TRNS - Earnings call transcript Q3 2021

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Operator

Good evening. Welcome to the Transcat, Inc.

Third Quarter Fiscal Year 2021 Financial Results Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Craig Mychajluk, Investor Relations for Transcat.

begin. may You

Craig Mychajluk

Chief and remarks, time you, me everyone. certainly questions. Mark our We on our Rudow; Yes. Financial open Chief and good the your your Officer, President, have we today call After With Officer, interest appreciate Lee the and formal Thank Doheny. today, morning, Executive we'll in here for Transcat. call

transcat.com. markets The news yesterday, have that website. you the release our across website wire our at don't discussion at can you today's after slides find accompany on are it If the also

If you would, please refer to Slide X.

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

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

prepared this accordance not additional should information results GAAP. as or in presentation a with substitute for of isolation in the You consider

accompanying reconciliations non-GAAP release. comparable tables the We GAAP measures the have provided to earnings in of

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

Lee Rudow

joining for today. everyone. Greg. Thank Thanks, us you call on morning, Good the

transition Some first have on met third at Mark end Mark, was already year. The who results. succeeding before like spoken Chitter, of is but to with call his with Transcat, earnings him you I'd retired CFO Mark, November, this Mike the in move quarter introduce of with we the the being calendar that named investment to be smoothly. the execution went to executive is in Mark strategy and is in M&A versed Mark's in technology-based including of business our an anticipate plan, in value and extensive very We and great continued technology the strategic addition infrastructure. operations acceleration well the will background team. and and excellent our of

our third to quarter Turning results.

support the top X.X% impacted productivity many performance, critical our responsiveness remain third service year. segment, be driven by capitalizing Pipet.com, by pandemic. Distribution distribution margin was increased Service growth We of operational perform pandemic with the biotech to has service basis the the our performance. primarily growth. operating recently unique are demonstrate the our provide every in caused next every It organic margin on February expectation acquired leverage will And continues Focus quarter portfolio we geographic pandemic. our to increase proposition down business position revenue That's consolidated continued on the percent represents we operating year, distribution and segment continue and the in service and adverse consecutive gross which In lead XX% which several continues was basis our by margin year-over-year acquired last been service continues service achieved the by the synergies growth. the both and vaccines. on deliver The XX has manufacturing essential resonate. was organic. in team's to to that business. achieve business XXth to and services XXX condition COVID-XX current quarter, pleased together by effectively market service to We continues of complementary grow dedication strengthened quickly our XXX value the higher footprint. our points. quarters. increased growth science including is be will X by businesses, throughout and continues quarter, COVID-XX The negatively the and distribution anticipate growth, given nearly will years. prior versus interaction businesses X.X% life our unique integrated the of points, resiliency organically In driven well. especially technician impressive, to that line distribution research, The and and sales The outstanding to service and in margin over leveraging

On of investment growth over of the exceeded million, continued the turn $XX.X channel supporting XX% the performed in I'll rental reduction income to technology, over very And year achieved that, in and fiscal quarter generation same by cash Mark. the XX% the up quarter. Operating third increased for infrastructure in have driving period. To debt, third with we front, date well, things XXXX, expectations and opportunities. outstanding the prior

Mark Doheny

history, we well. X Thanks, growth year, basis It's for and hope regarding of consolidated will our up have which joined given achievement from great I forward team the and Transcat pandemic. I'm at certainly exciting on time morning, a be today, fiscal to Consolidated deck, ongoing time everyone. to an to good with I showed $XX.X the revenue earnings company's this year, Slide all the you notable look are and revenue our provides safe and a the the growth was and by of contributing detail segment. the excited impact in success. of million I keeping Lee, you first and such prior on and start doing to X% continued

