Transcat, Inc.

Greetings and welcome to the TransCat Incorporated third quarter fiscal year 2022 financial results conference call. At this time, all participants are in a listen-only mode. A brief 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, Mark Doheny, Chief Financial Officer. Thank you, Mark. You may begin.

Thank you, Operator, and good morning, everyone. We appreciate your time and your interest in Transcat. With me here on the call today is our President and CEO, Lee Rudeau. We will begin the call with some prepared remarks, and then we will open up the call for questions. Our earnings release crossed the wire after markets closed yesterday and can be found on our website, transcat.com, in the investor relations section. The slides that accompany today's discussion are also posted on our website. If you would, please refer to slide two. As you are aware, we may make forward-looking statements during the formal presentation and Q&A portion of this teleconference. 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 with documents filed by the company with the SEC. You can find those on our website, where we regularly post information about the company, as well as on the SEC's website at sec.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. Additionally, 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've provided reconciliations of non-GAAP to comparable GAAP measures in the tables accompanying the earnings release. With that, I'll turn it over to Lee.

Okay, thank you, Mark. Good morning, everyone. Thank you for joining us on the call today. In the third quarter of fiscal 2022, we continue to demonstrate the successful execution of our strategy by delivering strong service sales by expanding addressable markets through strategic acquisitions that increase our capabilities, expertise, and geographic footprint. In addition, our continued focus on effective capital allocation and structure combined with operational excellence and strong execution led to another quarter of margin expansion. Consolidated revenue increased 16% to $50.9 million, a third quarter record for TransCat, and consolidated gross margin expanded 130 basis points to 26.8%. Adjusted EBITDA, a very important metric for us given our level of acquisitive growth, grew 20% from the prior year to $5.5 million. Our service segment continued to perform at a high level and recorded its 51st straight quarter of year-over-year revenue growth. Our new business pipeline remained strong throughout the third quarter and delivered growth of 22%, which included double-digit organic growth of 10%. Service growth was driven by our ongoing success in the highly regulated end markets we serve, including life sciences. We continue to take market share by investing in and delivering our differentiated value proposition. Services are designed to minimize risk for our customers who generally operate in environments where the cost of failure is high. We believe Transcat's attention to quality and state-of-the-art capabilities and our investment in leadership and expertise is second to none in the calibration industry. Transcat's motto continues to be trust in every measure. In addition to strong service revenues in the third quarter, we expanded our service gross margin 180 basis points to 29.7%. Given the inherent In efficiencies created by the holiday season in the third quarter, we are particularly pleased with nearly achieving a 30% gross margin. Another interesting data point in comparison between the current third quarter service margin to our third quarter gross margin only two years ago, margins have increased 770 basis points. The margin increase is a testament to our continuous improvement model and the inherent operating leverage of our service business. Turning to our recent acquisitions, Nexa Enterprise Asset Management, which we acquired on August 31st of last calendar year, is off to a great start. Nexa adds another differentiated, high-growth life science business to our service platform. Their five service tracks optimize calibration and asset management programs, focusing on preventive maintenance, reliability, quality, compliance, and data migration. Next's leadership team, both in the US and in Ireland, are impressive. Together, we are confident we will capitalize on the synergistic growth opportunities and expanded market development opportunities that are clearly available as we work together. On December 31st, we closed the acquisition of Tangent Labs. The Tangent business fits perfectly into our service segment's operational footprint in the US and expands our geographic footprint in two new locations. Indiana, which is an attractive life science market, especially in medical devices, and Huntsville, Alabama, which has a large aerospace and defense market. Turning to distribution, distribution revenue grew 7% in the third quarter. While modestly below our expectations, the business performed well despite continued supply chain challenges that extended vendor lead times. Still, incoming orders in the third quarter were strong, and we enter our fiscal fourth quarter in a solid position with a record $9 million in backlog, up $3.3 million from the prior year. Our balance sheet remains strong with a leverage ratio of just under 1.5 times. And with that, I'll turn things over to Mark for a more detailed look at our financial performance for the third quarter.