TRNS - Earnings call 2 2024

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Operator

Greetings. Welcome to Transcat Inc.

Second Quarter Fiscal 2024 Financial Results. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Tom Barbato, CFO. Thank you.

begin. may You

Thomas Barbato

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

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

during can the after Both the Our found yesterday. slides we website, earnings the closed that release transcat.com remarks the Investor crossed market our will on our Relations reference the be release and prepared wire in earnings section.

would, to please If you refer X. Slide

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

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

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

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

Lee Rudow

points $XX.X again you performance everyone. in to Tom. our entire you, Thank morning, delivered portfolio strong Transcat on business us revenue key XX% successful Good our segments. $X.X our $XX year margin for quarter both in grew services XXXX. acquisition was Distribution for as of across gross prior second today. a metric fiscal call us XX% Operating Adjusted Transcat demand for the for Consolidated strategy continue expanded as was $X.X margins Thank to million the to strong. Consolidated joining and second Okay. given quarter EBITDA, Service to the flow the cash be XXX basis expanded million. up million year-to-date. million in and XX%

performance. Service quarter to second Turning our segment

to XX%, revenue Recurring recorded service to durability year. Margin throughout foster service strong support Our Service double-digit demand our model in performance a which benefit straight and streams throughout the process differentiated at growth primarily growth. device, from to increase XXX revenue on value double-digit over quarter pharmaceutical, multiple leverage organic expansion calibration and represents labs. regulated we gross a and level. aerospace very by in proposition including of differentiated continue services continued was as a basis significant defense. Service increased prior dependable and and We growth service resiliency margin our second of organic year-over-year productivity XX% include high industries bio suite medical our from was network quarter, well point service improvements automation grew medical and XXth growth, of driven revenue that of XX%. continue

our of strong control products, Service NEXA's with our services and unique. in organic combination second a and mix for to and expanded of an points quarter. Turning high-margin by increase the Both XXX prior to leads distribution of segment, core distribution basis cost remains growth. The optimization business. calibration number drive consistent significant along into rentals, rentals rental driven year, and margins from continue growth opportunities Gross supporting and

XXXX. to executed well achieve performance ability second companies and and increase for part to synergy our our of revenue markets expanding in due we Transcat Overall, our cost the objectives fiscal in EBITDA stronger. never XX% the have on quarter strong value proposition has We The our been in addressable is acquire.

of team and that classic Transcat first the done for geographic strategic core our on steps. identifying company by we to has are acquire expand start acquiring our a drives we through markets, Whether this We good very are those that footprint companies work edition is to integration only bolt-on are but differentiation a adjacent it our Transcat, the fit calibration and services, front. or X proud an

it. see can You

in profits in that science and results was it commissioning, specializing growth of to Transcat's between margins strategies synergistic synergies see and selling overall complementary part Growth inventories Transcat's in a qualification and be selling our is marketing strategy. In of Transcat's Axiom the as go-to-market work of and their we rental SteriQual, -- course, rental quarter, traditional business Rentals, the largest traditional important acquisitions company Axiom customer will continue the organically service You acquired and launched life second business Equipment and the Axiom go-to-market Test in history a with acquisition results, And increase. with fit and market validation include XXXX. services. great base. an

market NSX. and consider capitalize equals cost to within model, we combined we X addressable rental the solutions NEXA well opportunity. SteriQual differentiated We business fortifies optimization NEXA's expands on our X SteriQual perform single-source a control the X what expect space. plus as offer

was who I'll Transcat of repay investors record Tom to successful robust offering quarter XXXX acquisitions of growth, demand track out addressable improvement. And in detailed used our fiscal displayed for profitable value of recognize, and of our a and with fiscal the results. long-term demonstrated of Xnd institutional revenue understand for In margin expansion public turn among to completion our stands second credit over stock sustainable is the markets perhaps XXXX, things view to highly quarter more that, stock, of our The most X what offering a facility. addition the common which

Thomas Barbato

deck I'll fiscal on posted second Lee. the revenue provides detail Thanks, Slide our which website, the our of segment by and consolidated regarding XXXX. basis start on on a quarter earnings X for of

prior $XX.X distribution revenue was up service million of slight consolidated strength Second and year in segment business. XX% versus quarter our growth on

