TRNS - Earnings call transcript Q2 2019

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Operator

Greetings and welcome to the Transcat, Inc.

Second Quarter Fiscal Year 2019 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operation Instructions] As a reminder, this conference is being recorded. to Investor conference Relations. like host, to now Mychajluk, Craig would turn over the your I

Craig Mychajluk

in here Yes, the open We Transcat's CFO, time interest Mike certainly you, President call appreciate With thank and Rudow; formal your for today good and CEO, Tschiderer. and questions. and we After the up call, on morning, Lee everyone. Transcat. have me our your we'll remarks,

can have the accompany markets news release found the site, crossed Web after it also today's our that don't that closed Web wire www.transcat.com. yesterday, site. you be are slides our on If The discussion

If to you Slide refer would, X. please

filed As Q&A events, differ subject that from to you as outlined the statements could and news portion forward-looking materially release factors the of Commission. where well we documents the some risks and this results which are uncertainties the statements well may other are actual are future today. aware, These as Securities factors and teleconference. make in to presentation by cause during as Exchange the Company as with formal Those to we apply are with

useful call, our would by to we'll except today's evaluating measures, SEC's required these Company, Web well can about call as otherwise, any correct events those law. statements review information well I in we information, new as conjunction forward-looking performance. We will contained we the or believe non-GAAP no as certain at that site a You this regularly point statements whether like publicly as find with be which on post where site, update our Please future or in sec.gov. my on result the precautionary discuss factors. out undertake Web during to as obligation of forward-looking of the in

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

discussion. that, me over call the Lee? turn to begin with So let the to Lee

Lee Rudow

more Good morning, same us you, as the the I'll for the highlights I'll quarter, to joining an review outlook Mike Thank in Thank things financials, the the depth the in and the and a we follow up come wrap fiscal past. of call. of beyond. have everyone. provide review will for for format back back-half of the you some year on Craig. today We'll with

to to way $X.X and the increased expect to Consolidated operating acquired with service operations worked was doubled board our Second very growth increased Consistent net and points both quarter XX% million. operating from We X.X%. income its cash income, well. The up margin foster as million. segments XXX across $X.X to XX.X%, $X.X flow of cash gross operating technology the drive million, to results to points, gains. allocate basis year-to-date segments profitability productivity nearly basis in investments strong to XX were we plan, performed our was to generated which while longer-term strong both up margin organic

U.S., X.X%. XXXX. in acquisition, Angel's exclude in was with we particularly growth revenue growth We're the on which Service organic Service, at August acquired organic numbers the which little specifically a service the These X%. Looking XX, pleased over at came

While not in included included growth reported results in Angel's our our are U.S. September X% in the organic Service, numbers.

quarter XX growth. years. That's quarters every nine-and-a-half consecutive year-over-year achieved for We of have now service

well basis operating pipelines, points. with improved our both which life a as share science business take true operating XXX grew as segment space, and in the in-house from The margin We is income Service is the market new our strong on well and acquisition continue few third to front growth trends as years. segment with demonstrated the consistent operating enter This leverage OEMs. over front. We as competition XX%, quarter as labs past particularly the

business. delivered increase XXX to on Let's in points. segment. we've included to front. goal gross Distribution moment of up margins our delivered to X.X% our in sales and a to quarter, market, about were basis some the were like of profit, driving stated Service our differentiation the generation I'd made rental Distribution margins on operating Distribution integration strong acquisition and XXX the were XX% revenue, Distribution Distribution up a XX.X%. up which progress our lead points, segment. basis for turn in the take

to attention to the of I maritime Transcat, of on our adjacent to team, parallel, also fully welcome represented marker, Virginia. With progress integration Northern green acquisition facility. solutions lab we've control in in quickly more Transcat the has last executed leading test Excalibur's business our would Angel's to provider represents into the products, revenue, In in slide Angel's $X integration market. Irvine, is annual these of Canadian physical measurement approximately of and moved our employees your recent geographic expansion calibrations systems. as bolt-on the customers call L.A. our develop of Angle's The last the toolset Fullerton, map life as three facility a California NBS to continue most by the We a physical three four with bolt-on We to like the of moved on integration to Transcat well into the consolidated a the operating located track, Phoenix, million meaningful is network recognize we're and that in to customers details for Instrumentation, made acquisitions. Angel's Montreal. Calibrations, of the And California. integrate We expertise Angel's acquisitions market. pleased services, believe acquisitions. in in and finally, on Phoenix to in to has our which our science Montreal headquarters the Dispersion's

and Dallas the look among Maryland, opportunity Minnesota, expand at some to ample As expand as other Northern mentioned in Georgia, areas. we've Florida, past, California, geographically into there's we

the me to let with So talk I'll to come to discuss results. And quarter and back outlook. Mike that, turn our over second things

