prior Credit Agreement), which is based upon the Company’s then current leverage ratio and is used to determine interest charges on outstanding and unused borrowings under the revolving credit facility; the amendments reduced the Applicable Margins payable at the two highest leverage ratio levels. The 2021 Credit Agreement also amended the definition of Permitted Acquisitions, that is, acquisitions which are permitted under, and may be financed with proceeds of, the revolving credit facility, including increasing the aggregate purchase price for acquisitions consummated in any fiscal year from $1.0 million to $65 million during the current fiscal year and $50 million during any subsequent fiscal year, and adding an aggregate purchase price of $40.0 million for acquisitions consummated at any time during the term of the 2021 Credit Agreement related to businesses with a principal place of business located in the United Kingdom or the European Union.

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

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

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

~~On December 10, 2018, we entered into the 2018 Agreement that has~~

We have a term loan, the 2018 Term Loan, in the amount of $15.0 ~~million, which replaced the previous 2017 Term Loan.~~million. As of ~~September~~June 26, ~~2020, $11.6~~2021, $10.0 million was outstanding on the 2018 Term Loan, of which ~~$2.0~~$2.1 million was included in current liabilities on the Consolidated Balance Sheets with the remainder included in long-term debt. The 2018 Term Loan requires total repayments (principal plus interest) of $0.2 million per month through December 2025.

Table of Contents

During the ~~second~~first quarter of fiscal year 2021, ~~no borrowings were~~we used $0.9 million for a business ~~acquisitions.~~acquisition.

~~The~~

Pursuant to the Prior Credit Agreement, ~~has certain covenants~~we were required to comply with ~~which we must comply, including~~ a fixed charge ratio covenant and a leverage ratio covenant. M&T waived the requirement for the fixed charge ratio for the first fiscal quarter ending June 26, 2021. We were in compliance with all other loan covenants and requirements during the ~~second~~first quarter of fiscal year ~~2021.~~2022. Our leverage ratio, as defined in the Prior Credit Agreement, was ~~1.19~~0.96 at ~~September~~June 26, ~~2020,~~2021, compared with ~~1.53~~0.94 at March 27, 2021. The 2021 Credit Agreement modified the ~~end of fiscal year 2020.~~leverage ratio and fixed charge coverage ratio covenants with which we are required to comply.

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

~~Table of Contents~~

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

	Six Months Ended						First Quarter Ended
	September 26,			September 28,			June 26,			June 27,
	2020			2019			2021			2020
Cash Provided by (Used in):
Operating Activities	$	12,476		$	2,834		$	2,055		$	4,042
Investing Activities	$	(3,116	)	$	(4,800	)	$	(2,134	)	$	(1,261	)
Financing Activities	$	(8,424	)	$	2,210		$	(43	)	$	(2,721	)

Operating ~~Activities:~~ Activities: Net cash provided by operations was $2.1 million during the first quarter of fiscal year 2022 compared to $4.0 million of net cash provided by operating activities ~~was $12.5 million~~ during the first ~~six months~~quarter of fiscal year ~~2021 compared to $2.8 million during the first six months of fiscal year 2020.~~2021. The year-over-year ~~increase~~decrease 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:

•

·Receivables: Accounts receivable decreased by a net amount of ~~$3.3~~$0.6 million during the first ~~six months~~quarter of fiscal year ~~2021.~~2022 inclusive of $0.2 million of accounts receivable acquired as part of the Upstate Metrology acquisition completed during the period. During the first ~~six months~~quarter of fiscal year ~~2020,~~2021, accounts receivable decreased by ~~$0.8~~a net amount of $3.1 million. The year-over-year variation ~~primarily~~ reflects changes in the timing of collections. The following table illustrates our ~~days~~“days sales ~~outstanding~~outstanding” as of ~~September~~June 26, 2021 and June 27, 2020 ~~and September 28, 2019:~~(dollars in thousands):

	June 26,		June 27,
	2021		2020
Net Sales, for the last two fiscal months	$	33,502	$	27,464
Accounts Receivable, net	$	33,324	$	27,849
Days Sales Outstanding		60		61