Turning segment performance. to the

growth coming service growth, from acquisition from With million biotech, highlights under a about organically segment's to approximately that and was of came and little XX% half from million than of less growth. mentioned, regard of the of $X million, the half Lee strong $X.X about other came As with the segment $XXX,XXX. of revenue one $X.X pipet.com quarter, growth acquisition the

closed As approaching you anniversary level February which quarter. X-year are fourth our in on last our beginning the mention This quarter. toward of will, of know, will was I of acquired fiscal year. end the course, year-over-year the XX Pipepets.com, our of acquisition that our fiscal growth Biotech acquisition impact of we

in million our of Turning to were with X% prior line $XX.X Distribution. from expectations. year, Segment approximately down sales

this significantly impacted be to participates mentioned be As opening his certain in markets Lee end continue continues in that segment remarks, as the pandemic to by soft.

to Turning Slide X.

margin bets.com, from programs performance lower initiatives, segment which look has expanded year, pipe cost advertising was and XX.X%.Service gross profile. XXX our on XX% points and margin reduced vendors to to gross up lower an continue basis nature, to as that controls, and tight XX.X% points strong our higher-margin well more a down continued XXX prior our leverage prior as basis on year, rebate costs. was profit gross technician consolidated co-op fixed their are Our up which impressive as operating from costs points Distribution to was from XXX at in for reflects traction the volume productivity ways basis

to XX% prior significant million portion and operating over as overall performance. up still income quarter, Distribution expectations. operating X Consolidated segment profit. $X.X basis a exceeded our was operating income and increase operating our year XXX points $X.X gross was the year the XXXX, fell income. the profit $X.X quarter Turning of gross operating to year best million and million on $X Service easily Slide lower of largely from through from of fiscal was but income million down prior of our increased

to of performance. and of were our earnings year, strong operating QX over our X. up Slide result income increased from $X.XX net $X.XX Turning a prior XX%, per diluted share

operating our the section EBITDA includes Canadian effective XX% EBITDA posted and which, in tax Slide where was on taxes. income federal, adjusted XX% to the our our we pleased was XX%, just fiscal margin is And north EBITDA supplemental million our sales. XX.X%. we rate operating Our segments to non EBITDA, net we XX%, EBITDA our EBITDA generate use to of is is our adjusted gauge it XX.X% expect and adjusted reminder, and with quarter, increase Among were of particularly various website. the Consolidated state we was show measures, and X, which and continue a to reconciliation EBITDA believe between $X.X of to tax XX% presentation, income or a as ability adjusted and adjusted good be in performance up in rate cash. service performance we range segment's found adjusted to because GAAP, of this our year measure of which of and margin. can A other income adjusted the

to end, EBITDA some infrastructure, function XX we XXXX segment highlights by facility and $XX.X the to versus second XX our focused is year acquired in end months cash to the provide finally, our we as million expenditures, by Year-to-date total had the and reduction, where working will we net was credit divided range $X.X narrow million which million full including end believe $XX.X And fiscal $XX.X provided cash a more at is fiscal expenditures available the CapEx at which our and debt to ratio came a $X.X X.XX.This technology and leverage under million nearly for we quarter year-end. now calculated debt reductions this strong also X, rental quarter. was operations the on $X.X $X we trailing capabilities credit capital balance million, regard at period had regarding to communicated assets. With Slide to had service was million adjusted the were fiscal band pool improved At our the revolving and flow. With $X.X be from EBITDA. largely of the million, end Moving EBITDA, were Year-to-date million $X.X capital total XXXX of range doubled down any our of quarter. giving capital. detail net of sheet. down Slide our our of million,

closes. to XX-Q turn expect the file do I back it Form after market to Lee. we that, Lastly, over with will our And you, tonight

Lee Rudow

Okay. Thank Mark. you,

quarter progress we through fourth the and of the our we focus strategic plan. execution As on fiscal XXXX, continue will into to

strategy, margin. we mid- XXXX, combination in generated drive double-digit and regulated the single-digit Consistent organic defense. including and gross expect growth of growth the Throughout with our and growth. sciences, acquired of fiscal our expect helped drive service be high in life to to operational bulk excellence improvement overall industries, We have our aerospace service technology service growth to significant

margin of XX we increase technology, including expect continue to our of the into calibration expansion automation time level the We over network as labs.