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

As Lee we mentioned, continue to services business. levels high see demand our in of

year. Distribution. of X% $XX.X Revenue to Turning million prior from the grew

Axiom We continue which to mid-second the see equipment which business acquisition, in also from growth quarter. in higher-margin rental the benefited closed Test

X. Slide to Turning

continuous gross Our expanded The XXX XX% leverage service the from supported margin revenue. in inherent from the and XXX points. productivity, streamlining points in the our well from gross consolidated XXX operating expanded million of was as and driven higher-margin higher process quarter $XX.X larger the basis improvement and quarter. mix to gross segment levels further by Service of basis of automation our our like initiatives increase model margin as ability points prior up a for up prior year, first profit margin networks our year, XX.X% basis margin of demonstrates within technician by was the benefit rental second gross labs. Distribution of

we performance cash. presentation. Flipping adjusted $X.XX EBITDA for or the amended be the NEXA share from of of to impacts recognize nonrecurring where to and million in costs. $X.XX, earnings of per Turning margin. is EBITDA, due the year. current which and share the to of onetime disclosed We it to diluted Adjusted $X.XX. We our $X.X section is of per was includes earnout. per reduced $X.X net upfront A expectations from best we amended well as adjusted and the in gauge $X.XX performance. Diluted normalize NEXA at because believe earn-out came acquisition future to report XX% prior EBITDA is and show earnings based earnings share the found business supplemental by change share the on adjusted of generate to of this this earnings SteriQual, diluted diluted per business of adjusted The Slide the per charge share the charge adjusted to our reconciliation earnings noncash expanded of agreement operating X, the of million year ongoing acquisition-related increased measure earnings NEXA which prior the non-GAAP diluted scope performance to QX for earn-out X. share ability can of Slide portfolio, a previously per use decreased QX income our

$X.X acquisition year. consolidated expanded EBITDA million this was mind, second adjusted the same points. from of onetime from that deal-related for continue we our even becomes the execute well noncash up adjusted transaction EBITDA to as adjust will margin EBITDA to prior on year. growth statement XX% strategy, quarter more that expense increased acquisition metric had costs Full as segment compared Adjusted our XXX in of important As income does as to it the purchase highlight basis accounting. With last in level hit quarter

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

off Moving improved highlights half the of ratio available sheet. our projects. Slide the net to $XX the the and $XXX,XXX in prior funds the to using revolving facility. higher end flow free million in fiscal facility centered prior offering, capabilities, balance $XX with year. from first to X.XXx Slide secondary third million and leverage million was had technology, including cash than million segment debt the around year the the X. growth We've the QX a and of from generated quarter. early continued up year. the operating be end quarter, $XX which paid expenditures $XX our At strong of were significantly future credit in credit we Subsequent total flow X of Operating capital automation cash the of versus Service quarter, closed a

on back Lee. the expect file turn we Lastly, I'll with it X. November you, that, of And to XX-Q

Lee Rudow

cycles. Tom, through past decade has results various economic consistently the exceptional delivered Thanks, and throughout Transcat

improvement profitable expect we value. shareholder We sustainable and growth continue increase margin as to

to We expect and unique markets. strategy our acquisition addressable growth successful drive and synergistic expand our opportunities

expansion. In to we the continuous including process to and very automation, We which developing key other improvement leverage get of That's as expect to better. enablers early margin way. and Transcat the we expect to in get stages we're expect future bigger words, robotics,

As company service well. single-digit we throughout to way Perhaps organization. and Transcat we gross push growth for It's of expecting our expect the superior we expansion double-digit as leadership third develop fiscal recruit needle management work still we the the high year, most move low quarter people our and the organic retain that to to full new XXXX, continue through the fiscal are and to heights. importantly, and at expect margin

that please journey open questions. the for future. And operator, the continue with into to line expect that, we We as

Operator

[Operator from Instructions] question with Greg Palm Our first Group. Capital is Craig-Hallum

Greg Palm

absolute wanted think start in the to was strong, improvement basis on some the an a was really year-over-year on with gross I highest basis margin and service I time.

that you seeing years. what of So been over impacts, kind of we specifically continuation of quarter? And of for something assume seeing remainder level that I positive the year? in of are year-over-year Or that you've drove that? of the there guess terms kind greatest a some nature was it's kind the in strength the of improvements should onetime where the of in But