September 26,
September 28,
2020
2019
Net Sales, for the last two fiscal months
$
30,036
$
30,139
Accounts Receivable, net
$
27,647
$
26,699
Days Sales Outstanding
55
53

•Table of Contents

Inventory: Our inventory strategy includes making appropriate large quantity, high dollar purchases with key manufacturers for various reasons, including maximizing on-hand availability of key products, expanding the number of SKU’s stocked in anticipation of customer demand, reducing backorders for products with long lead times and optimizing vendor volume discounts. As a result, inventory levels may vary from quarter-to-quarter based on the timing of these large orders in relation to our quarter end. Our inventory balance decreased $0.5

Accounts Payable: Changes in accounts payable may or may not correlate with changes in inventory balances at any given quarter end due to the timing of vendor payments for inventory, as well as the timing of payments for outsourced Service vendors and capital expenditures. Accounts payable decreased $1.1 million during the first quarter of fiscal year 2022. Accounts payable decreased $2.6 million during the first quarter of fiscal year 2021. The decreases are largely due to the timing of inventory and other payments in the respective periods.

Accrued Compensation and Other Liabilities: Accrued compensation and other liabilities include, among other things, amounts to be paid to employees for non-equity performance-based compensation. At the end of any particular period, the amounts accrued for such compensation may vary due to many factors including, but not limited to, changes in expected performance levels, the performance measurement period, and timing of payments to employees. During the first quarter of fiscal year 2022, accrued compensation and other liabilities decreased by $3.1 million. During the first quarter of fiscal year 2021, accrued compensation and other liabilities decreased by $0.3 million. The change in fiscal year 2022 was largely due to the one-time annual payments of incentive based compensation accruals.

Income Taxes Payable: In any given period, net working capital may be affected by the timing and amount of income tax payments. During the first quarter of fiscal year 2022 and fiscal year 2021, income taxes payable decreased by $0.3 million and $0.1 million, respectively. The year-over-year difference is due to timing of income tax payments.

Investing Activities: During the first ~~six months~~quarter of fiscal year ~~2021. Inventory increased $1.0 million during the first six months of fiscal year 2020.~~

•

Accounts Payable: Changes in accounts payable may or may not correlate with changes in inventory balances at any given quarter end due to the timing of vendor payments for inventory, as well as the timing of payments for outsourced Service vendors and capital expenditures. Accounts payable decreased $0.9 million during the first six months of fiscal year 2021. Accounts payable decreased $3.4 million during the first six months of fiscal year 2020. The decreases are largely due to the timing of inventory and other payments in the respective periods.

•

Accrued Compensation and Other Liabilities: Accrued compensation and other liabilities include, among other things, amounts to be paid to employees for non-equity performance-based compensation. At the end of any particular period, the amounts accrued for such compensation may vary due to many factors including, but not limited to, changes in expected performance levels, the performance measurement period, and timing of payments to employees. During the first six months of fiscal year 2021, accrued compensation and other liabilities increased by $0.2 million compared to a $0.8 million increase in the first six months of fiscal year 2020. There was no significant change in any component of this line item during respective periods.

•

Income Taxes Payable: In any given period, net working capital may be affected by the timing and amount of income tax payments. During the first six months of fiscal year 2021, income taxes payable increased by $0.4 million whereas in the first six months of fiscal year 2020, income taxes payable decreased by $0.2 million. The year-over-year difference is due to timing of income tax payments.

~~Investing Activities:~~ ~~During the first six months of fiscal year 2021,~~2022, we invested ~~$3.1~~$1.2 million in capital expenditures that was used primarily for customer-driven expansion of Service segment capabilities and ~~our~~the Company’s rental business.

During the first ~~six months~~quarter of fiscal year ~~2020,~~2021, we invested ~~$4.0~~$1.3 million in capital expenditures that was ~~also largely~~ used primarily for ~~assets for our rental business and~~ customer-driven expansion of Service segment ~~capabilities. The purchase of assets from GRS during~~capabilities and the Company’s rental business.

Financing Activities: During the first ~~six months~~quarter of fiscal year ~~2020 are included in~~2022, $3.2 million was borrowed from our ~~capital expenditures above for that prior year period.~~

~~During the first six months~~revolving line of ~~fiscal year 2021, we did not use any funds for business acquisitions. During the first six months of fiscal year 2020, we used $0.5 million for a business acquisition.~~

~~Financing Activities:~~ ~~During the first six months of fiscal year 2021, $0.5~~credit and $0.7 million in cash was generated from the issuance of common stock. In addition, we used ~~$6.6~~$0.6 million for scheduled repayments of our term loan and $3.4 million for the “net” awarding of certain share awards to cover employee tax-withholding obligations for share award and stock option activity in the quarter which are shown as a repurchase of shares of our common stock.

During the first quarter of fiscal year 2021, $0.4 million in cash was generated from the issuance of common stock. In addition, we used $1.3 million to reduce the balance on our ~~Revolving Credit Facility, $1.0~~revolving line of credit, $0.5 million for scheduled repayments of our term loan and $1.3 million for the “net” awarding of certain share awards to cover employee tax-withholding obligations for share award and stock option activity in the quarter which are shown as a repurchase of shares of our common stock.

During the first six months of fiscal year 2020, we received $4.6 million from our Revolving Credit Facility, and $1.4 million in cash was generated from the issuance of common stock. We used $0.9 million for repayment of our term loan and $2.8 million for the “net” awarding of certain share awards to cover employee tax-withholding obligations for share award and stock option activity in the quarter which are shown as a repurchase of shares of our common stock.

~~Table of Contents~~

OUTLOOK

The results of the ~~second~~first quarter of fiscal year 2022 were strong and we are pleased with the ~~significant progress made~~continued strong performance of our Service segment and improving trends in our ~~Service margin expansion initiatives. Our~~Distribution segment. We have a strong balance sheet, ~~is solid~~sustainable Service segment gross margins and an active M&A pipeline. We are confident that the ~~acquisition pipeline is active. Additionally, we believe~~strength of our unique value proposition and our new customer pipeline positions us well for continued strong organic growth when we pull through these current challenging times. We are equally focused on continuing to advance our initiatives aimed at further enhancing our Service business, which includes additional technology deployments to drive productivity.growth.

~~As we head into the winter months, we remain cautious given the high degree of uncertainty that still exists in today’s COVID-19 impacted economic environment.~~

For the ~~third~~second quarter of fiscal ~~2021,~~year 2022, we expect Service revenue to grow modestly versus last fiscal year’s third quarter, and we anticipate solid improvement in gross margin year-over-year. Distribution is likely to continue to be negatively impacted by the current economic environment. We expect operating income for the third quarter of fiscal 2021organic growth to be similar to what we achieved in the ~~third~~first quarter of fiscal ~~2020.~~year 2022. We expect more modest improvement in Service gross margin than we have experienced over the last several quarters, largely due to a more difficult technician productivity comparison versus

Table of Contents

the second quarter of fiscal year 2021. Distribution sales are expected to achieve high teens growth in the second quarter of fiscal year 2022 on improved order trends and a prior-year comparison that includes lower levels of demand due to the COVID-19 pandemic.

We revised our fiscal year ~~2021~~2022 income tax rate to range between ~~22%~~16% and ~~23%~~18% from the previous estimated range of 20% to ~~21%~~22%. This estimate includes Federal, various state, and Canadian income taxes and reflects the discrete tax benefit associated with ~~stock-based~~share-based payment awards and stock option activity. ~~The increase is due to increased estimated profitability that has exceeded previous estimates.~~

We ~~increased our~~anticipate total capital ~~expenditure expectations for fiscal 2021~~expenditures to ~~a range of $5.5~~be approximately $7.5 million to ~~$6.5~~$8.5 million ~~up from~~in fiscal year 2022, with the ~~previously provided range of $5.0 to $5.5 million.. The~~ majority of the capital expenditures planned ~~are~~ for technology and growth-oriented opportunities within both of our operating ~~segments, and rental pool assets. Maintenance and existing asset replacements are expected to be consistent with fiscal 2020 at approximately $1.0 million to $1.5 million.~~segments.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATES

Our exposure to changes in interest rates results from our borrowing activities. In the event interest rates were to move by 1%, our yearly interest expense would increase or decrease by approximately $0.1 million assuming our average borrowing levels remained ~~constant on our variable rate Revolving Credit Facility.~~constant. As of ~~September~~June 26, ~~2020,~~2021, $40.0 million was available under our ~~Revolving Credit Facility,~~revolving credit facility, of which ~~$11.1~~$12.1 million was outstanding and included in long-term debt on the Consolidated Balance Sheets. As described above under “Liquidity and Capital Resources,” we also have a $15.0 million (original principal) term loan. The ~~term loan~~2018 Term Loan is considered a fixed interest rate loan. As of ~~September~~June 26, ~~2020, $11.6~~2021, $10.0 million was outstanding on the ~~term loan~~2018 Term Loan and was included in long-term debt and current portion of long-term debt on the Consolidated Balance Sheets. The ~~term loan~~2018 Term Loan requires total (principal and interest) repayments of $0.2 million per month.

At our option, we borrow from our ~~Revolving Credit Facility~~revolving credit facility at the variable one-month LIBOR or at a fixed rate for a designated period at the LIBOR (subject to a 1% ~~floor)~~floor during the first quarter of fiscal year 2022 and a 0.25% floor for subsequent periods) corresponding to such period, in each case, plus a margin. Our interest rate margin is determined on a quarterly basis based upon our calculated leverage ratio. Our interest rate during the first ~~six months~~quarter of fiscal year ~~2021~~2022 for our ~~Revolving Credit Facility~~revolving credit facility ranged from ~~1.4%~~1.8% to ~~2.7%~~2.2%. Interest on outstanding borrowings of the 2018 Term Loan ~~accrue~~accrued at a fixed rate of 4.15% over the term of the ~~loan.~~loan during the first quarter of fiscal year 2022 and 3.90% over the term of the loan for subsequent periods. On ~~September~~June 26, ~~2020,~~2021, we had no hedging arrangements in place for our ~~Revolving Credit Facility~~revolving credit facility to limit our exposure to upward movements in interest rates.

FOREIGN CURRENCY

Approximately 90% of our total revenues for each of the first ~~six months~~quarters of fiscal ~~years~~year 2022 and 2021 ~~and 2020~~ were denominated in U.S. dollars, with the remainder denominated in Canadian dollars. A 10% change in the value of the Canadian dollar to the U.S. dollar would impact our revenue by approximately 1%. We monitor the relationship between the U.S. and Canadian currencies on a monthly basis and adjust sales prices for products and services sold in Canadian dollars as we believe to be appropriate.

We continually utilize short-term foreign exchange forward contracts to reduce the risk that future earnings would be adversely affected by changes in currency exchange rates. We do not apply hedge accounting and therefore the net change in the fair value of the contracts, which totaled a loss of $0.1 million during the first ~~six months~~quarter of each of the fiscal years ~~2021~~2022 and ~~2020,~~2021, was recognized as a component of other expense in the Consolidated Statements of Income. The change in the fair value of the contracts is offset by the change in fair value on the underlying accounts receivables denominated in Canadian dollars being hedged. On ~~September~~June 26, ~~2020,~~2021, we had a foreign exchange contract, which matured in ~~October 2020,~~July 2021, outstanding in the notional amount of ~~$4.5~~$4.0 million. The foreign exchange contract was renewed in ~~October 2020~~July 2021 and continues to be in place. We do not use hedging arrangements for speculative purposes.

~~Table of Contents~~

ITEM 4. CONTROLS AND PROCEDURES

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

Table of Contents

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

PART II. OTHER INFORMATION

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

ISSUER PURCHASES OF EQUITY SECURITIES

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

03/28/21 - 04/24/21	279⁽²⁾	$49.08⁽²⁾	-	-

04/25/21 - 05/22/21	61,912⁽²⁾	$54.35⁽²⁾	-	-

05/23/21 - 06/26/21	-	-	-	-

Total	62,191	$54.33	-	-

(1)

We have a Share Repurchase Plan (the “Plan”), announced on October 31, 2011, which allows us to repurchase shares of our common stock from certain of our executive officers, directors and key employees, subject to certain conditions and limitations. The purchase price is determined by the weighted average closing price per share of our common stock on The NASDAQ Global Market over the twenty (20) trading days following our acceptance of the repurchase request and may not be more than 15% higher than the closing price on the last day of the twenty (20) trading day period. We may purchase shares of our common stock pursuant to the Plan on a continuous basis, but we may not expend more than $1.0 million in any fiscal year to repurchase the shares. Our board of directors may terminate the Plan at any time. No shares were repurchased under the Plan during the first quarter of fiscal year 2022.

(2)

Shares of common stock withheld pursuant to the Transcat, Inc. 2003 Incentive Plan, as Amended and Restated, to cover employee tax-withholding obligations upon vesting of restricted stock unit awards that vested and stock option exercises in the first quarter of fiscal year 2022. Amounts in column (b) reflect the weighted average price for shares withheld in satisfaction of these tax-withholding obligations.

Table of Contents

ITEM 6. EXHIBITS

INDEX TO EXHIBITS

~~(31)~~
10.1		Second Amended and Restated Credit Facility Agreement, dated as of July 7, 2021, by and between Transcat, Inc. and Manufacturers and Traders Trust Company, incorporated herein by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 12, 2021

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

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

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

(32)	Section 1350 Certifications

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

(101)	Interactive Data File

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

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

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

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

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

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

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

* Exhibit filed with this report.

~~Filed herewith~~

~~Management contract or compensatory plan or arrangement~~

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

TRANSCAT, INC.

		~~TRANSCAT, INC.~~


Date: ~~November 4, 2020~~ August 3, 2021		/s/ Lee D. Rudow
		Lee D. Rudow
		President and Chief Executive Officer
		(Principal Executive Officer)

~~Date: November 4, 2020~~		~~/s/ Michael J. Tschiderer~~
Date: August 3, 2021		~~Michael J. Tschiderer~~ /s/ Mark A. Doheny
	Mark A. Doheny
	Vice President of Finance and Chief Financial Officer (Principal Financial Officer)
		~~(Principal Financial Officer)~~

(Mark one)
☒	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended: ~~September~~June 26, ~~2020~~2021

or

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

	For the transition period from __________ to __________

Ohio		16-0874418
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

35 Vantage Point Drive, Rochester, New York 14624
(Address of principal executive offices) (Zip Code)

(585) 352-7777 (Registrant’s telephone number, including area code)

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.50 par value	TRNS	Nasdaq Global Market

	Large accelerated filer ☐			Accelerated filer ☒
	Non-accelerated filer ☐			Smaller reporting company ☒
	Emerging growth company ☐

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations	1213
Item 3.3.Quantitative and Qualitative Disclosures about Market Risk	2122
Item 4.Controls and Procedures	22
PART II.OTHER INFORMATION
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 6.Exhibits	2224
SIGNATURES	2325

	(Unaudited)			(Audited)
	September 26,			March 28,			(Unaudited) June 26,			(Audited) March 27,
	2020			2020			2021			2021
ASSETS
Current Assets:
Cash	$	962		$	499		$	254		$	560
Accounts Receivable, less allowance for doubtful accounts of $589 and $480 as of September 26, 2020 and March 28, 2020, respectively		27,647			30,952
Accounts Receivable, less allowance for doubtful accounts of $615 and $526 as of June 26, 2021 and March 27, 2021, respectively								33,324			33,950
Other Receivables		717			1,132			380			428
Inventory, net		13,685			14,180			11,642			11,636
Prepaid Expenses and Other Current Assets		2,369			1,697			3,139			2,354
Total Current Assets		45,380			48,460			48,739			48,928
Property and Equipment, net		21,475			20,833			22,172			22,203
Goodwill		41,773			41,540			43,904			43,272
Intangible Assets, net		6,737			7,977			6,901			7,513
Right To Use Asset, net		10,010			8,593
Right To Use Assets, net								8,467			9,392
Other Assets		685			719			956			808
Total Assets	$	126,060		$	128,122		$	131,139		$	132,116