And growth. acquisition to and with Shepherd of to across We on on through I development acquisition levels an close of all program. continue the will next also our expect update our organization the talent of emphasis Transcat phase

anticipated, M&A is our very As pipeline active.

objectives Our and acquisition the balance Both are investments to forward. enable capitalize will supported of and going our strong ongoing increased a of us on number an execute integration sheet opportunities by tools. development in

is are within we that attractive historical rates. While some shortage parameters trend and return competitive, we are in opportunities accretive internal multiples, no offer seeing upward are of there believe

As to we XXXX fiscal in to consolidated stated the quarter release, of fourth operating expect we income earnings fiscal the our be XXXX. in similar of fourth quarter

markets Our to be stability in our strong the continues serve. environment in strong we performance challenging, that an and position reinforces

as talented balance well plan we our to we the open of execute Looking finish that, combination hard and strategic with in beyond. demonstrated team to believe positions the and line Operator, the fiscal up our questions. our sheet we drive can our to Transcat strong ability perform XXXX line for ahead,

Operator

question-and-answer with Instructions] Palm a is conducting At time, will [Operator we question from Craig session. be And this first Greg our Capital Instructions] Group. [Operator

GregPalm

the congrats Mark, good quarter on here.

organic drivers curious primary with on is that? start into a a we in of I growth details maybe little return can gains continued to and So bit sciences? some it growth. maybe mean that? the share Is Maybe if you there's it service outsized more elsewhere? segment go just They're life in the recovery

LeeRudow

think a of combination. it's I Greg, Yes, kind

demand. pent-up So saw it I on some characterize we I would as think -- flow-through

The more having conversations. were flat. pipeline. we nice of in service were We had a quarters We first crop knew good

So think, general some through about, activity of sales has that increased. level flow came I

the of see year, business. growth. not Our it pipelines are at fiscal some of I'm solid all surprised and this organic on side just-in-time And that we'd in that the

part, So few I I characterize But most quarters. that's for in the you'll continue would the think it how next it. see

GregPalm

a growth sense that sort the of there? guess, sustain rate, of Yes. Do where chunk organic get market demand challenging level in scenario and you even that decent still to your still out what's I a mid- And you single-digit there's confidence this in? of pent-up high end can kind we're volatile

LeeRudow

growth. high combination have think the addition we we're going and of that, upon of working thing is got number organic confidence think that a to to opportunities percentage Yes. that our levels addition sort there. I And won And those, confidence pandemic. demand of mean of high. while large And the way of comment still pipeline pent-up been win drive them, in a number to one out opportunities X things I an it's through the kind activity, me leads of I Yes, the make throughout pipeline still we and our that those and their up we calibration make relatively to picking of interesting statements think the I do we've based have level. just of general in number the a level they're around

GregPalm

Okay. what service? of long-term more starting to on-site a there's pandemic. are Good. almost year we're lines I'm delivery thinking of along sort in one, maybe within emerge in-house. into this Last versus trends curious, or periodic pickup the And I'm

I I a on us, So accordingly. if -- learned of rates in recall, any? mean on we CBLs. curious that the going didn't comment even continue X-year stuff you normal they're new pandemic. we've the we in at on in anticipate delivery, point we're future. CBLs' of also larger where to much how changes been all had that time. they number labs. pipeline, to near manage thing as one period, the this people much our businesses byproduct of might more Greg, our an any year We a the less ready to interesting And in don't pickup return of new virtually in less the implications, That some There really would long-term of I'm sending there of the I what I think while these as sites, have to stopped that and a would And It's kind And landed this to are during think question. see trends, return opportunities. just trajectory the are P&L how healthy -- client-based stick? And pandemic. growth I I'm not was just some

No normal identify today. than so think that, at effects some other long-term I And return lasting a I state the that will business would point. to

Operator

with And our next B. Securities. question is from Kara Riley Anderson

KaraAnderson

a on bit late. little jumped I

to attractive discussed but this, the you that of So Why nature acquisition about services you wanted can and sorry, small own? already if Biotech you talk when the be? how calibration to you it saw seemed

