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Item 7. Management’s Discussion and Analysis

2021-06-08 compared with 2020-06-08 · 607 added, 299 removed, 80 unchanged (92% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Operational Overview.

We are a leading provider of accredited calibration, repair, inspection and laboratory instrument services and a value-added distributor of professional grade handheld test, measurement and control instrumentation.

We operate our business through two reportable business segments, Service and Distribution, which offer a comprehensive range of services and products to the same customer base.

Our strength in our Service segment is based upon our wide range of disciplines, our investment in quality systems and our ability to provide accredited calibrations to customers in highly-regulated targeted market segments.

We are a leading provider of accredited

calibration, repair, inspection and laboratory instrument services and a value-added distributor of professional grade handheld test,

measurement and control instrumentation.

We operate our business through two reportable business segments, Service

and Distribution, which offer a comprehensive range of services and products to the same customer base.

Our strength in our Service segment is based upon our wide range of disciplines,

our investment in quality systems and our ability to provide accredited calibrations to customers in highly-regulated targeted market

Our services range from the calibration and repair of a single unit to managing a customer’s entire calibration program.

We believe our Service segment offers an opportunity for long-term growth and the potential for continuing revenue from established customers with regular calibration cycles and recurring laboratory instrument service requirements.

Our Service segment has shown consistent revenue growth over the past several years, ending fiscal year 2020 with its 44th consecutive quarter of year-over-year growth.

This segment has benefited from both organic growth as well as acquisitions over those 44 quarters.

The business acquisitions that we made have been heavily focused on expanding our service capabilities, increasing our geographic reach and leveraging our Calibration Service Centers and other infrastructure to create operational synergies.

Our total Service revenue growth was 10.7% for fiscal year 2020 compared to fiscal year 2019.

We believe our Service segment offers an opportunity for long-term growth and the potential for continuing revenue from established customers

with regular calibration cycles and recurring laboratory instrument service requirements.

Our Service segment has shown consistent revenue growth over the past several

years, ending fiscal year 2021 with its 48th consecutive quarter of year-over-year growth.

This segment has benefited from both organic

growth as well as acquisitions over those 48 quarters.

The business acquisitions that we made have been heavily focused on expanding our

service capabilities, increasing our geographic reach and leveraging our Calibration Service Centers and other infrastructure to create

operational synergies.

Our total Service revenue growth was 8.9% for fiscal year 2021 compared

to fiscal year 2020, despite the COVID-19 pandemic.

The Service segment gross margin increased by 500 basis points.

Service gross profit and gross margin were positively impacted by productivity improvements from various initiatives including more robust data analytics and improved onboarding, training and retention of our service technicians.

In fiscal year 2020, we invested in a software solution for the automation of calibration procedures and datasheet generation.

This investment is expected to further enhance our operational efficiency efforts and allow us to build out a commercialized platform capable of facilitating calibration automation for various disciplines.

We are in the early testing phases with the rollout for the first limited set of calibration disciplines.

Following that, we plan to develop automation opportunities for additional disciplines.

In our Distribution segment, we sell and offer for rent, professional grade handheld test and measurement instruments.

Because we specialize in professional grade handheld test and measurement instruments, as opposed to a wide array of industrial products, our sales and customer service personnel can provide value-added technical assistance to our customers to aid them in determining what product best meets their particular application requirements.

Service gross profit

and gross margin were positively impacted by ongoing productivity improvements, operating leverage from organic growth, strategic pricing

and accretive margins from the pipettes.com and Bio Tek acquisitions.

In our Distribution segment, we sell and offer for rent, professional grade

handheld test and measurement instruments.

Because we specialize in professional grade handheld test and measurement instruments, as opposed

a wide array of industrial products, our sales and customer service personnel

can provide value-added technical assistance to our customers to aid them in determining what product best meets their particular application

requirements.

We have expertise in the procurement and sale of used equipment, furthering our ability to add value for our customers.

We also have a higher-end electronic test and measurement equipment rental business that augments our organically grown test and measurement equipment rental business.

Through our website and sales teams, customers can place orders for test and measurement instruments and can elect to have their purchased instruments calibrated and certified by our Calibration Service Centers before shipment as well as on regular post-purchase intervals.

Pre-shipment calibration and certification allows our customers to place newly purchased instruments into service immediately upon receipt.

Sales in our Distribution segment are generally not consumable items but are instruments purchased as replacements, upgrades or for expansion of manufacturing or research and development facilities.

As such, this segment can be heavily impacted by changes in the economic environment.

As customers increase or decrease capital and discretionary spending, our Distribution sales will typically be directly impacted.

We also have a higher-end electronic test and measurement equipment rental business that augments our organically grown test and measurement

equipment rental business.

Through our website and sales teams, customers can place orders for test and measurement instruments and can

elect to have their purchased instruments calibrated and certified by our Calibration Service Centers before shipment as well as on regular

post-purchase intervals.

Pre-shipment calibration and certification allows our customers to place newly purchased instruments into service

immediately upon receipt.

Sales in our Distribution segment are generally not consumable items but

are instruments purchased as replacements, upgrades or for expansion of manufacturing or research and development facilities.

this segment can be heavily impacted by changes in the economic environment.

As customers increase or decrease capital and discretionary

spending, our Distribution sales will typically be directly impacted.

In fiscal year 2021, Distribution sales decreased by 10.0%.

sales results were impacted by the COVID-19 pandemic, with reduced demand from oil and gas related businesses and most other industrial

manufacturing sectors.

In fiscal year 2020, Distribution sales increased by 4.2%.

These results were driven by increased demand and revenue in all channels, especially in the alternative energy sector, used equipment and rental revenue.

In fiscal year 2019, the Distribution sales decrease reflected lower sales to non-core, lower-margin resellers and sales to Canada.

This was offset by increased higher-margin rental revenue.

Overall, the Distribution segment gross margin in fiscal year 2020 decreased by 20 basis points.

The decrease in gross margin was driven by the pricing and mix of products sold.

Initiatives implemented within this segment include adding new in-demand vendors and product lines, expanding the number of SKUs that we offer with and without pre-shipment calibration and offering equipment rental and used equipment options.

Management believes this diversification strategy will mitigate the impact that any particular industry or sector will have on the overall performance of this segment as well as help to further differentiate us from our competitors going forward.

These results were driven by increased demand and revenue

in all channels, especially in the alternative energy sector, used equipment and rental revenue.

Overall, the Distribution segment gross

margin in fiscal year 2021 decreased by 230 basis points.

The decrease in segment gross margin was primarily due to reduced cooperative

advertising and rebate programs as certain vendors reduced these programs to lower their costs in response to the COVID-19 pandemic.

Initiatives implemented within this segment include adding new in-demand

vendors and product lines, expanding the number of SKUs that we offer with and without pre-shipment calibration and offering equipment

rental and used equipment options.

Management believes this diversification strategy will mitigate the impact that any particular industry

or sector will have on the overall performance of this segment as well as help to further differentiate us from our competitors going

Financial Overview.

In evaluating our results for fiscal year 2020, investors should consider that we operate on a 52/53 week fiscal year, ending the last Saturday in March.

In evaluating

our results for fiscal year 2021, investors should consider that we operate on a 52/53-week fiscal year, ending the last Saturday

In a 52-week fiscal year, each of the four quarters is a 13-week period.

In a 53-week fiscal year, the last quarter is a 14-week period.

In a 53-week fiscal year, the last quarter is a 14-week

Fiscal years 2021 and 2020 both consisted of 52 weeks.

Management's discussion and analysis of financial condition and results

of operations for the fiscal year ended March 27, 2021 omits a comparative discussion regarding the fiscal year ended March 30, 2019.

Such information is located in Item

7 – Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for

the fiscal year ended March 28, 2020 .

Total revenue for fiscal year 2021 was $173.3 million.

