trns20240611

trns20240611_10q.htm

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________

FORM 10-Q

(Mark one)

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

For the quarterly period ended: June 29, 2024

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

For the transition period from to

Commission File Number: 000-03905

TRANSCAT, INC.

(Exact name of registrant as specified in its charter)

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)

Securities registered pursuant to Section 12(b) of the Act:

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☑ Yes No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☑ Yes No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐ Yes No ☑

The number of shares of common stock, par value $0.50 per share, of the registrant outstanding as of July 31, 2024 was 9,145,144.

Table of Contents

		Page(s)
PART I.	FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements:

	Statements of Income for the First Quarter Ended June 29, 2024 and June 24, 2023	1

	Statements of Comprehensive Income for the First Quarter Ended June 29, 2024 and June 24, 2023	2

	Balance Sheets as of June 29, 2024 and March 30, 2024	3

	Statements of Cash Flows for the First Quarter Ended June 29, 2024 and June 24, 2023	4

	Statements of Changes in Shareholders' Equity for the First Quarter Ended June 29, 2024 and June 24, 2023	5

	Notes to Consolidated Financial Statements	6

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	17

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	27

Item 4.	Controls and Procedures	27

PART II.	OTHER INFORMATION

Item 6.	Exhibits	29

SIGNATURES		31

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

TRANSCAT, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, Except Per Share Amounts)

	(Unaudited)
	*First Quarter Ended*
	*June 29,*			*June 24,*
	*2024*			*2023*

Service Revenue	$	43,778		$	39,853
Distribution Sales		22,929			20,745
Total Revenue		66,707			60,598

Cost of Service Revenue		28,895			26,882
Cost of Distribution Sales		15,157			15,006
Total Cost of Revenue		44,052			41,888

Gross Profit		22,655			18,710

Selling, Marketing and Warehouse Expenses		7,801			6,469
General and Administrative Expenses		9,755			7,601
Total Operating Expenses		17,556			14,070

Operating Income		5,099			4,640

Interest Expense		52			814
Interest Income		(312	)		-
Other Expense		131			64
Total Interest and Other, net		(129	)		878

Income Before Provision For Income Taxes		5,228			3,762
Provision for Income Taxes		820			813

Net Income	$	4,408		$	2,949

Basic Earnings Per Share	$	0.49		$	0.39
Average Shares Outstanding		9,064			7,622

Diluted Earnings Per Share	$	0.48		$	0.38
Average Shares Outstanding		9,196			7,762

See accompanying notes to consolidated financial statements.

Table of Contents

TRANSCAT, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands)

	(Unaudited)
	*First Quarter Ended*
	*June 29,*			*June 24,*
	*2024*			*2023*
Net Income	$	4,408		$	2,949

Other Comprehensive (Loss) / Income :
Currency Translation Adjustment		(161	)		476
Other, net of tax effects of $2 and $2 for the first quarter ended June 29, 2024 and June 24, 2023, respectively		6			6
Total Other Comprehensive (Loss) / Income		(155	)		482

Comprehensive Income	$	4,253		$	3,431

See accompanying notes to consolidated financial statements.

Table of Contents

TRANSCAT, INC.

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share and Per Share Amounts)

	(Unaudited)			(Audited)
	*June 29,*			*March 30,*
	*2024*			*2024*
ASSETS
Current Assets:
Cash and Cash Equivalents	$	22,657		$	19,646
Marketable Securities		-		$	15,533
Accounts Receivable, less allowance for credit losses of $492 and $544 as of June 29, 2024 and March 30, 2024, respectively		48,156			47,779
Other Receivables		242			506
Inventory, net		18,128			17,418
Prepaid Expenses and Other Current Assets		5,070			4,276
Total Current Assets		94,253			105,158
Property and Equipment, net		45,954			38,944
Goodwill		138,146			105,585
Intangible Assets, net		26,254			19,987
Right to Use Assets, net		17,996			16,823
Other Assets		1,049			1,055
Total Assets	$	323,652		$	287,552

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable	$	13,076		$	11,495
Accrued Compensation and Other Current Liabilities		12,677			16,739
Income Taxes Payable		3,687			2,926
Current Portion of Long-Term Debt		2,362			2,339
Total Current Liabilities		31,802			33,499
Long-Term Debt		1,218			1,817
Deferred Tax Liabilities, net		9,287			9,291
Lease Liabilities		15,400			14,873
Other Liabilities		3,657			2,903
Total Liabilities		61,364			62,383