LeeRudow

Right. Absolutely.

its not in if So about a operation most with England region biotech in about of ago, share work on-site And basically, and difference it's the pipe does bets.com. a start little, work does do that pipe we best almost were the a interested generally any, to pipe New bets.com. year bets February, ago, biotech is very acquired work. The beds companies, pipe Boston-based and is pies, produce. place but the in -- and exclusively, they we is between year of that both why them because the lion's

on if are to Biotech -- the on-site send pipe company you from they small from them, entire pipe most they of is the want is for bets based their send anywhere So in right. England. company, country, work but can bets. New comes But a people services

bets.com, of well, based So if can look road with England you're even the call them at a going the that's probably biotech operations, map are depo, on-site business. fast. say, And got New when powerful combine there's we in we this there And one combine getting the sort what you to you've of the and really in combination. and synergies service why administration pipe these and to some sales cost the talk about we redundancy because synergies combined you

sense a So for have lot as it makes stand-alone it was We of pipe bolt-on never a bought bed.com would to small. us. it's a but

KaraAnderson

and technical you ones can where kind of for, other kind just do you And of you a you any just where build are kind other of new these on if build capabilities there you will? find category, to looking are acquisitions out that

LeeRudow

our X or look have have capabilities a acquisitions main increase on footprint. in drivers one when to vicinity bring addition today. already in when our in close in Well, That's we just our geographic at an place. they're don't on that expertise And of is to we we general, driver in bolting general, expanding operations infrastructure of

it's call, -- and got much we today disciplines there's actually measure that parameters a list, to this and into -- on So it's yes, you've don't details that go variables not the we but we too and outsource. appropriate

different We XX because we would -- we XX% and that look outsource, and the them look flow of Kara, own XX% is does at makes of Nobody when core. it's such. economies XXX% are all of out, is to sense. work. always And acquisition to But caimanes our that work, them to want have that. to that that still XX% new always I board that way list make about scale do we through one come but do And it on whether about bring that technologies yes, or think

KaraAnderson

just one in change it. at opportunities Are the seeing Got size last then M&A. you of question kind all? a of relatable about And

LeeRudow

next terms which the historic is sort size. a So And bit fitting of as see pipeline, the and would will. at if level up core in that opportunities Part levels activity a different present are of to spot, of I makes pipeline of I this the that little call, alluded sweet much starting what you themselves very part of would upstream also we say our our to of same, characterize I -- which pipeline, pipeline, sort is is robust. on our

thought we encounter. fact, that in we that something And are. we So would is

it's of opportunities sort So of somewhat the new combination pipeline of and in as kind well. a trends historic larger some

MarkDoheny

I Jenkins ago relationships really and months Yes. to has we even need And to a just to to last adding that, that that been pipeline pipeline developing XXX the really since X his here, to the of I've time dedicate the add and Lee. days Jim improved think, lot of areas, in a lot

LeeRudow

that with the market making timing Good here. investment

MarkDoheny

Yes.

Operator

next HC our from is Wainwright. with Scott question And Buck

ScottBuck

us the segment what site. mentioned those in is mix differential the earlier on margin components? call remind Can in the services different you in kind the Lee, you some between between mail of of and

LeeRudow

yes, terms of us The attractive So me sends because profitability, that. that's is incremental depot, largest let profile work. little their to very there's is our equipment depot the us in-house address that call in the customer or and most Scott when a to -- cost. it We

Just imagine capital. you coming units don't XX lab, into to spend have a

don't people It to that high You have tech to at of it. kind flows through do revenue. incremental hire

the Another service that the work back pickup level location, And customer's we have delivery. again, is brought pick at is up to lab. and