Lee Rudow

-- no that through help. surprise combination that Well, call in take years. the our Greg. And business Okay. will I that help that strong think -- to There's is I'll It's this -- helps model. volume we going to continue of We've inherent always that things to margins. growth leverage about a alluded volume question, organic talked

So rates that margins see organically to the you'll continue from improve to we have, the that. degree at that grow we

also automation. -- So

as at we're facility are probably moment there. And the and these picking working a also contribute, on think out -- work into automation. opportunities that's contributing data and process it it I we our question the introduced processes our of lot factor, of in the labs, they There's minds comes we on focusing general, we're We that, up our are from the done our product the just leaves. And of made, well. factors. we've the these to some as that third or contribute of when processes we in as at improvement continue and leaning track a contributing momentum look moment years our not to improvements end some fourth We some will now back, certainly year that no

and are So continue, things most to these I'm always margins look of guide to quarter-by-quarter factors. forward, but hesitant when you different on because going there's

and up drag. start can factors other that well. CBLs have short-term There's as a have You

So margins continue improve. will yes, to

you've to next will much want and quarter-by-quarter guidance and that the pretty over what past, I on see seen the over be you'll time think years, a that. don't the in few expect consistent. it get in into But near future. of We I

Greg Palm

Yes.

the you What then kind Okay. that just little distribution can Fair little switch get there? now? dive rentals to bit And and And Where I as just in play can structure enough. that of maybe about of And the just total of of Axiom. of is if talk terms does revenue. you a into sale? mix bit of equipment Maybe revenue overlap versus remind margin a distribution then gears could could synergies out? potential you us rental a

Lee Rudow

off. a as start Greg. revenue. I'll I'll I'll percent let Well, talk of the I'll talk but synergies, distribution to talk Axiom total Tom about --

So excited We've we very us core customer got it there's were business that's and deal, and side our ways. the their on base, why some really both great the outset. with rental this synergies inventories from help that potential equipment of much will with goes

overlap, inventory, but there's their and a inventory some Our not lot.

robust driven way more we inventories by customer our And to so domain do to the recognize and a digital to sales marketing authority a on from we Transcat The by link have selling. are lot big of people that's -- web, market sell world. They driven each respective plans other's is where that us one. go marketing, base traditional we equities a expect our

because grow the business, their street, So use and us is so they're our their again, we're a this to feet be to salespeople help to marketing going using help speak, to ours. on expertise with to them going synergy

X So And themselves customer are different. the synergies. bases great

all And so we deal -- this those like I for just reasons.

as far you Tom. to address As want

Thomas Barbato

Yes.

the when combined So to business think it. had rentals of distribution we think, the mean, I business we I if of and take to XX% add you Axiom now, the combined Greg, what the now XX% is distribution

Greg Palm

just And rentals the sale? us versus equipment margin remind of structure an on

Thomas Barbato

we combined rental rental mean XX% when the kind were -- had Yes. had Axiom, we business, I business. had disclosed the that better we acquired margins of on the or

Operator

next Jackson question Our from is with Ted Northland Securities.

Edward Jackson

very, leads. quarter. a going on I'm go solid into to Congrats very some

I always that, about but Sorry do.

that quarter, clearly With closing you the in and off money the wasn't it raised, the paying mean, transaction facility. I you're current credit the

And the quarter, money I be deal. to was come actually $XX so. in at $XX facility mean, was $XX million last with million. then think much did $XX how supposed credit So it -- million, I I or mean, the

cash And So at it, much we $XX million. correct. about subtract that, your of how when balance is as think just out sheet? the, your I call $XX kind look Would I am on and take sheet, I balance million

cash debt your on differentials so and by sheet? with And on down the balance your $XX and million this is then -- in

Thomas Barbato

Yes.

of and the we -- the We've Ted, proceeds debt round to million million, cash net million, So interest. we that going $X net I'm subsequent right? that being numbers, other X% our roughly the right? about did $XX it's we've under pay to million got $X.X to we of about credit $XX off. remains facility, million paid and $XX off went about talk got million term So of million. Because were Tom, was right? $XX revolver about million to the that $XX greenshoe So done, initial $XX.X deal netted

kind will tap cash only we balance. interest that that we into the have expense until of be So