Shareholders' Equity:
Common Stock, par value $0.50 per share, 30,000,000 shares authorized; 9,144,731 and 8,839,299 shares issued and outstanding as of June 29, 2024 and March 30, 2024, respectively		4,572			4,420
Capital in Excess of Par Value		175,299			141,624
Accumulated Other Comprehensive Loss		(1,104	)		(949	)
Retained Earnings		83,521			80,074
Total Shareholders' Equity		262,288			225,169
Total Liabilities and Shareholders' Equity	$	323,652		$	287,552

See accompanying notes to consolidated financial statements.

Table of Contents

TRANSCAT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

	(Unaudited)
	*Three Months Ended*
	*June 29,*			*June 24,*
	*2024*			*2023*
Cash Flows from Operating Activities:
Net Income	$	4,408		$	2,949
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Net (Gain)/Loss on Disposal of Property and Equipment		(4	)		8
Deferred Income Taxes		(4	)		44
Depreciation and Amortization		4,113			2,790
(Recovery of)/Provision for Accounts Receivable and Inventory Reserves		(89	)		138
Stock-Based Compensation Expense		697			930
Changes in Assets and Liabilities, net of acquisitions:
Accounts Receivable and Other Receivables		2,814			3,115
Inventory		(235	)		1,950
Prepaid Expenses and Other Current Assets		(687	)		531
Accounts Payable		1,425			(4,315	)
Accrued Compensation and Other Current Liabilities		(4,273	)		(1,203	)
Income Taxes Payable		759			599
Net Cash Provided by Operating Activities		8,924			7,536

Cash Flows from Investing Activities:
Purchase of Property and Equipment		(3,674	)		(2,767	)
Business Acquisitions, net of cash acquired		(15,953	)		(2,869	)
Sales of Marketable Securities		15,533			-
Net Cash Used in Investing Activities		(4,094	)		(5,636	)

Cash Flows from Financing Activities:
Repayment of Revolving Credit Facility, net		-			(204	)
Repayments of Term Loan		(576	)		(553	)
Issuance of Common Stock, net of direct costs		260			199
Repurchase of Common Stock		(1,619	)		(301	)
Net Cash Used in Financing Activities		(1,935	)		(859	)

Effect of Exchange Rate Changes on Cash and Cash Equivalents		116			(423	)

Net Increase in Cash and Cash Equivalents		3,011			618
Cash and Cash Equivalents at Beginning of Period		19,646			1,531
Cash and Cash Equivalents at End of Period	$	22,657		$	2,149

Supplemental Disclosure of Cash Flow Activity:
Cash paid during the period for:
Interest	$	259		$	816
Income Taxes, net	$	63		$	107
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Common stock issued for acquisitions	$	32,781		$	6,831
Assets acquired and liabilities assumed in business combinations:
Accrued holdback and contingent consideration related to acquisitions	$	1,250		$	-
Contingent consideration treated as equity related to acquisitions	$	750		$	-
Balance Sheet Reclassification of Property and Equipment, net to Inventory	$	410		$	230

See accompanying notes to consolidated financial statements.

Table of Contents

TRANSCAT, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In Thousands, Except Par Value Amounts)

(Unaudited)

							*Capital*
	*Common Stock*						In			*Accumulated*
	*Issued*						*Excess*			*Other*
	*$0.50 Par Value*						*of Par*			*Comprehensive*			*Retained*
	*Shares*			*Amount*			*Value*			*(Loss)*			*Earnings*			*Total*
Balance as of March 25, 2023		7,562		$	3,781		$	27,886		$	(1,200	)	$	69,163		$	99,630
Issuance of Common Stock		82			42			6,988			-			-			7,030
Repurchase of Common Stock		(3	)		(2	)		(86	)		-			(213	)		(301	)
Stock-Based Compensation		2			1			929			-			-			930
Other Comprehensive Income		-			-			-			482			-			482
Net Income		-			-			-			-			2,949			2,949
Balance as of June 24, 2023		7,643		$	3,822		$	35,717		$	(718	)	$	71,899		$	110,720

