Transcat, Inc. (NASDAQ: TRNS) ("Transcat" or the "Company"), a leading
distributor of professional grade handheld test, measurement and control
instruments and accredited provider of calibration, repair, inspection
and other compliance services, today reported financial results for its
first quarter ended June 30, 2012. Included in reported results are
those of Newark Corporation's calibration services business, which the
Company acquired on September 8, 2011.
Fiscal 2013 first quarter net revenue decreased 2.0%, or $0.5 million,
to $25.1 million compared with the first quarter of the prior fiscal
year as a 3.7% increase in Service segment net revenue partially offset
lower Product segment net sales.
Net income was $0.4 million, or $0.05 per diluted share, in the first
quarter of fiscal 2013, an increase of 11.1% over net income from the
same quarter of the prior fiscal year.
Charles P. Hadeed, President and CEO of Transcat, commented, "The
struggling US economy had an impact on our first quarter. Sales in our
Product segment were impacted by a clear reduction in orders in April
and May with the decline particularly evident in our industrial customer
base. Service segment growth from acquisitions helped to offset this
impact."
Operating Income Expands Modestly in Fiscal 2013 First Quarter
Operating income for the first quarter of fiscal 2013 was $0.6 million,
an increase of 4.2% from the prior fiscal year period. Operating margin
improved 20 basis points to 2.4% in the first quarter of fiscal 2013
compared with 2.2% for the same quarter of the prior fiscal year. Total
operating expenses declined $0.1 million, or 2.0%, to $5.6 million in
the first quarter of fiscal 2013, when compared with the prior fiscal
year period. During the first quarter of fiscal 2013, lower
year-over-year stock-based compensation expense was partially offset by
one-time Service segment sales organization restructuring charges. As a
percentage of net revenue, operating expenses were relatively consistent
in both quarters.
During the first quarter of fiscal 2013, Transcat generated $1.2 million
of EBITDA (earnings before interest, taxes, depreciation and
amortization), unchanged when compared with the same quarter of the
prior fiscal year. See Note 1 on page 3 for a description of this
non-GAAP financial measure and page 8 for the EBITDA Reconciliation
table.
Product and Service Segment Review
Product Segment: Represents the Company's distribution of
professional grade handheld test and measurement instruments business
(65.2% of total net revenue for the first quarter of fiscal 2013)
Product segment net sales declined 4.8%, or $0.8 million, to $16.4
million in the first quarter of fiscal 2013, primarily due to sluggish
economic conditions and compared with unusually strong product sales in
the first quarter of fiscal 2012. Both direct sales to end users and
sales to resellers were down in the first quarter of fiscal 2013.
Average Product segment net sales per day were $260 thousand in the
first quarter of fiscal 2013, down 3.0% from $268 thousand in the first
quarter of fiscal 2012. Online sales of the Company's products increased
26.4% to $1.9 million, or 11.9% of Product segment net sales, in the
first quarter of fiscal 2013 compared with $1.5 million, or 8.9% of
Product segment net sales, in the prior year period. In spite of the
overall sluggish US product market, online product sales have continued
to increase at a double-digit rate, as a result of increased online
marketing initiatives.
Product segment gross profit in the first quarter of fiscal 2013
declined 1.4% to $4.2 million from $4.3 million in the first quarter of
fiscal 2012. As a percent of net sales, gross profit improved to 25.7%
in the fiscal 2013 first quarter compared with 24.8% in the prior year
period. The gross margin expansion was the result of increased
cooperative advertising income.
Product segment operating income increased 3.8% to $0.9 million in the
first quarter of fiscal 2013, while operating margin was 5.2% and 4.8%
of Product segment net sales in the first quarters of fiscal 2013 and
2012, respectively.
Product segment EBITDA was $1.1 million, or 6.6% of Product segment
sales in the first quarter of fiscal 2013, compared with $1.1 million,
or 6.2% of sales in the prior year period. See Note 1 on page 3 for a
description of this non-GAAP financial measure and page 8 for the EBITDA
Reconciliation table.
Service Segment: Represents the Company's accredited
calibration, repair, inspection and other compliance services business
(34.8% of total net revenue for the first quarter of fiscal 2013)
Service segment net revenue increased 3.7%, or $0.3 million, to $8.7
million in the first quarter of fiscal 2013, from the first quarter of
the prior fiscal year, this improvement was driven by incremental
business from recent acquisitions, partially offset by the loss of $0.3
million in low margin revenue from services that the Company was
outsourcing for a customer. The remainder of the Company's organic
Service segment revenue and volume were essentially flat when compared
with the first quarter of fiscal 2012.
Service segment gross profit was $2.0 million in each of the first
quarters of both fiscal 2013 and 2012. Service segment gross margin in
the first quarter of fiscal 2013 declined 120 basis points from the same
period in the prior fiscal year to 22.9% as a result of revenue growth
coming from acquisitions rather than organic sales efforts. The
incremental gross margin on acquired business revenue is typically lower
than the incremental gross margin on the Company's organically generated
revenue primarily due to the lower per unit pricing historically charged
by smaller, acquired companies. In the first quarter of fiscal 2013, the
Company's Service segment revenue growth was attributed to revenue from
acquired businesses and, therefore, the gross margin declined.
The Service segment had an operating loss of approximately $0.3 million
in each of the first quarters of both fiscal 2013 and 2012. Operating
expenses associated with the Service segment in the first quarter of
fiscal 2013 were consistent with the first quarter of the prior fiscal
year despite approximately $0.2 million in restructuring costs related
to the Service segment's sales organization in fiscal 2013 first quarter.
The Service segment generated $0.1 million in EBITDA in the fiscal 2013
first quarter compared with $0.2 million in the first quarter of fiscal
2012. As a percentage of Service segment revenue, EBITDA for the Service
segment was 1.0% and 1.9% in the first quarters of fiscal 2013 and 2012,
respectively. See Note 1 below for a description of this non-GAAP
financial measure and page 8 for the EBITDA Reconciliation table.
Balance Sheet and Cash Management
Net cash used in operations was $2.1 million in the first quarter of
fiscal 2013, compared with $0.6 million used in the first quarter of
fiscal 2012. The year-over-year change was the result of working capital
requirements and timing. Inventory at June 30, 2012 was $7.2 million, up
from $6.4 million at the end of fiscal 2012. The Company's inventory
strategy includes larger purchases of key products from certain
manufacturers in an effort to maximize on-hand availability and reduce
backorders of those products with long lead times. As a result,
inventory levels from quarter-to-quarter will vary based on the timing
of these larger orders in relation to the quarter-end.
Capital expenditures in the first quarter of fiscal 2013 were $0.5
million compared with $0.6 million in the first quarter of fiscal 2012,
and were primarily for additional service capabilities.
As of June 30, 2012, the Company had $9.1 million in remaining
availability under its $15.0 million revolving credit facility.
Outlook
Mr. Hadeed stated, "Coming off a strong fourth quarter to end fiscal
2012, we experienced a slower than expected start in our first quarter
of fiscal 2013. The sluggish economy clearly impacted both of our
business segments. We expect, at least for the near term, for this
economic environment to remain unchanged. We continue to remain
optimistic regarding our long term growth expectations. We expect our
Product segment growth rate to be mid-single digits and our Service
segment growth rate to be greater than 10%. Our Service segment remains
a priority as we look to leverage our current capabilities and execute
on our acquisition strategy to increase our geographic footprint,
enhance our service capabilities and deepen our relationships in our
targeted industries. As we acquire additional service businesses, our
focus is to increase cash flow and earnings rather than gross margin. We
believe the impact will be more evident in our gross profit dollars and
EBITDA than in our gross margin as these businesses typically operate at
a lower gross margin, but generate sufficient cash flow to provide a
good return on our investment. In July 2012, we acquired Anacor
Compliance Services, Inc. This acquisition was significant to Transcat
as it expands our reach into the targeted life sciences industry. We
expect to generate positive operating income and EBITDA from this
acquisition in fiscal 2013."