UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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For the quarterly period ended: | |
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or | |
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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For the transition period from __________ to __________ | |
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
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(Address of principal executive offices) (Zip Code) | ||
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( (Registrant’s telephone number, including area code) | ||
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☐ |
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Non-accelerated filer ☐ |
Smaller reporting company | |||
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Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of shares of common stock, par value $0.50 per share, of the registrant outstanding as of July 30, 2021 was
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
TRANSCAT, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
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(Unaudited) | ||||||||
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First Quarter Ended | ||||||||
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June 26, |
June 27, | |||||||
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2021 |
2020 | |||||||
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Service Revenue |
$ |
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$ |
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Distribution Sales |
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Total Revenue |
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Cost of Service Revenue |
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Cost of Distribution Sales |
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Total Cost of Revenue |
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Gross Profit |
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Selling, Marketing and Warehouse Expenses |
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General and Administrative Expenses |
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Total Operating Expenses |
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Operating Income |
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Interest and Other Expense, net |
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Income Before Income Taxes |
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Benefit from Income Taxes |
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Net Income |
$ |
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$ |
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Basic Earnings Per Share |
$ |
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$ |
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Average Shares Outstanding |
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Diluted Earnings Per Share |
$ |
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$ |
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Average Shares Outstanding |
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See accompanying notes to consolidated financial statements.
1
TRANSCAT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
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(Unaudited) | ||||||||
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First Quarter Ended | ||||||||
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June 26, |
June 27, | |||||||
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2021 |
2020 | |||||||
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Net Income |
$ |
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$ |
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Other Comprehensive Income: | ||||||||
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Currency Translation Adjustment |
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Other, net of tax effects of $ |
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Total Other Comprehensive Income |
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Comprehensive Income |
$ |
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$ |
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See accompanying notes to consolidated financial statements.
2
TRANSCAT, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Amounts)
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(Unaudited) June 26, |
(Audited) March 27, | |||||||
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2021 |
2021 | |||||||
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ASSETS | ||||||||
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Current Assets: | ||||||||
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Cash |
$ |
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$ |
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Accounts Receivable, less allowance for doubtful accounts of $ |
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Other Receivables |
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Inventory, net |
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Prepaid Expenses and Other Current Assets |
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Total Current Assets |
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Property and Equipment, net |
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Goodwill |
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Intangible Assets, net |
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Right To Use Assets, net |
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Other Assets |
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Total Assets |
$ |
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$ |
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LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
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Current Liabilities: | ||||||||
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Accounts Payable |
$ |
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$ |
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Accrued Compensation and Other Liabilities |
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Income Taxes Payable |
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Current Portion of Long-Term Debt |
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Total Current Liabilities |
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Long-Term Debt |
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Deferred Income Tax Liabilities |
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Lease Liabilities |
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Other Liabilities |
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Total Liabilities |
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Shareholders' Equity: | ||||||||
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Common Stock, par value $ |
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Capital in Excess of Par Value |
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Accumulated Other Comprehensive Loss |
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Retained Earnings |
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Total Shareholders' Equity |
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Total Liabilities and Shareholders' Equity |
$ |
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$ |
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See accompanying notes to consolidated financial statements.
3
TRANSCAT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
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(Unaudited) | ||||||||
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First Quarter Ended | ||||||||
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June 26, |
June 27, | |||||||
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2021 |
2020 | |||||||
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Cash Flows from Operating Activities: | ||||||||
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Net Income |
$ |
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$ |
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Adjustments to Reconcile Net Income to Net Cash | ||||||||
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Provided by Operating Activities: | ||||||||
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Net Loss (Gain) on Disposal of Property and Equipment |
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Deferred Income Taxes |
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Depreciation and Amortization |
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Provision for Accounts Receivable and Inventory Reserves |
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Stock-Based Compensation Expense |
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Changes in Assets and Liabilities: | ||||||||
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Accounts Receivable and Other Receivables |
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Inventory |
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Prepaid Expenses and Other Assets |
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Accounts Payable |
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Accrued Compensation and Other Liabilities |
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Income Taxes Payable |
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Net Cash Provided by Operating Activities |
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Cash Flows from Investing Activities: | ||||||||
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Purchases of Property and Equipment |
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Business Acquisitions, net of cash acquired |
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Net Cash Used in Investing Activities |
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Cash Flows from Financing Activities: | ||||||||
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Proceeds from (Repayments of) Revolving Credit Facility, net |
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Repayment of Term Loan |
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Issuance of Common Stock |
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Repurchase of Common Stock |
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Net Cash Used in Financing Activities |
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Effect of Exchange Rate Changes on Cash |
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Net Decrease in Cash |
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Cash at Beginning of Period |
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Cash at End of Period |
$ |
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$ |
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Supplemental Disclosure of Cash Flow Activity: | ||||||||
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Cash paid during the period for: | ||||||||
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Interest |
$ |
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$ |
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Income Taxes, net |
$ |
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$ |
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See accompanying notes to consolidated financial statements.
4
TRANSCAT, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In Thousands, Except Par Value Amounts)
(Unaudited)
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Capital | |||||||||||||||||||||||
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Common Stock |
In |
Accumulated | |||||||||||||||||||||
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Issued |
Excess |
Other | |||||||||||||||||||||
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$0.50 Par Value |
of Par |
Comprehensive |
Retained | ||||||||||||||||||||
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Shares |
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Value |
Loss |
Earnings |
Total | ||||||||||||||||||
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Balance as of March 28, 2020 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Issuance of Common Stock |
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- |
- |
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Repurchase of Common Stock |
( |
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( |
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- |
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Stock-Based Compensation |
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- |
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Other Comprehensive Income |
- |
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Net Income |
- |
- |
- |
- |
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Balance as of June 27, 2020 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Capital | |||||||||||||||||||||||
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Common Stock |
In |
Accumulated | |||||||||||||||||||||
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Issued |
Excess |
Other | |||||||||||||||||||||
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$0.50 Par Value |
of Par |
Comprehensive |
Retained | ||||||||||||||||||||
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Shares |
Amount |
Value |
Loss |
Earnings |
Total | ||||||||||||||||||
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Balance as of March 27, 2021 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Issuance of Common Stock |
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- |
- |
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Repurchase of Common Stock |
( |
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( |
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( |
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- |
( |
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( |
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Stock-Based Compensation |
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- |
- |
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Other Comprehensive Income |
- |
- |
- |
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- |
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Net Income |
- |
- |
- |
- |
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Balance as of June 26, 2021 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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See accompanying notes to consolidated financial statements.
5
TRANSCAT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share and Per Unit Amounts)
(Unaudited)
NOTE 1 – GENERAL
Description of Business: Transcat, Inc. (“Transcat,” “we,” “us,” “our” or the “Company”) is a leading provider of accredited calibration and laboratory instrument services and a value-added distributor of professional grade test, measurement and control instrumentation. The Company is focused on providing services and products to highly regulated industries, particularly the life science industry, which includes pharmaceutical, biotechnology, medical device and other FDA-regulated businesses. Additional industries served include industrial manufacturing; energy and utilities, including oil and gas; chemical manufacturing; FAA-regulated businesses, including aerospace and defense and other industries that require accuracy in their processes, confirmation of the capabilities of their equipment, and for which the risk of failure is very costly.
Basis of Presentation: Transcat’s unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8-03 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, the Consolidated Financial Statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of the Company’s management, all adjustments considered necessary for a fair presentation (consisting of normal recurring adjustments) have been included. The results for the interim periods are not necessarily indicative of what the results will be for the fiscal year. The accompanying Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements as of and for the fiscal year ended March 27, 2021 (“fiscal year 2021”) contained in the Company’s 2021 Annual Report on Form 10-K filed with the SEC.
Revenue Recognition: Distribution sales are recorded when an order’s title and risk of loss transfers to the customer. The Company recognizes the majority of its Service revenue based upon when the calibration or other activity is performed and then shipped and/or delivered to the customer. The majority of the Company’s revenue generating activities have a single performance obligation and are recognized at the point in time when control transfers and/or our obligation has been fulfilled. Some Service revenue is generated from managing customers’ calibration programs in which the Company recognizes revenue over time using the output method-time elapsed as this portrays the transfer of control to the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for product shipped or services performed. Sales taxes and other taxes billed and collected from customers are excluded from revenue. The Company generally invoices its customers for freight, shipping, and handling charges. Provisions for customer returns are provided for in the period the related revenue is recorded based upon historical data.
Revenue recognized from prior period performance obligations for the first quarter of the fiscal year ending March 26, 2022 (“fiscal year 2022”) was immaterial. As of June 26, 2021, the Company had no unsatisfied performance obligations for contracts with an original expected duration of greater than one year. Pursuant to Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, the Company applied the practical expedient with respect to disclosure of the deferral and future expected timing of revenue recognition for transaction price allocated to remaining performance obligations. Deferred revenue, unbilled revenue and deferred contract costs recorded on our Consolidated Balance Sheets as of June 26, 2021 and March 27, 2021 were immaterial. Payment terms are generally 30 to 45 days. See Note 4 for disaggregated revenue information.
Fair Value of Financial Instruments: Transcat has determined the fair value of debt and other financial instruments using a valuation hierarchy. The hierarchy, which prioritizes the inputs used in measuring fair value, consists of three levels. Level 1 uses observable inputs such as quoted prices in active markets; Level 2 uses inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, which is defined as unobservable inputs in which little or no market data exists, requires the Company to develop its own assumptions. The carrying amount of debt on the Consolidated Balance Sheets approximates fair value due to variable interest rate pricing, and the carrying amounts for cash, accounts receivable, other receivables, accounts payable and accrued compensation and other liabilities approximate fair value due to their short-term nature. Investment assets, which fund the Company’s non-qualified deferred compensation plan, consist of mutual funds and are valued based on Level 1 inputs. At each of June 26, 2021 and March 27, 2021, investment assets totaled $
6
Stock-Based Compensation: The Company measures the cost of services received in exchange for all equity awards granted, including stock options and restricted stock units, based on the fair market value of the award as of the grant date. The Company records compensation cost related to unvested equity awards by recognizing, on a straight-line basis, the unamortized grant date fair value over the remaining service period of each award. Excess tax benefits for share-based award activity are reflected in the Consolidated Statements of Income as a component of the provision for income taxes. Excess tax benefits are realized benefits from tax deductions for exercised awards in excess of the deferred tax asset attributable to stock-based compensation costs for such awards. The Company did not capitalize any stock-based compensation costs as part of an asset. The Company estimates forfeiture rates based on its historical experience. During the first quarter of fiscal year 2022 and fiscal year 2021, the Company recorded non-cash stock-based compensation expense of $
Foreign Currency Translation and Transactions: The accounts of Transcat Canada Inc., a wholly-owned subsidiary of the Company, are maintained in the local currency and have been translated to U.S. dollars. Accordingly, the amounts representing assets and liabilities have been translated at the period-end rates of exchange and related revenue and expense accounts have been translated at an average rate of exchange during the period. Gains and losses arising from translation of Transcat Canada Inc.’s financial statements into U.S. dollars are recorded directly to the accumulated other comprehensive loss component of shareholders’ equity.
Transcat records foreign currency gains and losses on Canadian business transactions. The net foreign currency gain was less than $
Earnings Per Share: Basic earnings per share of common stock are computed based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share of common stock reflect the assumed conversion of stock options and unvested restricted stock units using the treasury stock method in periods in which they have a dilutive effect. In computing the per share effect of assumed conversion, funds which would have been received from the exercise of options and unvested restricted stock units and the related tax benefits are considered to have been used to purchase shares of common stock at the average market prices during the period, and the resulting net additional shares of common stock are included in the calculation of average shares of common stock outstanding.
For both the first quarter of fiscal year 2022 and fiscal year 2021, the net additional common stock equivalents had no effect on the calculation of diluted earnings per share. The average shares outstanding used to compute basic and diluted earnings per share are as follows (in thousands):
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First Quarter Ended | |||||
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June 26, |
June 27, | ||||
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2021 |
2020 | ||||
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Average Shares Outstanding – Basic |
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Effect of Dilutive Common Stock Equivalents |
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Average Shares Outstanding – Diluted |
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Anti-dilutive Common Stock Equivalents |
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Goodwill and Intangible Assets: Goodwill represents the excess of the purchase price over the fair values of the underlying net assets of an acquired business. The Company tests goodwill for impairment on an annual basis during the fourth quarter of its fiscal year, or immediately if conditions indicate that such impairment could exist. The Company evaluates qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying value and whether it is necessary to perform the goodwill impairment process.
7
Intangible assets, namely customer base and covenants not to compete, represent an allocation of purchase price to identifiable intangible assets of an acquired business. The Company estimates the fair value of its reporting units using the fair market value measurement requirement. Intangible assets are evaluated for impairment when events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. A summary of changes in the Company’s goodwill and intangible assets is as follows (in thousands):
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Goodwill |
Intangible Assets | ||||||||||||||||||
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Distribution |
Service |
Total |
Distribution |
Service |
Total | ||||||||||||||
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Net Book Value as of March 27, 2021 |
$ |
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$ |
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$ |
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$ |
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$ |
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$ | ||||||||
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Additions |
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Amortization |
- |
- |
- |
( |
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( |
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( |
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Currency Translation Adjustment |
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Net Book Value as of June 26, 2021 |
$ |
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$ |
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$ |
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$ |
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$ |
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$ | ||||||||
Recently Issued Accounting Pronouncements:
In June 2016, the Financial Accounting Standard Board (“FASB”) issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), which significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The ASU replaces the "incurred loss" model with an "expected credit loss" model that requires entities to estimate an expected lifetime credit loss on financial assets, including trade accounts receivable. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. As credit losses from the Company's trade receivables have not historically been significant, the Company anticipates that the adoption of the ASU will not have a material impact on its consolidated financial statements.
