Transcat, Inc.

Greetings and welcome to the TransCAD first quarter fiscal year 2024 financial results. 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, Tom Barbato, CFO. Please, sir, 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'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 information 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. I'd like to start with TransCat's overall performance in the first quarter of fiscal 2024. we delivered better than expected revenue, margins, and earnings across our entire business portfolio. Consolidated revenue is up 11% to $61 million, driven by strong demand from our unique suite of diverse complementary services, including calibration, pipettes, instrument rentals, and nexus cost control and compliance services. Consolidated gross margin expanded 160 basis points the 30.9% and was driven by margin expansion in both our service and distribution segments. Adjusted EBITDA, a key metric for us given our successful acquisition strategy, grew 16% to $8.5 million and expanded 60 basis points over prior year. Turning to our service segment, first quarter service revenue totaled $40 million, up 18% from prior year. Organic growth was up 11% as we continue to benefit from recurring revenue streams and highly regulated markets, our unique and differentiated value proposition, and growth synergies between our combined business channels. The service growth in the first quarter represents our 57th consecutive quarter of year-over-year growth. That's every quarter, year-over-year, for a little over 14 years. We also reported a service growth margin of 32.5%, which represents a 50 basis point increase over prior year. The margin expansion, which exceeded our expectations, was a result of double digit organic growth combined with increased productivity in our lab operations. Lab operations continue to drive automation and continuous process improvement throughout our traditional and client-based lab network. Moving to distribution, First quarter gross margins expanded 270 basis points from prior year, driven in part by 15% growth in the high margin rental business. We continue to see strong demand for our rental offering, which is an important differentiator as it enhances TransCat's ability to offer solutions to challenges our customers face. Our distribution segment, including our rental channel, continues to foster organic service growth by generating a significant number of leads and strengthening our overall value proposition. Looking at the entire business portfolio over the first quarter of fiscal 2024, we benefited from our differentiated value proposition that is resonating throughout our expanded addressable markets. We also demonstrated the inherent operating leverage in our service business as we generated strong incremental gross margins from our double-digit organic service growth. The Nexa business continues to see good growth benefiting from synergies with Transcat's core calibration business. And the pipeline of synergistic opportunities is compounding at an impressive rate. While the traditional calibration service market continues to be fragmented, we're seeing similar market attributes in the spaces where Nexa competes. Early in July, we were able to capitalize on the opportunity to acquire SteriQual, who specializes in instrument commissioning, qualifications, and validation services to pharmaceutical, medical device, and diagnostic manufacturers. SteriQual also provides process engineering, quality assurance, and project management to recent clients like Thermo Fisher, Pfizer, Lonza, Charles River Labs, and others. We view the acquisition of SteriQual as another important differentiator as NEXA delivers their single-source solution platform, which complements TransCAT's calibration services. At the start of the first quarter, we also acquired the bolt-on acquisition of St. Louis-based TIC metrology services. The newly acquired calibration operation will be integrated with our current lab in St. Louis within the next year, and we anticipate the operation will support solid revenue growth and the realization of various cost synergies as we consolidate the labs into one. Overall, our balance sheet remains strong, and our current leverage ratio is 1.5 times. We've done an excellent job managing our working capital, and in the first quarter we generated $7.5 million of free cash flow. Over the course of fiscal 2024, we expect to continue to deploy capital to margin and revenue-enhancing initiatives, along with the execution of our ongoing acquisition and integration strategy. With that, I'll turn things over to Tom for a more detailed look at the financials for the first quarter.