Transcat, Inc.

Greetings and welcome to Transcat Inc's second quarter fiscal year 2025 financial results conference call. 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, Mr. Tom Barbetto, Chief Financial Officer. Thank you, Mr. Barbetto. 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, Mike West. We'll begin the call with some prepared remarks, and then we'll open up the call for questions. Our earnings released crossed the wire after market closed yesterday. Both the earnings release and the slides that will be referenced 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 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 compared GAAP measures in the tables accompanying this 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. Transcat delivered strong performance from our core calibration services business again in the second quarter of fiscal 2025. Consolidated revenue was up 8% to $67.8 million driven by consistent demand for our calibration services, as well as solid performance in our traditional rental business, which includes both our Transcat and Axiom rental platforms. Consolidated gross profit grew 5% and was driven by growth in both our service and distribution segments. In the second quarter, Service recorded its 62nd straight quarter of year-over-year revenue growth as our calibration services continued to perform at a very high level. Overall, service revenue growth was 6% and 4% organic growth. The 6% growth is below historical trends and was significantly impacted by a decline in our NEXA cost control and optimization services business that was beyond the magnitude of what we anticipated. We've identified the root causes that need to be addressed, which primarily center around the immediate need for Nexa to be fully integrated into Transcat's dynamic and proven sales and marketing processes. In addition, we are renaming the business Transcat Solutions to fully leverage Transcat's industry-leading brand. All of these actions are underway with Nexa. We are making meaningful progress, and we're committed to reverting back to growth in the near future. On a positive note, when excluding NEXA in the second quarter, we generated organic service growth of 9% versus prior year. We have a strong pipeline of new business opportunities entering the back half of the fiscal year. The core service business continues to benefit from recurring revenue streams as well as our industry-leading value proposition, which continues to resonate throughout the highly regulated markets we serve, including both life sciences and aerospace and defense. Turning to distribution, in the second quarter, gross profits grew 10% on double-digit revenue growth. However, FECNEL revenue and profit was negatively impacted by two hurricanes in the Gulf of Mexico, which pressured second quarter distribution margins. Overall, Transcat's core business performed well in the second quarter of fiscal 2025, and our exceptional team is working to overcome the near-term NEXA challenges which we believe are very fixable and include channel marketing and pipeline expansion, which is already strengthening. We are confident that business will return to growth in the first quarter of fiscal 2026. Becknell continues to be a well-run company and a strong niche market with significant opportunity for sustainable growth. We fully expect Becknell to deliver sequential improvements in the third and fourth quarters and distribution margins to return to levels consistent with the second half of fiscal 2024. The balance sheet remains strong. Our revolving credit facility was paid off last year, and we are in an excellent capital position to support our strategic growth plan that includes a very active M&A initiative. With that, I'll turn things over to Tom for a more detailed look at the second quarter financial results.