NOTE 2 – LONG-TERM DEBT
On July 7, 2021, we entered into the Second Amended and Restated Credit Facility Agreement (the “2021 Credit Agreement”) with Manufacturers and Traders Trust Company (“M&T”), that amended and restated in its entirety the Company’s Amended and Restated Credit Facility Agreement dated as of October 30, 2017, as amended by Amended and Restated Credit Facility Agreement Amendment 1 dated December 10, 2018 and Amended and Restated Credit Facility Agreement Amendment 2 (“Amendment Two”) dated May 18, 2020 (as amended, the “Prior Credit Agreement”).
The 2021 Credit Agreement increased the revolving credit commitment (the “Revolving Credit Commitment”) from $
In addition, the 2021 Credit Agreement provides that, assuming no event of default, restricted payments up to $
8
The 2021 Credit Agreement superseded in its entirety, the Prior Credit Agreement. Amendment Two to the Prior Credit Agreement had previously extended the term of the revolving credit facility to
Amendment Two had modified the definition of the applicable rate used to determine interest charges on outstanding and unused borrowings under the revolving credit facility and it amended the definition of permitted acquisitions to amend borrowings available under the revolving credit facility for acquisitions. In addition, Amendment Two had amended the definition of restricted payments to exclude amounts up to $
We have a term loan, the 2018 Term Loan, in the amount of $
As of June 26, 2021, $
The allowable leverage ratio under the Prior Credit Agreement for the second, third and fourth fiscal quarter of fiscal year 2021 and the first quarter of fiscal year 2022 was a maximum multiple of
Interest and Other Costs: Interest on outstanding borrowings under the revolving credit facility accrue, at Transcat’s election, at either the variable one-month LIBOR or a fixed rate for a designated period at the LIBOR corresponding to such period, in each case (subject to a
Covenants: Pursuant to the Prior Credit Agreement, we were required to comply with a fixed charge ratio covenant and a leverage ratio covenant. M&T waived the requirement for the fixed charge ratio for the first fiscal quarter ending June 26, 2021. We were in compliance with all other loan covenants and requirements during the first quarter of fiscal year 2022. Our leverage ratio, as defined in the Prior Credit Agreement, was
Other Terms: The Company has pledged all of its U.S. tangible and intangible personal property, the equity interests of its U.S.-based subsidiaries, and a majority of the common stock of Transcat Canada Inc. as collateral security for the loans made under the revolving credit facility.
NOTE 3 – STOCK-BASED COMPENSATION
The Company has a share-based incentive plan (the “2003 Plan”) that provides for, among other awards, grants of restricted stock units and stock options to directors, officers and key employees at the fair market value at the date of grant. At June 26, 2021,
9
The Company receives an excess tax benefit related to restricted stock vesting and stock options exercised and redeemed. The discrete tax benefits related to share-based compensation and stock option activity during the first quarter of fiscal year 2022 and 2021 were $
Restricted Stock Units: The Company grants time-based and performance-based restricted stock units as a component of executive and key employee compensation. Expense for restricted stock unit grants is recognized on a straight-line basis for the service period of the stock award based upon fair value of the award on the date of grant. The fair value of the restricted stock unit grants is the quoted market price for the Company’s common stock on the date of grant. These restricted stock units are either time vested, or vest following the third fiscal year from the date of grant subject to cumulative diluted earnings per share targets over the eligible period.
Compensation cost ultimately recognized for performance-based restricted stock units will equal the grant date fair market value of the unit that coincides with the actual outcome of the performance conditions. On an interim basis, the Company records compensation cost based on the estimated level of achievement of the performance conditions. The expense relating to the time vested restricted stock units is recognized on a straight-line basis over the requisite service period for the entire award.
The Company achieved
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Total |
Grant Date |
Estimated | ||||||
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Number |
Fair |
Level of | ||||||||
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Date |
Measurement |
of Units |
Value |
Achievement at | ||||||
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Granted |
Period |
Outstanding |
Per Unit |
June 26, 2021 | ||||||
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October 2018 |
October 2018 – September 2027 |
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$ |
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Time Vested | |||||
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March 2019 |
April 2019 – March 2022 |
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$ |
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March 2019 |
April 2019 – March 2022 |
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$ |
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Time Vested | |||||
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August 2019 |
August 2019 – July 2020 |
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$ |
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Time Vested | |||||
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March 2020 |
April 2020 – March 2023 |
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$ |
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Time Vested | |||||
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July 2020 |
July 2020 – July 2023 |
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$ |
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Time Vested | |||||
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September 2020 |
September 2020 – September 2021 |
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$ |
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Time Vested | |||||
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September 2020 |
September 2020 – July 2023 |
|
$ |
|
Time Vested | |||||
|
September 2020 |
September 2020 – July 2023 |
|
$ |
|
Time Vested | |||||
|
September 2020 |
September 2020 – September 2023 |
|
$ |
|
Time Vested | |||||
|
January 2021 |
January 2021 – January 2024 |
|
$ |
|
Time Vested | |||||
|
May 2021 |
May 2021 – January 2024 |
|
$ |
|
Time Vested | |||||
|
June 2021 |
June 2021 – May 2024 |
|
$ |
|
| |||||
|
June 2021 |
June 2021 – May 2024 |
|
$ |
|
Time Vested | |||||
Total expense relating to restricted stock units, based on grant date fair value and the achievement criteria, was $
Stock Options: The Company grants stock options to employees and directors equal to the quoted market price of the Company’s stock at the date of the grant. The fair value of stock options is estimated using the Black-Scholes option pricing formula that requires assumptions for expected volatility, expected dividends, the risk-free interest rate and the expected term of the option. Expense for stock options is recognized on a straight-line basis over the requisite service period for each award. Options vest either immediately or over a period of up to
10
The following table summarizes the Company’s options as of and for the first quarter ended June 26, 2021 (in thousands, except per share data and years):
|
Weighted | |||||||||||
|
Weighted Average |
Average Remaining | ||||||||||
|
Number |
Exercise |
Contractual |
Aggregate | ||||||||
|
of |
Price Per |
Term (in |
Intrinsic | ||||||||
|
Shares |
Share |
years) |
Value | ||||||||
|
Outstanding as of March 27, 2021 |
|
$ |
| ||||||||
|
Granted |
|
$ |
| ||||||||
|
Exercised |
( |
) |
$ |
| |||||||
|
Forfeited |
|
| |||||||||
|
Outstanding as of June 26, 2021 |
|
$ |
|
|
$ |
| |||||
|
Exercisable as of June 26, 2021 |
|
$ |
|
|
$ |
| |||||
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the first quarter of fiscal year 2022 and the exercise price, multiplied by the number of in-the-money stock options) that would have been received by the option holders had all holders exercised their options on June 26, 2021. The amount of aggregate intrinsic value will change based on the fair market value of the Company’s common stock.
Total expense related to stock options was less than $
NOTE 4 – SEGMENT INFORMATION
Transcat has
|
First Quarter Ended | ||||||||
|
June 26, |
June 27, | |||||||
|
2021 |
2020 | |||||||
|
Revenue: | ||||||||
|
Service Revenue |
$ |
|
$ |
| ||||
|
Distribution Sales |
|
| ||||||
|
Total |
|
| ||||||
|
| ||||||||
|
Gross Profit: | ||||||||
|
Service |
|
| ||||||
|
Distribution |
|
| ||||||
|
Total |
|
| ||||||
|
| ||||||||
|
Operating Expenses: | ||||||||
|
Service (1) |
|
| ||||||
|
Distribution (1) |
|
| ||||||
|
Total |
|
| ||||||
|
| ||||||||
|
Operating Income: | ||||||||
|
Service (1) |
|
| ||||||
|
Distribution (1) |
|
( |
) | |||||
|
Total |
|
| ||||||
|
| ||||||||
|
Unallocated Amounts: | ||||||||
|
Interest and Other Expense, net |
|
| ||||||
|
Benefit from Income Taxes |
( |
) |
( |
) | ||||
|
Total |
|
| ||||||
|
| ||||||||
|
Net Income |
$ |
|
$ |
| ||||
|
|
(1) |
|
|
11
NOTE 5 – BUSINESS ACQUISITIONS
Upstate Metrology:Effective
The total purchase price paid for the assets of Upstate Metrology was approximately $0.9 million. The following is a summary of the purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of Upstate Metrology’s assets and liabilities acquired during the period presented (in thousands):
|
Goodwill |
$ |
|
| |||
|
Plus: |
Current Assets |
|
| |||
|
Non-Current Assets |
|
| ||||
|
Less: |
Current Liabilities |
( |
) | |||
|
Total Purchase Price |
$ |
|
| |||
BioTek: Effective
The total purchase price paid for the assets of BioTek was approximately $3.5 million. $
|
Goodwill |
$ |
|
| |||
|
Intangible Assets – Customer Base & Contracts |
| |||||
|
Intangible Assets – Covenant Not to Compete |
| |||||
|
| ||||||
|
Plus: |
Current Assets |
|
| |||
|
Non-Current Assets |
|
| ||||
|
Total Purchase Price |
$ |
|
| |||
12
The results of acquired businesses are included in Transcat’s consolidated operating results as of the dates the businesses were acquired. The following unaudited pro forma information presents the Company’s results of operations as if the acquisitions of Upstate Metrology and BioTek had occurred at the beginning of fiscal year 2021. The pro forma results do not purport to represent what the Company’s results of operations actually would have been if the transactions had occurred at the beginning of the period presented or what the Company’s operating results will be in future periods.
|
(Unaudited) | ||||||
|
Quarter Ended | ||||||
|
(in thousands except per share information) |
June 26, 2021 |
June 27, 2020 | ||||
|
Total Revenue |
$ |
|
$ |
| ||
|
Net Income |
$ |
|
$ |
| ||
|
Basic Earnings Per Share |
$ |
|
$ |
| ||
|
Diluted Earnings Per Share |
$ |
|
$ |
| ||
Certain of the Company’s acquisition agreements include provisions for contingent consideration and other holdback amounts. The Company accrues for contingent consideration and holdback provisions based on their estimated fair value at the date of acquisition. As of June 26, 2021, there was no contingent consideration or other holdback amounts unpaid and reflected in current liabilities on the Consolidated Balance Sheets. During the first quarter of fiscal year 2022 and fiscal year 2021,
During the first quarter of fiscal years 2022 and 2021, acquisition costs of less than $
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements. This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to expectations, estimates, beliefs, assumptions and predictions of future events and are identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “projects,” “seek,” “strategy,” “target,” “intends,” “could,” “may,” “will,” “would,” and other similar words. Forward-looking statements are not statements of historical fact and thus are subject to risks, uncertainties and other factors that could cause actual results to differ materially from historical results or those expressed in such forward-looking statements. You should evaluate forward-looking statements in light of important risk factors and uncertainties that may affect our operating and financial results and our ability to achieve our financial objectives. These factors include, but are not limited to, the impact of and our response to the COVID-19 pandemic, the highly competitive nature of the industries in which we compete and in the nature of our two business segments, cybersecurity risks, the risk of significant disruptions in our information technology systems, our inability to recruit, train and retain quality employees, skilled technicians and senior management, fluctuations in our operating results, competition in the rental market, the volatility of our stock price, our ability to adapt our technology, reliance on our enterprise resource planning system, technology updates, risks related to our acquisition strategy and the integration of the businesses we acquire, volatility in our customers’ industries, changes in vendor rebate programs, our vendors’ abilities to provide desired inventory, the risks related to current and future indebtedness, the relatively low trading volume of our common stock, foreign currency rate fluctuations and the impact of general economic conditions on our business. These risk factors and uncertainties are more fully described by us under the heading “Risk Factors” in our reports filed with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the fiscal year ended March 27, 2021. You should not place undue reliance on our forward-looking statements, which speak only as of the date they are made. Except as required by law, we
13
undertake no obligation to update or publicly announce any revisions to any of the forward-looking statements contained in this report, whether as a result of new information, future events or otherwise.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
There have been no material changes to our critical accounting policies and estimates from the information provided in our Annual Report on Form 10-K for the fiscal year ended March 27, 2021.
RESULTS OF OPERATIONS
During our first quarter of fiscal year 2022, we had consolidated revenue of $47.8 million. This represented an increase of $8.9 million or 22.8% versus the first quarter of fiscal year 2021. This increase was due to the economic rebound and the lower customer demand in the prior year first quarter due to the COVID-19 pandemic, especially in the Distribution segment.
Our first quarter of fiscal year 2022 gross profit was $13.5 million. This was an increase of $4.1 million or 43.7% versus the first quarter of fiscal year 2021. In addition, consolidated gross margin was 28.3%, an increase of 410 basis points, versus the first quarter of fiscal year 2021. This increase was the result of operating leverage on our fixed costs and continued productivity improvements in the Service segment, and a favorable mix of products sold in the Distribution segment.
