Transcat, Inc.

Greetings and welcome to the TransCat third quarter fiscal year 2023 financial results. 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. I would now like to turn the conference over to your host, Mr. Tom Barbato, Chief Financial Officer for TransCat. Thank you. You may begin.

Thank you, Melissa, 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'll begin the call with some prepared remarks, and then we'll open up the call for questions. Our earnings release crossed the wire after markets closed yesterday. Both the earnings release and the slides that we will reference during our prepared remarks can be found on our website, transcat.com, in the investor relations section. 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 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 their 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, Transcat announced excellent financial results for our fiscal third quarter. We experienced broad-based strength across our portfolio of services that drove 19% service revenue growth, expanded gross margins, and provided strong EBITDA growth of more than 20%. We are particularly pleased with our organic service growth of 12%. Organic growth has now been in the high single digits or better for the last eight quarters, despite COVID-related impacts, inflationary pressure, and economic uncertainty. This consistent performance demonstrates the resiliency of our business model, which inherently performs well through various economic cycles. We continue to execute well in the highly regulated life science space, as well as the aerospace and defense markets, where the cost of failure is high and the revenue streams are recurring when we meet the rigorous and ongoing needs of our customers. In the third quarter, consolidated revenue increased 13% to $57.4 million. Consolidated gross margin expanded 180 basis points to 28.6% and was driven by margin expansion in both our distribution and service segments. Adjusted EBITDA, a very important metric for us given our level of acquisitive growth, as I just mentioned, grew 20% from the prior year third quarter to $6.6 million. Our service segment continues to perform at a high level and recorded its 55th straight quarter of year-over-year revenue growth. Expanding our addressable markets has been an instrumental driver of our consistent growth. We continue to make proactive investments to drive differentiation and position Transcat to make meaningful share gains in the regulated markets we serve. A great example of this is the Nexa Enterprise Asset Management Platform. Nexa's suite of services, which includes asset and data analytics, computerized maintenance management, compliance, quality, and validation, now positions Transcat in both the U.S. and Ireland to serve as mission-critical global manufacturers. Revenue synergies between Nexen and Transcat continues to be outstanding and reinforces our sustainable, longer-term competitive advantage. From a margin perspective in the third quarter, we reported service gross margins of 30%, which is up 30 basis points from the third quarter of fiscal 2022. Moving on to our distribution segment, demand remained strong as revenue grew 4% to $21.4 million despite extended vendor lead times driven by high-end electronic chip shortages that continue to make it challenging to convert some open customer orders. Distribution gross margin expanded 370 basis points year over year to 26.2% as we continue to see growth in our high-margin rental business and to benefit from the strategic buys that we executed earlier in the year. Acquisitions are an important part of Transcat's long-term growth strategy, and we acquired two companies at the beginning of the third quarter. E2B Calibration, located in Cleveland, Ohio, specializes in calibration services related to the aviation industry. We believe that we can leverage Transcat's current infrastructure and significant geographic footprint to further accelerate the growth in E2B's capabilities across North America. In addition, we are nicely positioned to capitalize on the life science market in the greater Cleveland area. In the first quarter since the acquisition, performance and integration activities have gone very well, and we expect this to continue. Complete Calibration established our first calibration footprint in Ireland. Complete Calibration is a small but strategic acquisition for TransCat. The acquisition establishes a local presence in Ireland, a country with a robust life science market. Secondly, Complete Calibration offers TransCat a foray into calibration robotics that we believe over the longer term will be another differentiator for Transcat. All in all, our third quarter results were strong across our portfolio of businesses and channels. Our balance sheet remained strong and supportive of our acquisition strategy with a leverage ratio of 1.66 times. In the third quarter year to date, we generated $6.8 million of free cash flow. And with that, I'll turn things over to Tom Barbato for a deeper look into the third quarter financial performance. Tom? Thanks, Lee.