This represented an increase of $12.2 million or 7.6% versus total revenue of $160.9 million for fiscal year 2019.

This year-over-year growth includes a combination of organic and acquisition-related revenue growth.

This represented

an increase of $0.2 million or 0.1% versus total revenue of $173.1 million for fiscal year 2020.

Total revenue was relatively flat year-over-year

due to the combination of increases in Service revenue offset by decreases in Distribution sales.

Service revenue was $101.3 million in fiscal year 2021, an increase of

$8.3 million or 8.9%.

Service revenue now accounts for 58.4% of our total revenue.

Of our Service revenue in fiscal year 2020, 83.5% was generated by our Calibration Service Centers while 14.9% was generated through subcontracted third-party vendors, compared with 83.6% and 14.9%, respectively, in fiscal year 2019.

Of our Service revenue in fiscal year 2021, 83.6% was

generated by our Calibration Service Centers while 14.9% was generated through subcontracted third-party vendors, compared with 83.5%

and 14.9%, respectively, in fiscal year 2020.

The remainder of our Service revenue in each period was derived from freight charges.

Distribution sales increased 4.2% to $80.1 million in fiscal year 2020.

Distribution sales account for 46.3% of our total revenue.

Sales to domestic customers comprised 92.1% of total Distribution sales in fiscal year 2020, while 6.3% were to Canadian customers and 1.6% were to customers in other international markets.

Total gross profit was $42.5 million in fiscal year 2020 compared to $39.3 million in fiscal year 2019, an increase of $3.1 million or 8.0%.

Total gross margin was 24.5%, consistent with gross margin in fiscal year 2019.

Distribution sales decreased 10.0% to $72.1 million in fiscal year 2021.

Distribution sales accounted for 41.6% of our total revenue.

Sales to domestic customers comprised 92.8% of total Distribution sales in

fiscal year 2021, while 6.1% were to Canadian customers and 1.1% were to customers in other international markets.

Total gross profit was $46.1 million in fiscal year 2021 compared to $42.5

million in fiscal year 2020, an increase of $3.6 million or 8.6%.

Total gross margin was 26.6%, which is a 210 basis point increase versus

fiscal year 2020.

Service gross margin was 30.3% in fiscal year 2021 compared with 25.3% in fiscal year 2020.

Distribution gross margin was 23.7% in fiscal year 2020 compared with 23.9% in fiscal year 2019.

Operating expenses were $31.6 million, or 18.3% of total revenue, in fiscal year 2020 compared with $29.1 million, or 18.1% of total revenue, in fiscal year 2019.

Operating income was $10.9 million, or 6.3% of total revenue, in fiscal year 2020 compared with $10.2 million, or 6.4% of total revenue, in fiscal year 2019.

Net income for fiscal year 2020 was $8.1 million compared with $7.1 million in fiscal year 2019, a $1.0 million improvement.

Diluted earnings per share for fiscal year 2020 was $1.08 compared with $0.95 for fiscal year 2019, a $0.13 per diluted share improvement.

Distribution gross margin

was 21.4% in fiscal year 2021 compared with 23.7% in fiscal year 2020.

Operating expenses were $35.0 million, or 20.2% of total revenue, in fiscal

year 2021 compared with $31.6 million, or 18.3% of total revenue, in fiscal year 2020.

Operating income was $11.1 million, or 6.4% of

total revenue, in fiscal year 2021 compared with $10.9 million, or 6.3% of total revenue, in fiscal year 2020.

Net income for fiscal year 2021 was $7.8 million compared with $8.1 million

in fiscal year 2020, a $0.3 million decrease.

Diluted earnings per share for fiscal year 2021 was $1.03 compared with $1.08 for fiscal

year 2020, a $0.05 per diluted share decline.

COVID-19 Impact.

In March 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic, which continues to spread throughout the United States.

The COVID-19 pandemic has had a negative impact on our fiscal year 2020 operations and financial results to date, and the full financial impact of the pandemic cannot be reasonably estimated at this time due to uncertainty as to its severity and duration.

We have taken steps to help mitigate the current impact, as well as the continued uncertainty regarding the ultimate impact of the COVID-19 pandemic on our business, results of operations, financial position and cash flows.

● Currently, our network of labs, distribution center and support facilities remain fully operational.

We do not anticipate disruptions to the Distribution supply chain in the short-term and are working with partners to minimize any potential delays.

● We have established a cross-functional COVID-19 task force, which meets regularly, to standardize continuity plans and daily practices across the 42 Calibration Service Centers and client-based labs and our distribution/rental operations for responding to the rapidly changing issues around this global pandemic.

The COVID-19 pandemic had a negative impact

on our fiscal year 2021 operations and financial results, and even with the vaccine roll-outs and mask mandates being lifted, the full

financial impact of the pandemic going forward cannot be reasonably estimated at this time due to uncertainty as to its severity and duration,

especially as new variants continue to appear.

We have taken steps to help mitigate the current impact, as well as the continued uncertainty

regarding the ultimate impact of the COVID-19 pandemic on our business, results of operations, financial position and cash flows.

Currently, our network of labs, distribution center and support facilities

remain fully operational.

We do not anticipate disruptions to the Distribution supply chain in the short-term and are working with partners

to minimize any potential delays.

We have established a cross-functional COVID-19 task force, which meets

regularly, to standardize continuity plans and daily practices across the 42 Calibration Service Centers, client-based labs and our distribution/rental

operations for responding to the rapidly changing issues around this global pandemic.

Actions instituted include:

● Adhering to guidelines and recommendations of the Centers for Disease Control and Prevention and World Health Organization to reduce the spread of COVID-19;

● Established a pandemic protocol across the organization to ensure continuous service to customers and mitigate risk;

Adhering to guidelines and recommendations of the Centers for Disease Control and Prevention and

World Health Organization to reduce the spread of COVID-19;

Established a pandemic protocol across the organization to ensure continuous service to customers

and mitigate risk;

Suspended all work-related travel except for direct onsite service to customers.

When performing necessary onsite service for customers, we are following recommended protocols including self-assessments and travel disclosures and asking the same from our customers;

● Required personnel whose roles allow to work remotely from home in order to adhere to the social distancing recommendations issued by global health officials;

● Aligning variable costs with demand, a freeze on hiring and wages, with the exception of technology personnel, and tightly controlling discretionary spending;

● Reducing the CEO’s salary and Board of Director cash retainer fees by 20% and reducing other executive team members salaries by 10%;

● Leveraging government work programs and tax deferrals and extensions;

● Amending our revolving credit facility to provide for, among other things, $10.0 million in additional borrowing capacity and financial covenant modifications.

When performing

necessary onsite service for customers, we are following recommended protocols including self-assessments and travel disclosures and asking

the same from our customers;

Required personnel whose roles allow to work remotely from home in order to adhere to the social

distancing recommendations issued by global health officials;

Aligned variable costs with demand, a freeze on wage increases, and

tightly controlling discretionary spending;

Reduced the CEO’s salary and Board of Director cash retainer fees by 20% and reduced other

executive team members salaries by 10% during the first and second quarters of fiscal 2021;

Leveraging government work programs, tax deferrals and extensions;

Amended our revolving credit facility to provide for, among other things, $10.0 million in additional

borrowing capacity and financial covenant modifications.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Use of Estimates.

The preparation of our Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States (“GAAP”) requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Significant estimates and assumptions are used for, but not limited to, allowance for doubtful accounts and returns, inventory reserves, estimated levels of achievement for performance-based restricted stock units, fair value of stock options, depreciable lives of fixed assets, estimated lives of major catalogs and intangible assets, and the valuation of assets acquired and liabilities assumed in business acquisitions.