Total operating expenses were $9.8 million in the first quarter of fiscal year 2022, an increase of $1.4 million when compared to the prior year first quarter. Included in operating expenses during the first quarter of fiscal year 2022 were incremental operating expenses related to the acquisition of Upstate Metrology, investments in technology and higher incentive-based employee costs due to higher sales. As a percentage of total revenue, operating expenses were 20.6% in the first quarter of fiscal year 2022, down 110 basis points from 21.7% in the first quarter of fiscal year 2021. Operating income increased by $2.7 million and operating margin increased by 520 basis points in the first quarter of fiscal year 2022.
Net income was $3.7 million for the first quarter of fiscal year 2022, up from $0.8 million in the first quarter of fiscal year 2021 primarily due to higher operating income and a higher benefit from income taxes.
The following table presents, for the first quarter of fiscal year 2022 and fiscal year 2021, the components of our Consolidated Statements of Income:
| (Unaudited) First Quarter Ended | ||||||
| June 26, | June 27, | |||||
| 2021 | 2020 | |||||
| As a Percentage of Total Revenue: | ||||||
| Service Revenue | 57.7 | % | 59.0 | % | ||
| Distribution Sales | 42.3 | % | 41.0 | % | ||
| Total Revenue | 100.0 | % | 100.0 | % | ||
| Gross Profit Percentage: | ||||||
| Service Gross Profit | 31.8 | % | 26.4 | % | ||
| Distribution Gross Profit | 23.6 | % | 21.0 | % | ||
| Total Gross Profit | 28.3 | % | 24.2 | % | ||
| Selling, Marketing and Warehouse Expenses | 10.5 | % | 10.5 | % | ||
| General and Administrative Expenses | 10.1 | % | 11.2 | % | ||
| Total Operating Expenses | 20.6 | % | 21.7 | % | ||
| Operating Income | 7.7 | % | 2.5 | % | ||
| Interest and Other Expense, net | 0.4 | % | 0.6 | % | ||
| Income Before Income Taxes | 7.3 | % | 1.9 | % | ||
| Benefit from Income Taxes | (0.4 | %) | (0.2 | %) | ||
| Net Income | 7.7 | % | 2.1 | % | ||
14
FIRST QUARTER ENDED JUNE 26, 2021 COMPARED TO FIRST QUARTER
ENDED JUNE 27, 2020
(dollars in thousands):
Revenue:
| First Quarter Ended | Change | ||||||||||||||
| June 26, | June 27, | ||||||||||||||
| 2021 | 2020 | $ | % | ||||||||||||
| Revenue: | |||||||||||||||
| Service | $ | 27,557 | $ | 22,967 | $ | 4,590 | 20.0% | ||||||||
| Distribution | 20,233 | 15,937 | 4,296 | 27.0% | |||||||||||
| Total | $ | 47,790 | $ | 38,904 | $ | 8,886 | 22.8% | ||||||||
Total revenue increased $8.9 million, or 22.8%, in our fiscal year 2022 first quarter compared to the prior fiscal year first quarter.
Service revenue, which accounted for 57.7% and 59.0% of our total revenue in the first quarter of fiscal years 2022 and 2021, respectively, increased 20.0% from the first quarter of fiscal year 2021 to the first quarter of fiscal year 2022. This year-over-year increase included $0.6 million in revenue from acquisitions and organic revenue growth of 16.6% and was driven by improvement in end market conditions, continued market share gains and an easier comparison versus the first quarter of fiscal year 2021 which was the quarter most significantly impacted by the COVID-19 pandemic.
Our fiscal years 2022 and 2021 Service revenue growth, in relation to prior fiscal year quarter comparisons, was as follows:
| FY 2022 | FY 2021 | ||||||
| Q1 | Q4 | Q3 | Q2 | Q1 | |||
| Service Revenue Growth | 20.0% | 15.8% | 12.2% | 4.5% | 2.5% | ||
The growth in Service segment revenue during the first quarter of fiscal year 2022 versus the first quarter of fiscal year 2021 reflected both organic growth and acquisitions, and the growth in the first quarter of fiscal year 2021 versus the first quarter of fiscal year 2020 was also both organic and from acquisitions.
Within any fiscal year, while we add new customers, we also have customers from the prior fiscal year whose service orders may not repeat for any number of factors. Among those factors are variations in the timing of periodic calibrations and other services, customer capital expenditures and customer outsourcing decisions. Because the timing of Service segment orders can vary on a quarter-to-quarter basis, we believe trailing twelve-month information provides a better indication of the progress of this segment. The following table presents the trailing twelve-month Service segment revenue for each quarter in fiscal years 2021 and 2020 as well as the trailing twelve-month revenue growth as a comparison to that of the prior fiscal year period:
| FY 2022 | FY 2021 | |||||||
| Q1 | Q4 | Q3 | Q2 | Q1 | ||||
| Trailing Twelve-Month: | ||||||||
| Service Revenue | $105,864 | $101,274 | $97,225 | $94,624 | $93,572 | |||
| Service Revenue Growth | 13.1% | 8.9% | 5.4% | 4.3% | 7.4% | |||
Our strategy has been to focus our investments in the core electrical, temperature, pressure, physical/dimensional and radio frequency/microwave calibration disciplines. We expect to subcontract approximately 13% to 15% of our Service revenue to third-party vendors for calibration beyond our chosen scope of capabilities. We continually evaluate our outsourcing needs and make capital investments, as deemed necessary, to add more in-house capabilities and reduce the need for third-party vendors. Capability expansion through business acquisitions is another way that we seek to reduce the need for outsourcing. The following table presents the source of our Service
15
revenue and the percentage of Service revenue derived from each source for each quarter during fiscal years 2022 and 2021:
| FY 2022 | FY 2021 | |||||||
| Q1 | Q4 | Q3 | Q2 | Q1 | ||||
| Percent of Service Revenue: | ||||||||
| In-House | 83.1% | 83.6% | 83.1% | 83.7% | 82.9% | |||
| Outsourced | 15.4% | 14.9% | 15.3% | 14.7% | 15.6% | |||
| Freight Billed to Customers | 1.5% | 1.5% | 1.6% | 1.6% | 1.5% | |||
| 100.0% | 100.0% | 100.0% | 100.0% | 100.0% | ||||
Our Distribution sales accounted for 42.3% of our total revenue in the first quarter of fiscal year 2022 and 41.0% of our total revenue in the first quarter of fiscal year 2021. During the first quarter of fiscal year 2022, Distribution segment sales showed an increase of 27.0% to $20.2 million. This increase was due to increased orders in the first quarter of fiscal year 2022 and an easier comparison to the first quarter of fiscal year 2021, which was the quarter most significantly impacted by the COVID-19 pandemic. In addition, rental revenue increased by 61.3% to $1.6 million.
Our fiscal years 2022 and 2021 Distribution sales growth (decline), in relation to prior fiscal year quarter comparisons, was as follows:
| FY 2022 | FY 2021 | ||||||
| Q1 | Q4 | Q3 | Q2 | Q1 | |||
| Distribution Sales Growth (Decline) | 27.0% | (4.6%) | (8.6%) | (6.6%) | (20.3%) | ||
The change in the first quarter of fiscal year 2022 versus the first quarter of fiscal year 2021 for the Distribution segment reflected just organic growth and the change in the first quarter of fiscal year 2021 versus the first quarter of fiscal year 2020 for the Distribution segment reflected both organic growth and acquisitions.
Distribution sales orders include orders for instruments that we routinely stock in our inventory, customized products, and other products ordered less frequently, which we do not stock. Pending product shipments are primarily backorders, but also include products that are requested to be calibrated in our service centers prior to shipment, orders required by the customer to be shipped complete or at a future date, and other orders awaiting final credit or management review prior to shipment. Our total pending product shipments at the end of the first quarter of fiscal year 2022 were $8.2 million, an increase of $4.3 million versus the end of the first quarter of fiscal year 2021 and an increase of $1.9 million since March 27, 2021. The year-over-year increase in pending product shipments and backorders was a result of the COVID-19 pandemic and its disruption to the supply of products as well as increased orders for the wind power generation market. The following table presents our total pending product shipments and the percentage of total pending product shipments that were backorders at the end of each quarter of fiscal years 2022 and 2021:
| FY 2022 | FY 2021 | ||||||
| Q1 | Q4 | Q3 | Q2 | Q1 | |||
| Total Pending Product Shipments | $8,173 | $6,287 | $5,533 | $4,251 | $3,890 | ||
| % of Pending Product | |||||||
| Shipments that were Backorders | 78.4% | 77.6% | 79.3% | 76.6% | 75.8% | ||
Gross Profit:
| First Quarter Ended | Change | ||||||||||||||
| June 26, | June 27, | ||||||||||||||
| 2021 | 2020 | $ | % | ||||||||||||
| Gross Profit: | |||||||||||||||
| Service | $ | 8,752 | $ | 6,069 | $ | 2,683 | 44.2% | ||||||||
| Distribution | 4,768 | 3,340 | 1,428 | 42.8% | |||||||||||
| Total | $ | 13,520 | $ | 9,409 | $ | 4,111 | 43.7% | ||||||||
16
Total gross profit for the first quarter of fiscal year 2022 was $13.5 million, an increase of $4.1 million or 43.7% versus the first quarter of fiscal year 2021. Total gross margin was 28.3% in the first quarter of fiscal year 2022, up from 24.2% in the first quarter of fiscal year 2021, a 410 basis point increase.
Service gross profit in the first quarter of fiscal year 2022 increased $2.7 million, or 44.2%, from the first quarter of fiscal year 2021. Service gross margin was 31.8% in the first quarter of fiscal year 2022, a 540 basis point increase versus the first quarter of fiscal year 2021. This increase in gross margin was primarily due to operating leverage on our fixed cost base and continued strong technician productivity.
The following table presents the quarterly historical trend of our Service gross margin as a percent of Service revenue:
| FY 2022 | FY 2021 | ||||||
| Q1 | Q4 | Q3 | Q2 | Q1 | |||
| Service Gross Margin | 31.8% | 33.9% | 27.9% | 32.2% | 26.4% | ||
Our Distribution gross margin includes net sales less the direct cost of inventory sold and the direct costs of equipment rental revenues, primarily depreciation expense for the fixed assets in our rental equipment pool, as well as the impact of rebates and cooperative advertising income we receive from vendors, freight billed to customers, freight expenses and direct shipping costs. In general, our Distribution gross margin can vary based upon the mix of products sold, price discounting, and the timing of periodic vendor rebates offered and cooperative advertising programs from suppliers.
The following table reflects the quarterly historical trend of our Distribution gross margin as a percent of Distribution sales:
| FY 2022 | FY 2021 | ||||||
| Q1 | Q4 | Q3 | Q2 | Q1 | |||
| Distribution Gross Margin | 23.6% | 21.0% | 22.5% | 21.1% | 21.0% | ||
Distribution segment gross margin was 23.6% in the first quarter of fiscal year 2022 versus 21.0% in the first quarter of fiscal year 2021, a 260 basis point increase. The increase in segment gross margin was primarily due to a favorable mix of higher margin products sold and rented.
Operating Expenses:
| First Quarter Ended | Change | ||||||||||||||
| June 26, | June 27, | ||||||||||||||
| 2021 | 2020 | $ | % | ||||||||||||
| Operating Expenses: | |||||||||||||||
| Selling, Marketing and Warehouse | $ | 4,997 | $ | 4,074 | $ | 923 | 22.7% | ||||||||
| General and Administrative | 4,834 | 4,371 | 463 | 10.6% | |||||||||||
| Total | $ | 9,831 | $ | 8,445 | $ | 1,386 | 16.4% | ||||||||
Total operating expenses were $9.8 million in the first quarter of fiscal year 2022 versus $8.4 million during the first quarter of fiscal year 2021. The year-over-year increase in selling, marketing and warehouse expenses is due to higher performance-based sales incentives and direct marketing costs. The increase in general and administrative expenses includes incremental expenses related to acquired companies, increased payroll costs from new employees and continued investments in technology.
As a percentage of total revenue, operating expenses were 20.6% in the first quarter of fiscal year 2022 and 21.7% in the first quarter of fiscal year 2021, a decrease of 110 basis points.
17
Income Taxes:
| First Quarter Ended | Change | |||||||||||||
| June 26, | June 27, | |||||||||||||
| 2021 | 2020 | $ | % | |||||||||||
| Benefit from Income Taxes | $ | (194 | ) | $ | (77 | ) | $ | (117 | ) | (151.9%) | ||||
Our effective tax rates for the first quarter of fiscal years 2022 and 2021 were (5.6%) and (10.7%), respectively. The increase in the tax benefit is due to the increased amount of discrete tax benefit from share-based compensation activity. Our quarterly provision for income taxes is affected by discrete items that may occur in any given year but are not consistent from year to year. The discrete benefits related to share-based compensation activity in the first quarter of fiscal years 2022 and 2021 was $1.1 million and $0.3 million, respectively. We continue to evaluate our tax provision on a quarterly basis and adjust, as deemed necessary, our effective tax rate given changes in facts and circumstances expected for the entire fiscal year. We expect our total fiscal year 2022 effective tax rate to be approximately 16% to 18%.
