• Consolidated Revenue: $67.8 million, up 8% year-over-year.
• Service Revenue Growth: 6% overall, with 4% organic growth.
• Organic Service Growth (Excluding Nexa): 9% year-over-year.
• Distribution Revenue: $23.7 million, up 11% year-over-year.
• Consolidated Gross Profit: $21.2 million, up 5% year-over-year.
• Service Gross Profit Increase: 4% year-over-year.
• Distribution Segment Gross Profit: $6.6 million, up 10% year-over-year.
• Net Income: $3.3 million, up from $0.5 million in the prior year.
• Diluted Earnings Per Share (EPS): $0.35, up 29% year-over-year.
• Adjusted Diluted EPS: $0.52.
• Adjusted EBITDA: $8.9 million, down 5% year-over-year.
• Operating Cash Flow: Consistent with the prior year.
• Capital Expenditures: $2.2 million higher than the prior year.
• Total Net Cash: $20.8 million.
• Leverage Ratio: 0.08x.
• Available Credit Facility: $80 million.

• Warning! GuruFocus has detected 3 Warning Sign with TRNS.

Release Date: October 29, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Transcat Inc (NASDAQ:TRNS) reported an 8% increase in consolidated revenue, reaching $67.8 million, driven by strong demand for calibration services and solid performance in the rental business.
• The service segment recorded its 62nd consecutive quarter of year-over-year revenue growth, with a 6% increase in service revenue and 4% organic growth.
• Excluding Nexa, Transcat Inc (NASDAQ:TRNS) achieved a 9% organic service growth, indicating strong performance in its core calibration business.
• The distribution segment saw a 10% growth in gross profits on double-digit revenue growth, showcasing resilience despite external challenges.
• Transcat Inc (NASDAQ:TRNS) maintains a strong balance sheet with a revolving credit facility paid off last year, positioning the company well for strategic growth and M&A initiatives.

Negative Points

• The Nexa business underperformed significantly, impacting overall service revenue growth, with issues identified in sales and marketing integration.
• Distribution margins were negatively affected by two hurricanes in the Gulf of Mexico, pressuring second-quarter results.
• Consolidated gross profit grew only 5%, which was below expectations due to lower-than-expected Nexa revenue.
• Adjusted EBITDA decreased by 5% from the previous year, influenced by Nexa's underperformance and distribution challenges.
• Operating expenses are expected to increase in the second half of the fiscal year to support growth initiatives, potentially impacting profitability.

Q & A Highlights

Q: Can you give us a sense of when you started to recognize that Nexa was falling short of expectations? A: We noticed some subtle signs in the first quarter, but nothing that indicated the drop-off we experienced in Q2. It was unexpected, but we've identified the root causes and are addressing them. The issues are fixable, and we're confident in a quick turnaround. - Thomas Barbato, CFO

Q: Is there any macroeconomic read-through based on the softness seen in the second quarter? A: No, the core calibration business grew 9% organically, and the pipeline for the back half of the year looks strong. The softness is isolated to Nexa, and other areas of the company are performing as expected. - Thomas Barbato, CFO

Q: Can you talk about the M&A environment and pricing? A: We have a robust M&A pipeline and are working on strategic deals that fit well with the company. While it may seem quiet externally, internally, it's very active. We have the capacity to execute more deals if they are appropriate and a good fit. - Lee Rudow, CEO

Q: Can you provide more details on the issues with Nexa and the steps being taken to address them? A: Nexa was performing well initially, so we gave them more autonomy. However, we didn't integrate them as quickly as we should have. We're now integrating them fully into Transcat's processes, focusing on sales and marketing, and leveraging our strong brand. - Lee Rudow, CEO

Q: How did the hurricanes impact Becknell, and what is the expected recovery? A: The hurricanes caused both revenue and profit issues for Becknell. We expect distribution margins to return to levels consistent with the second half of last year, north of 30%. - Thomas Barbato, CFO

For the complete transcript of the earnings call, please refer to the full earnings call transcript.