Transcat, Inc.

Greetings and welcome to Transca Incorporated fourth quarter and full fiscal year 2022 financial results. At this time, all participants are on 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. I would now like to turn the conference over to your host, Tom Barbato, Senior Vice President of Finance. Thank you. You may begin.

Thank you, Rob. 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 Rudow, and our CFO, Mark Doheny. We'll begin the call with some prepared remarks, and then we'll open it up, up the call for questions. Our earnings release crossed the wire after market closed yesterday. and can be found in the investor relations section of our website, transcat.com. 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. These 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 in the 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 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 have provided reconciliations of non-GAAP to compare GAAP measures in the tables accompanying the earnings release. With that, I'll turn the call over to Lee.

Okay, thank you, Tom. Appreciate that. Good morning, everyone. Thank you for joining us on the call today. Fiscal 2022 was a strong year for TransCat as we delivered well-rounded financial performance across the board. Consolidated revenue was up 18% to $205 million, a new record and milestone for TransCat as we crossed the $200 million mark for the first time. Throughout the past year and into our new fiscal year, demand for our services and products has remained strong. Consolidated gross margin expanded 190 basis points to 28.5% and was driven by margin expansion in both operating segments. Adjusted EBITDA remains a very important metric for Transcat as we continue to execute our strategic acquisition plan to consolidate the fragmented calibration services industry. In fiscal 2022, adjusted EBITDA grew 28% from the prior year to $26.3 million. For the full year, our service segment revenue increased 20.5%, and we generated double-digit organic service growth of 11.6%. We continue to benefit from strong demand in our highly regulated end markets, including medical device and pharmaceutical manufacturing and aerospace and defense manufacturing. These markets, where the cost of failure is high and TransCAD's unique high-end, mission-critical service resonates the most. Our current pipeline of new service opportunities is active and growing. In addition to our consistent service revenue growth, we are pleased with another year of service gross margin expansion. In fiscal 2022, service gross margins hit a record level by increasing 160 basis points to 31.9%. Throughout the year, we successfully acquired and integrated three companies that have increased our capabilities, expanded our addressable markets, and allowed us to further leverage our existing infrastructure. The Nexa Enterprise Asset Management Acquisition, which closed towards the end of the second quarter, continues to perform ahead of expectations. The acquisition was well received in the market and by our current customers and immediately supported the generation of new synergistic revenue. Both the independent Nexa New Business Pipeline and the combined Nexa Transcat New Business Pipeline continue to grow at an impressive pace. At the beginning of the fourth quarter, we announced the acquisition of Tangent Labs. The Tangent acquisition gives us local capabilities in two new geographic markets, one in Indianapolis and the other in Huntsville, Alabama. Indianapolis has an attractive life science market, and Huntsville has a large aerospace and defense market. The Tangent integration is ahead of schedule, and we are pleased with the company's early performance. Turning to the fourth quarter, and the fourth quarter results, our service segment continued to perform at a high level and recorded its 52nd straight quarter of year-over-year revenue growth. In the fourth quarter, we generated 20% revenue growth and 8% organic service growth as demand in our highly regulated end markets remained strong. We reported fourth quarter service gross margin of 33.1%. The strong momentum carried into the fourth quarter particularly from a margin perspective, was negatively impacted by the onset of the COVID-19 variant in late December. In January, we experienced a significant case surge, causing a record number of lab technicians and administrators to be absent from work. Nearly 10% of our lab personnel was impacted. While the challenge created inefficiencies in our calibration operation throughout the entire month of January, our dedicated team rallied, put in high levels of overtime, and met the critical needs of our customers. As expected, we returned to gross margin expansion in February and March, though service gross margins in the fourth quarter did not fully recover from January's COVID spike. Turning to our distribution segment, in fiscal 2022, revenue grew 15% as demand levels recovered from prior COVID-impacted periods. In the fourth quarter, distribution revenue grew 7%, even as vendor lead times and supply chain shortages made it challenging to fill open customer back orders. We anticipate the current backlog level, which is at near record levels, will create a future tailwind for distribution when supply and demand move towards a more balanced scenario. As I said at the beginning of the call, we are very pleased with the fiscal 2022 performance. Significant growth in revenue, margins, and EBITDA in conjunction with impactful progress on the acquisition front validated TransCAD's strategy and effectiveness of its execution. The NEXA acquisition not only expanded our addressable market and improved our already strong value proposition, but in a sense also reframed the TransCAD story. Our Pipettes.com business, which we acquired just two years ago, continued to grow at an accelerated pace. To accommodate the growth, in fiscal 2022, we relocated to an expanded Boston area facility. We also began work on a newly leased organic calibration lab in southeast Florida. The new lab will take advantage of Florida's attractive and growing calibration markets. We expect the new lab to be open early to mid-summer. Our balance sheet remains strong with a leverage ratio just over 1.7 times, which positions us well to continue our acquisition strategy throughout the fiscal 2023 year and beyond. With that, I'll turn things over to Mark, who will provide a more detailed look at fiscal 2022 fourth quarter and full year financial performance.