Net Income:
| First Quarter Ended | Change | |||||||||||||
| June 26, | June 27, | |||||||||||||
| 2021 | 2020 | $ | % | |||||||||||
| Net Income | $ | 3,688 | $ | 798 | $ | 2,890 | 362.2% | |||||||
Net income for the first quarter of fiscal year 2022 increased $2.9 million from the first quarter of fiscal year 2021 primarily due to the increased operating income and a higher benefit from income taxes.
Adjusted EBITDA:
In addition to reporting net income, a GAAP measure, we present Adjusted EBITDA (earnings before interest, income taxes, depreciation and amortization, non-cash stock compensation expense, non-cash loss on sale of building, and restructuring expense), which is a non-GAAP measure. Our management believes Adjusted EBITDA is an important measure of our operating performance because it allows management, investors and others to evaluate and compare the performance of our core operations from period to period by removing the impact of the capital structure (interest), tangible and intangible asset base (depreciation and amortization), taxes, stock-based compensation expense and other items, which is not always commensurate with the reporting period in which it is included. As such, our management uses Adjusted EBITDA as a measure of performance when evaluating our business segments and as a basis for planning and forecasting. Adjusted EBITDA is also commonly used by rating agencies, lenders and other parties to evaluate our credit worthiness.
Adjusted EBITDA is not a measure of financial performance under GAAP and is not calculated through the application of GAAP. As such, it should not be considered as a substitute or alternative for the GAAP measure of net income and, therefore, should not be used in isolation of, but in conjunction with, the GAAP measure. Adjusted EBITDA, as presented, may produce results that vary from the GAAP measure and may not be comparable to a similarly defined non-GAAP measure used by other companies.
| First Quarter Ended | ||||||||
| June 26, | June 27, | |||||||
| 2021 | 2020 | |||||||
| Net Income | $ | 3,688 | $ | 798 | ||||
| + Interest Expense | 189 | 224 | ||||||
| + Other Expense / (Income) | 6 | 19 | ||||||
| + Tax Provision | (194) | (77) | ||||||
| Operating Income | $ | 3,689 | $ | 964 | ||||
| + Depreciation & Amortization | 1,990 | 1,871 | ||||||
| + Restructuring Expense | - | 360 | ||||||
| + Other (Expense) / Income | (6) | (19) | ||||||
| + Noncash Stock Compensation | 437 | 312 | ||||||
| Adjusted EBITDA | $ | 6,110 | $ | 3,488 | ||||
Total Adjusted EBITDA for the first quarter of fiscal year 2022 was $6.1 million, an increase of $2.6 million or 75.2% versus the first quarter of fiscal year 2021. As a percentage of revenue, Adjusted EBITDA increased to
18
12.8% for the first quarter of fiscal year 2022 from 9.0% for the first quarter of fiscal year 2021. The increase in Adjusted EBITDA during the first quarter of fiscal year 2022 was primarily driven by the increase in net income.
LIQUIDITY AND CAPITAL RESOURCES
We expect that foreseeable liquidity and capital resource requirements will be met through anticipated cash flows from operations and borrowings from our revolving credit facility. We believe that these sources of financing will be adequate to meet our future requirements.
On July 7, 2021, we entered into the Second Amended and Restated Credit Facility Agreement (the “2021 Credit Agreement”) with Manufacturers and Traders Trust Company (“M&T”), that amended and restated in its entirety the Company’s Amended and Restated Credit Facility Agreement dated as of October 30, 2017, as amended by Amended and Restated Credit Facility Agreement Amendment 1 dated December 10, 2018 and Amended and Restated Credit Facility Agreement Amendment 2 (“Amendment Two”) dated May 18, 2020 (as amended, the “Prior Credit Agreement”).
The 2021 Credit Agreement increased the revolving credit commitment (the “Revolving Credit Commitment”) from $40.0 million to $80.0 million, with a letter of credit subfacility increased from $2.0 million to $10.0 million, and extended the term of the Revolving Credit Commitment to June 2026. The 2021 Credit Agreement amended the definition of Applicable Margin (formerly Applicable Rate under the Prior Credit Agreement), which is based upon the Company’s then current leverage ratio and is used to determine interest charges on outstanding and unused borrowings under the revolving credit facility; the amendments reduced the Applicable Margins payable at the two highest leverage ratio levels. The 2021 Credit Agreement also amended the definition of Permitted Acquisitions, that is, acquisitions which are permitted under, and may be financed with proceeds of, the revolving credit facility, including increasing the aggregate purchase price for acquisitions consummated in any fiscal year from $1.0 million to $65 million during the current fiscal year and $50 million during any subsequent fiscal year, and adding an aggregate purchase price of $40.0 million for acquisitions consummated at any time during the term of the 2021 Credit Agreement related to businesses with a principal place of business located in the United Kingdom or the European Union.
In addition, the 2021 Credit Agreement provides that, assuming no event of default, restricted payments up to $25.0 million (increased from $10.0 million in the Prior Credit Agreement) in the aggregate and $10.0 million (increased from $3.0 million in the Prior Credit Agreement) in any single fiscal year may be used by us to repurchase our shares and pay dividends. The 2021 Credit Agreement modified the leverage ratio and fixed charge coverage ratio covenants with which we are required to comply. The 2021 Credit Agreement also reduced the LIBOR floor from 1.0% to 0.25% and included a mechanism for adoption of a different benchmark rate in the event LIBOR is discontinued. Pursuant to the 2021 Credit Agreement, the fixed interest rate on our term loan (the “2018 Term Loan”) was reduced from 4.15% to 3.90%.
The 2021 Credit Agreement superseded in its entirety, the Prior Credit Agreement. Amendment Two to the Prior Credit Agreement had previously extended the term of the revolving credit facility to October 20, 2022 and increased the revolving credit commitment to $40 million.
Amendment Two also had modified the definition of the applicable rate used to determine interest charges on outstanding and unused borrowings under the revolving credit facility and it amended the definition of permitted acquisitions to amend borrowings available under the revolving credit facility for acquisitions. In addition, Amendment Two had amended the definition of restricted payments to exclude amounts up to $2.5 million during each fiscal year used to pay certain employee tax obligations associated with share-based payment and stock option activity, and modified certain restrictions to the Company’s ability to repurchase its shares and pay dividends. Amendment Two also had modified the leverage ratio and fixed charge coverage ratio covenants with which the Company was required to comply and limited capital expenditures to $5.5 million for the fiscal year ending March 27, 2021. Amendment Two also had established a LIBOR floor of 1.0% and included a mechanism for adoption of a different benchmark rate in the event LIBOR was discontinued.
We have a term loan, the 2018 Term Loan, in the amount of $15.0 million. As of June 26, 2021, $10.0 million was outstanding on the 2018 Term Loan, of which $2.1 million was included in current liabilities on the Consolidated Balance Sheets with the remainder included in long-term debt. The 2018 Term Loan requires total repayments (principal plus interest) of $0.2 million per month through December 2025.
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As of June 26, 2021, $40.0 million was available under the revolving credit facility, of which $12.1 million was outstanding and included in long-term debt on the Consolidated Balance Sheets.
During the first quarter of fiscal year 2021, we used $0.9 million for a business acquisition.
The allowable leverage ratio under the Prior Credit Agreement for the second, third and fourth fiscal quarter of fiscal year 2021 and the first quarter of fiscal year 2022 was a maximum multiple of 5.0, 5.5, 7.0 and 4.0, respectively, of total debt outstanding compared to EBITDA and non-cash stock-based compensation expense for the preceding four consecutive fiscal quarters. After the first quarter of fiscal 2022, pursuant to the July 2021 Facility, the allowable leverage ratio is a maximum multiple of 3.0. The Prior Credit Agreement also had provided that the trailing twelve-month pro forma EBITDA of an acquired business was included in the allowable leverage calculation.
Pursuant to the Prior Credit Agreement, we were required to comply with a fixed charge ratio covenant and a leverage ratio covenant. M&T waived the requirement for the fixed charge ratio for the first fiscal quarter ending June 26, 2021. We were in compliance with all other loan covenants and requirements during the first quarter of fiscal year 2022. Our leverage ratio, as defined in the Prior Credit Agreement, was 0.96 at June 26, 2021, compared with 0.94 at March 27, 2021. The 2021 Credit Agreement modified the leverage ratio and fixed charge coverage ratio covenants with which we are required to comply.
Interest on the revolving credit facility continues to accrue, at our election, at either the variable one-month LIBOR (subject to a 1% floor during the first quarter of fiscal year 2022) or a fixed rate for a designated period at the LIBOR corresponding to such period, in each case, plus a margin. Interest on outstanding borrowings of the 2018 Term Loan accrues at a fixed rate of 4.15% over the term of the loan during the first quarter of fiscal year 2022 with principal and interest payments made monthly. Unused fees accrued based on the average daily amount of unused credit available under the Prior Credit Agreement. Interest rate margins and unused fees were determined on a quarterly basis based upon our calculated leverage ratio.
Cash Flows: The following table is a summary of our Consolidated Statements of Cash Flows (dollars in thousands):
| First Quarter Ended | ||||||||
| June 26, | June 27, | |||||||
| 2021 | 2020 | |||||||
| Cash Provided by (Used in): | ||||||||
| Operating Activities | $ | 2,055 | $ | 4,042 | ||||
| Investing Activities | $ | (2,134 | ) | $ | (1,261 | ) | ||
| Financing Activities | $ | (43 | ) | $ | (2,721 | ) | ||
Operating Activities: Net cash provided by operations was $2.1 million during the first quarter of fiscal year 2022 compared to $4.0 million of net cash provided by operating activities during the first quarter of fiscal year 2021. The year-over-year decrease in cash provided by operations was primarily the result of changes in net working capital (defined as current assets less current liabilities). The significant working capital fluctuations were as follows:
· Receivables: Accounts receivable decreased by a net amount of $0.6 million during the first quarter of fiscal year 2022 inclusive of $0.2 million of accounts receivable acquired as part of the Upstate Metrology acquisition completed during the period. During the first quarter of fiscal year 2021, accounts receivable decreased by a net amount of $3.1 million. The year-over-year variation reflects changes in the timing of collections. The following table illustrates our “days sales outstanding” as of June 26, 2021 and June 27, 2020 (dollars in thousands):
| June 26, | June 27, | |||||
| 2021 | 2020 | |||||
| Net Sales, for the last two fiscal months | $ | 33,502 | $ | 27,464 | ||
| Accounts Receivable, net | $ | 33,324 | $ | 27,849 | ||
| Days Sales Outstanding | 60 | 61 | ||||
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| · | Inventory: Our inventory strategy includes making appropriate large quantity, high dollar purchases with key manufacturers for various reasons, including maximizing on-hand availability of key products, expanding the number of SKU’s stocked in anticipation of customer demand, reducing backorders for products with long lead times and optimizing vendor volume discounts. As a result, inventory levels may vary from quarter-to-quarter based on the timing of these large orders in relation to our quarter end. Our inventory balance remained flat during both the first quarter of fiscal year 2022 and fiscal year 2021. |
| · | Accounts Payable: Changes in accounts payable may or may not correlate with changes in inventory balances at any given quarter end due to the timing of vendor payments for inventory, as well as the timing of payments for outsourced Service vendors and capital expenditures. Accounts payable decreased $1.1 million during the first quarter of fiscal year 2022. Accounts payable decreased $2.6 million during the first quarter of fiscal year 2021. The decreases are largely due to the timing of inventory and other payments in the respective periods. |
| · | Accrued Compensation and Other Liabilities: Accrued compensation and other liabilities include, among other things, amounts to be paid to employees for non-equity performance-based compensation. At the end of any particular period, the amounts accrued for such compensation may vary due to many factors including, but not limited to, changes in expected performance levels, the performance measurement period, and timing of payments to employees. During the first quarter of fiscal year 2022, accrued compensation and other liabilities decreased by $3.1 million. During the first quarter of fiscal year 2021, accrued compensation and other liabilities decreased by $0.3 million. The change in fiscal year 2022 was largely due to the one-time annual payments of incentive based compensation accruals. |
| · | Income Taxes Payable: In any given period, net working capital may be affected by the timing and amount of income tax payments. During the first quarter of fiscal year 2022 and fiscal year 2021, income taxes payable decreased by $0.3 million and $0.1 million, respectively. The year-over-year difference is due to timing of income tax payments. |
Investing Activities: During the first quarter of fiscal year 2022, we invested $1.2 million in capital expenditures that was used primarily for customer-driven expansion of Service segment capabilities and the Company’s rental business.
During the first quarter of fiscal year 2021, we invested $1.3 million in capital expenditures that was used primarily for customer-driven expansion of Service segment capabilities and the Company’s rental business.
Financing Activities: During the first quarter of fiscal year 2022, $3.2 million was borrowed from our revolving line of credit and $0.7 million in cash was generated from the issuance of common stock. In addition, we used $0.6 million for scheduled repayments of our term loan and $3.4 million for the “net” awarding of certain share awards to cover employee tax-withholding obligations for share award and stock option activity in the quarter which are shown as a repurchase of shares of our common stock.