Future events and their effects cannot be predicted with certainty;

The preparation of our Consolidated Financial

Statements in accordance with accounting principles generally accepted in the United States (“GAAP”) requires that we make

estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities

at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Significant estimates

and assumptions are used for, but not limited to, allowance for doubtful accounts and returns, inventory reserves, estimated levels of

achievement for performance-based restricted stock units, fair value of stock options, depreciable lives of fixed assets, estimated lives

of major catalogs and intangible assets, and the valuation of assets acquired and liabilities assumed in business acquisitions.

events and their effects cannot be predicted with certainty;

accordingly, our accounting estimates require the exercise of judgment.

The accounting estimates used in the preparation of our Consolidated Financial Statements will change as new events occur, as more experience is acquired, as additional information is obtained, and as our operating environment changes.

Our estimates are evaluated on an ongoing basis and are drawn from historical experience and other assumptions that we believe to be reasonable under the circumstances.

Actual results could differ from those estimates.

Such changes and refinements in estimation methodologies are reflected in reported results of operations in the period in which the changes are made and, if material, their effects are disclosed in the Notes to our Consolidated Financial Statements.

The following items in our Consolidated Financial Statements require significant estimation or judgment:

accounting estimates used in the preparation of our Consolidated Financial Statements will change as new events occur, as more experience

is acquired, as additional information is obtained, and as our operating environment changes.

Our estimates are evaluated on an ongoing

basis and are drawn from historical experience and other assumptions that we believe to be reasonable under the circumstances.

results could differ from those estimates.

Such changes and refinements in estimation methodologies are reflected in reported results

of operations in the period in which the changes are made and, if material, their effects are disclosed in the Notes to our Consolidated

Financial Statements.

The following items in our Consolidated Financial Statements require significant

estimation or judgment:

Accounts Receivable.

Accounts receivable represent amounts due from customers in the ordinary course of business.

These amounts are recorded net of the allowance for doubtful accounts and returns in the Consolidated Balance Sheets.

The allowance for doubtful accounts is based upon the expected collectability of accounts receivable.

We apply a specific formula to our accounts receivable aging, which may be adjusted on a specific account basis where the formula may not appropriately reserve for loss exposure.

After all attempts to collect a receivable have failed, the receivable is written-off against the allowance for doubtful accounts.

The returns reserve is calculated based upon the historical rate of returns applied to revenues over a specific timeframe.

The returns reserve will increase or decrease as a result of changes in the level of revenues and/or the historical rate of returns.

Management believes that the allowances are appropriate to cover anticipated losses under current conditions.

Accounts receivable represent amounts

due from customers in the ordinary course of business.

These amounts are recorded net of the allowance for doubtful accounts and returns

in the Consolidated

Balance Sheets.

The allowance for doubtful accounts is based upon the expected

collectability of accounts receivable.

We apply a specific formula to our accounts receivable aging, which may be adjusted on a specific

account basis where the formula may not appropriately reserve for loss exposure.

After all attempts to collect a receivable have failed,

the receivable is written-off against the allowance for doubtful accounts.

The returns reserve is calculated based upon the historical

rate of returns applied to revenues over a specific timeframe.

The returns reserve will increase or decrease as a result of changes in

the level of revenues and/or the historical rate of returns.

Management believes that the allowances are appropriate to cover anticipated

losses under current conditions.

However, unexpected changes or deterioration in economic conditions could materially change these expectations.

Inventory consists of products purchased for resale and is valued at the lower of cost or net realizable value.

Inventory consists of products purchased for resale

and is valued at the lower of cost or net realizable value.

Costs are determined using the average cost method of inventory valuation.

Inventory is reduced by a reserve for items not saleable at or above cost by applying a specific loss factor, based on historical experience and current demand, to specific categories of our inventory.

Inventory is reduced by a reserve for items not saleable at or above cost by applying a specific loss factor, based on historical experience

and current demand, to specific categories of our inventory.

Inventory is at risk of obsolescence if economic conditions change.

Relevant economic conditions include changing consumer demand, customer preferences or increasing competition.

We believe these risks are largely mitigated because our inventory typically turns several times per year.

economic conditions include changing consumer demand, customer preferences or increasing competition.

We believe these risks are largely

mitigated because our inventory typically turns several times per year.

We evaluate the adequacy of the reserve on a quarterly basis.

Business Acquisitions.

We apply the acquisition method of accounting for business acquisitions.

Under the acquisition method, the underlying tangible and intangible assets acquired and liabilities assumed are recorded based on their respective assigned fair values at the date of acquisition.

We apply the acquisition method of

accounting for business acquisitions.

Under the acquisition method, identifiable assets acquired and liabilities assumed are measured

at their acquisition-date fair value.

We use a valuation hierarchy to determine the fair values used.

Historically, we have relied, in part, upon the use of reports from third-party valuation specialists to assist in the estimation of fair values.

Purchase price allocations are subject to revision within the measurement period, not to exceed one year from the date of acquisition.

Administration costs to acquire a business may include, but are not limited to, fees for accounting, legal and valuation services and are recorded as incurred in our Consolidated Statement of Income.

Historically, we have relied, in

part, upon the use of reports from third-party valuation specialists to assist in the estimation of fair values.

Purchase price allocations

are subject to revision within the measurement period, not to exceed one year from the date of acquisition.

Administration costs to acquire

a business may include, but are not limited to, fees for accounting, legal and valuation services and are recorded as incurred in our

Consolidated Statement of Income.

Goodwill and Intangible Assets.

Goodwill represents the excess of the purchase price over the values assigned to the underlying net assets of an acquired business and is not amortized.

As of March 28, 2020, we had $41.5 million of recorded goodwill.

Intangible assets, namely customer base and covenants not to compete, represent an allocation of purchase price to identifiable intangible assets of an acquired business.

These intangible assets are amortized over their estimated useful lives and are reviewed for impairment if and when indicators are present.

We estimate the fair value of our reporting units using the fair market value measurement requirement.

We test goodwill for impairment on an annual basis during the fourth quarter of each fiscal year or immediately if conditions indicate that such impairment could exist.

We have the option to perform a qualitative assessment to determine if it is more likely than not that the fair value of a segment has declined below its carrying value.

This assessment considers various financial, macroeconomic, industry and segment specific qualitative factors.

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.

Based on the results of our reviews, we have determined that no impairment was indicated as of each of the fiscal years ended March 28, 2020 and March 30, 2019.

Goodwill represents the excess

of the purchase price over the values assigned to the underlying net assets of an acquired business and is not amortized.

27, 2021, we had $43.3 million of recorded goodwill.

Intangible assets, namely customer base and covenants not to compete, represent

an allocation of purchase price to identifiable intangible assets of an acquired business.

These intangible assets are amortized over

their estimated useful lives and are reviewed for impairment if and when indicators are present.

We estimate the fair value of our reporting

units using the fair market value measurement requirement.

We test goodwill for impairment on an annual basis during the fourth quarter

of each fiscal year or immediately if conditions indicate that such impairment could exist.

We have the option to perform a qualitative

assessment to determine if it is more likely than not that the fair value of a segment has declined below its carrying value.

This assessment

considers various financial, macroeconomic, industry and segment specific qualitative factors.

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.

Based on the results of our reviews,

we have determined that no impairment was indicated as of each of the fiscal years ended March 27, 2021 and March 28, 2020.

Income Taxes.

We record deferred income taxes for the effects of timing differences between financial and tax reporting.

These differences relate primarily to accrued expenses, bad debt reserves, inventory reserves, operating leases, goodwill and intangible assets, depreciation and amortization and stock based compensation.

We base our deferred income taxes, accrued income taxes and provision for income taxes upon income, statutory tax rates, the legal structure of our Company, interpretation of tax laws and tax planning opportunities available to us in the various jurisdictions in which we operate.

We record deferred income taxes for the effects

of timing differences between financial and tax reporting.

