Transcat, Inc.

Greetings and welcome to Transcat Inc. First Quarter 2023 Financial Results Conference Call. At this time, all participants are in 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 Berbato. at Transcat Inc. Please go ahead, sir.

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 Rudow, and our chief operating officer, Mark Doheny. We will begin the call with some prepared remarks, and then we'll open up the call for questions. Our earnings release crossed the wire after market closed yesterday. and can be found on our website, transcat.com, in the investor relations section, along with the earnings presentation slides that we will be referencing this morning. If you would please refer to slide number two, as you are aware, we 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 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 compare GAAP measures in the tables accompanying the earnings release. With that, I'll turn the call over to Lee.

Thank you, Tom. Good morning, everyone. Thank you for joining us on the call today. Yesterday, we announced strong first quarter financial results, reporting significant year-over-year gains, revenue, margin, and earnings across our entire business platform. We also announced exciting organizational changes that better position the company to execute our day-to-day operating objectives and at the same time achieve our strategic long-term growth vision. I'll talk to both our results and our organizational changes, but first I'll start with our first quarter year-over-year financial highlights. Consolidated revenue is up 14% to $54.7 million as demand for our products and services remains strong. Consolidated gross margin expanded 100 basis points to 29.3%. It was driven by margin expansion in both our service and distribution segments. Service revenue grew 23%. Organic service revenue grew 9%. Service gross margin increased 20 basis points to 32%. Adjusted EBITDA, which is a very important metric for TransCAD given our level of acquisitive growth, grew 20% to $7.3 million. The 23% growth in our service business represented the 53rd straight quarter of year-over-year growth. Demand for our services continues to be strong, and we continue to capture market share from third-party service providers, OEMs, and in-house calibration labs. The Nexa acquisition is proving to be a significant differentiator and a great addition to our unique value proposition that is resonating very well throughout our target markets. The Nexa platform enables TransCat to cross-sell what we are now calling single-source solutions. Examples include computerized maintenance management systems to optimize calibration asset and data flow, reliability, validation, and various compliance services that are critical to the calibration ecosystem. We believe the single-source solution platform that I'm referring to creates a competitive edge for TransCat as we execute our service growth strategy. On the service gross margin front, margin gains were primarily a function of organic volume growth and strong acquisition performance, offset somewhat by startup costs that recently won client-based labs. We are also benefiting from the opening of our new technician training center in Houston this past November. The concept of establishing our own training school has been in the works for years. The hardworking and dedicated technical leadership team brought this important differentiator to fruition. Moving on to distribution, revenue grew 3% to $20.8 million despite extended vendor lead times and supply chain shortages that delayed the conversion of open customer orders. Demand, however, continues to be strong as back orders were up 17% from the beginning of the quarter. Year over year, distribution margin increased 150 basis points or 25%. The margin expansion was primarily driven by a favorable mix and a continued growth of our rental business, which is within the distribution platform. Overall, we're pretty pleased with the fiscal 2023 first quarter results. The strong performance is a great way to start a new fiscal year. Turning to acquisitions, in the first quarter, we closed the Cincinnati-based Alliance Calibration Acquisition, which we anticipate will be a great bolt onto our Dayton operation. Integration is underway, and we expect the Acquire team, which is very talented, to work closely with Transcat to drive the anticipated synergies and capture market share in this important region. Entering the second quarter, our acquisition pipeline remains robust and our balance sheet remains strong with a leverage ratio just over 1.8 times. Now let's move on to the organizational changes that we announced in yesterday's press release. There are two role changes. Both enhance our organizational structure at what we believe is a unique time of opportunity for Transcat. In fiscal 2022, we surpassed $200 million in annual revenue. This is an important milestone, growth milestone for the company. But what is more important is our strong belief that we're just getting started. To that point, Mark Doheny, our current CFO, will be assuming the role of Chief Operating Officer, and Tom Barbato, our current Senior VP of Finance, will be promoted to Chief Financial Officer. This is a great time to appoint Mark in the COO role to oversee the day-to-day operations of the business. Mark is a talented executive with large company experience, and in two years with Transcat, he's demonstrated the acumen, instincts, and drive that we believe is a perfect operational fit for the anticipated growth of the company. Moving Mark to the COO position will allow me to spend more time with large customers, M&A opportunities, recruiting and developing talent, and perhaps more important than anything else, leveraging our unique value proposition, which now includes the next asset management systems across a range of targeted end markets for TransCat. The move with Mark was made possible by our ability to recruit Tom Barbato to the organization a little over six months ago. Tom is an experienced public company operational CFO and has already made significant contributions to our financial leadership team and the entire organization for that matter. His roll-up-your-sleeves-and-get-things-done attitude is a great approach and a perfect fit for TransCat's culture. Congratulations to both guys as we position TransCat to achieve the long-term growth objectives that we've set for ourselves. With that, I'll turn things over to Mark Doheny for some comments on his new role, and then we'll turn it over to Tom Barbato for a deeper look into our first quarter financial results.