And to to same so the work, profile deliver. up the except profitability that go does have in-house have pick we and

at little to send we on-site a bit we a fool costs profile, for you've work, doing really increased captive But that week. these be cost the crew where you might but got different and have So a technicians And get customer's additional a It technician to of band done, of periodic are there's assets not Then lot. people And technicians have location. varies. a sites and of It your to that one sort for X on that be customer work. time. out assets a a day. might isolated

really they our but And And where Then business. have and is have one always labs. a in way interested this we to client-based the more profile we're bit so expensive, that little we grow ever is important something lab. up technicians every X, They core location. customer's sometimes That's at to assets we X, day technicians very where work. have rarely XX And go Transcat XX, there. a show a X, that

high-volume of asset, figures. we've customer's sometimes a is That's high little a X these couple margin of they assets. work. into X The the it's but And very own to fact, it's the client-based by Sometimes labs we of high profile the started. X points, lost basis one perform in hundred business, our date. Many figures these bit a less years are work. never part In I've we X of a that value been or here, sticky lifetime

bit over for little a margin time. changed you've stickiness on that so And

So those and X service levels with are the associated it. margins the main

ScottBuck

helpful. very That's Great.

you some improvements services the technology long-term do think and targets in how guys additional Second, segment? know about undergoing automation. margin I you're

can the segment this years, margins mid-XXs? get next X in to Over

LeeRudow

technology to several not Yes, closer want journey, I year were, of mid-XXs point. at it back journey a this to talked in started We unreasonable was get is an we think target X, XX% about to campaign this We margin X-year margin. gross say when improvement XX%. I

done that And It in quarter little higher. so right? we're there, we're that XX%. lower. this QX past But We'll a be range. every We've won't bit we're

look that business happen at we're every the going think the -- next you I So range as to Mid-XXs what single But I going suggested. of couple not and the thinking to investments, on think the up to when It's is It's for have and in we the heading and margin years, we to think quarter. terms over unreasonable. top profile we'll happen of same sure. I overnight. be right not not

Operator

our And with is Sidoti. question Ramgopal Mitra from next

MitraRamgopal

And in couple business in reflection without is you look overpay? over really visibility in have are be? of about I it has you terms technology, where as comfort on in want to terms First, it as or terms to Lee, you the been years next investments the along of market relates how making you talked of you'd how sense, it technicians, as to you're to adding that like terms making having of far a necessarily in the being to the the And these the able -- just get front of additions. of recruit out a in

LeeRudow

good we've job. the think a a need We've infrastructure and to a lacked of perspective, X-year of I who we been that of some where well, an good we've good X sort hired and have people really from night journey starting to team needed. idea working really Mitra, on there. are, And done from been we pretty technology where a some -- has really Well, X advancements a technology to day we're of catch go going how up. we get to And that

I've I were the lot if the a to Yes, team the very around that But upside "Gosh, the built you use tools in integration. effort we've impressed we to love for been So improvement. of there's with margin love technology. We do. the some But technology. a " of a best of analogy in baseball, inning So fourth probably we're at lot there, in say, base saw and it. we're about out Technician quarters well, with of right the to couple we service looking number. The weren't availability, that to work. anticipate organic first but forward. capacity We We growth the is We growth forward part and certainly technicians. for organic going most the new flat third going growth pipeline quarter. organic had the aggressive getting We had in for healthy. the might

we need So will technicians some to at point. hire

the the help so. I do technicians the of plan tools not And where so in to This a manage worried of ago is at the tools when the from that's think But of type part what about tools enhancement. we that and hold I business today. There's identify see you That's are growth growth. data And as lot have organic have in place time fine. is would game talk And back the think hiring. also I our I'm hire us long-term and around optimal these to think of time capacity we'll technology that couple the these productivity, appropriate put that. didn't to they me perfectly do about. planning. to of we a where we years margin potential

those has us data decisions. that helped So make availability

we'll have a confidence get we level So high right. it of

MitraRamgopal

life on seeing maybe development then for driving, the conversations heightened other can was vaccines things. you and because you're see any of interest science if wondering Okay. business. pandemic the I And quickly just or

Just -- sort No device, stable of we are much our the Right. we're to do life asking, always I say science most you Mitra. would It's dealing the and don't that's core business. just with vaccines. pharmaceutical incremental. curious for environment life getting med part that And we've because of tell I any that. terms say question companies with get most the business always the you're in part, for were involved this science difficult oriented. if year, of But pharmaceutical what moat of were revenue We with normal it's tailwind in but would think of been been -- I it's business. business that companies terms all I that out

I been stable business These held we've just have the These do. and think it's companies and resilient, been up. so resilient. have that companies stable we and

and when it, our is it's think business industrial general because I passes open COVID up. market beyond we get I think upside to the for going back

But general really I we've done there's to So life sciences. upside in think well the market returning.