These differences relate primarily to accrued expenses, bad debt reserves,

inventory reserves, operating leases, goodwill and intangible assets, depreciation and amortization and stock based compensation.

our deferred income taxes, accrued income taxes and provision for income taxes upon income, statutory tax rates, the legal structure of

our Company, interpretation of tax laws and tax planning opportunities available to us in the various jurisdictions in which we operate.

We file income tax returns in the U.S.

federal jurisdiction, various states and Canada.

We are regularly audited by federal, state and foreign tax authorities, but a number of years may elapse before an uncertain tax position, for which we have unrecognized tax benefits, is audited and finally resolved.

We are regularly audited by federal, state and

foreign tax authorities, but a number of years may elapse before an uncertain tax position, for which we have unrecognized tax benefits,

is audited and finally resolved.

From time to time, these audits result in assessments of additional tax.

We maintain reserves for such assessments.

We apply a more-likely-than-not threshold to the recognition and derecognition of uncertain tax positions.

Accordingly, we recognize the amount of tax benefit that has a greater than 50% likelihood of being ultimately realized upon settlement.

Future changes in judgments and estimates related to the expected ultimate resolution of uncertain tax positions will affect income in the quarter of such change.

While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, we believe that our unrecognized tax benefits reflect the most likely outcome.

If a loss is determined to be

probable as a result of an audit, an accrual is established.

We apply a more-likely-than-not threshold to the recognition and derecognition

of uncertain tax positions.

Accordingly, we recognize the amount of tax benefit that has a greater than 50% likelihood of being ultimately

realized upon settlement.

Future changes in judgments and estimates related to the expected ultimate resolution of uncertain tax positions

will affect income in the quarter of such change.

While it is often difficult to predict the final

outcome or the timing of resolution of any particular uncertain tax position,

we believe that our unrecognized tax benefits reflect the most likely outcome.

Stock-Based Compensation.

We measure 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.

We record 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.

In accordance with Accounting Standards Updates (“ ASU ”) 2016-09, excess tax benefits for share-based award activity are reflected in the Consolidated Statement 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.

We did not capitalize any stock-based compensation costs as part of an asset.

We measure 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.

We record 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.

In accordance with Accounting Standards Updates

(“ASU”) 2016-09, excess tax benefits for share-based award activity are reflected in the Consolidated Statement 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.

We did not capitalize any stock-based

compensation costs as part of an asset.

We estimate forfeiture rates based on our historical experience.

We grant timed-based and performance-based restricted stock units as a component of executive and key employee compensation.

These restricted stock units are either time vested or vest following the third fiscal year from the date of grant and some of these grants are subject to cumulative diluted earnings per share growth targets over the eligible period.

Compensation cost ultimately recognized for these 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, we record compensation cost based on the expected level of achievement of the performance conditions.

Stock 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.

The expense relating to options is recognized on a straight-line basis over the requisite service period for the entire award.

See Note 6 to our Consolidated Financial Statements for further disclosure regarding our stock-based compensation.

We grant timed-based and performance-based restricted stock units

as a component of executive and key employee compensation.

These restricted stock units are either time vested or vest following the third

fiscal year from the date of grant and some of these grants are subject to cumulative diluted earnings per share growth targets over the

eligible period.

Compensation cost ultimately recognized for these 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, we record compensation cost based

on the expected level of achievement of the performance conditions.

Stock 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.

The expense relating to options

is recognized on a straight-line basis over the requisite service period for the entire award.

See Note 6 to our Consolidated Financial Statements for further

disclosure regarding our stock-based compensation.

Post-retirement Health Care Plans.

The Company has a defined benefit post-retirement health care plan which provides long-term care insurance benefits, medical and dental insurance benefits and medical premium reimbursement benefits to eligible retired corporate officers and their eligible spouses.

For accounting purposes, the defined benefit post-retirement health care plan requires assumptions to estimate the projected and accumulated benefit obligations, including the following variables:

has a defined benefit post-retirement health care plan which provides long-term care insurance benefits, medical and dental insurance

benefits, and medical premium reimbursement benefits to eligible retired corporate officers and their eligible spouses.

For accounting purposes, the defined benefit post-retirement health care

plan requires assumptions to estimate the projected and accumulated benefit obligations, including the following variables:

discount rate;

1 unchanged sentence

and health care cost trend rates.

These and other assumptions affect the annual expense and obligations recognized for the underlying plans.

Our assumptions reflect our historical experiences and management's best judgment regarding future expectations.

Increasing the assumed health care cost trend rate by one percentage point would increase the accumulated post-retirement benefit obligation and the annual net periodic post-retirement benefit cost by $0.1 million.

A one percentage point decrease in the healthcare cost trend would decrease the accumulated post-retirement benefit obligation and the annual net periodic post-retirement benefit cost by $0.1 million.

These and other assumptions

affect the annual expense and obligations recognized for the underlying plans.

Our assumptions reflect our historical experiences and

management's best judgment regarding future expectations.

Increasing the assumed health care cost trend rate by one percentage point

would increase the accumulated post-retirement benefit obligation and the annual net periodic post-retirement benefit cost by $0.2 million.

A one percentage point decrease in the healthcare cost trend would decrease the accumulated post-retirement benefit obligation and the

annual net periodic post-retirement benefit cost by $0.2 million.

Recently Issued Accounting Pronouncements .

In the normal course of business, management evaluates all new accounting pronouncements issued by the Financial Accounting Standards Board (“ FASB ”) to determine the potential impact they may have on our consolidated financial statements.

For a discussion of the newly issued accounting pronouncements see “Recently Issued Accounting Pronouncements” under Note 1 to the Consolidated Financial Statements included in Item 8 of Part II of this report.

In the normal course of business, management evaluates all new accounting pronouncements issued by the Financial Accounting Standards

Board (“FASB”) to determine the potential impact they may have on our consolidated financial statements.

discussion of the newly issued accounting pronouncements see “Recently Issued Accounting Pronouncements” under Note 1 to the

Consolidated Financial Statements included in Item 8 of Part II of this report.

RESULTS OF OPERATIONS

The following table sets forth, for fiscal years 2020 and 2019, the components of our Consolidated Statements of Income.

As a Percentage of Total Revenue:

The following table sets forth, for fiscal years 2021 and 2020, the components

of our Consolidated Statements of Income.

As a Percentage

of Total Revenue:

Service Revenue

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Total Revenue

Gross Profit Percentage:

Service Gross Profit

Distribution Gross Profit

Service Gross

Distribution Gross

Total Gross Profit

Selling, Marketing and Warehouse Expenses

General and Administrative Expenses

Total Operating Expenses

Selling, Marketing

and Warehouse Expenses

General and Administrative

Total Operating

Operating Income

Interest and Other Expenses, net

Income Before Provision for Income Taxes

Interest and Other

Expenses, net

Income Before

Provision for Income Taxes

FISCAL YEAR ENDED MARCH 28, 2020 COMPARED TO FISCAL YEAR ENDED MARCH 30, 2019 (dollars in thousands):

For the Fiscal Years Ended

Total revenue was $173.1 million in fiscal year 2020 compared to $160.9 million in fiscal year 2019, an increase of $12.2 million or 7.6%.

Service revenue, which accounted for 53.7% and 52.2% of our total revenue in fiscal years 2020 and 2019, respectively, increased $9.0 million, or 10.7% from fiscal year 2019 to fiscal year 2020.

This year-over-year growth includes a combination of organic and acquisition-related revenue growth.

The Service segment organic growth was 8.4% in fiscal year 2020.

Higher revenue was the result of new business from the highly-regulated life sciences market, including higher revenue from client-based labs and growth in other regulated sectors such as aerospace and defense.

Fiscal year 2020 revenue includes revenue from TTE acquired in late February 2020.

Our fiscal years 2020 and 2019 Service revenue growth in relation to prior fiscal year quarter comparisons, was as follows:

Service Revenue Growth

Within any year, while we add new customers, we also have customers from the prior 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 a trailing twelve-month trend provides a better indication of the progress of this segment.

