Transcat, Inc.

Greetings, and welcome to Transcat Inc's second quarter 2023 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 a 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, Tom Barbato, Chief Financial Officer. Thank you. 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 Rudow, and our chief operating officer, Mark Doheny. 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. If you would please refer to slide number 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 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 our fiscal 2023 second quarter results that included significant revenue growth, solid earnings, and strong cash generation. Consolidated revenue for the quarter was up 12% to $56 million. Service revenue grew 19%, with organic service revenue growth of 9.3%. Consolidated gross margin expanded 70 basis points to 29.7%, driven by expansion in our distribution and rental business margin. Distribution margin was slightly offset by a 30 basis point decline in our service segment gross margin, primarily the result of startup costs associated with several new client-based labs and a significant number of new technicians onboarded and trained to support future service growth. Adjusted EBITDA grew 6% from prior year to $7.5 million in the second quarter. Turning to a closer look at the service segment, as expected, we generated strong service revenue growth despite macroeconomic uncertainty. We continue to benefit significantly from a value proposition targeted to service the highly regulated life science and aerospace and defense industries. Both industries, among others, inherently have a high cost of failure, which makes them an ideal fit for TransCAD. Our reputation for delivering consistent, reliable services and solutions remain stellar across North America. Service gross profit in the second quarter grew 18.3%, or $11.5 million, on a service gross margin of 32.6%. Strong organic growth continues to be fostered by inherent recurring revenue streams, while strategic acquisitions have increased our capabilities, adjacent markets, and expanded our geographic footprint. Our acquisition strategy continues to outperform Foundational to our strategy is our focus on integration so that Transcat's portfolio of acquired companies become one entity over time. This allows for uniformity, consistency, and continuous process improvement for our customers, regardless of which Transcat lab or operation they're engaged with. Our focus on integration also allows Transcat to capture the anticipated synergies both from a cost and a sales perspective. In the second quarter, we continued the successful operation of our new TransCat Calibration Training Center. The center has turned out an impressive number of new technicians to support both our current service organic growth as well as our new service pipeline that includes a significant number of traditional and client-based lab opportunities. New technicians coming out of the TransCat Training Center have gotten off to a great start, and we expect they will continue to achieve higher levels of productivity as they gain experience in the field. A trained technical workforce is a critical component of our business, and we believe the new training center provides clear differentiation relative to our competition. Moving on to our distribution segment, revenue grew 2% to $21.2 million despite vendor lead times and supply chain shortages that continue to make it challenging to convert open customer orders. Order backlog is up 18% from prior year second quarter. Distribution gross margin expanded 140 basis points to 24.9%, and as we progress through the third quarter, distribution demand continues to be strong. Acquisitions are an important part of Transcat's long-term growth strategy, and we closed two deals right after the close of our second quarter. Complete calibration, located in Cork, Ireland, is a small but very strategic acquisition. It provides Transcat with a local calibration capability and presence, to support the robust life science market in Ireland and also brings expertise in the field of calibration robotics. Our ultimate vision is to leverage this promising robotic technology in both Ireland and throughout North America. When taken together with automation, we have the potential to drive additional differentiation, efficiency gains, and improvement in our customers' instrumentation uptime. E2B Calibration, located in Cleveland, Ohio, specializes in calibration services related to the aviation industry. We believe that we can leverage our national footprint and infrastructure to further accelerate the growth in E2B's capabilities across the U.S. and Canada. In addition, there's an attractive life science market in the greater Cleveland area, which we are now nicely positioned to capitalize on. All in all, we are pleased with our solid performance in the second quarter of fiscal 2023. we continue to see strong levels of demand for our calibration and asset management services that support our longer-term growth objectives. Our balance sheet remains strong with a leverage ratio just over 1.8 times. We are positioned well to effectively execute our acquisition strategy and to work through what's currently a very strong acquisition pipeline. With that, I'll turn things over to Tom for a deeper look into our second quarter financials and our return upon completion of Tom's Tom's narrative to discuss our outlook.