							*Capital*
	*Common Stock*						In			*Accumulated*
	*Issued*						*Excess*			*Other*
	*$0.50 Par Value*						*of Par*			*Comprehensive*			*Retained*
	*Shares*			*Amount*			*Value*			*(Loss)*			*Earnings*			*Total*
Balance as of March 30, 2024		8,839		$	4,420		$	141,624		$	(949	)	$	80,074		$	225,169
Issuance of Common Stock		302			151			32,888			-			-			33,039
Contingent Consideration Classified as Equity		-			-			750			-			-			750
Repurchase of Common Stock		(13	)		(7	)		(652	)		-			(961	)		(1,620	)
Stock-Based Compensation		16			8			689			-			-			697
Other Comprehensive Loss		-			-			-			(155	)		-			(155	)
Net Income		-			-			-			-			4,408			4,408
Balance as of June 29, 2024		9,144		$	4,572		$	175,299		$	(1,104	)	$	83,521		$	262,288

See accompanying notes to consolidated financial statements.

Table of Contents

TRANSCAT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – GENERAL

Description of Business: Transcat, Inc. (“Transcat,” “we,” “us,” “our” or the “Company”) is a leading provider of accredited calibration services, cost control and optimization services, and distribution and rental of value-added professional grade handheld 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 Rule 10-01 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 30, 2024 (“fiscal year 2024”) contained in the Company’s Annual Report on Form 10-K for fiscal year 2024 filed with the SEC.

Use of Estimates: The preparation of Transcat’s Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States ("GAAP") requires that the Company make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions are used for, but not limited to, allowance for credit losses and returns, inventory reserves, estimated levels of achievement for performance-based restricted stock units, fair value of stock options, depreciable lives of fixed assets, estimated lives of intangible assets, fair value of the goodwill reporting units, and the valuation of assets acquired, liabilities assumed and consideration transferred in business acquisitions. Future events and their effects cannot be predicted with certainty; accordingly, accounting estimates require the exercise of judgment. The accounting estimates used in the preparation of the Consolidated Financial Statements may change as new events occur, as more experience is acquired, as additional information is obtained and as the operating environment changes. Actual results could differ from those estimates. Such changes and refinements in estimation methodologies are reflected in reported results of operations in the period in which the changes are made and, if material, their effects are disclosed in the Notes to the Consolidated Financial Statements.

Cash and Cash Equivalents: Cash equivalents consist of highly liquid investments with an original maturity when purchased of three months or less and are stated at cost, which approximates fair value.

Marketable Securities: Marketable securities consist of highly liquid investments with an original maturity when purchased of more than three months and are stated at fair value on the Consolidated Balance Sheets. These securities are considered trading securities. Earnings on the marketable securities are included in interest income in the Consolidated Statements of Income.

Revenue Recognition: Distribution non-rental sales are recorded when an order’s title and risk of loss transfers to the customer, which is generally upon shipment. Distribution rental sales are recognized over time using the time-elapsed output method as this portrays the transfer of control 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 using the time-elapsed output method 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. Freight billed to customers is included in revenue. Shipping and handling is not included in revenue. Provisions for customer returns are provided for in the period the related revenue is recorded based upon historical data.

Table of Contents

Under Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers, we use judgments that could potentially impact both the timing of our satisfaction of performance obligations. Such judgments include considerations in determining our transaction prices and when our performance obligations are satisfied for our standard product sales that include general payment terms that are between net 30 and 90 days.

Revenue recognized from prior period performance obligations for the first quarter of the fiscal year ending March 29, 2025 (“fiscal year 2025”) was immaterial. As of June 29, 2024, the Company had no unsatisfied performance obligations for contracts with an original expected duration of greater than one year. Pursuant to ASC 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 June 29, 2024 and March 30, 2024 were immaterial. See Note 4 for disaggregated revenue information.

	% of Total Net Sales
	June 29,			June 24,
	2024			2023
Point-in-Time		85.6	%		90.7	%
Over Time - Output Method		14.4	%		9.3	%
Total		100.0	%		100.0	%

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 on a portion of the debt with the balance bearing an interest rate approximating current market rates, and the carrying amounts for cash and cash equivalents, marketable securities, accounts receivable and accounts payable 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 each of June 29, 2024 and March 30, 2024, investment assets totaled $0.1 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 cost related to unvested equity awards by recognizing, on a straight-line basis, the unamortized grant date fair value over the remaining service period for awards expected to vest. Excess tax benefits for 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 quarter of fiscal year 2025 and fiscal year 2024, the Company recorded non-cash stock-based compensation cost of $0.7 million and $0.9 million, respectively, in the Consolidated Statements of Income.