Provision for

FISCAL YEAR ENDED MARCH 27, 2021 COMPARED TO FISCAL YEAR ENDED MARCH

28, 2020 (dollars in thousands):

the Fiscal Years Ended

Total revenue was $173.3 million in fiscal year 2021 compared to $173.1

million in fiscal year 2020, an increase of $0.2 million or 0.1%.

Service revenue, which accounted for 58.4% and 53.7% of our total revenue

in fiscal years 2021 and 2020, respectively, increased $8.3 million, or 8.9% from fiscal year 2020 to fiscal year 2021.

This year-over-year

growth includes a combination of organic and acquisition-related revenue growth.

This year-over-year increase reflected new life science

business and, combined with $5.2 million of incremental revenue from pipettes.com and BioTek, more than offset reduced demand from other

markets caused primarily by the COVID-19 pandemic.

Excluding acquired revenue of $5.2 million, the Service segment organic revenue increased

Our fiscal years 2021 and 2020 Service revenue growth in relation to prior

fiscal year quarter comparisons, was as follows:

Service Revenue

Within any year, while we add new customers, we also have customers from

the prior 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 a trailing twelve-month trend provides a better indication of the progress of

this segment.

The growth in fiscal year 2021 and fiscal year 2020 reflected both organic growth and acquisitions.

The growth in Service segment revenue during the fourth quarter of fiscal year 2020 includes revenue from the TTE acquisition.

The trailing twelve-month Service segment revenue growth for the third quarter of fiscal year 2019 includes the Angel’s acquisition in fiscal year 2019.

The following table presents the trailing twelve-month Service segment revenue for each quarter in fiscal years 2020 and 2019 as well as the trailing twelve-month revenue growth as a comparison to that of the prior fiscal year period:

The growth in Service

segment revenue during the third and fourth quarters of fiscal year 2021 includes revenue from Bio Tek and pipettes.com.

The growth in

Service segment revenue during

the first and second quarters of fiscal year 2021 and the fourth quarter

of fiscal year 2020 includes revenue from the pipettes.com acquisition.

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:

Trailing Twelve-Month:

1 unchanged sentence

Service Revenue Growth

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.

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 revenue and the percentage of Service revenue derived from each source for each quarter during fiscal years 2020 and 2019:

The following table presents the source of our Service revenue and the percentage of Service revenue derived from each source for each

quarter during fiscal years 2021 and 2020:

Freight Billed to Customers

Our Distribution sales accounted for 46.3% and 47.8% of our total revenue in fiscal years 2020 and 2019, respectively.

Distribution sales increased $3.2 million, or 4.2% compared to fiscal year 2019.

This increase in sales was driven by increased demand and revenue in all channels, especially in the alternative energy sector, used equipment and rental sales.

The increase in fiscal year 2020 versus fiscal year 2019 and the change in fiscal year 2019 versus fiscal year 2018 reflected both organic and acquisition revenue.

Our fiscal years 2020 and 2019 Distribution sales (decline) growth in relation to prior fiscal year quarter comparisons were as follows:

Distribution Sales (Decline) Growth

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 increased $0.5 million, or 12.5%, at the end of fiscal year 2020 compared to the end of fiscal year 2019.

Backorders at the end of fiscal year 2020 were $2.9 million, consistent with the backorders at the end of fiscal year 2019.

The year-over-year increases in pending product shipments and consistency with backorders can be attributed to the timing of sales activity during the respective quarter.

The following table presents the percentage of total pending product shipments that were backorders at the end of each quarter in fiscal years 2020 and 2019 and our historical trend of total pending product shipments:

Total Pending Product Shipments

% of Pending Product Shipments that were Backorders

Our Distribution sales accounted for 41.6% and 46.3% of our total revenue

in fiscal years 2021 and 2020, respectively.

Distribution sales decreased $8.0 million, or 10.0% in fiscal year 2021 compared to fiscal

Fiscal year 2021 results were impacted by the COVID-19 pandemic, with reduced demand from oil and gas related businesses and

most other industrial manufacturing sectors.

However, rental revenue increased by 1.6% to $5.1 million in fiscal year 2021 compared to

fiscal year 2020.

The change in fiscal year 2021 versus fiscal year 2020 and the increase in fiscal year 2020 versus fiscal year 2019

reflected both organic and acquisition revenue.

Our fiscal years 2021 and 2020 Distribution sales (decline) growth in relation to prior

fiscal year quarter comparisons were as follows:

Distribution Sales

(Decline) Growth

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

Our total pending product shipments increased $2.0 million, or 45.2%, at the end of fiscal year 2021 compared to the end

of fiscal year 2020.

Backorders at the end of fiscal year 2021 were $4.9 million, compared to $2.9 million at the end of fiscal year 2020.

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.

The following table presents the percentage of total pending product shipments that were backorders at the end of

each quarter in fiscal years 2021 and 2020 and our historical trend of total pending product shipments:

Total Pending

Product Shipments

Product Shipments that were Backorders

Gross Profit:

For the Fiscal Years Ended

the Fiscal Years Ended

Gross Profit:

Total gross profit in fiscal year 2020 was $42.5 million compared to $39.3 million in fiscal year 2019, an increase of $3.1 million or 8.0%.

As a percentage of total revenue, total gross margin was 24.5% in both fiscal years 2020 and 2019.

Service gross profit increased $2.5 million, or 12.1%, from fiscal year 2019 to fiscal year 2020.

Total gross profit in fiscal year 2021 was $46.1 million compared to $42.5

million in fiscal year 2020, an increase of $3.6 million or 8.6%.

As a percentage of total revenue, total gross margin was 26.6% in fiscal

year 2021 compared to 24.5% in fiscal year 2020.

Service gross profit increased $7.2 million, or 30.7%, from fiscal year

2020 to fiscal year 2021.

Our annual and quarterly Service segment gross margins are a function of several factors.

Our organic Service revenue growth provides some incremental gross margin growth by leveraging certain fixed costs of this segment.

The mix of services provided to customers may also affect gross margins in any given period.

Annual Service gross margin increased by 40 basis points from fiscal year 2019 to fiscal year 2020.

This gross margin in fiscal year 2020 was positively impacted by our various technology and productivity initiatives, and improved margins in client-based lab contracts initiated in prior years.

The following table presents the quarterly historical trend of our Service gross margin as a percent of Service revenue:

Service Gross Margin

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:

Distribution Gross Margin

Annual Distribution segment gross margin decreased 20 basis points in fiscal year 2020 compared to fiscal year 2019.

The decrease in gross margin was driven by the pricing and mix of products sold.

Our organic Service

revenue growth provides some incremental gross margin growth by leveraging certain fixed costs of this segment.

The mix of services provided

to customers may also affect gross margins in any given period.

Annual Service gross margin increased by 500 basis points from fiscal

year 2020 to fiscal year 2021.

This increase in service gross margin in fiscal year 2021 was primarily due to ongoing productivity improvements,

operating leverage from organic growth, strategic pricing and accretive margins from the pipettes.com and Bio Tek acquisitions.

The following table presents the quarterly historical trend of our Service

gross margin as a percent of Service revenue:

Service Gross

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.

During fiscal year 2021, we saw a number of our vendors significantly reduce the rebates offered to

us as they implemented cost cutting measures in response to the COVID-19 pandemic.

We recorded vendor rebates of $0.7 million and $1.6

million in fiscal years 2021 and 2020, respectively, as a reduction of cost of Distribution sales.

In general, our Distribution gross

margin can vary based upon the mix of products sold, price discounting, 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:

Distribution Gross

Annual Distribution segment gross margin decreased 230 basis points in

fiscal year 2021 compared to fiscal year 2020.