Edward Jackson

helpful. just you at Okay. between Any me kind chance on percentage the breakdown a very and service services That third in give least basis. can freight, of party was

Just up model. let clean my me

Thomas Barbato

Yes, it's the of in have apologize. head, tomorrow. be which the filing I that we'll Ted. queue, my off I don't top

Edward Jackson

is a the rental for that's rent go-forward in say strength I with mean, particular, margins a baseline margins basis? going side the new back are distribution you fabulous. margin new really were when about, -- business I That's that regards on to -- and okay. into because that had fair distribution on kind the just in were there, Then the think it margins with of the of to mix we for the

Thomas Barbato

we Axiom we steady the the got Yes. XX% we XX% the -- in when I kind mean be we acquisition and once to we of said that forward did state expected margins to would distribution go in the range. that of

and end range So with we distribution that total. we're of the of low in at range, feel comfortable already still for kind that

Edward Jackson

in actually OpEx, a -- on I some little mean then expected. I you there better And had than leverage

late, acquisitions and of as kind from and a should should scales we think forward. to second kind of that with happened in out we up how with go we quarter of regards at of like different has everything about the think least OpEx quarter to the like -- Just terms about the third how how step as

Thomas Barbato

Yes. I we some -- I think mean continued some the about I being us. going forward. behind expect heavy should some increases moderate think expect We've we lifting But should investments. talked we're of

We continue need lot heavy us which and we continue lifting we cybersecurity, a the in But increases behind do. of in that before. and to saw year investments just with to make and invest is believe year the some you IT in to sales, the we last

Edward Jackson

then I'll And the of of little that you line. activity Okay. get customer base front? on pipeline and And out lab kind a can then and last X front, question, on about talk bit

Lee Rudow

Yes, that pipeline Ted, I'll Yes, solid. CBL is one, is the pretty Lee. this take

solid, as as been. solid In it's fact, said, very it's ever Tom

that, mean that long well expertise is think We expect we we're And not positioned CBLs, suggest continue. tight the that to we're as an have to -- labor going we're to competition. I certainly it's -- our only really company is in but space. I'm the that different that do than level in I market well and as services

we into strong would I support So of remainder growth this will next, throughout that there. the expect year pipeline the have and

Operator

Yang Company. [Operator Oppenheimer with Instructions] & Our Martin next question is from

Martin Yang

outlook the business business term? with distribution overall thus about and SteriQual. far? consulting you by that grow the synergies, has question, and NEXA in longer of have and Tom. sense maybe revenue calibration And -- what business and the NEXA. Thank XCan how combined talk you my itself How can especially are grown Lee seen NEXA maybe between you the for for a taking synergies your Give finally,

Lee Rudow

Okay.

So NEXA, seems we roughly. years it like about X.X acquired ago,

really business doubled avenues synergies, some that's more size, from X We access period given between performing of that and the synergy doubled evident So services. -- doubled NEXA, since there's that -- well. base leverage, Transcat It's done evident lot a acquired customers Martin, than in business in they've and mostly but that's has there's time. growth able time we've the NEXA of take it's been been we advantage traditional has performed that who think a and is comes of in And clear very that And NEXA well. and well. at we've of we've size to clear interested more are And us. customer very our that -- in X Transcat of than been since synergies to for

one a on-site trying whether with NEXA goes us traditional a new win the CBL work, be at is been or has table second The to when it to a Transcat often. and or we body table, traditional have of a sitting opportunity,

strengthen increased so And winning of we NEXA or that have And significantly. we with talking by that We've would we're our the side not with NEXA don't are we not running. because traditional about that an chance in partnered deals won opportunity our sitting an our lab currently won proposition, Transcat only our to us in-house is our value winning able has proposal. on otherwise side, have competition

strong. each early as that the it think forward and and This know really improving has other get both continuing the and an each to I other's maybe And done with now the nice So to we I just go early work see we better, job. get read have read been ways, goes is companies. synergies, and a

something offer advances services offer nicely NEXA now And which that suite folds-up that NEXA didn't did validation do they they it under well, as but proposition. because SteriQual the value can. really is NEXA commissioning and

a the just be together NEXA stronger and not of we have that other with boutique working is as say growth by the at we obviously services small since a beyond going that expect higher to really outlook we're itself to company. far suite offer. guide more to point As And because NEXA to together, rate SteriQual has than SteriQual expanded. this at nice than is And

with them it's be I think to to and run some we a can also the ways will NEXA. traditional grow business, we it them. And been of beneficial help beneficial

as that for continue we that trend answer So expect Does reasons your those well. question, Martin? to

