Transcat, Inc.

Greetings and welcome to the Transcat Inc. Second Quarter Fiscal Year 2021 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Craig Mahalik. Thank you. You may begin.

Yeah, thank you, and good morning, everyone. We certainly appreciate your time today and your interest in TransCAD. With me here on the call today, we have our President and Chief Executive Officer, Lee Rudow, and our Chief Financial Officer, Mike Chitter. After formal remarks, we will open the call for questions. If you don't have the news release that crossed the wire after markets closed yesterday, it can be found on our website at transcad.com. The slides that accompany today's discussion are also on our website. If you would, please refer to slide 2. As you are aware, we may make forward-looking statements during the formal presentation and Q&A portion of this teleconference. Those statements apply to future events which are subject to risks and uncertainties, as well as other factors that could cause the actual results to differ materially from where we are today. These factors are outlined in the news release, as well as the documents filed by the company with the Securities and Exchange Commission. You can find those on our website where we regularly post information about the company, as well as on the FCC's website at fcc.gov. We undertake no obligation to publicly update or correct any of the forward-looking statements contained in this call, whether as a result of new information, future events, or otherwise, except as required by law. Please review our forward-looking statements in conjunction with these precautionary factors. I would like to point out as well that during today's call, we will discuss certain non-GAAP measures, which we believe will be useful in evaluating our performance. You should not consider the presentation of this additional information in isolation, or as a substitute for results prepared in accordance with GAAP. We have provided reconciliations of non-GAAP to comparable GAAP measures in the tables accompanying the earnings release. So, with that, let me turn the call over to Lee to begin the discussion. Lee?

Okay. Thank you, Greg. Good morning, everyone. Thank you for joining us on the call today. Both professionally and personally, the last eight months has been significantly different for everyone, everywhere. There's been no escaping the impact of the COVID-19 pandemic. But amidst the obvious challenges, the pandemic has also fostered an environment to rethink how we do things, and in some cases, to move forward differently. I think the TransCAD team has done exactly that. And as a result, I think we're a better company. Our progress has been intentional and will continue to be intentional. Had it not been for the investments we made in our people, technology, and operational excellence, over the past three years, we would not likely be in as much of an advantageous position as we are today. Our service business has been resilient, and in the second quarter of fiscal 2021, we achieved our 46th consecutive quarter of year-over-year growth. The consistent growth has validated our strategy, including our focus on the life science industry. And the recent acquisition of TTE has proved to be timely, And as expected, it's performing very well in the current pandemic environment. In the second quarter, we also saw encouraging trends in distribution. Distribution revenue was down 6.6% versus the prior year's second quarter, but it was up nearly 7% sequentially from the first quarter of 2021. In the second quarter of fiscal 2021, we delivered outstanding margin. Consolidated gross margin was up 260 basis points, primarily driven by service productivity improvement, and service gross margin was up 660 basis points. Operating income was $3.1 million, which not only exceeded our expectations, it represented a record level of second quarter operating income. Our financial strength was fortified by standout cash generation of $8.5 million in the second quarter. Strong cash flow and effective working capital management made a sizable reduction to our debt during the quarter, and year-to-date period. Slide four represents the drivers for progress towards increasing our service gross margin. There are six primary drivers that impact service gross margin. Technician productivity, strategic pricing, channel mix, product mix, sales revenue, and automation. In the second quarter, we hit on four of the six margin drivers in the generation of 32.2% service gross margins. Technician productivity and strategic pricing have been major contributors to the service margin increase, and we believe both will be sustainable throughout our network of 42 labs on a go-forward basis. The current productivity levels are also supported by the seizing of our lab technicians, additional training, leveraging our strengthened management team, and new processes to control costs and optimize client-based lab operations. Increased pricing is also a factor. Our differentiated level of quality continues to be recognized and valued, particularly by the life science industry where the cost of failure is so high, and we believe our customers have embraced our commitment to quality and the higher costs associated with its delivery. Channel and product mix can be impactful components of service margin performance. Channel mix refers to the way our service is delivered. For example, on-site service versus depot, or pickup and delivery versus mobile or client-based labs. Product mix refers to the type of instruments we are calibrating. Again, for example, temperature, pressure, electrical, or dimensional products. Both channel and product mix tend to be more variable on a quarter-to-quarter basis. And in the second quarter of fiscal 2021, both channel and product mix had a positive impact on service gross margin. One final point I'd like to make on the issue of service gross margin is that in the second quarter, margin expansion was achieved without an increase in organic sales volume and without the benefit of automation. We believe our solid new business pipeline positions us well to return to strong organic growth when the COVID-19 driven delays are behind us and our onsite work resumes at full pace. Automation is currently being tested in a number of labs with the goal of broader implementation throughout our lab network over the next couple of years. We believe both the service growth and automation represent upside to the current service growth margins. And with that, I'll turn things over to Mike, who will walk you through a more detailed review of the second quarter before I come back and talk to the outlook.