Foreign Currency Translation and Transactions: The accounts of Cal OpEx Limited (d/b/a Transcat Ireland), an Irish company, and Transcat Canada Inc., both of which are wholly-owned subsidiaries of the Company, are maintained in their local currencies, the Euro and the Canadian dollar, respectively, 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 Cal OpEx Limited’s and Transcat Canada Inc.’s financial statements into U.S. dollars are recorded directly to the accumulated other comprehensive loss component of shareholders’ equity.

Table of Contents

Transcat records foreign currency gains and losses on business transactions denominated in foreign currency. The net foreign currency was a net loss of $0.1 million for each of the first quarter of fiscal year 2025 and fiscal year 2024. The Company continually utilizes short-term foreign exchange forward contracts to reduce the risk that its future earnings denominated in Canadian dollars would 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 quarter of fiscal years 2025 and 2024, was recognized as a component of Interest and Other Expenses, net 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 June 29, 2024, the Company had a foreign exchange contract, which matured in July 2024, outstanding in the notional amount of $1.8 million. This contract was subsequently renewed and remains in place. The Company does not use hedging arrangements for speculative purposes.

Earnings Per Share: Basic earnings per share of the Company's common stock, par value $0.50 per share ("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, proceeds received from the exercise of options and unvested restricted stock units 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 the first quarter of each of fiscal years 2025 and 2024, the net additional common stock equivalents 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 (amounts in thousands):

	*First Quarter Ended*
	*June 29,*		*June 24,*
	*2024*		*2023*
Average Shares Outstanding – Basic		9,064		7,622
Effect of Dilutive Common Stock Equivalents		132		140
Average Shares Outstanding – Diluted		9,196		7,762
Anti-dilutive Common Stock Equivalents		35		57

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 for each reporting unit on an annual basis during the fourth quarter of its fiscal year, or immediately if conditions indicate that such impairment could exist. The Company is permitted, but not required, to qualitatively assess indicators of a reporting unit’s fair value to determine whether it is necessary to perform the two-step goodwill impairment test. If a quantitative test is deemed necessary, a discounted cash flow analysis is prepared to estimate fair value.

Intangible assets, namely customer base and covenants not to compete, represent an allocation of purchase price to identifiable intangible assets of an acquired business. 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. The allocation of goodwill and intangible assets by segment for the fiscal year 2025 additions are preliminary. A summary of changes in the Company’s goodwill and intangible assets is as follows (amounts in thousands):

	*Goodwill*								*Intangible Assets*
	*Distribution*		*Service*			*Total*			*Distribution*			*Service*			*Total*
Net Book Value as of March 30, 2024	$	38,216	$	67,369		$	105,585		$	6,993		$	12,994		$	19,987
Additions		21,746		10,876			32,622			5,360			2,680			8,040
Amortization		-		-			-			(665	)		(1,108	)		(1,773	)
Currency Translation Adjustment		-		(61	)		(61	)		-			-			-
Net Book Value as of June 29, 2024	$	59,962	$	78,184		$	138,146		$	11,688		$	14,566		$	26,254

Table of Contents

Other Liabilities: A summary of other current and non-current liabilities is as follows (amounts in thousands):

	(Unaudited)		(Audited)
	*June 29,*		*March 30,*
	*2024*		*2024*
Current Liabilities:
Accrued Payroll and Employee Benefits	$	4,074	$	5,508
Accrued Incentives		986		4,182
Current Portion of Lease Liabilities		3,177		2,510
Accrued Acquisition Holdbacks		3,216		2,577
Accrued Sales Tax		727		813
Accrued Contingent Consideration		-		529
Other Current Liabilities		497		620
Accrued Compensation and Other Current Liabilities	$	12,677	$	16,739

Non-Current Liabilities:
Postretirement Benefit Obligation	$	1,130	$	1,134
Accrued Acquisition Holdbacks		1,647		1,647
Accrued Contingent Consideration		750		-
Other Non-Current Liabilities		130

SEC Form 10-Q filed by Transcat Inc.