During the first quarter of fiscal year 2021, $0.4 million in cash was generated from the issuance of common stock. In addition, we used $1.3 million to reduce the balance on our revolving line of credit, $0.5 million for scheduled repayments of our term loan and $1.3 million for the “net” awarding of certain share awards to cover employee tax-withholding obligations for share award and stock option activity in the quarter which are shown as a repurchase of shares of our common stock.
OUTLOOK
The results of the first quarter of fiscal year 2022 were strong and we are pleased with the continued strong performance of our Service segment and improving trends in our Distribution segment. We have a strong balance sheet, sustainable Service segment gross margins and an active M&A pipeline. We are confident that the strength of our unique value proposition and our new customer pipeline positions us well for continued strong organic growth.
For the second quarter of fiscal year 2022, we expect Service organic growth to be similar to what we achieved in the first quarter of fiscal year 2022. We expect more modest improvement in Service gross margin than we have experienced over the last several quarters, largely due to a more difficult technician productivity comparison versus
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the second quarter of fiscal year 2021. Distribution sales are expected to achieve high teens growth in the second quarter of fiscal year 2022 on improved order trends and a prior-year comparison that includes lower levels of demand due to the COVID-19 pandemic.
We revised our fiscal year 2022 income tax rate to range between 16% and 18% from the previous estimated range of 20% to 22%. This estimate includes Federal, various state, and Canadian income taxes and reflects the discrete tax benefit associated with share-based payment awards and stock option activity.
We anticipate total capital expenditures to be approximately $7.5 million to $8.5 million in fiscal year 2022, with the majority of the capital expenditures planned for technology and growth-oriented opportunities within both of our operating segments.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATES
Our exposure to changes in interest rates results from our borrowing activities. In the event interest rates were to move by 1%, our yearly interest expense would increase or decrease by approximately $0.1 million assuming our average borrowing levels remained constant. As of June 26, 2021, $40.0 million was available under our revolving credit facility, of which $12.1 million was outstanding and included in long-term debt on the Consolidated Balance Sheets. As described above under “Liquidity and Capital Resources,” we also have a $15.0 million (original principal) term loan. The 2018 Term Loan is considered a fixed interest rate loan. As of June 26, 2021, $10.0 million was outstanding on the 2018 Term Loan and was included in long-term debt and current portion of long-term debt on the Consolidated Balance Sheets. The 2018 Term Loan requires total (principal and interest) repayments of $0.2 million per month.
At our option, we borrow from our revolving credit facility at the variable one-month LIBOR or at a fixed rate for a designated period at the LIBOR (subject to a 1% floor during the first quarter of fiscal year 2022 and a 0.25% floor for subsequent periods) corresponding to such period, in each case, plus a margin. Our interest rate margin is determined on a quarterly basis based upon our calculated leverage ratio. Our interest rate during the first quarter of fiscal year 2022 for our revolving credit facility ranged from 1.8% to 2.2%. Interest on outstanding borrowings of the 2018 Term Loan accrued at a fixed rate of 4.15% over the term of the loan during the first quarter of fiscal year 2022 and 3.90% over the term of the loan for subsequent periods. On June 26, 2021, we had no hedging arrangements in place for our revolving credit facility to limit our exposure to upward movements in interest rates.
FOREIGN CURRENCY
Approximately 90% of our total revenues for each of the first quarters of fiscal year 2022 and 2021 were denominated in U.S. dollars, with the remainder denominated in Canadian dollars. A 10% change in the value of the Canadian dollar to the U.S. dollar would impact our revenue by approximately 1%. We monitor the relationship between the U.S. and Canadian currencies on a monthly basis and adjust sales prices for products and services sold in Canadian dollars as we believe to be appropriate.
We continually utilize short-term foreign exchange forward contracts to reduce the risk that future earnings would be adversely affected by changes in currency exchange rates. We do not apply hedge accounting and therefore the net change in the fair value of the contracts, which totaled a loss of $0.1 million during the first quarter of each of the fiscal years 2022 and 2021, was recognized as a component of other expense in the Consolidated Statements of Income. The change in the fair value of the contracts is offset by the change in fair value on the underlying accounts receivables denominated in Canadian dollars being hedged. On June 26, 2021, we had a foreign exchange contract, which matured in July 2021, outstanding in the notional amount of $4.0 million. The foreign exchange contract was renewed in July 2021 and continues to be in place. We do not use hedging arrangements for speculative purposes.
ITEM 4. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures. Our principal executive officer and our principal financial officer evaluated our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this quarterly report. Disclosure controls and procedures are designed to ensure that information
22
required to be disclosed in our reports filed under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our principal executive officer and principal financial officer to allow timely decisions regarding required disclosure. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of such date.
Changes in Internal Control over Financial Reporting. There has been no change in our internal control over financial reporting that occurred during the last fiscal quarter covered by this quarterly report (our first fiscal quarter of fiscal year 2022) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ISSUER PURCHASES OF EQUITY SECURITIES
| (a) | (b) | (c) | (d) | |||||
| Period | Total
Number of Shares Purchased |
Average Price Paid |
Total
Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) |
Maximum
Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (1) | ||||
| 03/28/21 - 04/24/21 | 279(2) | $49.08(2) | - | - | ||||
| 04/25/21 - 05/22/21 | 61,912(2) | $54.35(2) | - | - | ||||
| 05/23/21 - 06/26/21 | - | - | - | - | ||||
| Total | 62,191 | $54.33 | - | - |
| (1) | We have a Share Repurchase Plan (the “Plan”), announced on October 31, 2011, which allows us to repurchase shares of our common stock from certain of our executive officers, directors and key employees, subject to certain conditions and limitations. The purchase price is determined by the weighted average closing price per share of our common stock on The NASDAQ Global Market over the twenty (20) trading days following our acceptance of the repurchase request and may not be more than 15% higher than the closing price on the last day of the twenty (20) trading day period. We may purchase shares of our common stock pursuant to the Plan on a continuous basis, but we may not expend more than $1.0 million in any fiscal year to repurchase the shares. Our board of directors may terminate the Plan at any time. No shares were repurchased under the Plan during the first quarter of fiscal year 2022. |
| (2) | Shares of common stock withheld pursuant to the Transcat, Inc. 2003 Incentive Plan, as Amended and Restated, to cover employee tax-withholding obligations upon vesting of restricted stock unit awards that vested and stock option exercises in the first quarter of fiscal year 2022. Amounts in column (b) reflect the weighted average price for shares withheld in satisfaction of these tax-withholding obligations. |
23
ITEM 6. EXHIBITS
INDEX TO EXHIBITS
* Exhibit filed with this report.
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
TRANSCAT, INC.
| Date: August 3, 2021 | /s/ Lee D. Rudow |
| Lee D. Rudow | |
|
President and Chief Executive Officer (Principal Executive Officer) | |
| Date: August 3, 2021 | /s/ Mark A. Doheny |
| Mark A. Doheny | |
|
Vice President of Finance and Chief Financial Officer (Principal Financial Officer) |
25
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Lee D. Rudow, President and Chief Executive Officer of Transcat, Inc., certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Transcat, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: August 3, 2021 | /s/ Lee D. Rudow |
| Lee D. Rudow | |
|
President and Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Mark A. Doheny, Vice President of Finance and Chief Financial Officer of Transcat, Inc., certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Transcat, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))) for the registrant and have: |
| (a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: August 3, 2021 | /s/ Mark A. Doheny |
| Mark A. Doheny | |
|
Vice President of Finance and Chief Financial Officer (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this quarterly report on Form 10-Q of Transcat, Inc., Lee D. Rudow, the Chief Executive Officer of Transcat, Inc. and Mark A. Doheny, the Chief Financial Officer of Transcat, Inc. certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of their knowledge, that:
| 1. | This quarterly report on Form 10-Q for the first quarter ended June 26, 2021 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in this quarterly report on Form 10-Q for the first quarter ended June 26, 2021 fairly presents, in all material respects, the financial condition and results of operations of Transcat, Inc. |
| Date: August 3, 2021 | /s/ Lee D. Rudow |
| Lee D. Rudow | |
|
President and Chief Executive Officer (Principal Executive Officer) |
| Date: August 3, 2021 | /s/ Mark A. Doheny |
| Mark A. Doheny | |
|
Vice President of Finance and Chief Financial Officer (Principal Financial Officer) |
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to Transcat, Inc. and will be retained by Transcat, Inc. and furnished to the SEC or its staff upon request.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited) - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | |
|---|---|---|
Jun. 26, 2021 |
Jun. 27, 2020 |
|
| Total Revenue | $ 47,790 | $ 38,904 |
| Total Cost of Revenue | 34,270 | 29,495 |
| Gross Profit | 13,520 | 9,409 |
| Selling, Marketing and Warehouse Expenses | 4,997 | 4,074 |
| General and Administrative Expenses | 4,834 | 4,371 |
| Total Operating Expenses | 9,831 | 8,445 |
| Operating Income | 3,689 | 964 |
| Interest and Other Expense, net | 195 | 243 |
| Income Before Income Taxes | 3,494 | 721 |
| Benefit from Income Taxes | (194) | (77) |
| Net Income | $ 3,688 | $ 798 |
| Basic Earnings Per Share | $ 0.49 | $ 0.11 |
| Average Shares Outstanding | 7,464 | 7,394 |
| Diluted Earnings Per Share | $ 0.49 | $ 0.11 |
| Average Shares Outstanding | 7,593 | 7,514 |
| Service Revenue [Member] | ||
| Total Revenue | $ 27,557 | $ 22,967 |
| Total Cost of Revenue | 18,805 | 16,898 |
| Distribution Sales [Member] | ||
| Total Revenue | 20,233 | 15,937 |
| Total Cost of Revenue | $ 15,465 | $ 12,597 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Jun. 26, 2021 |
Jun. 27, 2020 |
|
| Statement of Comprehensive Income [Abstract] | ||
| Net Income | $ 3,688 | $ 798 |
| Other Comprehensive Income: | ||
| Currency Translation Adjustment | 161 | 125 |
| Other, net of tax effects of $7 and $13 for the first quarter ended June 26, 2021 and June 27, 2020, respectively | 21 | 38 |
| Total Other Comprehensive Income | 182 | 163 |
| Comprehensive Income | $ 3,870 | $ 961 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Jun. 26, 2021 |
Jun. 27, 2020 |
|
| Statement of Comprehensive Income [Abstract] | ||
| Other, tax expense (benefit) | $ 7 | $ 13 |
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands |
Jun. 26, 2021 |
Mar. 27, 2021 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Accounts Receivable, allowance for doubtful accounts (in Dollars) | $ 615 | $ 526 |
| Common Stock, par value per share (in Dollars per share) | $ 0.50 | $ 0.50 |
| Common Stock, shares authorized | 30,000,000 | 30,000,000 |
| Common Stock, shares issued | 7,468,991 | 7,458,251 |
| Common Stock, shares outstanding | 7,468,991 | 7,458,251 |
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Unaudited) - USD ($) $ in Thousands |
Common Stock Issued $0.50 Par Value [Member] |
Capital In Excess of Par Value [Member] |
Accumulated Other Comprehensive Loss [Member] |
Retained Earnings [Member] |
Total |
|---|---|---|---|---|---|
| Balance at Mar. 28, 2020 | $ 3,691 | $ 17,929 | $ (1,010) | $ 46,477 | $ 67,087 |
| Balance (in Shares) at Mar. 28, 2020 | 7,381,000 | ||||
| Issuance of Common Stock | $ 14 | 369 | 383 | ||
| Issuance of Common Stock (in Shares) | 28,000 | ||||
| Repurchase of Common Stock | $ (24) | (579) | (684) | (1,287) | |
| Repurchase of Common Stock (in Shares) | (48,000) | ||||
| Stock-Based Compensation | $ 25 | 287 | 312 | ||
| Stock-Based Compensation (in Shares) | 50,000 | ||||
| Other Comprehensive Income | 163 | 163 | |||
| Net Income | 798 | 798 | |||
| Balance at Jun. 27, 2020 | $ 3,706 | 18,006 | (847) | 46,591 | 67,456 |
| Balance (in Shares) at Jun. 27, 2020 | 7,411,000 | ||||
| Balance at Mar. 27, 2021 | $ 3,729 | 19,287 | (451) | 52,513 | $ 75,078 |
| Balance (in Shares) at Mar. 27, 2021 | 7,458,000 | 7,458,251 | |||
| Issuance of Common Stock | $ 26 | 673 | $ 699 | ||
| Issuance of Common Stock (in Shares) | 52,000 | ||||
| Repurchase of Common Stock | $ (31) | (755) | (2,591) | (3,377) | |
| Repurchase of Common Stock (in Shares) | (62,000) | ||||
| Stock-Based Compensation | $ 10 | 427 | 437 | ||
| Stock-Based Compensation (in Shares) | 21,000 | ||||
| Other Comprehensive Income | 182 | 182 | |||
| Net Income | 3,688 | 3,688 | |||
| Balance at Jun. 26, 2021 | $ 3,734 | $ 19,632 | $ (269) | $ 53,610 | $ 76,707 |
| Balance (in Shares) at Jun. 26, 2021 | 7,469,000 | 7,468,991 |
GENERAL |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| GENERAL |
NOTE 1 – GENERAL Description of Business: Transcat, Inc. (“Transcat,” “we,” “us,” “our” or the “Company”) is a leading provider of accredited calibration and laboratory instrument services and a value-added distributor of professional grade test, measurement and control instrumentation. The Company is focused on providing services and products to highly regulated industries, particularly the life science industry, which includes pharmaceutical, biotechnology, medical device and other FDA-regulated businesses. Additional industries served include industrial manufacturing; energy and utilities, including oil and gas; chemical manufacturing; FAA-regulated businesses, including aerospace and defense and other industries that require accuracy in their processes, confirmation of the capabilities of their equipment, and for which the risk of failure is very costly. Basis of Presentation: Transcat’s unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8-03 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, the Consolidated Financial Statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of the Company’s management, all adjustments considered necessary for a fair presentation (consisting of normal recurring adjustments) have been included. The results for the interim periods are not necessarily indicative of what the results will be for the fiscal year. The accompanying Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements as of and for the fiscal year ended March 27, 2021 (“fiscal year 2021”) contained in the Company’s 2021 Annual Report on Form 10-K filed with the SEC. Revenue Recognition: Distribution sales are recorded when an order’s title and risk of loss transfers to the customer. The Company recognizes the majority of its Service revenue based upon when the calibration or other activity is performed and then shipped and/or delivered to the customer. The majority of the Company’s revenue generating activities have a single performance obligation and are recognized at the point in time when control transfers and/or our obligation has been fulfilled. Some Service revenue is generated from managing customers’ calibration programs in which the Company recognizes revenue over time using the output method-time elapsed as this portrays the transfer of control to the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for product shipped or services performed. Sales taxes and other taxes billed and collected from customers are excluded from revenue. The Company generally invoices its customers for freight, shipping, and handling charges. Provisions for customer returns are provided for in the period the related revenue is recorded based upon historical data. Revenue recognized from prior period performance obligations for the first quarter of the fiscal year ending March 26, 2022 (“fiscal year 2022”) was immaterial. As of June 26, 2021, the Company had no unsatisfied performance obligations for contracts with an original expected duration of greater than one year. Pursuant to Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, the Company applied the practical expedient with respect to disclosure of the deferral and future expected timing of revenue recognition for transaction price allocated to remaining performance obligations. Deferred revenue, unbilled revenue and deferred contract costs recorded on our Consolidated Balance Sheets as of June 26, 2021 and March 27, 2021 were immaterial. Payment terms are generally 30 to 45 days. See Note 4 for disaggregated revenue information. Fair Value of Financial Instruments: Transcat has determined the fair value of debt and other financial instruments using a valuation hierarchy. The hierarchy, which prioritizes the inputs used in measuring fair value, consists of three levels. Level 1 uses observable inputs such as quoted prices in active markets; Level 2 uses inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, which is defined as unobservable inputs in which little or no market data exists, requires the Company to develop its own assumptions. The carrying amount of debt on the Consolidated Balance Sheets approximates fair value due to variable interest rate pricing, and the carrying amounts for cash, accounts receivable, other receivables, accounts payable and accrued compensation and other liabilities approximate fair value due to their short-term nature. Investment assets, which fund the Company’s non-qualified deferred compensation plan, consist of mutual funds and are valued based on Level 1 inputs. At each of June 26, 2021 and March 27, 2021, investment assets totaled $0.4 million and are included as a component of other assets on the Consolidated Balance Sheets. 