Mike Tschiderer

Well, for fiscal the everyone. our detail I'll start we good year quarter for ended XXXX. provide of thanks, Lee, and some quarter on That of slide five revenue the XXXX. where morning on XX, September deck, second

fiscal X.X%. full million, XXXX quarter ends was $XX.X of up Consolidated the March year for XXth XXXX. on revenue Our

Lee As we Instrumentation after completed the Angel's August mentioned, acquisition on effective XXst. close business

So one results month include acquisition. the our reported of Angel's

margin expected to This growth the September Service rate driven to revenue expansion we which core organic fiscal revenue the had $XXX,XXX, of the revenue our and acquired by XXXX. million, our was of organic digits, Service revenue and revenue. pleased the excluding customers, demand was quarter. We're our growth of strong in single revenue or mid-to-high of reflects to growth line for includes full $XX.X grew X.X% $X continue achieve segment, goals higher of Distribution increased see In We organic increase to from too. Excluding organic rental of revenue XX% to our in consolidated year approximately to revenue $XX segment industrial X.X% X.X% The Angel's for growth growth also X.X%. rental range million. expect when with gross million

expenses operating up gross and infrastructure percentage expressed attractive to initiatives. differentiate margin costs margin In continue excellence operating profile, reflected basis to were in Consolidated operating operational our of And believe $XXX,XXX million, points. rentals down Total were points addition $X marketplace. as the expanded revenue, us providing XX.X%. to investment we in a which basis XX to XX an continued

a operating result, to points six, shown expanded as operating As slide margin XX%, and on X.X%. increased income basis XXX

margins and there, negatively may segment. operating second were XXXX fiscal especially gross hurricanes by recall quarter You Maria, Harvey and our Service impacted

XXX had we in operating for our leverage range for of year's a up year's impact, made Service estimated reminder, points, basis last to total and XX prior quarter. The second segment impact to basis segment margin more achieved between expanding margin with X.X%. that XX a As operating Service hurricane points operating segment than that of

mix, nearly even $X.XX estimated to basis. on basis and on quarter, of segment net basis XXXX Distribution per XXX by have certain XX impact to to customer million points margins diluted fiscal operating Service fiscal operating margin improvement So point equates XXX basis margin in considering and approximately points. X.X%. the seven XX-month gross income of shows an still share, the from This share. XXX XXXX includes expanded second the income in expanded $X.X would resulting trailing per with which quarterly Slide diluted earnings of rebates, to favorable quarter, pricing vendor doubled, $X.XX second Net initiatives. a increase hurricanes

in the improved effective the federal addition increase trailing quarter the XX fiscal tax year. which operating in that in was was income compared In to impact XXXX, quarter with and XX.X% the also XX.X% quarterly December XXXX. was the last U.S. the both year positive of in and reflect months Act Jobs enacted Tax basis this rate The fiscal third our in Cuts from net quarter second of significant results, of

includes various tax Canadian rate Our U.S. taxes, our and taxes operating income. effective entities on state federal taxes

are provides cash first for fund operating adjusted year we slide which On show months still to of increase Our of EBITDA eight, the EBITDA slides to to for was the we of rate up and our of and income a full to was because EBITDA by XX%. flow. basis, used adjusted through to to XXX which XX%. the a Among is which points consolidated on provide that sheet a used is part growth closest period. our at while EBITDA of core with measure expected and believe margin. reconciliation quarterly balance gauge the compare to adjusted fiscal in performance this and operational of evaluate the to measures, basis non-GAAP On million to for be EBITDA initiatives. we segments, do six We expanded acquisition you range detail of X performance to measures, contributed our XXXX others net our other $X.X Angel's up segments margin generated EBITDA service performance XX% tax and good from operating a in income. period measure to investments and adjusted drive use Both supplemental fiscal up year, and XX% GAAP XX.X%. us to from our cash million it XX% look the distribution is is income adjusted investors and excellence I of encourage adjusted $X operations focused Slide operations

