Transcat, Inc.

Greetings and welcome to Transcat Inc. Third Quarter Fiscal Year 2024 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. It is now my pleasure to introduce 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'll begin the call with some prepared remarks, and then we'll open the call up 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 the earnings release. With that, I'll turn the call over to Lee.

Thank you, Tom. Good morning, everyone. Transca continues to make excellent progress on key initiatives across our entire business portfolio. The operating results for the first three quarters of fiscal 2024 have been outstanding. Turning specifically to the third quarter, consolidated revenue grew 14% to $65.2 million driven by strong demand for our broad suite of services. Consolidated gross margin expanded 350 basis points to 32.1% and was driven by margin expansion in both our service and distribution segments. Adjusted EBITDA grew 39% from prior year to $9.1 million. Let me spend a few minutes on each of our operating segments. We'll start with service. Consistent revenue growth continues to be fostered by recurring revenue streams and highly regulated markets, strong customer retention, and a differentiated value proposition. Transcat has built a very strong reputation for execution, and delivering services that consistently meet the needs of our demanding customers. We continue to reside where the cost of failure is high, and our services are a critical component of our customers' processes. To today, approximately 60% of our service business comes from the highly regulated life science sector. Because of the criticality of our services, this is not an easy place to be, but it's where we want to be. It's where our tagline, calibrated by TransCat, resonates the most. In the third quarter, we grew overall service revenue by 15%. 9% was organic growth. This represents the 59th straight quarter of year-over-year service revenue growth. We have grown in the high single digits or better for each of the last two years, and we anticipate doing the same in fiscal 2024. In addition to revenue growth, we continue to focus on margin expansion. Strategically, we focus on operational excellence. which includes increased levels of automation, robotics, and process improvements. In the third quarter, service gross margin increased 250 basis points versus prior year to 32.5%. And as always, margin gains are supported by strong organic growth and the associated operating leverage that's inherent in our service segment. Turning to distribution, the growth of our rental business further accelerated by the Axiom acquisition, drove gross margin expansion of 530 basis points from prior year third quarter. In fact, the transformation of our distribution segment by growth in rentals has driven approximately 1,000 basis points of gross margin expansion since 2016. And a continued mixed change towards rentals provides further opportunities to improve distribution margins as we enter fiscal 2025 and beyond. Internally, we say all roads lead to calibration, and our distribution and rental businesses continue to be an important generator of leads for our calibration services business. Overall, as we mentioned in the earnings release, we are extremely pleased with our performance in the third quarter of fiscal 2024. Our adjusted EBITDA increase of 39% highlights Transcat's ability to deliver on the high expectations our shareholders have for consistent revenue and margin growth. Furthermore, the strong performance of recent acquisitions demonstrates the effective allocation of capital. We have successfully identified, acquired, and integrated dynamic companies that align with our strategy, and our disciplined approach drives differentiation. Our integration process enables new acquisitions, such as the recent deal with Axiom, to very quickly be accretive to the overall company. We ended the third quarter well positioned financially with strong operating cash flow generation and balance sheet capacity, both of which allow us to actively pursue the M&A opportunities that comprise our current robust acquisition pipeline. With that, I'll turn things over to Tom for a more detailed review of our third quarter financials.