6 Stock-Based Compensation: The Company measures the cost of services received in exchange for all equity awards granted, including stock options and restricted stock units, based on the fair market value of the award as of the grant date. The Company records compensation cost related to unvested equity awards by recognizing, on a straight-line basis, the unamortized grant date fair value over the remaining service period of each award. Excess tax benefits for share-based award activity are reflected in the Consolidated Statements of Income as a component of the provision for income taxes. Excess tax benefits are realized benefits from tax deductions for exercised awards in excess of the deferred tax asset attributable to stock-based compensation costs for such awards. The Company did not capitalize any stock-based compensation costs as part of an asset. The Company estimates forfeiture rates based on its historical experience. During the first quarter of fiscal year 2022 and fiscal year 2021, the Company recorded non-cash stock-based compensation expense of $0.4 million and $0.3 million, respectively, in the Consolidated Statements of Income. Foreign Currency Translation and Transactions: The accounts of Transcat Canada Inc., a wholly-owned subsidiary of the Company, are maintained in the local currency and have been translated to U.S. dollars. Accordingly, the amounts representing assets and liabilities have been translated at the period-end rates of exchange and related revenue and expense accounts have been translated at an average rate of exchange during the period. Gains and losses arising from translation of Transcat Canada Inc.’s financial statements into U.S. dollars are recorded directly to the accumulated other comprehensive loss component of shareholders’ equity. Transcat records foreign currency gains and losses on Canadian business transactions. The net foreign currency gain was less than $0.1 million in each of the first quarter of fiscal year 2022 and fiscal year 2021. The Company continually utilizes short-term foreign exchange forward contracts to reduce the risk that its earnings will be adversely affected by changes in currency exchange rates. The Company does not apply hedge accounting and therefore the net change in the fair value of the contracts, which totaled a loss of $0.1 million during the first quarter of each of fiscal years 2022 and 2021, was recognized as a component of other expense in the Consolidated Statements of Income. The change in the fair value of the contracts is offset by the change in fair value on the underlying accounts receivables denominated in Canadian dollars being hedged. On June 26, 2021, the Company had a foreign exchange contract, which matured in July 2021, outstanding in the notional amount of $4.0 million. The foreign exchange contract was renewed in July 2021 and continues to be in place. The Company does not use hedging arrangements for speculative purposes. Earnings Per Share: Basic earnings per share of common stock are computed based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share of common stock reflect the assumed conversion of stock options and unvested restricted stock units using the treasury stock method in periods in which they have a dilutive effect. In computing the per share effect of assumed conversion, funds which would have been received from the exercise of options and unvested restricted stock units and the related tax benefits are considered to have been used to purchase shares of common stock at the average market prices during the period, and the resulting net additional shares of common stock are included in the calculation of average shares of common stock outstanding. For both the first quarter of fiscal year 2022 and fiscal year 2021, the net additional common stock equivalents had no effect on the calculation of diluted earnings per share. The average shares outstanding used to compute basic and diluted earnings per share are as follows (in thousands):
Goodwill and Intangible Assets: Goodwill represents the excess of the purchase price over the fair values of the underlying net assets of an acquired business. The Company tests goodwill for impairment on an annual basis during the fourth quarter of its fiscal year, or immediately if conditions indicate that such impairment could exist. The Company evaluates qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying value and whether it is necessary to perform the goodwill impairment process. 7 Intangible assets, namely customer base and covenants not to compete, represent an allocation of purchase price to identifiable intangible assets of an acquired business. The Company estimates the fair value of its reporting units using the fair market value measurement requirement. Intangible assets are evaluated for impairment when events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. A summary of changes in the Company’s goodwill and intangible assets is as follows (in thousands):
Recently Issued Accounting Pronouncements: In June 2016, the Financial Accounting Standard Board (“FASB”) issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), which significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The ASU replaces the "incurred loss" model with an "expected credit loss" model that requires entities to estimate an expected lifetime credit loss on financial assets, including trade accounts receivable. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. As credit losses from the Company's trade receivables have not historically been significant, the Company anticipates that the adoption of the ASU will not have a material impact on its consolidated financial statements. |
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LONG-TERM DEBT |
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| Debt Disclosure [Abstract] | |
| LONG-TERM DEBT |
NOTE 2 – LONG-TERM DEBT On July 7, 2021, we entered into the Second Amended and Restated Credit Facility Agreement (the “2021 Credit Agreement”) with Manufacturers and Traders Trust Company (“M&T”), that amended and restated in its entirety the Company’s Amended and Restated Credit Facility Agreement dated as of October 30, 2017, as amended by Amended and Restated Credit Facility Agreement Amendment 1 dated December 10, 2018 and Amended and Restated Credit Facility Agreement Amendment 2 (“Amendment Two”) dated May 18, 2020 (as amended, the “Prior Credit Agreement”). The 2021 Credit Agreement increased the revolving credit commitment (the “Revolving Credit Commitment”) from $40.0 million to $80.0 million, with a letter of credit subfacility increased from $2.0 million to $10.0 million, and extended the term of the Revolving Credit Commitment to . The 2021 Credit Agreement amended the definition of Applicable Margin (formerly Applicable Rate under the Prior Credit Agreement), which is based upon the Company’s then current leverage ratio and is used to determine interest charges on outstanding and unused borrowings under the revolving credit facility; the amendments reduced the Applicable Margins payable at the two highest leverage ratio levels. The 2021 Credit Agreement also amended the definition of Permitted Acquisitions, that is, acquisitions which are permitted under, and may be financed with proceeds of, the revolving credit facility, including increasing the aggregate purchase price for acquisitions consummated in any fiscal year from $1.0 million to $65 million during the current fiscal year and $50 million during any subsequent fiscal year, and adding an aggregate purchase price of $40.0 million for acquisitions consummated at any time during the term of the 2021 Credit Agreement related to businesses with a principal place of business located in the United Kingdom or the European Union. In addition, the 2021 Credit Agreement provides that, assuming no event of default, restricted payments up to $25.0 million (increased from $10.0 million in the Prior Credit Agreement) in the aggregate and $10.0 million (increased from $3.0 million in the First Agreement) in any single fiscal year may be used by us to repurchase our shares and pay dividends. The 2021 Credit Agreement modified the leverage ratio and fixed charge coverage ratio covenants with which we are required to comply. The 2021 Credit Agreement also reduced the London Interbank Offered Rate (“LIBOR”) floor from 1.0% to 0.25% and included a mechanism for adoption of a different benchmark rate in the event LIBOR is discontinued. Pursuant to the 2021 Credit Agreement, the fixed interest rate on our term loan (the “2018 Term Loan”) was reduced from 4.15% to 3.90%. 8 The 2021 Credit Agreement superseded in its entirety, the Prior Credit Agreement. Amendment Two to the Prior Credit Agreement had previously extended the term of the revolving credit facility to October 20, 2022 and increased the revolving credit commitment to $40 million. Amendment Two had modified the definition of the applicable rate used to determine interest charges on outstanding and unused borrowings under the revolving credit facility and it amended the definition of permitted acquisitions to amend borrowings available under the revolving credit facility for acquisitions. In addition, Amendment Two had amended the definition of restricted payments to exclude amounts up to $2.5 million during each fiscal year used to pay certain employee tax obligations associated with share-based payment and stock option activity, and modified certain restrictions to the Company’s ability to repurchase its shares and pay dividends. Amendment Two also had modified the leverage ratio and fixed charge coverage ratio covenants with which the Company was required to comply and limited capital expenditures to $5.5 million for the fiscal year ending March 27, 2021. Amendment Two also had established a LIBOR floor of 1.0% and included a mechanism for adoption of a different benchmark rate in the event LIBOR was discontinued. We have a term loan, the 2018 Term Loan, in the amount of $15.0 million. As of June 26, 2021, $10.0 million was outstanding on the 2018 Term Loan, of which $2.1 million was included in current liabilities on the Consolidated Balance Sheets with the remainder included in long-term debt. The 2018 Term Loan requires total repayments (principal plus interest) of $0.2 million per month through December 2025. As of June 26, 2021, $40.0 million was available under the revolving credit facility, of which $12.1 million was outstanding and included in long-term debt on the Consolidated Balance Sheets. During the first quarter of fiscal year 2022, $0.9 million was used for a business acquisition. The allowable leverage ratio under the Prior Credit Agreement for the second, third and fourth fiscal quarter of fiscal year 2021 and the first quarter of fiscal year 2022 was a maximum multiple of 5.0, 5.5, 7.0 and 4.0, respectively, of total debt outstanding compared to EBITDA and non-cash stock-based compensation expense for the preceding four consecutive fiscal quarters. After the first quarter of fiscal 2022, pursuant to the July 2021 Facility, the allowable leverage ratio is a maximum multiple of 3.0. The Prior Credit Agreement also had provided that the trailing twelve-month pro forma EBITDA of an acquired business was included in the allowable leverage calculation. Interest and Other Costs: Interest on outstanding borrowings under the revolving credit facility accrue, at Transcat’s election, at either the variable one-month LIBOR or a fixed rate for a designated period at the LIBOR corresponding to such period, in each case (subject to a 1% floor during the first quarter of fiscal year 2022 and a 0.25% floor for subsequent periods), plus a margin. Interest on outstanding borrowings under the 2018 Term Loan accrue at a fixed rate of 4.15% over the term of the loan during the first quarter of fiscal year 2022 and 3.90% over the term of the loan for subsequent periods. Unused fees accrue based on the average daily amount of unused credit available on the revolving credit facility. Interest rate margins and unused fees are determined on a quarterly basis based upon the Company’s calculated leverage ratio. The Company’s interest rate for the revolving credit facility for the first quarter of fiscal year 2022 ranged from 1.8% to 2.2%. Covenants: Pursuant to the Prior Credit Agreement, we were required to comply with a fixed charge ratio covenant and a leverage ratio covenant. M&T waived the requirement for the fixed charge ratio for the first fiscal quarter ending June 26, 2021. We were in compliance with all other loan covenants and requirements during the first quarter of fiscal year 2022. Our leverage ratio, as defined in the Prior Credit Agreement, was 0.96 at June 26, 2021, compared with 0.94 at March 27, 2021. The 2021 Credit Agreement modified the leverage ratio and fixed charge coverage ratio covenants with which we are required to comply. Other Terms: The Company has pledged all of its U.S. tangible and intangible personal property, the equity interests of its U.S.-based subsidiaries, and a majority of the common stock of Transcat Canada Inc. as collateral security for the loans made under the revolving credit facility. |
STOCK-BASED COMPENSATION |
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| Share-based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| STOCK-BASED COMPENSATION |
NOTE 3 – STOCK-BASED COMPENSATION The Company has a share-based incentive plan (the “2003 Plan”) that provides for, among other awards, grants of restricted stock units and stock options to directors, officers and key employees at the fair market value at the date of grant. At June 26, 2021, 0.9 million shares of common stock were available for future grant under the 2003 Plan. 9 The Company receives an excess tax benefit related to restricted stock vesting and stock options exercised and redeemed. The discrete tax benefits related to share-based compensation and stock option activity during the first quarter of fiscal year 2022 and 2021 were $1.1 million and $0.3 million, respectively. Restricted Stock Units: The Company grants time-based and performance-based restricted stock units as a component of executive and key employee compensation. Expense for restricted stock unit grants is recognized on a straight-line basis for the service period of the stock award based upon fair value of the award on the date of grant. The fair value of the restricted stock unit grants is the quoted market price for the Company’s common stock on the date of grant. These restricted stock units are either time vested, or vest following the third fiscal year from the date of grant subject to cumulative diluted earnings per share targets over the eligible period. Compensation cost ultimately recognized for performance-based restricted stock units will equal the grant date fair market value of the unit that coincides with the actual outcome of the performance conditions. On an interim basis, the Company records compensation cost based on the estimated level of achievement of the performance conditions. The expense relating to the time vested restricted stock units is recognized on a straight-line basis over the requisite service period for the entire award. The Company achieved 64% of the target level for the performance-based restricted stock units granted in the fiscal year ended March 30, 2019 and as a result, issued 19 shares of common stock to executive officers and certain key employees during the first quarter of fiscal year 2022. The following table summarizes the non-vested restricted stock units outstanding as of June 26, 2021 (in thousands, except per unit data):
Total expense relating to restricted stock units, based on grant date fair value and the achievement criteria, was $0.4 million and $0.3 million in the first quarter of fiscal year 2022 and fiscal year 2021, respectively. As of June 26, 2021, unearned compensation, to be recognized over the grants’ respective service periods, totaled $2.7 million. Stock Options: The Company grants stock options to employees and directors equal to the quoted market price of the Company’s stock at the date of the grant. The fair value of stock options is estimated using the Black-Scholes option pricing formula that requires assumptions for expected volatility, expected dividends, the risk-free interest rate and the expected term of the option. Expense for stock options is recognized on a straight-line basis over the requisite service period for each award. Options vest either immediately or over a period of up to five years using a straight-line basis and expire either five years or ten years from the date of grant. 10 The following table summarizes the Company’s options as of and for the first quarter ended June 26, 2021 (in thousands, except per share data and years):
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the first quarter of fiscal year 2022 and the exercise price, multiplied by the number of in-the-money stock options) that would have been received by the option holders had all holders exercised their options on June 26, 2021. The amount of aggregate intrinsic value will change based on the fair market value of the Company’s common stock. Total expense related to stock options was less than $0.1 million in both the first quarter of fiscal year 2022 and the first quarter of fiscal year 2021. Total unrecognized compensation cost related to non-vested stock options as of June 26, 2021 was $0.4 million, which is expected to be recognized over a period of five years. The aggregate intrinsic value of stock options exercised during the first quarter of fiscal year 2022 and fiscal year 2021 was $2.3 million and $0.3 million, respectively. Cash received from the exercise of options in the first quarter of fiscal year 2022 and fiscal year 2021 was $0.6 million and $0.3 million, respectively. During the first quarter of fiscal year 2022, the Company repurchased the stock options exercised by the Chief Executive Officer for $2.8 million. |
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SEGMENT INFORMATION |
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| Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SEGMENT INFORMATION |
NOTE 4 – SEGMENT INFORMATION Transcat has two reportable segments: Service and Distribution. The Company has no inter-segment sales. The following table presents segment information for the first quarter of fiscal year 2022 and fiscal year 2021 (dollars in thousands):