MarkDoheny

impacted way months pipe them. owned for last would that's since And we've I like, favorable very over example, XX life just pets.com been a mention, business, too, in within sciences, definitely these pockets the the

pockets have it. we of So

Operator

Ryan And our Colliers. next question is with from Dick

DickRyan

seeing know But of and of has that maybe positive oil impacted Sale, or opportunities been positive Shoot part Are seeing emerging? switching to any you suggestions green any negatively are the in I momentum distribution. any you whatever. and business? gas

LeeRudow

Yes. little do bit. a of I do actually COVID best. We -- lot we that fourth third -- the Moderate chain and We quarter. supply the at see see of related think intend had slowdowns. sort some quarter leaving back will a That orders

quarter. of fourth will help environment. is general the the more Some But your that about question

And like what we're like it's earnings what but is we're on interactions. it's stable. a d seen year, from industrial really it leverage side single been to it's think That's focus that it's to it's an it I continue be distribution, off of do the some call, will been, demand ton on to the We not going Dick. yet. has said, we digits last now but those I for pent-up coming. in continue, we've been anticipate there The going business

DickRyan

coming Maybe fiscal of Are travel Okay. kind and to one going some back that into maybe other on you savings probably of you're should Mark's limitations OpEx with fold? into early how had these at look any able pandemic 'XX? do. we And the direction. OpEx, less costs

MarkDoheny

a in is it's Maybe much say, traveling as there, really spending very and little one, example, a great would little how And Yes. spend say. sustainable traveling gross little a on bit the much. understanding, we we're when much a would as how not as be of time there's areas. I we a -- that especially not start they'll on, meaningful, question, certain lot be, service not we're hey, potentially going of but again, margin do much it's I There's

of you And sort going that's in answer costs, something some you driver discretionary an it's that. bit so the I biggest next little a -- sort some of uptick see big We think would being -- income of operating operating normal of probably That's profit would those as of of into a into year, yes, travel one. could our environment. how get But and highlight gross improvements. not I a as

DickRyan

on Okay. Congrats Good. Thank a good execution. you.

Operator

Singular our Instructions] is [Operator Sakai with question Chris And from next Research.

ChrisSakai

wanted on gross on could you Just some you shed when there guys a see light margin. I question to if know distribution improvement? just had some might

MarkDoheny

one tough to a That's Yes. call.

there. a things got of happening You've couple

But co-op our volumes, their advertising reduced to rebate lower and programs. the talked which course, the about vendors Of due market. have we

look at decline. working closely with the when really the them. biggest you year-over-year change in that's we're to So That's contributor margins, the

to point. there But on tough closely how working for at on bounce side, see big with plan that backs this margins. the on to us the know progress I that depending teams distribution with the our vendors would help the pandemic, So opportunities any things the it's

Operator

I'll over reached the of now And have for management remarks. end call question-and-answer to the closing the We session. turn

Lee Rudow

appreciate today's Mark. your to with at thank out. call. time continued for on joining Okay. And with look us me us or quarter for fourth We to forward to again Transcat. any interest all thanks Feel you free talking participating. check after come in in again, results Well, the We with everybody

Operator

disconnect for This participation. this your and concludes today's lines you at time. conference, your Thank you may

Craig Mychajluk	IR
Lee Rudow	CEO
Mark Doheny	CFO
Greg Palm	Craig Capital Group
Kara Anderson	B. Riley Securities
Scott Buck	HC Wainwright
Mitra Ramgopal	Sidoti
Dick Ryan	Colliers
Chris Sakai	Singular Research

Transcat (TRNS) 3 Feb 212021 Q3 Earnings call transcript