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable	$	11,055		$	11,947		$	11,203		$	12,276
Accrued Compensation and Other Liabilities		7,118			6,907			7,312			10,417
Income Taxes Payable		438			86			0-			382
Current Portion of Long-Term Debt		2,024			1,982			2,089			2,067
Total Current Liabilities		20,635			20,922			20,604			25,142
Long-Term Debt		20,709			28,362			20,107			17,494
Deferred Tax Liabilities		3,072			3,025
Deferred Income Tax Liabilities								3,223			3,201
Lease Liabilities		8,197			6,832			7,235			7,958
Other Liabilities		3,345			1,894			3,263			3,243
Total Liabilities		55,958			61,035			54,432			57,038

Shareholders' Equity:
Common Stock, par value $0.50 per share, 30,000,000 shares authorized; 7,432,582 and 7,381,180 shares issued and outstanding as of September 26, 2020 and March 28, 2020, respectively		3,716			3,691
Common Stock, par value $0.50 per share, 30,000,000 shares authorized; 7,468,991 and 7,458,251 shares issued and outstanding as of June 26, 2021 and March 27, 2021, respectively								3,734			3,729
Capital in Excess of Par Value		18,453			17,929			19,632			19,287
Accumulated Other Comprehensive Loss		(682	)		(1,010	)		(269	)		(451	)
Retained Earnings		48,615			46,477			53,610			52,513
Total Shareholders' Equity		70,102			67,087			76,707			75,078
Total Liabilities and Shareholders' Equity	$	126,060		$	128,122		$	131,139		$	132,116

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

Balance as of June 29, 2019	7,304		$	3,652		$	16,404		$	(482	)	$	41,129		$	60,703
Issuance of Common Stock	117			59			944			-			-			1,003
Repurchase of Common Stock	(63	)		(32	)		(443	)		-			(1,001	)		(1,476	)
Stock-Based Compensation	-			-			102			-			-			102
Other Comprehensive Loss	-			-			-			(55	)		-			(55	)
Net Income	-			-			-			-			2,379			2,379

Balance as of September 28, 2019	7,358		$	3,679		$	17,007		$	(537	)	$	42,507		$	62,656
Balance as of June 27, 2020																		7,411		$	3,706		$	18,006		$	(847	)	$	46,591		$	67,456

	Goodwill						Intangible Assets
	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
Additions		0-		483		483		0-			0-			0-
Amortization		-		-		-		(70	)		(550	)		(620	)
Currency Translation Adjustment		0-		149		149		0-			8			8
Net Book Value as of June 26, 2021	$	11,458	$	32,446	$	43,904	$	850		$	6,051			$ 6,901

					Weighted
			Weighted		Average
			Average		Remaining
	Number		Exercise		Contractual	Aggregate
	of		Price Per		Term (in	Intrinsic
	Shares		Share		years)	Value
Outstanding as of March 28, 2020	150		$	14.63
Granted	20		$	27.48
Exercised	(25	)	$	12.00
Forfeited	-			-
Redeemed	-			-
Outstanding as of September 26, 2020	145		$	16.86	4	$	1,787
Exercisable as of September 26, 2020	90		$	17.01	2	$	1,524

					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	25		$	42.57
Exercised	(50	)	$	12.00
Forfeited	5			24.30
Outstanding as of June 26, 2021	95		$	23.96	4	$	3,196
Exercisable as of June 26, 2021	37		$	11.35	1	$	1,659

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