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BUSINESS ACQUISITIONS |
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| BUSINESS ACQUISITIONS |
NOTE 5 – BUSINESS ACQUISITIONS Upstate Metrology:Effective April 29, 2021, Transcat acquired substantially all of the assets of Upstate Metrology Inc. (“Upstate Metrology”), a New York based provider of calibration services. This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that expand the depth and breadth of the Company’s service capabilities. 100% of the goodwill related to the Upstate Metrology acquisition has been allocated to the Service segment. Amortization of goodwill related to the Upstate Metrology acquisition is deductible for tax purposes. The total purchase price paid for the assets of Upstate Metrology was approximately $0.9 million. The following is a summary of the purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of Upstate Metrology’s assets and liabilities acquired during the period presented (in thousands):
BioTek: Effective December 16, 2020, Transcat acquired substantially all of the assets of BioTek Services, Inc. (“BioTek”), a Virginia based provider of pipette calibration services. This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that expand the depth and breadth of the Company’s service capabilities. BioTek’s focus on pipettes complements the current offerings Transcat provides to the life science sector. 100% of the goodwill and intangible assets relating to the BioTek acquisition has been allocated to the Service segment. Intangible assets related to the BioTek acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up to 10 years and are deductible for tax purposes. Amortization of goodwill related to the BioTek acquisition is deductible for tax purposes. The total purchase price paid for the assets of BioTek was approximately $3.5 million. $0.4 million of the purchase price has been put into escrow as a holdback for indemnification claims, if any. The following is a summary of the purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of BioTek’s assets and liabilities acquired during the period presented (in thousands):
12 The results of acquired businesses are included in Transcat’s consolidated operating results as of the dates the businesses were acquired. The following unaudited pro forma information presents the Company’s results of operations as if the acquisitions of Upstate Metrology and BioTek had occurred at the beginning of fiscal year 2021. The pro forma results do not purport to represent what the Company’s results of operations actually would have been if the transactions had occurred at the beginning of the period presented or what the Company’s operating results will be in future periods.
Certain of the Company’s acquisition agreements include provisions for contingent consideration and other holdback amounts. The Company accrues for contingent consideration and holdback provisions based on their estimated fair value at the date of acquisition. As of June 26, 2021, there was no contingent consideration or other holdback amounts unpaid and reflected in current liabilities on the Consolidated Balance Sheets. During the first quarter of fiscal year 2022 and fiscal year 2021, no contingent consideration or other holdback amounts were paid. During the first quarter of fiscal years 2022 and 2021, acquisition costs of less than $0.1 million were recorded as incurred as general and administrative expenses in the Consolidated Statements of Income. |
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GENERAL (Policies) |
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Jun. 26, 2021 | |||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||
| Description of Business |
Description of Business: Transcat, Inc. (“Transcat,” “we,” “us,” “our” or the “Company”) is a leading provider of accredited calibration and laboratory instrument services and a value-added distributor of professional grade test, measurement and control instrumentation. The Company is focused on providing services and products to highly regulated industries, particularly the life science industry, which includes pharmaceutical, biotechnology, medical device and other FDA-regulated businesses. Additional industries served include industrial manufacturing; energy and utilities, including oil and gas; chemical manufacturing; FAA-regulated businesses, including aerospace and defense and other industries that require accuracy in their processes, confirmation of the capabilities of their equipment, and for which the risk of failure is very costly. |
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| Basis of Presentation |
Basis of Presentation: Transcat’s unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8-03 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, the Consolidated Financial Statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of the Company’s management, all adjustments considered necessary for a fair presentation (consisting of normal recurring adjustments) have been included. The results for the interim periods are not necessarily indicative of what the results will be for the fiscal year. The accompanying Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements as of and for the fiscal year ended March 27, 2021 (“fiscal year 2021”) contained in the Company’s 2021 Annual Report on Form 10-K filed with the SEC. |
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| Revenue Recognition |
Revenue Recognition: Distribution sales are recorded when an order’s title and risk of loss transfers to the customer. The Company recognizes the majority of its Service revenue based upon when the calibration or other activity is performed and then shipped and/or delivered to the customer. The majority of the Company’s revenue generating activities have a single performance obligation and are recognized at the point in time when control transfers and/or our obligation has been fulfilled. Some Service revenue is generated from managing customers’ calibration programs in which the Company recognizes revenue over time using the output method-time elapsed as this portrays the transfer of control to the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for product shipped or services performed. Sales taxes and other taxes billed and collected from customers are excluded from revenue. The Company generally invoices its customers for freight, shipping, and handling charges. Provisions for customer returns are provided for in the period the related revenue is recorded based upon historical data. Revenue recognized from prior period performance obligations for the first quarter of the fiscal year ending March 26, 2022 (“fiscal year 2022”) was immaterial. As of June 26, 2021, the Company had no unsatisfied performance obligations for contracts with an original expected duration of greater than one year. Pursuant to Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, the Company applied the practical expedient with respect to disclosure of the deferral and future expected timing of revenue recognition for transaction price allocated to remaining performance obligations. Deferred revenue, unbilled revenue and deferred contract costs recorded on our Consolidated Balance Sheets as of June 26, 2021 and March 27, 2021 were immaterial. Payment terms are generally 30 to 45 days. See Note 4 for disaggregated revenue information. |
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| Fair Value of Financial Instruments |
Fair Value of Financial Instruments: Transcat has determined the fair value of debt and other financial instruments using a valuation hierarchy. The hierarchy, which prioritizes the inputs used in measuring fair value, consists of three levels. Level 1 uses observable inputs such as quoted prices in active markets; Level 2 uses inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, which is defined as unobservable inputs in which little or no market data exists, requires the Company to develop its own assumptions. The carrying amount of debt on the Consolidated Balance Sheets approximates fair value due to variable interest rate pricing, and the carrying amounts for cash, accounts receivable, other receivables, accounts payable and accrued compensation and other liabilities approximate fair value due to their short-term nature. Investment assets, which fund the Company’s non-qualified deferred compensation plan, consist of mutual funds and are valued based on Level 1 inputs. At each of June 26, 2021 and March 27, 2021, investment assets totaled $0.4 million and are included as a component of other assets on the Consolidated Balance Sheets. 6 Stock-Based Compensation: The Company measures the cost of services received in exchange for all equity awards granted, including stock options and restricted stock units, based on the fair market value of the award as of the grant date. The Company records compensation cost related to unvested equity awards by recognizing, on a straight-line basis, the unamortized grant date fair value over the remaining service period of each award. Excess tax benefits for share-based award activity are reflected in the Consolidated Statements of Income as a component of the provision for income taxes. Excess tax benefits are realized benefits from tax deductions for exercised awards in excess of the deferred tax asset attributable to stock-based compensation costs for such awards. The Company did not capitalize any stock-based compensation costs as part of an asset. The Company estimates forfeiture rates based on its historical experience. During the first quarter of fiscal year 2022 and fiscal year 2021, the Company recorded non-cash stock-based compensation expense of $0.4 million and $0.3 million, respectively, in the Consolidated Statements of Income. |
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| Stock-Based Compensation |
Stock-Based Compensation: The Company measures the cost of services received in exchange for all equity awards granted, including stock options and restricted stock units, based on the fair market value of the award as of the grant date. The Company records compensation cost related to unvested equity awards by recognizing, on a straight-line basis, the unamortized grant date fair value over the remaining service period of each award. Excess tax benefits for share-based award activity are reflected in the Consolidated Statements of Income as a component of the provision for income taxes. Excess tax benefits are realized benefits from tax deductions for exercised awards in excess of the deferred tax asset attributable to stock-based compensation costs for such awards. The Company did not capitalize any stock-based compensation costs as part of an asset. The Company estimates forfeiture rates based on its historical experience. During the first quarter of fiscal year 2022 and fiscal year 2021, the Company recorded non-cash stock-based compensation expense of $0.4 million and $0.3 million, respectively, in the Consolidated Statements of Income. |
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| Foreign Currency Translation and Transactions |
Foreign Currency Translation and Transactions: The accounts of Transcat Canada Inc., a wholly-owned subsidiary of the Company, are maintained in the local currency and have been translated to U.S. dollars. Accordingly, the amounts representing assets and liabilities have been translated at the period-end rates of exchange and related revenue and expense accounts have been translated at an average rate of exchange during the period. Gains and losses arising from translation of Transcat Canada Inc.’s financial statements into U.S. dollars are recorded directly to the accumulated other comprehensive loss component of shareholders’ equity. Transcat records foreign currency gains and losses on Canadian business transactions. The net foreign currency gain was less than $0.1 million in each of the first quarter of fiscal year 2022 and fiscal year 2021. The Company continually utilizes short-term foreign exchange forward contracts to reduce the risk that its earnings will be adversely affected by changes in currency exchange rates. The Company does not apply hedge accounting and therefore the net change in the fair value of the contracts, which totaled a loss of $0.1 million during the first quarter of each of fiscal years 2022 and 2021, was recognized as a component of other expense in the Consolidated Statements of Income. The change in the fair value of the contracts is offset by the change in fair value on the underlying accounts receivables denominated in Canadian dollars being hedged. On June 26, 2021, the Company had a foreign exchange contract, which matured in July 2021, outstanding in the notional amount of $4.0 million. The foreign exchange contract was renewed in July 2021 and continues to be in place. The Company does not use hedging arrangements for speculative purposes. |
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| Earnings Per Share |
Earnings Per Share: Basic earnings per share of common stock are computed based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share of common stock reflect the assumed conversion of stock options and unvested restricted stock units using the treasury stock method in periods in which they have a dilutive effect. In computing the per share effect of assumed conversion, funds which would have been received from the exercise of options and unvested restricted stock units and the related tax benefits are considered to have been used to purchase shares of common stock at the average market prices during the period, and the resulting net additional shares of common stock are included in the calculation of average shares of common stock outstanding. For both the first quarter of fiscal year 2022 and fiscal year 2021, the net additional common stock equivalents had no effect on the calculation of diluted earnings per share. The average shares outstanding used to compute basic and diluted earnings per share are as follows (in thousands):
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| Goodwill and Intangible Assets |
Goodwill and Intangible Assets: Goodwill represents the excess of the purchase price over the fair values of the underlying net assets of an acquired business. The Company tests goodwill for impairment on an annual basis during the fourth quarter of its fiscal year, or immediately if conditions indicate that such impairment could exist. The Company evaluates qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying value and whether it is necessary to perform the goodwill impairment process. |
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| Recently Issued Accounting Pronouncements |
Recently Issued Accounting Pronouncements: In June 2016, the Financial Accounting Standard Board (“FASB”) issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), which significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The ASU replaces the "incurred loss" model with an "expected credit loss" model that requires entities to estimate an expected lifetime credit loss on financial assets, including trade accounts receivable. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. As credit losses from the Company's trade receivables have not historically been significant, the Company anticipates that the adoption of the ASU will not have a material impact on its consolidated financial statements. |
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GENERAL (Tables) |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Weighted Average Number of Shares |
For both the first quarter of fiscal year 2022 and fiscal year 2021, the net additional common stock equivalents had no effect on the calculation of diluted earnings per share. The average shares outstanding used to compute basic and diluted earnings per share are as follows (in thousands):
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| Schedule of Goodwill and Intangible Assets |
Intangible assets, namely customer base and covenants not to compete, represent an allocation of purchase price to identifiable intangible assets of an acquired business. The Company estimates the fair value of its reporting units using the fair market value measurement requirement. Intangible assets are evaluated for impairment when events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. A summary of changes in the Company’s goodwill and intangible assets is as follows (in thousands):
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STOCK-BASED COMPENSATION (Tables) |
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| Share-based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Restricted Stock Units Award Activity |
The Company achieved 64% of the target level for the performance-based restricted stock units granted in the fiscal year ended March 30, 2019 and as a result, issued 19 shares of common stock to executive officers and certain key employees during the first quarter of fiscal year 2022. The following table summarizes the non-vested restricted stock units outstanding as of June 26, 2021 (in thousands, except per unit data):
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| Schedule of Stock Options Activity |
10 The following table summarizes the Company’s options as of and for the first quarter ended June 26, 2021 (in thousands, except per share data and years):
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SEGMENT INFORMATION (Tables) |
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| Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Segment Information |
Transcat has two reportable segments: Service and Distribution. The Company has no inter-segment sales. The following table presents segment information for the first quarter of fiscal year 2022 and fiscal year 2021 (dollars in thousands):
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BUSINESS ACQUISITIONS (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 26, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Business Acquisition [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Proforma Information |
The results of acquired businesses are included in Transcat’s consolidated operating results as of the dates the businesses were acquired. The following unaudited pro forma information presents the Company’s results of operations as if the acquisitions of Upstate Metrology and BioTek had occurred at the beginning of fiscal year 2021. The pro forma results do not purport to represent what the Company’s results of operations actually would have been if the transactions had occurred at the beginning of the period presented or what the Company’s operating results will be in future periods.