Martin Yang

Yes.

on was I mute. Sorry,

margin gross contribution So in the margin on you expect integration And due X me XQ? or quarter? on then Axiom's about integration do for to full Axiom. positive meaningful uplift more from a last Can Axiom talk question is the you gross benefit fiscal margin of gross

Thomas Barbato

Yes.

So the quarter this the Martin, past in had was significant. only quarter. We in not X weeks impact

see of a positively break distribution it the of margins, but to kind about of intent -- it impact in really go-forward So basis. not individual talk pieces quarter. into in this impact full margin we'll upcoming specifics distribution more But did our on a down quarter is the and

as expect, to before, forward, end range. that range in the XX% that XX% margins in we low in So said expect going that to we total we've of already distribution be we're and

can think from kind take I So you of it there.

Operator

Securities. final our with Jackson Northland from a Ted follow-up is question question And

Edward Jackson

just both I kind Ireland base what's within the you front. of of to going acquisitions kind had automation wanted that in touch and with on on

and it's you kind methodical You brought slow margin. automation been on drivers an with of you've of the is know I kind been it. focused been one of that and area up for

market. on regards that stand and effort. And of progress kind of update then that of with the regards kinds an penetration So of you're kind maybe kind where the things automating with Irish report behind that of to to things

Lee Rudow

Okay.

and talk robotics. subset automation let's about First, small that will be a

have, for But So automation make We knew the and in that initiative of when technicians can that efficient is number the we back the how and it to quarters, last that we it are. [Audio make each progress, a progress we Gap] in. you we to could would track But we knew see element each, margins, few just they very also execute. we arduous. difficult once results did and the going of

time How they the they often they how calibrations bench? using? how on when automation are doing the many -- tracking. technician, bench? How they're these are redundant to are KPIs each for are type that much effective doing ratings productivity the are have they they're we're are We automated spent an account on the of

and continue working that we say first second that. it, it's of temperature a from company inning calibrations, they're we're mass I to game. progressed each had that. deck used still lab. In and pressure is is to second subset the inning working in now company, multimeters inning. work and the after we we're will robotics in? robotics I plenty of probably Ireland, Irish to know we team, work. What fifth the is are We are on The a LA If think first, bought in of to our labs, do. doing So X characterize we for inning robots now fifth example, There's in the Philadelphia to have Robotics inning, and and on that we I digital

robots So But running. again, already -- we've robotics got fast like a faster said, process. not is I than automation. actually we've And traditional

the and to are so us going that And things ultimate that's mid-XXs high-XXs are goal. from these get And beyond. help that to our

business calibration it grow Unlike do that's very bought to Irish on for and market of the Europe in we'll we into kind just for really to but where that's organically. pleased really sure. I scalable on in plans days get work the to details the as it's we'll that our collab grow growing organically It's And business, have because is, too far that's calibration Irish we're on to hope grow that NEXA goes, throughout The and Ireland. the intend but early be got that, business try European company, the us developing and our will business progress. many the we that's where it with for intend there, Irish exclusively follow in as to early calibration easier as in it's So itself our some far where that's Ted. interesting as works footprint, more we market Europe growing small we that that very, organically. throughout helpful, market customers

Operator

queue. questions would for more back the I in turn are over There like to to no conference closing the comments. management

Lee Rudow

thank Okay. your us call joining this Transcat. appreciate in today. the Lee, and for Well, is all interest you continued We on

in be we'll ROTH York As conferences XX. City and XX November always, participating Craig-Hallum the New in on and November the

So check we you, welcome don't us we'll everybody. And check quarter feel Thanks again talking on you're participating talk our to have forward third from there. any in to results. on not, after in call. We to if look we If time. free in everybody to hear for always us to today's

Operator

Thank This you. today's conclude will conference.

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

Transcat (TRNS) 31 Oct 232024 Q2 Earnings call transcript