The decrease in segment gross margin was primarily due to reduced cooperative advertising

and rebate programs as certain vendors reduced these programs to lower their costs in response to the COVID-19 pandemic.

Operating Expenses:

For the Fiscal Years Ended

the Fiscal Years Ended

Operating Expenses:

Selling, Marketing and Warehouse

Selling, Marketing

and Warehouse

General and Administrative

Total operating expenses were $31.6 million in fiscal year 2020 compared to $29.1 million in fiscal year 2019.

This represented an increase of $2.5 million, or 8.6%, from fiscal year 2019 to fiscal year 2020.

As a percentage of total revenue, operating expenses increased 20 basis points from 18.1% in fiscal year 2019 to 18.3% in fiscal year 2020.

Selling, marketing and warehouse expenses increases were due to commissions and incentives as a result of increased selling activities to support our revenue growth.

The year-over-year increase in General and Administrative expenses was primarily due to our continued investment in technology and process infrastructure improvements and Operational Excellence initiatives.

Provision for Income Taxes:

For the Fiscal Years Ended

Total operating expenses were $35.0 million in fiscal year 2021 compared

to $31.6 million in fiscal year 2020.

This represented an increase of $3.4 million, or 10.8%, compared to fiscal year 2020.

As a percentage

of total revenue, operating expenses increased 190 basis points from 18.3% in fiscal year 2020 to 20.2% in fiscal year 2021.

marketing and warehouse expenses decreases were due to reduced commissions and incentives as a result of the COVID-19 pandemic.

The year-over-year

increase in General and Administrative expenses includes incremental expenses related to the acquisition of pipettes.com and BioTek and

increased expenses related to our continued investment in technology and operational infrastructure.

Provision for Income Taxes:

Our effective tax rates for fiscal years 2020 and 2019 were 17.1% and 22.6%, respectively.

The reduction in tax rate is due to the increased discrete tax benefits from share-based compensation activity.

Our provision for income taxes is affected by discrete items that may occur in any given period but are not consistent from year to year.

The discrete benefits related to share-based compensation activity in fiscal years 2020 and 2019 were $0.9 million and $0.1 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 in the future.

For the Fiscal Years Ended

Net income for fiscal year 2020 showed a $0.9 million or 12.9% improvement when compared to fiscal year 2019.

As a percentage of revenue, net income was 4.7% in fiscal year 2020, up from 4.4% in fiscal year 2019.

This year-over-year change reflects higher operating income and a lower effective tax rate.

the Fiscal Years Ended

Provision for

Our effective tax rates for fiscal years

2021 and 2020 were 21.9% and 17.1%, respectively.

The increase in tax rate is due to the lower discrete tax benefits from share-based

compensation activity.

Our provision for income taxes is affected by discrete items that may occur in any given period but are not consistent

from year to year.

The discrete benefits related to share-based compensation activity in fiscal years 2021 and 2020 were $0.3 million

and $0.9 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 in the future.

We expect to receive certain federal, state and Canadian tax credits in

future years.

We also expect to receive discrete tax benefits related to share-based compensation awards in fiscal year 2022.

we expect our effective tax rate in fiscal year 2022 to be between 20.0% and 22.0%.

the Fiscal Years Ended

Net income for fiscal year 2021 decreased by $0.3 million or 3.4% compared

to fiscal year 2020.

As a percentage of revenue, net income was 4.5% in fiscal year 2021, down from 4.7% in fiscal year 2020.

This year-over-year

change reflects higher operating income discussed above offset by a higher effective tax rate.

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 and non-cash loss on sale of building), 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, and stock-based compensation expense, 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.

For the Fiscal Years Ended

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, rather 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.

the Fiscal Years Ended

+ Interest Expense

+ Other Expense / (Income)

+ Other Expense

+ Tax Provision

1 unchanged sentence

+ Depreciation & Amortization

+ Restructuring Expense

+ Other (Expense) Income

1 unchanged sentence

Adjusted EBITDA

During fiscal year 2020, Adjusted EBITDA was $18.4 million, an increase of $0.6 million or 3.3% compared to fiscal year 2019.

As a percentage of revenue, Adjusted EBITDA was 10.6% during fiscal year 2020 versus 11.1% during fiscal year 2019, a 50 basis point decrease.

The increase in Adjusted EBITDA during fiscal year 2020 is primarily driven by the increase in net income, offset by a decrease in provision for income taxes and noncash stock compensation expense.

During fiscal year 2021, Adjusted EBITDA was $20.6 million, an increase

of $2.2 million or 11.8% compared to fiscal year 2020.

As a percentage of revenue, Adjusted EBITDA was 11.9% during fiscal year 2021 versus

10.6% during fiscal year 2020, a 110 basis point increase.

The increase in Adjusted EBITDA during fiscal year 2021 is primarily driven

by the increase in operating income, depreciation and amortization expense and noncash stock compensation expense.

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 (as defined below).

Because of the COVID-19 pandemic, there is significant uncertainty surrounding the potential impact on our results of operations and cash flows.

We are proactively taking steps to increase available cash on hand including, but not limited to, targeted reductions in discretionary operating expenses and capital expenditures, and utilizing funds available under our Revolving Credit Facility.

We may pursue additional sources of financing to improve liquidity.

However, the disruption of the capital markets caused by the COVID-19 outbreak could make any financing more challenging and there can be no assurance that we will be able to obtain such additional financing on commercially reasonable terms or at all.

On October 30, 2017, we entered into an Amended and Restated Credit Agreement (the “Credit Agreement”), which amended and restated our prior credit facility agreement.

The Credit Agreement extended the term of our $30.0 million revolving credit facility ( the “Revolving Credit Facility”) to October 29, 2021.

As of March 28, 2020, $30.0 million was available under the Revolving Credit Facility, of which $17.7 million was outstanding and included in long-term debt on the Consolidated Balance Sheets.

Subsequent to fiscal year 2020, we amended our Revolving Credit Facility to provide for, among other things, $10.0 million in additional borrowing capacity and financial covenant modifications.

See “ Note 11 - Subsequent Event” in the financial notes to t his report for additional information.

On December 10, 2018, we entered into an Amended and Restated Credit Agreement Amendment 1 (the “2018 Agreement”).

The 2018 Agreement has a term loan (the “2018 Term Loan”) in the amount of $15.0 million, which replaced the previous term loan.

As of March 28, 2020, $12.6 million was outstanding on the 2018 Term Loan, of which $2.0 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.

Under the Credit Agreement, borrowings that may be used for business acquisitions are limited to $20.0 million per fiscal year.

During fiscal year 2020, $13.8 million was used for business acquisitions, including holdback payments.

During fiscal year 2019, $3.9 million was used for business acquisitions, including holdback payments.

The allowable leverage ratio under the Credit Agreement is a maximum multiple of 3.0 of total debt outstanding compared to earnings before income taxes, depreciation and amortization, or EBITDA, and non-cash stock-based compensation expense for the preceding four consecutive fiscal quarters.

The Credit Agreement provides that the trailing twelve-month pro forma EBITDA of an acquired business be included in the allowable leverage calculation.

The Credit Agreement has certain covenants with which we must comply, including a fixed charge ratio covenant and a leverage ratio covenant.

We were in compliance with all loan covenants and requirements during fiscal years 2020 and 2019.

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 (as defined below).

On May 18, 2020, we entered into an amendment (“Amendment Two”)

to our Amended and Restated Credit Agreement with Manufacturers and Traders Trust Company, as previously amended pursuant to an amendment

dated as of December 10, 2018 (together, the “Credit Agreement”).

Amendment Two extended the term of our $30.0 million revolving

credit facility (the “Revolving Credit Facility”) to October 20, 2022 and increased the revolving credit commitment to $40.0

Amendment Two modified the definition of 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 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 related

to stock-based payment and stock option activity, and modified certain restrictions to our ability to repurchase our shares and pay dividends.