disclosed, outstanding the substantially under holdbacks credit the for we At Angel's $XX.X facility. we second next assets with revolving expected total to agreement before quarter be previously million available released acquired XX of XXXX, $XX.X $X million all $X.X million debt million of end the of fiscal of our As purchase of months. had over

the up for cash levels of $X.X debt use the to fiscal end are Angel's due million since primarily of Our acquisition. XXXX

facility. our on second sheet calculate this XX balance debt on XXXX calculation companies for the fiscal Service of such ratio Our is pro differently. EBITDA. is by primarily XX quarter end the expenditures ratio We customer our segment leverage Year-to-date Other in as X.XX. business. adjusted the in revolving as trailing for acquiring acquired companies of expansion EBITDA leverage ratio months The were provided leverage may forma at metric the period capabilities $X.X and used rental trailing million credit capital driven calculate leverage months focused total assets in of divided

the capital CapEx expenditure full-year million breakout areas provide remains plan for XXXX. fiscal the $X.X of $X for XXXX expected anticipated spend on million various Slide for and XX, range Our in we to fiscal a focus

we our balance Form strategic to meet back With I'll continue investments on a X. about to and criteria. liquidity timely to expect strong fund file sufficient believe our or XX-Q you, have November that Lee. sheet it turn We that lastly, we And to

Lee Rudow

as our key Number close advantage. long-term. three Transcat our at remains excellence Mike. Thank people of Okay. infrastructure technology, goals excellence with you, build technology for one, strategic reviewing we fortify the and we a I'll do processes everything systems. competitive to leveraging forefront the continue improved driving and as as and operational Operational by we

that of opportunities the operation service organic continue throughout and combined make leveraging provide organization. of three, do double-digit progress longer the differentiator open make two, significant a vision acquired ultimately a towards our in our our our by plan is through number activity; Operator, to proposition Transcat labs and unique. value in for higher and distribution We advantage that, and can the to to we're and service Number growth The strengthen well-positioned things and term line we remains our in driving energized as a to competitive market. with and related great industry. blend combined operation Service Transcat All-in-all, generating the segments to margins our continues questions. productivity, automation

Operator

please, moment be we while a will Instructions] [Operator we session. time this At question-and-answer conducting hold One for questions.

ROTH with question comes question. from Partners. proceed first Capital Matt Our Koranda, Please your

Matt Koranda

Good morning.

Lee Rudow

Matt. morning, Hey,

Matt Koranda

growth, think says your single-digits. outlook to goal the in of than with the out usual drive the I it revenue is and double-digits I think growth service release in to Lee's higher commentary little a commentary Service which wanted start Just that segment is high

fundamental factoring for is So in any that the change Service this or acquisitions segment? outlook indicating in you organic guys growth are

Lee Rudow

made to of when Matt, and So we we organic statement, referring that the growth combined were acquired.

So that remains in high mid to layer most acquisition the single-digits but we the activity stick Angel's. to in same, recently we'll

yes, we both. typically talk includes about So growth, it double-digit

Matt Koranda

need XX there sort Okay, perfect. to take safe back that of get into modeling about times contributed Angel's, rough to or to for on like it a things or go-forward seasonality And contribution basis? we is to a terms you drag Is it a something account in annual then any I if in it, month. out $XXX,XXX into think that of

Mike Tschiderer

we you may we million. $X that had when announced Matt, revenue said annual the of deal remember Yes, about they

month approximate to seasonality a that million bit be So in at the $XXX,XXX $X for September, of little so the rate. expect of it still of kind run we there,

Matt Koranda

is margin call we to Service assume that? I similar there out in but contribution it's Okay. terms of to would - anything way about And the relatively the segment, think should then

Mike Tschiderer

the guess, what might combine a with we EBITDA margin lines what what EBITDA disclosed is and report, more than what be I fill bottom I it the what little us paid, for range which Xx maybe the higher would probably kind we No, multiple bit assumptions. but we of within are. you kind and the Xx some of - on be it when there that to It companies was between revenues buy of margins in annual typical we a imply in kind focus from with their would

Matt Koranda

helpful. That's Okay.

timeframe agreement a million holdback, I additional be are over just paid removed What to going the to, catalysts sense. is get holdbacks I and to to On what the purchase guess, want the get out? the

Mike Tschiderer

two holdback, Sure. within One, indemnification one contracts profiles. ones. different kind There in closing. and after breaches that significant There's the three kind pieces - two the The for separate one different warranties paid remainder coming of be of and $XXX,XXX were would there's of they October renewal and out reps typical XX anniversary Matt. revenue was that kind the up days of and some is of had

paying actually build be contracts are revenues those contracts. those So as as we'll signed the under out and

the it's then the to XX So from probably be be - would year one now. going probably right, within be anniversary, other the one days so after of after and so would end, a closing

Matt Koranda

Okay.

there? margin Distribution in the I you to into Anything gross mean, terms call things really maybe about fall three of are talk and there. and additional an think price, incremental also buckets I way margins drivers in out that you abnormal rebates swung the kind of continue typically margins the quarter segment, guys could just because to and mix that those solid the On lender look out this the

Lee Rudow

Right.

I pretty volume the pleased the were that think produced we segment Distribution at Matt, so X.X%. with Okay,

a was to show segment. From becomes So where that, am that numbers. continue margins. user design. a drive higher we pricing. end been referring margin optimization strength and And the part of solid Mix we reseller has rock favorable. of by smaller core It perspective, that smaller been business solid that's stability continues business When I I and will say business our achieve to has and to in

we hope to continue. would think I we are see going certain degree to that expect a So, we to see - to

in I you But otherwise. wouldn't any growth to growth or I think think to would margins half year. of us going would the to necessarily seen seen. pattern the model what in don't haven't distribution have continued see well believe first expect rates the indicators are you to that lead above like We we I like perform

Mike Tschiderer

Yes, distribution. last the year of last was pretty in strong half

growth a expect in And still price - to of some of to sales able of had bring obtain was the were because on kind and X.X we inventory had Part acceleration. solid. of less ahead that in quarter-over-quarter little we in products. those question the bit rebates some percentage rebates, to your but that both strong purchase that than here, to that of I growth So was have increases we be there

Matt Koranda

Or, to That my be additional next Okay. pricing is offset essentially much with should is in, we vendors puts from part? all well, pretty any in pricing question terms your distribution? relatively in which headwinds on your that action factoring of that

Mike Tschiderer

Yes, offset. been it's to-date

certain in inflationary we and increases, the from So we market. But prices been some been I It's manufacturers. based think upon price it's with price raise tariffs key sort accepted of that along. had passed the some accordance by our

really had we any as far, haven't headwind a result. So

Matt Koranda

there quarter sustainable of on total mean that I any you can this in that that year last mainly what remainder help the here? know rest Perfect. terms The of last but XX% - this the interested of tough year. year, the we for business, growth had had I are you from expectations revenue rental XX% growth you I of rate through is the one in mean is rest just the comps for rate sustain I some the am year?

Lee Rudow

Yes, we can.

area is Rental third the hurricanes right. the ramped half last kind in was catastrophe. quarter I last XX% think up of last the still of impacted that But You Especially we because positively eastern in It especially are go up of of year the businesses year. achievable. saw. by the

Matt Koranda

guys. jump you. Thank queue. in right, All back will Perfect. I

Mike Tschiderer

Matt. you, Thank

Lee Rudow

care. take Matt,

Operator

next & Our proceed question. Company. your Ryan, Dougherty from with comes Please Dick question

Dick Ryan

Thank you.

you in how Can those through experience wins. So of Lee, the what flow level was last the process? wins and kind high mentioned of the QX talk quarter of timing service you your

Lee Rudow

Sure.

in about right. strong. We was talk are which QX the level So, win did you

it expected rate that. play a We favorable in QX. into We experienced to out growth

steady And say organic would I I QX pretty We expect and so as we achieve that. wins the based to to good current expect high and mid-to-single direct growth strong. question, that that X, QX pipelines were hit win. digit current expectations. And We would our feel your would through we'll about in out upon play and

Dick Ryan

sort like when Is in still the ramps look of the the Okay. the and service distribution look year? at next of in you half then this peeks at year, that peeks kind seasonality quarter or And second the way right QX for timeframe of to typically QX.

Lee Rudow

expect, Yes, I would right.

lose historically, look over see - you I talked to the service. equipment it first as don't for strong business, back for a whatsoever is being quarter historically would we budgets. based QX point And that of if true it be use be upon that been So, or that's in been calendar early of lot to the strong new bought the well, for quarter past into And calendar that this And expect of this out has would XX plays years or in strong year going I believe indicators And sort at based differently. year at year calendar end has distribution. lead Dick. indicators me service. the would that on any first in

Dick Ryan

Okay.

Mike Tschiderer

just next me Sorry, before just also question. one let thing your

stronger. as XX-week do which would XX-week we expect yes, just year have compared Sorry, remember is 'XX is year And to a to a Dick. we 'XX fiscal year. you remember I have But to said before, them that, be

Dick Ryan

that's right. Yes, Thanks Mike.

Have the seeing started and about the generation distribution to show service. side the of over lead slab? having distribution differentiator you up service talk from You

Lee Rudow

we And I we have. I think think Yes, do.

because of service four it we the the have that pipeline had from $XX that that as talk pipeline. level. This national we distribution differentiator is. million about year sort that are set company So, the leads companies, record of only And a

international of Some the doing of well. and the macros that it's is growth distribution

together. that And potential. and focus lot some a to of activities technology is that based segments marketing and around of to it on maximize activities upon trying these time cumulative spend two leverage We

as are doing continue. Nevertheless, well. the is we macro So we leads expect I that impact are and But up. respect think a suggest to want in to I would well that that wouldn't so there

Dick Ryan

great. you. Okay, Thank

Operator

Instructions] question. next Singular Sakai, Chris [Operator Research. question from your Our proceed comes with Please

Chris Sakai

Hi, good morning.

had know, You were are just the factors sustainable they see in both the margin you this expansion? wanted guys led an first and operating expansion going that what And forward? to segment. service to I Distribution main

Lee Rudow

Lee, is this So, Chris.

the we expansion. margin were think I - we pleased with

particular if it's in factors, I related expansion of chime miss service is the But of upon of a any think some the in based inherent the Mike and these. variety in margins business. to I leverage

we faster the around would drop income and bottom grow kind to volumes our the general of rate. expectations to for That's more line As bottom increase, expect at to service business. line

work. think some in and a done I think have We some really I the to have about systems And and good talk people of and we run we business, trying that. better distribution processes business. seen

the benefits campaign pricing helped those margins Some of which into roll distribution. optimization on of has

increasing expect would investments talk that So, margins won't and on go-forward and I linear. operational the we would be over basis, I are and some with It Mike excellence areas, I technology are about these expect time. of in making -

that related. GDP in on to probably the The in again, a pie. margin in will itself margins gains way quarter. are perspective, that there excellence up. service along The now. a see say service. next to XX. would nowhere won't business years, should From show But in reasonable range that two And that, going haul, operational now. be I range to couple And some it should similar amount be the but feel over we we every of increases And expect campaigns over a be that be are drive we the bumps at necessarily three, We time will growth the the will will of up. comfortable XX% way. the in then be we they are longer margins you It expect for these And distribution XX, to near service it XX% more

are over where the service going some lot of margin a of So, both we but is in think to you time. work gains I arena the doing segments, see are

Chris Sakai

far as will a as segment? go, then future in And be of acquisitions do have you they sense service or great. distribution Okay,

Lee Rudow

from And primarily we We to with maybe majority almost not the to acquisition acquire space, the segment. that think the primary nine exception pops entertain wouldn't in That's into last see focus head the strategy eight service service accompany the engine. pattern you but distribution all time our to I that is to related. or continue our going are are growth on company say have or time service that future. been - our That's the in

we at organic And growth, at both that business so, and when look we are for going to the acquired in reason. service look growth

Chris Sakai

Okay, goes future acquisitions, acquisitions far great. And you as paid can then how for? as financing for on be comment will these

Mike Tschiderer

offerings. cash Yes, or historically we facility Chris. Sure, equity versus our debt use

we as have balance equity, may You as strong a use We facility is we don't availability it's on any nice December to a of recall it between year. registration in have shelf in plans debt sheet But acquisitions. that think to we million any well that have do $XX know that did our last to But actually we that. there. do the

Just a to of how we matter fund them. want

Chris Sakai

questions. Okay, great. all my That's Thanks.

Lee Rudow

Thanks, Chris.

Operator

we the the management I turn reached the of session, end Ladies closing remarks. like to for and call would gentlemen, and to back have question-answer

Lee Rudow

we Transcat. your We forward talking come today. quarter get. results after third time. this any we calls with at Lee. look you and We is joining free I the on appreciate to to to out. you Feel reach call to Mike entertain will us our all that out Thank Well, everybody try And Okay. certainly interest all in for the being us. appreciate

have So, day. nice a

Transcat (TRNS) 24 Oct 182019 Q2 Earnings call transcript