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| BioTek Services, Inc. [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Business Acquisition [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Purchase Price Allocation |
The total purchase price paid for the assets of BioTek was approximately $3.5 million. $0.4 million of the purchase price has been put into escrow as a holdback for indemnification claims, if any. The following is a summary of the purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of BioTek’s assets and liabilities acquired during the period presented (in thousands):
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| Upstate Metrology [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Business Acquisition [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Purchase Price Allocation |
The total purchase price paid for the assets of Upstate Metrology was approximately $0.9 million. The following is a summary of the purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of Upstate Metrology’s assets and liabilities acquired during the period presented (in thousands):
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GENERAL (Narrative) (Details) - USD ($) $ in Millions |
3 Months Ended | ||
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Jun. 26, 2021 |
Jun. 27, 2020 |
Mar. 27, 2021 |
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| Accounting Policies [Abstract] | |||
| Investments | $ 0.4 | $ 0.4 | |
| Allocated Share-based Compensation Expense | 0.4 | $ 0.3 | |
| Foreign Currency Transaction Gain (Loss), Realized | 0.1 | 0.1 | |
| Foreign Currency Transaction Gain (Loss), Unrealized | (0.1) | $ (0.1) | |
| Derivative Asset, Notional Amount | $ 4.0 | ||
GENERAL (Average Shares Outstanding Used to Compute Basic and Diluted Earnings per Share) (Details) - shares shares in Thousands |
3 Months Ended | |
|---|---|---|
Jun. 26, 2021 |
Jun. 27, 2020 |
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| Accounting Policies [Abstract] | ||
| Average Shares Outstanding - Basic | 7,464 | 7,394 |
| Effect of Dilutive Common Stock Equivalents | 129 | 120 |
| Average Shares Outstanding - Diluted | 7,593 | 7,514 |
| Anti-dilutive Common Stock Equivalents | 20 | 20 |
GENERAL (Goodwill) (Details) $ in Thousands |
3 Months Ended |
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Jun. 26, 2021
USD ($)
| |
| Goodwill [Line Items] | |
| Net Book Value | $ 43,272 |
| Additions | 483 |
| Currency Translation Adjustment | 149 |
| Net Book Value | 43,904 |
| Distribution [Member] | |
| Goodwill [Line Items] | |
| Net Book Value | 11,458 |
| Additions | |
| Currency Translation Adjustment | |
| Net Book Value | 11,458 |
| Service Segment [Member] | |
| Goodwill [Line Items] | |
| Net Book Value | 31,814 |
| Additions | 483 |
| Currency Translation Adjustment | 149 |
| Net Book Value | $ 32,446 |
GENERAL (Intangible Assets) (Details) $ in Thousands |
3 Months Ended |
|---|---|
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Jun. 26, 2021
USD ($)
| |
| Finite-Lived Intangible Assets [Line Items] | |
| Net Book Value | $ 7,513 |
| Additions | |
| Amortization | (620) |
| Currency Translation Adjustment | 8 |
| Net Book Value | 6,901 |
| Distribution [Member] | |
| Finite-Lived Intangible Assets [Line Items] | |
| Net Book Value | 920 |
| Additions | |
| Amortization | (70) |
| Currency Translation Adjustment | |
| Net Book Value | 850 |
| Service Segment [Member] | |
| Finite-Lived Intangible Assets [Line Items] | |
| Net Book Value | 6,593 |
| Additions | |
| Amortization | (550) |
| Currency Translation Adjustment | 8 |
| Net Book Value | $ 6,051 |
STOCK-BASED COMPENSATION (Stock Options) (Details) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended |
|---|---|
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Jun. 26, 2021
USD ($)
$ / shares
shares
| |
| Number of Shares | |
| Outstanding as of March 27, 2021 | shares | 125 |
| Granted | shares | 25 |
| Exercised | shares | (50) |
| Forfeited | shares | (5) |
| Outstanding as of June 26, 2021 | shares | 95 |
| Exercisable as of June 26, 2021 | shares | 37 |
| Weighted Average Exercise Price Per Share | |
| Outstanding as of March 27 2021 | $ / shares | $ 15.47 |
| Granted | $ / shares | 42.57 |
| Exercised | $ / shares | 12.00 |
| Forfeited | $ / shares | 24.30 |
| Outstanding as of June 26, 2021 | $ / shares | 23.96 |
| Exercisable as of June 26, 2021 | $ / shares | $ 11.35 |
| Weighted Average Remaining Contractual Term (in years) | |
| Outstanding as of June 26, 2021 | 4 years |
| Exercisable as of June 26, 2021 | 1 year |
| Aggregate Intrinsic Value | |
| Outstanding as of June 26, 2021 | $ | $ 3,196 |
| Exercisable as of June 26, 2021 | $ | $ 1,659 |
SEGMENT INFORMATION (Narrative) (Details) |
3 Months Ended |
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Jun. 26, 2021
item
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| Segment Reporting [Abstract] | |
| Number of Reportable Segments | 2 |
SEGMENT INFORMATION (Details) - USD ($) $ in Thousands |
3 Months Ended | |||
|---|---|---|---|---|
Jun. 26, 2021 |
Jun. 27, 2020 |
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| Revenue: | ||||
| Revenue | $ 47,790 | $ 38,904 | ||
| Gross Profit: | ||||
| Gross Profit | 13,520 | 9,409 | ||
| Operating Expenses: | ||||
| Operating Expenses | 9,831 | 8,445 | ||
| Operating Income: | ||||
| Operating Income | 3,689 | 964 | ||
| Unallocated Amounts: | ||||
| Interest and Other Expense, net | 195 | 243 | ||
| Benefit from Income Taxes | (194) | (77) | ||
| Unallocated Amounts | 1 | 166 | ||
| Net Income | 3,688 | 798 | ||
| Service Segment [Member] | ||||
| Revenue: | ||||
| Revenue | 27,557 | 22,967 | ||
| Gross Profit: | ||||
| Gross Profit | 8,752 | 6,069 | ||
| Operating Expenses: | ||||
| Operating Expenses | [1] | 5,778 | 4,940 | |
| Operating Income: | ||||
| Operating Income | [1] | 2,974 | 1,129 | |
| Distribution [Member] | ||||
| Revenue: | ||||
| Revenue | 20,233 | 15,937 | ||
| Gross Profit: | ||||
| Gross Profit | 4,768 | 3,340 | ||
| Operating Expenses: | ||||
| Operating Expenses | [1] | 4,053 | 3,505 | |
| Operating Income: | ||||
| Operating Income | [1] | $ 715 | $ (165) | |
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BUSINESS ACQUISITIONS (Narrative) (Details) - USD ($) $ in Millions |
3 Months Ended | |
|---|---|---|
Jun. 26, 2021 |
Jun. 27, 2020 |
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| BioTek Services, Inc. [Member] | ||
| Business Acquisition [Line Items] | ||
| Date of acquisition | Dec. 16, 2020 | |
| Purchase price allocation description | 100% of the goodwill related to the Upstate Metrology acquisition has been allocated to the Service segment. Amortization of goodwill related to the Upstate Metrology acquisition is deductible for tax purposes. | |
| Purchase price held in escrow as holdback | $ 0.4 | |
| Business acquisition, cash acquired | ||
| Acquisition costs | $ 0.1 | $ 0.1 |
| Upstate Metrology [Member] | ||
| Business Acquisition [Line Items] | ||
| Date of acquisition | Apr. 29, 2021 | |
| Purchase price allocation description | 100% of the goodwill and intangible assets relating to the BioTek acquisition has been allocated to the Service segment. Intangible assets related to the BioTek acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up to 10 years and are deductible for tax purposes. Amortization of goodwill related to the BioTek acquisition is deductible for tax purposes. | |
BUSINESS ACQUISITIONS (Purchase Price Paid for Businesses Acquired) (Details) - USD ($) $ in Thousands |
Jun. 26, 2021 |
Mar. 27, 2021 |
|---|---|---|
| Allocation of Purchase Price: | ||
| Goodwill | $ 43,904 | $ 43,272 |
| Upstate Metrology [Member] | ||
| Allocation of Purchase Price: | ||
| Goodwill | 483 | |
| Plus: Current Assets | 189 | |
| Non-Current Assets | 270 | |
| Less: Current Liabilities | (11) | |
| Total Purchase Price | 931 | |
| BioTek Services, Inc. [Member] | ||
| Allocation of Purchase Price: | ||
| Goodwill | 1,063 | |
| Total | 3,093 | |
| Plus: Current Assets | 406 | |
| Non-Current Assets | 8 | |
| Total Purchase Price | 3,507 | |
| BioTek Services, Inc. [Member] | Customer Base & Contracts [Member] | ||
| Allocation of Purchase Price: | ||
| Intangible Assets | 1,930 | |
| BioTek Services, Inc. [Member] | Covenant Not to Compete [Member] | ||
| Allocation of Purchase Price: | ||
| Intangible Assets | $ 100 |
BUSINESS ACQUISITIONS (Proforma Information for Business Acquisitions) (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | |
|---|---|---|
Jun. 26, 2021 |
Jun. 27, 2020 |
|
| Business Combinations [Abstract] | ||
| Total Revenue | $ 47,889 | $ 39,622 |
| Net Income | $ 3,659 | $ 816 |
| Basic Earnings Per Share | $ 0.49 | $ 0.11 |
| Diluted Earnings Per Share | $ 0.48 | $ 0.11 |
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