Amendment Two modified the leverage ratio and fixed charge coverage ratio covenants with which we are required to comply.

Amendment Two

also established a LIBOR floor of 1% and included a mechanism for adoption of a different benchmark rate when LIBOR is discontinued.

the third quarter of fiscal year 2021, Manufacturers and Traders Trust Company eliminated the prior requirement included in Amendment

Two that limited capital expenditures to $5.5 million for the fiscal year ending March 27, 2021.

During the fourth quarter of fiscal year

2021, Manufacturers and Traders Trust Company eliminated the prior requirement included in Amendment Two that limited restricted

payments up to $2.5 million to pay certain tax obligations associated with

share-based payment and stock option activity for the fiscal year ending March 27, 2021.

On December 10, 2018, we entered into an Amended and Restated Credit Agreement

Amendment 1 (the “2018 Agreement”) that provides for the 2018 Term Loan in the amount of $15.0 million, which replaced the

previous 2017 Term Loan.

As of March 27, 2021, $10.6 million was outstanding on the 2018 Term Loan, of which $2.0 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.

Principal payments relating to the 2018 Term Loan will be $2.1 million

in fiscal year 2022, $2.2 million in fiscal year 2023, $2.2 million in fiscal year 2024, $2.3 million in fiscal year 2025 and $1.8 million

in fiscal year 2026.

As of March 27, 2021, $40.0 million was available under the Revolving Credit

Facility, of which $8.9 million was outstanding and included in long-term debt on the Consolidated Balance Sheets.

Under the Credit Agreement, borrowings that may be used for business acquisitions

are limited to $20.0 million per fiscal year, and during a portion of fiscal year 2021 were limited to $5.5 million.

During fiscal year

2021, $3.6 million of borrowings was used for business acquisitions.

During fiscal year 2020, $13.8 million was used for business acquisitions,

including holdback payments.

The allowable leverage ratio under the Credit Agreement for the first,

second, third and fourth fiscal quarter of fiscal year 2021, and the first quarter of fiscal year 2022 is a maximum multiple of 3.0, 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, the allowable leverage ratio is a maximum multiple of 3.0.

Credit Agreement provides that the trailing twelve-month pro forma EBITDA of an acquired business is included in the allowable leverage

The Credit Agreement has certain covenants with which we must comply, including

a fixed charge ratio covenant and a leverage ratio covenant.

We were in compliance with all loan covenants and requirements during fiscal

years 2021 and 2020.

Our leverage ratio, as defined in the Credit Agreement, was 0.94 at March 27, 2021 compared with 1.53 at March 28,

Interest on the Revolving Credit Facility continues to accrue, at our election, at either the variable one-month London Interbank Offered Rate (“LIBOR”) 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 with principal and interest payments made monthly.

Commitment fees accrue based on the average daily amount of unused credit available under the Credit Agreement.

Interest rate margins and commitment fees are determined on a quarterly basis based upon our calculated leverage ratio, as defined in the Credit Agreement.

The following table is a summary of our Consolidated Statements of Cash Flows (dollars in thousands):

For the Fiscal Years Ended

Cash Provided by (Used in):

Interest on the Revolving Credit Facility continues to accrue, at our election,

at either the variable one-month LIBOR (subject to a 1% floor) 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 with principal and interest payments made monthly.

Unused fees accrue based on the average daily amount of unused credit

available under the Credit Agreement.

Interest rate margins and unused fees are determined on a quarterly basis based upon our calculated

leverage ratio, as defined in the Credit Agreement.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”)

Act was enacted.

The CARES Act included a provision that allows the Company to defer the employer portion of social security payroll tax

payments that would have been paid between the enactment date and December 31, 2020, with 50% payable by December 31, 2021 and 50% payable

by December 31, 2022.

During fiscal year 2021, the Company deferred $2.0 million of employer social security payroll taxes, of which $1.0

million is recorded in accrued compensation and other liabilities and $1.0 million is recorded in other liabilities on the Consolidated

Balance Sheets.

The following table is a summary of our Consolidated

Statements of Cash Flows (dollars in thousands):

the Fiscal Years Ended

Cash Provided

by (Used in):

Operating Activities

2 unchanged sentences

Operating Activities:

Net cash provided by operating activities was $11.6 million during fiscal year 2020 compared to $12.6 million during fiscal year 2019 primarily due to changes in net working capital (defined as current assets less current liabilities).

The significant changes in net working capital were:

Cash decreased by $0.3 million during fiscal year 2020.

The decrease was primarily due to the timing of payments towards our long-term debt.

Accounts receivable increased by a net amount of $3.5 million during fiscal year 2020, including $0.8 million of accounts receivable acquired as part of the TTE acquisition completed within the period.

Accounts receivable increased by a net amount of $2.8 million during fiscal year 2019, including $0.6 million of accounts receivable acquired from the Angel’s acquisition completed within the period.

The year-over-year change reflects the increases in our revenues plus the timing of collections.

The following table illustrates our days sales outstanding as of March 28, 2020 and March 30, 2019:

For the Fiscal Years Ended

Net Sales, for the last two fiscal months

Accounts Receivable, net

Net cash provided by operating activities

was $23.6 million during fiscal year 2021 compared to $11.6 million during fiscal year 2020 primarily

due to changes in net working capital (defined as current assets less current liabilities).

The significant changes in net working capital

Cash increased by $0.1 million during fiscal year 2021.

The increase was primarily due to

the timing of payments towards our long-term debt.

Accounts receivable increased by a net amount of $3.0 million during fiscal year 2021,

inclusive of $0.4 million of accounts receivable acquired as part of the BioTek acquisition completed during the period.

Accounts receivable

increased by a net amount of $3.5 million during fiscal year 2020, including $0.8 million of accounts receivable acquired as part of the

pipettes.com acquisition completed within the period.

The year-over-year change reflects the timing of collections.

The following table

illustrates our days sales outstanding as of March 27, 2021 and March 28, 2020:

the Fiscal Years Ended

Net Sales, for

the last two fiscal months

Accounts Receivable,

Days Sales Outstanding

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 SKUs stocked in anticipation of customer demand, reducing backorders for products with long lead times and optimizing vendor purchase and sales 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 increased $0.1 million during fiscal year 2020, including $0.1 million of inventory acquired from the TTE acquisition completed within the period.

Our inventory balance increased $1.7 million during fiscal year 2019, including $0.2 million of inventory acquired as part of the assets acquired from the Angel’s acquisition completed within the period.

The year-over-year change represents the timing of strategic purchases in fiscal year 2020.

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 SKUs stocked

in anticipation of customer demand, reducing backorders for products with long lead times and optimizing vendor purchase and sales volume

As a result, inventory levels may vary from quarter-to-quarter based on the timing of these large orders in relation to our

Our inventory balance decreased $2.5 million during fiscal year 2021.

Our inventory balance decreased $0.1 million during

fiscal year 2020, including $0.1 million of inventory acquired from the pipettes.com acquisition completed within the period.

The year-over-year

change is a result of lower distribution sales as a result of lower demand due to COVID-19.

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 by $2.6 million during fiscal year 2020 and $1.0 million during fiscal year 2019, largely due to the timing of inventory purchases and other payments in the respective periods.

Accrued Compensation and Other Liabilities:

Accrued compensation and other liabilities include, among other things, amounts 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 the timing of payments to employees.

During fiscal year 2020, accrued compensation and other liabilities increased by $1.5 million, due primarily to the adoption of the new lease accounting standard.

During fiscal year 2019, accrued compensation and other liabilities increased by $0.2 million, including $1.1 million of contingent consideration and other accrued holdbacks included as p art of the Angel’s acquisition completed within the period.

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 increased by $0.3 million during fiscal year 2021.

Accounts payable decreased

by $2.6 million during fiscal year 2020.

The variance is largely due to the timing of inventory purchases and other payments in the respective

Accrued Compensation and Other Current Liabilities:

Accrued compensation and other current liabilities

include, among other things, amounts 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 the timing of payments to employees.

During fiscal year 2021, accrued compensation and

other liabilities increased by $3.5 million, due primarily to increased accrued incentives and payroll related expense and $1.0 million

of deferred employer portion of social security payroll tax payments as part of the CARES Act.

During fiscal year 2020, accrued compensation

and other liabilities increased by $1.5 million, due primarily to the adoption of the new lease accounting standard.

Income Taxes Payable:

In any given period, net working capital may be affected by the timing and amount of income tax payments.

During fiscal year 2020, income taxes payable decreased by $0.1 million while during fiscal year 2019, the income taxes payable balance was flat.

In any given period, net working capital may be affected by the timing and

amount of income tax payments.

During fiscal year 2021, income taxes payable increased by $0.3 million while during fiscal year 2020,

income taxes payable decreased by $0.1 million.

The year-over-year difference is due to timing of income tax payments.

Investing Activities:

During fiscal year 2020, we invested $6.6 million in capital expenditures that was used primarily for technology infrastructure to drive operational excellence, fund organic growth opportunities within both operating segments and to purchase new equipment to expand the number and type of assets available to rent.

During fiscal year 2019, we invested $7.0 million in capital expenditures, that was also largely used primarily for assets for our rental business and customer-driven expansion of Service segment capabilities.

The purchase of assets from GRS during fiscal year 2020 and NBS during fiscal year 2019 are included in our capital expenditures above.

During fiscal year 2021, we

invested $6.6 million in capital expenditures that was used primarily for customer-driven expansion of Service segment capabilities and

our rental business.

During fiscal year 2020, we invested $6.6 million in capital expenditures that was used primarily for

technology infrastructure to drive operational excellence,

fund organic growth opportunities within both operating segments and to purchase new equipment to expand the number and type of assets

available to rent.

The purchase of assets from GRS during fiscal year 2020 is included in our capital expenditures above.

During fiscal year 2021, we used $3.6 million for business

acquisitions.

During fiscal year 2020, we used $13.0 million for business acquisitions.

During fiscal year 2019, we used $3.6 million for a business acquisition.

During fiscal year 2020, we used $0.9 million for holdback payments related to a business acquisition.

During fiscal year 2019, we used $0.3 million for holdback payments related to a business acquisition.

During fiscal year 2021, no contingent consideration or other

holdback amounts were paid related to a business acquisition.

During fiscal year 2020, we used $0.9 million for holdback payments related

to a business acquisition.

Financing Activities :

During fiscal year 2020, we received $11.2 million from our Revolving Credit Facility and $1.7 million in cash was generated from the issuance of our common stock.

We used $1.9 million for scheduled repayments of our term loan and used $2.8 million for the “net” award of certain share awards to cover tax-withholding obligations for share award activity in the period which are shown as a repurchase of shares of our common stock.

During fiscal year 2019, we received $2.5

million from the issuance of our term loan and $0.3 million in cash was generated from the issuance of common stock.

$2.3 million to repay our Revolving Credit Facility, $2.1 million for scheduled repayments of our term loan and $0.1 million

for the “ net ”

award of certain share awards to cover tax-withholding obligations for share award activity in the period which are shown as

a repurchase of shares of our common stock.

Contractual Obligations and Commercial Commitments:

The table below contains aggregated information about future payments related to contractual obligations and commercial commitments such as debt and lease agreements as of March 28, 2020 (in millions):

Payments Due By Period

Revolving Line of Credit (1)

Operating Leases

Total Contractual Cash

Due to the uncertainty of forecasting expected variable rate interest payments, this amount excludes the interest portion of our debt obligation.

We believe our focus on highly-regulated and critical industries, especially within life sciences, will continue to provide a degree of resilience as we navigate this unprecedented environment.

We are proud to service ventilator and test kit manufacturers as well as pharmaceutical companies conducting research and development on a COVID-19 vaccine.

We have seen certain Service customers delaying some project decisions, but Service pipelines are robust and general discussions seem to be productive and which we believe indicates forward-moving momentum.

However, the Distribution segment sales will reflect economic conditions, despite the upside we expect to be provided by rentals and used equipment sales.

While the duration and ultimate severity of this pandemic is unknown, we have run various scenarios and at this date believe our first quarter ending June 27, 2020 of the fiscal year ending March 27, 2021 (“ fiscal year 2021 ”) will be the low point of fiscal year 2021 based on the evolving COVID-19 containment and economic recovery programs being implemented by federal and state authorities.

We expect to be in range of breaking even on a consolidated operating income basis for the first quarter of fiscal year 2021, which would result in positive Adjusted EBITDA results.

Under our analyses, we expect to generate cash even as we continue to invest in our long-term growth initiatives.

If the environment were to worsen, we are prepared to take additional actions.

In fact, as things improve, we believe our scale will work in our favor to capitalize on growth opportunities, both organic and acquisitions.

We expect to receive certain federal, state and Canadian tax credits in future years.

During fiscal year 2021, $1.2 million in cash was generated from the issuance of our common stock.

we repaid $8.8 million of our Revolving Credit Facility, we used $2.0 million for scheduled repayments of our term loan, and used $3.0

million for the “net” award of certain share awards to cover tax-withholding obligations for share award activity in the period

which are shown as a repurchase of shares of our common stock.

During fiscal year 2020, we received $11.2 million from our Revolving Credit

Facility and $1.7 million in cash was generated from the issuance of our common stock.

We used $1.9 million for scheduled repayments of

our term loan and used $2.8 million for the “net” award of certain share awards to cover tax-withholding obligations for share

award activity in the period which are shown as a repurchase of shares of our common stock.

Recent Events

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 our acquisition strategy of targeting businesses that expand the depth and breadth of the Company’s service

capabilities.

The total purchase price paid for the assets of Upstate Metrology was approximately $0.9 million.

We are proud of the performance and dedication of the entire Transcat team

in the fourth quarter and throughout fiscal 2021 as we navigated the most challenging operating environment in the history of our company.

We enter fiscal 2022 with a strong balance sheet, what we believe are sustainable Service segment gross margins and an active M&A

We are optimistic that our disciplined focus on highly-regulated end markets and our new customer pipeline positions us well

for continued strong organic growth.

For the first quarter of fiscal 2022, we expect Service organic growth

to be similar to what we achieved in the fourth quarter of fiscal 2021.

We expect improvement in Service gross margins, but not to the

same degree we experienced in fiscal 2021, largely due to more difficult technician productivity comparisons and the recent anniversary

of our acquisition of pipettes.com which occurred in February 2020.

Distribution is expected to achieve double-digit growth in the first

quarter on modestly improving trends and a prior-year comparison that includes low levels of demand due to the onset of the COVID-19 pandemic.

Total operating expenses are expected to be similar to the trailing fourth quarter of fiscal year 2021.

We expect to receive certain federal, state and Canadian tax credits in

future years.

We also expect to receive discrete tax benefits related to share-based compensation awards in fiscal year 2022.

As such, we expect our effective tax rate in fiscal year 2021 to be between 24.0% and 25.0%.

The Company anticipates total capital expenditures to be approximately $5.0 million to $5.5 million in fiscal year 2021, with the majority of the capital expenditures planned for technology infrastructure to drive operational excellence and organic growth opportunities within both operating segments, and for rental pool assets.

Maintenance and existing asset replacements in fiscal year 2021 are expected to be consistent with fiscal year 2020 at approximately $1.0 million to $1.5 million.

we expect our effective tax rate in fiscal year 2022 to be between 20.0% and 22.0%.

The Company anticipates 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 growth-oriented opportunities

within both of its operating segments, and for rental pool assets.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis