What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2024-05-28 compared with 2023-06-06 · 150 added, 166 removed, 244 unchanged (56% of the section changed)

MARKET FOR REGISTRANT ’

S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on the Nasdaq Global Market under the symbol “TRNS”.

As of June 1, 2023, we had approximately 500 shareholders of record.

Our credit agreement, as amended, limits our ability to pay cash dividends to $3.0 million in any fiscal year.

MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on the Nasdaq Global Market under the symbol “TRNS”.

As of May 22, 2024, we had approximat ely 500 sh areholders of record.

Our credit agreement limits our ability to pay cash dividends to certain amounts in any single fiscal year and over the term of the credit agreement.

See Note 3 to the Consolidated Financial Statements included in Item 8 of Part II of this report.

We have not declared any cash dividends since our inception and have no current plans to pay any dividends in the foreseeable future.

MANAGEMENT ’

S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

The following discussion and analysis of financial condition and results of operations should be read in conjunction with our financial statements and related notes appearing elsewhere in this annual report.

In addition to historical information, the following discussion and analysis includes forward looking statements that involve risks, uncertainties and assumptions.

Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in “Risk Factors”

and elsewhere in this annual report.

See the discussion under “Forward Looking Statements”

beginning on page 1 of this annual report

See the discussion under “Cautionary Note Regarding Forward Looking Statements” beginning on page 1 of this annual report.

Operational Overview.

We are a leading provider of accredited calibration services, enterprise asset management services, and value-added distributor of professional grade handheld test, measurement and control instrumentation.

We are a leading provider of accredited calibration services, cost control and optimization services, and distribution and rental of value-added 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.

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 2023 with its 56th consecutive quarter of year-over-year growth.

Our Service segment has shown consistent revenue growth over the past several years, ending fiscal year 2024 with its 60th consecutive quarter of year-over-year growth.

This segment has benefited from both organic growth as well as acquisitions over those 60 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 Service segment revenue growth was 18.8% for fiscal year 2023 from fiscal year 2022, and included a combination of organic growth and acquisition related revenue.

The Service segment gross margin increased by 30 basis points.

Service segment gross profit and gross margin increases were primarily due to improved productivity offset by increased start-up costs from new client-based lab implementations.

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

Our Service segment revenue growth was 17.0% for fiscal year 2024 from fiscal year 2023.

This increase was primarily due to recently completed acquisitions and strong organic demand in our highly-regulated end markets.

The Service segment gross margin increased by 160 basis poin ts.

Service segment gross profit and gross margin increases were primarily due to operating leverage on our fixed costs and increased technician productivity.

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

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In fiscal year 2024, Distribution segment sales increased by 5.0%.

This increase in sales primarily due to increased demand for rental orders.

The Distribution segment gross margin in fiscal year 2023 increased by 180 basis points.

The increase in segment gross margin was primarily due to a favorable mix of products sold and strong demand for our higher-margin rentals business.

This increase in sales primarily due to sales from the acquisition of Axiom.

The Distribution segment gross margin in fiscal year 2024 increased by 420 basis points.

The increase in segment gross margin was primarily due to increased margins from rental revenue, which now includes Axiom, and a favorable mix of higher margin 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.

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

Fiscal years 2023 and 2022 each consisted of 52 weeks.

A discussion regarding our financial condition and results of operations for the fiscal year ended March 26, 2022 and year-to-year comparisons between fiscal year 2022 and fiscal year 2021, which are not included in this Form 10-K, can be found under “Management’s Discussion and Analysis of Financial Condition and Results of Operations”

in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended March 26, 2022 and are incorporated by reference herein.

Fiscal year 2024 consisted of 53 weeks and fiscal year 2023 consisted of 52 weeks.

A discussion regarding our financial condition and results of operations for the fiscal year ended March 25, 2023 and year-to-year comparisons between fiscal year 2023 and fiscal year 2022, which are not included in this Form 10-K, can be found under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended March 25, 2023 and are incorporated by reference herein.

On September 25, 2023, we closed an underwritten public offering of our common stock for aggregate gross proceeds of $80.5 million (the “Offering”).

In the Offering, we sold an aggregate of 847,371 shares at $95.00 per share.

We received net proceeds of $75.2 million in the Offering, a portion of which was used during the third quarter of fiscal year 2024 to repay in full our revolving credit facility.

See “Liquidity and Capital Resources” below for more information.

Total revenue for fiscal year 2024 was $259.5 million.

This represented an increase of $28.9 million or 12.5% versus total revenue of $230.6 million for fiscal year 2023.

Total revenue increased due to increases in both Service revenue and Distribution sales increases.

This increase was primarily due to recently completed acquisitions, strong demand in our Service segment’s highly-regulated end markets and increased rental sales, which includes incremental revenue from an acquisition completed in fiscal year 2024.

Service revenue was $169.5 million in fiscal year 2024, an increase of $24.6 million or 17.0%.

Service revenue accounted for 65.3% of our total revenue during fiscal year 2024.

Of our Service revenue in fiscal year 2023, 86.2% was generated by our Calibration Service Centers and enterprise asset management services while 12.6% was generated through subcontracted third-party vendors, compared with 84.0% and 14.5%, respectively, in fiscal year 2022.

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

Distribution sales were $85.7 million in fiscal year 2023, an increase of $2.7 million or 3.3%. 

Of our Service revenue in fiscal y ear 2024 , 86.6% was generated by our Calibration Service Centers and cost control and optimization services while 12.3% was generated through subcontracted third-party vendors, compared with 86.2% and 12.6% , respectively, in fiscal year 2023 .

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

Distribution sales were $90.0 million in fiscal year 2024, an increase of $4.3 million or 5.0%.

Distribution sales accounted for 34.7% of our total revenue in fiscal year 2024.

Sales to domestic customers comprised 92.1% of total Distribution sales in fiscal year 2023, while 6.6% were to Canadian customers and 1.3% were to customers in other international markets.

Total gross profit was $68.4 million in fiscal year 2023 compared to $58.4 million in fiscal year 2022, an increase of $9.9 million or 17.0%.

Total gross margin was 29.6%, which is a 110 basis point increase versus fiscal year 2022.

Service gross margin was 32.2% in fiscal year 2023 compared with 31.9% in fiscal year 2022, a 30 basis point increase.

Distribution gross margin was 25.3% in fiscal year 2023 compared with 23.5% in fiscal year 2022, a 180 basis point increase.

This increase in service gross margin in fiscal year 2023 was primarily the result of improved productivity offset by increased start-up costs from new client-based lab implementations. 

The increase in Distribution segment gross margin was primarily due to a favorable mix of products sold and strong demand for our higher-margin rentals business.

Operating expenses were $52.1 million, or 22.6% of total revenue, in fiscal year 2023 compared with $44.3 million, or 21.6% of total revenue, in fiscal year 2022.

Operating income was $16.2 million, or 7.0% of total revenue, in fiscal year 2023 compared with $14.1 million, or 6.9% of total revenue, in fiscal year 2022.

The year-over-year increase in selling, marketing and warehouse expenses was due to increased expenses related to recent acquisitions, especially acquisition related amortization expense, and higher incentive-based employee costs due to higher sales.

The year-over-year increase in general and administrative expenses was due to by incremental expenses from acquired businesses (including stock expense), increased payroll costs for new employees and continued investments in technology.

Net income for fiscal year 2023 was $10.7 million compared with $11.4 million in fiscal year 2022, a $0.7 million decrease.

Diluted earnings per share for fiscal year 2023 was $1.40 compared with $1.50 for fiscal year 2022, a $0.10 per diluted share decrease.

Sales to domestic customers com prised 92.6% of total Distribution sales in fiscal year 2024 , while 5.9% were to Canadian customers and 1.5% were to customers in other international markets.

Total gross profit was $83.8 million in fiscal year 2024 compared to $68.4 million in fiscal year 2023, an increase of $15.5 million or 22.6%.

Total gross margin was 32.3%, whic h is a 270 basis point inc rease versus fiscal year 2023.

Service gross margin was 33.8% in fiscal year 2024 compared with 32.2% in fiscal year 2023, a 160 basis point in crease.

Distribution gross margin was 29.5% in fiscal year 2024 compared with 25.3% in fiscal year 2023, a 420 basis poin t increase.

This increase in service gross margin in fiscal year 2024 was primarily largely the result of operating leverage on our fixed costs and increased technician productivity.

The increase in the distribution segment gross margin was primarily due to increased margins from rental revenue, which now includes Axiom, and a favorable mix of higher margin products sold.

Operating expenses were $64.0 million, or 24.7% of total revenue, in fiscal year 2024 compared with $52.1 million, or 22.6% of total revenue, in fiscal year 2023.

Operating income was $19.8 million, or 7.6% of total revenue, in fiscal year 2024 compared with $16.2 million, or 7.0% of total revenue, in fiscal year 2023.

The year-over-year increase in sell ing, marketing and warehouse expens es was due to increased expenses related to recent acquisitions, especially acquisition related amortization expense, and higher incentive-based employee costs due to higher sales.

The year-over-year increase in general and administrative expense s was due to incremental expe nses from acquired businesses (including stock expense), increased payroll costs for new employees and continued investments in technology.

Net income for fiscal year 2024 was $13.6 million compared with $10.7 million in fiscal year 2023, a $3.0 million increase.

Diluted earnings per share for fiscal year 2024 was $1.63 compared with $1.40 for fiscal year 2023, a $0.23 per diluted share increase.

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, liabilities assumed and consideration transferred in business acquisitions.

Significant estimates and assumptions are used for, but not limited to, allowance for credit losses 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, fair value of the goodwill reporting units, and the valuation of assets acquired, liabilities assumed and consideration transferred in business acquisitions.

Future events and their effects cannot be predicted with certainty;

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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.

These amounts are recorde d net of the allowance for credit losses and returns in the Consolidated Balance Sheets.

The allowance for credit losses 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.

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

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

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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. 

The fair value of contingent consideration is determined at each reporting period with changes reflected in the statement of operations. 

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

The fair value of contingent consideration is determined at each reporting period with changes reflected in the statement of operations.

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.

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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 25, 2023, we had $69.4 million of recorded goodwill.

As of March 30, 2024, we had $105.6 mill ion 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 test goodwill for impairment for each reporting unit on an annual basis during the fourth quarter of each fiscal year or immediately if conditions indicate that such impairment could exist. 

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

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

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

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

This assessment considers various financial, macroeconomic, industry and segment specific qualitative factors.  Based on the results of our qualitative impairment testing, we have determined that it was more likely than not that the fair values exceeded the carrying values of goodwill for each reporting unit and there were no impairments as of each of March 25, 2023 and March 26, 2022.

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. 

In the event a trigger is identified, the carrying value of the asset group is compared to the undiscounted cash flows from that asset group.  

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

Based on the results of our qualitative impairment testing, we have determined that it was more likely than not that the fair values exceeded the carrying values of goodwill for each reporting unit and there were no impairments as of each of March 30, 2024 and March 25, 2023.

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.

In the event a trigger is identified, the carrying value of the asset group is compared to the undiscounted cash flows from that asset group.

There were no intangible asset impairment indicators identified during the years ended March 30, 2024 or March 25, 2023 .

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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.

These differences relate primarily to accrued expenses, reserves for credit losses, 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.

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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 for awards expected to vest.

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.

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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.

For a discussion of the newly issued accounting pronouncements see “Recently Adopted Accounting Pronouncements” and "Recent Accounting Guidance Not Yet Adopted" under Note 1 to the Consolidated Financial Statements included in Item 8 of Part II of this report.

RESULTS OF OPERATIONS

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Fiscal Year Ended

Total revenue was $230.6 million in fiscal year 2023 compared to $205.0 million in fiscal year 2022, an increase of $25.6 million or 12.5%.

Service revenue, which accounted for 62.8% and 59.5% of our total revenue in fiscal years 2023 and 2022, respectively, increased $22.9 million, or 18.8% from fiscal year 2022 to fiscal year 2023.

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

This year-over-year increase also reflected increased demand from the life sciences and other highly-regulated end markets in fiscal year 2023 and included $10.6 million of incremental revenue from acquisitions.

Excluding acquired revenue of $10.6 million, the Service segment organic revenue increased by 10.0%.

Total revenue was $259.5 million in fiscal year 2024 compared to $230.6 million in fiscal year 2023, an increase of $28.9 million or 12.5%.

When normalizing for the extra days from fiscal year 2024’s 53 weeks, the Company estimates that its full year revenue growth was approximately 10.4%.

Service revenue, which accounted for 65.3% and 62.8% of our total revenue in fiscal years 2024 and 2023, respective ly, increased $24.6 million, or 17.0% from fiscal year 2023 to fiscal year 2024 .

This year-over-year increase included $5.9 million of incremental revenue from the acquisitions of TIC-MS, SteriQual and Axiom, and also included organic revenue growth of 11.3% driven by strong end-market demand and continued market share gains.

Our fiscal years 2024 and 2023 Service revenue growth in relation to prior fiscal year quarter comparisons, was as follows:

Service Revenue Growth

The growth in fiscal year 2024 and fiscal year 2023 reflected both organic growth and acquisitions.

The growth in Service segment revenue in fiscal year 2024 includes revenue from TIC-MS and SteriQual.

The growth in Service segment revenue in fiscal year 2023 includes revenue from Alliance, e2b and Complete Calibration.

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.

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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 2023 and fiscal year 2022 reflected both organic growth and acquisitions.

The growth in Service segment revenue in fiscal year 2023 includes revenue from Alliance, e2b and Complete Calibration.

The growth in Service segment revenue in fiscal year 2022 includes revenue from NEXA and Tangent.

The following table presents the trailing twelve-month Service segment revenue for each quarter in fiscal years 2024 and 2023 as well as the trailing twelve-month revenue growth as a comparison to that of the prior fiscal year period:

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Our Distribution sales accounted for 34.7% and 37.2% of our total revenue in fiscal years 2024 and 2023, respectively.

Distribution sales increased $2.7 million, or 3.3% in fiscal year 2023 compared to fiscal year 2022.

This increase in sales was primarily due to strong demand for rental orders. 

The increase in sales in fiscal year 2023 were all organic.

The change in fiscal year 2022 versus fiscal year 2021 reflected both organic and an easier comparison to fiscal year 2021, which was adversely impacted by the COVID-19 pandemic.

Our fiscal years 2023 and 2022 Distribution sales growth in relation to prior fiscal year quarter comparisons were as follows:

Distribution sales increased $4.3 million, or 5.0% in fiscal year 2024 compared to fiscal year 2023.

This year-over-year increase is primarily due to $7.0 million of incremental revenue from the acquisition of Axiom offset by slower demand for our non-ren tal products.

The change in fiscal year 2023 versus fiscal year 2022 was due to increased demand for rental products and was all organic.

Our fiscal years 2024 and 2023 Distribution sales growth in relation to prior fiscal year quarter comparisons were as fo llows:

Distribution Sales Growth

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Management uses pending product shipments and backorders as measures of our future business performance and financial performance within the Distribution segment.

Our total pending product shipments increased $0.4 million, or 4.6%, at the end of fiscal year 2023 compared to the end of fiscal year 2022.

Backorders at the end of fiscal year 2023 were $6.9 million, compared to $6.4 million at the end of fiscal year 2022.

The year-over-year increase in pending product shipments was a result of the disruption to the supply of products as well as increased orders.

The following table presents the percentage of total pending product shipments that were backorders at the end of each quarter in fiscal years 2023 and 2022 and our historical trend of total pending product shipments:

Our total pending product shipments decreased $3.0 million, or 37.3%, at th e end of fiscal year 2024 compared to the end of fiscal year 2023.

Backorders at the end of fiscal year 2024 wer e $4.5 million, c ompared to $6.9 million at the end of fiscal year 2023.

The year-over-year decrease in pending product shipments and backorders was a result of improved fulfillment of existing orders.

The following table presents the percentage of total pending product shipments that were backorders at the end of each quarter in fiscal years 2024 and 2023 and our historical trend of total pending product shipments:

Total Pending Product Shipments

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Gross Profit:

Total gross profit in fiscal year 2023 was $68.4 million compared to $58.4 million in fiscal year 2022, an increase of $9.9 million or 17.0%.

As a percentage of total revenue, total gross margin was 29.6% in fiscal year 2023 compared to 28.5% in fiscal year 2022, a 110 basis point increase.

Service gross profit was $46.6 million, an increase of $7.7 million, or 19.8%, from fiscal year 2022 to fiscal year 2023.

Total gross profit in fiscal year 2024 was $83.8 million compared to $68.4 million in fiscal year 2023, an increase of $15.5 million or 22.6%.

As a percentage of total revenue, total gross margin was 32.3% in fiscal year 2024 compared to 29.6% in fiscal y ear 2023 , a 270 basis point increase.

Service gross profit was $57.3 million, an increase of $10.6 million, or 22.8%, from fiscal year 2023 to fiscal year 2024.

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

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

Service gross margin increased by 30 basis points in fiscal year 2023 versus fiscal year 2022.

This increase in service gross margin in fiscal year 2023 was the result of improved productivity offset by increased start-up costs from new client-based lab implementations.

Service gross margin increas ed by 160 basis poin ts in fiscal year 2024 versus fiscal year 2023.

This increase in service gross margin in fiscal year 2024 was the result of increased revenue which allows us to leverage our fixed costs and improved technician productivity.

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

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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 2023, we saw a decrease in the rebates offered by our vendors.

We recorded vendor rebates of $0.6 million and $1.0 million in fiscal years 2023 and 2022, respectively, as a reduction of cost of Distribution sales.

We recorded vendor rebates of $0.6 m illion in both fiscal years 2024 and 2023, 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.

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Distribution Gross Margin

Distribution segment gross margin increased 180 basis points in fiscal year 2023 compared to fiscal year 2022.

The increase in segment gross margin was primarily due to a favorable mix of products sold, strong demand for our higher-margin products sold and rented.

Distribution segment gross margin incre ased 420 basis poi nts in fiscal year 2024 compared to fiscal year 2023.

The increase in the Distribution segment gross margin was primarily due to increased margins from rental revenue, which now includes Axiom and a favorable mix of higher margin products sold.

Operating Expenses:

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This represented an increase of $11.9 million, or 22.9% , compared to fiscal year 2023 .

As a percentage of total revenue, operating expenses increased 100 basis points from 21.6% in fiscal year 2022 to 22.6% in fiscal year 2023.

The year-over-year increase in selling, marketing and warehouse expenses is due to increased expenses related to recent acquisitions, especially acquisition related amortization expense, and higher incentive-based employee costs due to higher sales.

As a percentage of total revenue, operating expenses increased 210 bas is points from 22.6% in fiscal year 2023 to 24.7% in fiscal year 2024.

The year-over-year increase i n selling, marketing and warehouse expenses is due to increased expenses related to recent acquisitions, especially acquisition related amortization expense, and higher incentive-based employee costs due to higher sales.

The increase in general and administrative expenses includes incremental expenses related to acquired companies, increased payroll costs for new employees and continued investments in technology.

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Provision for Income Taxes

Our effective tax rate for fiscal years 2023 and 2022 was 20.8% and 13.7%, respectively.

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

Our effective tax rate for fiscal years 2024 and 2023 was 26.0% and 20.8% , respectiv ely.

The increase in effective tax rate is due to tax expense recognized in fiscal year 2024 associated with executive compensation limitations that resulted from share-based awards.

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 2023 and 2022 were $0.4 million and $1.4 million, respectively.

The discrete benefits related to share-based compensation activity in fiscal years 2024 and 2023 w ere $0.6 mi llion and $0.4 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, Canadian and Irish tax credits in future years.

We expect to receive certain federal, st ate, Canadian and Irish tax credits in future years.

We also expect to receive discrete tax benefits related to share-based compensation awards in fiscal year 2025.

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Fiscal Year Ended

Net income for fiscal year 2023 decreased by $0.7 million or 6.1% compared to fiscal year 2022.

As a percentage of revenue, net income was 4.6% in fiscal year 2023, down from 5.6% in fiscal year 2022.

This year-over-year change reflects higher operating income discussed offset by higher interest expense and a higher provision for income taxes.

Net income for fiscal year 2024 increased by $3.0 million or 27.7% compared to fiscal year 2023.

As a percentage of revenue, net income was 5.3% in fiscal year 2024, up f rom 4.6% in fiscal year 2023.

This year-over-year change reflects higher operating income discussed, lower interest expense, offset by a higher provision for income taxes.

Non-GAAP Financial Measures

Adjusted EBITDA:

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Fiscal Year Ended

+ Interest Expense

+ Interest Expense, net

+ Other Expense

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During fiscal year 2024, Adjusted EBITDA was $38.6 million, an increase of $8.2 million or 26.9% compared to fiscal year 2023.

As a percentage of revenue, Adjusted EBITDA was 13.2% during fiscal year 2023 versus 12.8% during fiscal year 2022, a 40 basis point increase.

The increase in Adjusted EBITDA during fiscal year 2023 was primarily driven by the increase in operating income, depreciation and amortization expense and non-cash stock compensation expense.

As a percentage of revenue, Adjusted EBITDA was 14.9% during fiscal year 2024 versus 13.2% during fisca l year 2023 , a 170 bas is point increase.

The increase in Adjusted EBITDA during fiscal year 2024 was primarily driven by the increase in operating income, depreciation and amortization expense, transaction expense and non-cash stock compensation expense.

Adjusted Diluted Earnings Per Share:

In addition to reporting Diluted Earnings Per Share, a GAAP measure, we present Adjusted Diluted Earnings Per Share (net income plus acquisition related amortization expense, acquisition related transaction expenses, acquisition related stock-based compensation, acquisition amortization of backlog and restructuring expense, on a diluted per share basis), which is a non-GAAP measure.

divided by the average diluted shares outstanding during the period), which is a non-GAAP measure.

Our management believes Adjusted Diluted Earnings Per Share is an important measure of our operating performance because it provides a basis for comparison of our business operations between current, past and future periods by excluding items that we do not believe are indicative of our core operating performance.

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+ Income Tax Effect @ 25%

+ Acquisition Earn-out Adjustment

Adjusted Net Income

Average Diluted Shares Outstanding

Diluted Earnings Per Share –

Diluted Earnings Per Share – GAAP

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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).

On July 7, 2021, we entered into the Second Amended and Restated Credit Facility Agreement (the “2021 Credit Agreement”) with Manufacturers and Traders Trust Company (“M&T”), that amended and restated in its entirety the Company’s Amended and Restated Credit Facility Agreement dated as of October 30, 2017, as amended by Amended and Restated Credit Facility Agreement Amendment 1 dated December 10, 2018 and Amended and Restated Credit Facility Agreement Amendment 2 (“Amendment Two”) dated May 18, 2020 (as amended, the “Prior Credit Agreement”).

The 2021 Credit Agreement increased the revolving credit commitment (the “Revolving Credit Commitment”) from $40.0 million to $80.0 million, with a letter of credit subfacility increased from $2.0 million to $10.0 million, and extended the term of the Revolving Credit Commitment to June 2026.

The 2021 Credit Agreement amended the definition of Applicable Margin (formerly Applicable Rate under the Prior Credit Agreement), which is based upon our then current leverage ratio and is used to determine interest charges on outstanding and unused borrowings under the revolving credit facility;

the amendments reduced the Applicable Margins payable at the two highest leverage ratio levels.

The 2021 Credit Agreement also amended the definition of Permitted Acquisitions, that is, acquisitions which are permitted under, and may be financed with proceeds of, the revolving credit facility, including increasing the aggregate purchase price for acquisitions consummated in any fiscal year from $1.0 million to $65.0 million during fiscal year 2022 and $50.0 million during fiscal year 2023 and any subsequent fiscal year, and adding an aggregate purchase price of $40.0 million for acquisitions consummated at any time during the term of the 2021 Credit Agreement related to businesses with a principal place of business located in the United Kingdom or the European Union.

In addition, the 2021 Credit Agreement provides that, assuming no event of default, restricted payments up to $25.0 million (increased from $10.0 million in the Prior Credit Agreement) in the aggregate and $10.0 million (increased from $3.0 million in the Prior Credit Agreement) in any single fiscal year may be used by us to repurchase our shares and pay dividends.

The 2021 Credit Agreement modified the leverage ratio and fixed charge coverage ratio covenants with which we are required to comply.

The 2021 Credit Agreement also reduced the London Interbank Offered Rate ("LIBOR") floor from 1.0% to 0.25% and included a mechanism for adoption of a different benchmark rate upon the discontinuation of LIBOR.

The 2021 Credit Agreement also reduced the fixed interest rate on our term loan in the amount of $15.0 million (the “2018 Term Loan”) from 4.15% to 3.90%.

The 2021 Credit Agreement superseded in its entirety, the Prior Credit Agreement.

Amendment Two to the Prior Credit Agreement had previously extended the term of the revolving credit facility to October 20, 2022 and increased the revolving credit commitment to $40.0 million.

Amendment Two had modified the definition of the applicable rate used to determine interest charges on outstanding and unused borrowings under the revolving credit facility and it amended the definition of permitted acquisitions to amend borrowings available under the revolving credit facility for acquisitions.

In addition, Amendment Two had amended the definition of restricted payments to exclude amounts up to $2.5 million during each fiscal year used to pay certain employee tax obligations associated with share-based payment and stock option activity, and modified certain restrictions to our ability to repurchase our shares and pay dividends.

Amendment Two also had modified the leverage ratio and fixed charge coverage ratio covenants with which we were required to comply and limited capital expenditures to $5.5 million for fiscal year 2021.

Amendment Two also had established a LIBOR floor of 1.0% and included a mechanism for adoption of a different benchmark rate in the event LIBOR was discontinued.

As of March 25, 2023, $80.0 million was available under the revolving credit facility, of which $42.7 million was outstanding and included in long-term debt on the Consolidated Balance Sheets.

During fiscal year 2023 and 2022 we used $9.1 million and $29.8 million, respectively, for business acquisitions.

As of March 25, 2023, $6.4 million was outstanding on the 2018 Term Loan, of which $2.2 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.

Pursuant to the Prior Credit Agreement, we were required to comply with a fixed charge ratio covenant and a leverage ratio covenant, which were modified by the 2021 Credit Agreement.

The allowable leverage ratio under the Prior Credit Agreement for the first quarter of fiscal year 2022 was a maximum multiple of 4.0 of total debt outstanding compared to EBITDA and non-cash stock-based compensation expense for the preceding four consecutive fiscal quarters.

The Prior Credit Agreement also had provided that the trailing twelve-month pro forma EBITDA of an acquired business was included in the allowable leverage calculation.

After the first quarter of fiscal year 2022, pursuant to the 2021 Credit Agreement, the allowable leverage ratio is a maximum multiple of 3.0.

We were in compliance with all loan covenants and requirements during fiscal years 2023 and 2022.

Our leverage ratio, as defined in the 2021 Credit Agreement, was 1.60 at March 25, 2023, compared with 1.74 at March 26, 2022.

Interest on the revolving credit facility continues to accrue, at our election, at either the variable one-month LIBOR or a fixed rate for a designated period at the LIBOR corresponding to such period (subject to a 1.0% floor during the first quarter of fiscal year 2022 and a 0.25% floor for subsequent periods), in each case, plus a margin.

Interest on outstanding borrowings under the 2018 Term Loan accrued at a fixed rate of 4.15% during the first quarter of fiscal year 2022 and accrued or will accrue at a fixed rate of 3.90% over the term of the loan for subsequent periods.

We expect that foreseeable liquidity and capital resource requirements will be met through cash and cash equivalents, anticipated cash flows from operations and borrowings from our revolving credit facility.

We believe that these sources of financing will be adequate to meet our future requirements including anticipated operating expenses, capital expenditures, interest payments on our long-term debt, and planned business acquisitions.

To the extent that the Company does not satisfy its liquidity requirements through cash and cash equivalents, anticipated cash flows from operations and borrowings from our revolving credit facility, it intends to satisfy such requirements through proceeds from the issuance of common stock.

Under our Second Amended and Restated Credit Facility Agreement (the “Credit Agreement”) with Manufacturers and Traders Trust Company (“M&T”), we have access to a revolving credit commitment (the “revolving credit facility”) of $80.0 million through June 2026, with a letter of credit subfacility of $10.0 million.

Our 2018 term loan, with an original principal amount of $15.0 million (the “2018 Term Loan”), is also provided for under the Credit Agreement.

The Credit Agreement allows us to use up to $50.0 million under the revolving credit facility for acquisitions in any single fiscal year.

The Credit Agreement restricts our ability to complete acquisitions of businesses with a principal place of business located in the United Kingdom or the European Union to an aggregate purchase price of $40.0 million during the term of the Credit Agreement, if the acquisition is financed directly or indirectly with the revolving credit facility.

Under the Credit Agreement, we may make restricted payments up to $25.0 million in the aggregate over the term of the Credit Agreement and $10.0 million in any single fiscal year to repurchase shares and pay dividends.

Effective July 1, 2023, interest on outstanding borrowings under the revolving credit facility accrue, at our election, at either the variable Daily Simple SOFR or a fixed rate for a designated period at the SOFR corresponding to such period (subject to a 0.25% floor), in each case, plus a margin.

Unused fees accrue based on the average daily amount of unused credit available on the revolving credit facility.

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

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

Our interest rate for the revolving credit facility for fiscal year 2024 ranged from 6.4% to 7.1%.

Interest on outstanding borrowings under the 2018 Term Loan accrue at a fixed rate of 3.90% over the term of the loan.

The Credit Agreement has certain covenants with which we must comply, including a fixed charge ratio covenant, which prohibits our fixed charge coverage ratio from being less than 1.15 to 1.00, and a leverage ratio covenant, which prohibits our leverage ratio from exceeding 3.00 to 1.00.

Our leverage ratio, as defined in the Credit Agreement, was 0.10 at March 30, 2024, compared with 1.60 at March 25, 2023.

We were in compliance with all loan covenants and requirements during fiscal years 2024 and 2023.

As of March 30, 2024 , $80.0 million was available for borrowing under the revolving credit facility.

As of March 30, 2024, there were no amounts outstanding under the revolving credit facility.

After the closing of the Offering, we used approximately $50.0 million of the net proceeds to repay in full the amounts outstanding under the revolving credit facility.

During fiscal year 2024 and 2023 we used $12.9 million and $9.1 million, respectively, from the revolving credit facility for business acquisitions.

As of March 30, 2024,$4.2 million was outstanding on the 2018 Term Loan, of which $2.3 m illion 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.

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.

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Net cash provided by operating activities was $32.6 million during fiscal year 2024 compared to $17.0 million during fiscal year 2023 .

The year-over-year decrease in cash provided by operations is primarily the result of changes in net working capital (defined as current assets less current liabilities).

The year-over-year increase in cash provided by operations is primarily the result of changes in net working capital (defined as current assets less current liabilities).

The significant working capital fluctuations were as follows:

Accounts receivable increased by a net amount of $5.0 million during fiscal year 2023, inclusive of $0.8 million of accounts receivable acquired as part of four acquisitions completed during the period.

Accounts receivable increased by a net amount of $5.7 million during fiscal year 2022, inclusive of $2.8 million of accounts receivable acquired as part of three acquisitions completed during the period.

Accounts receivable increased by a net amount of $3.1 million during fiscal year 2024 , inclusive of $2.1 million of accounts receivable acquired as part of three acquisitions completed during the year.

Accounts receivable increased by a net amount of $5.0 million during fiscal year 2023 , inclusive of $0.8 million of acco unts receivable acquired as part of acquisitions completed during the period.

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

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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 $4.2 million during fiscal year 2023.

Our inventory balance increas ed $0.5 million du ring fiscal year 2024, inclusive of $1.8 million of inventory acquired during the year.

Our inventory balance increased $4.2 million during fiscal year 2023.

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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 $1.7 million during fiscal year 2023, inclusive of $0.1 million of accounts payable acquired during the period. 

Accounts payable increased by $1.9 million during fiscal year 2022.

Acc ounts payable decreased $4.4 million during fiscal year 2024 , inclusive of $0.6 million of accounts payable acquired during the year.

Accounts payable increased by $1.7 million during fiscal year 2023 , inclusive of $0.1 million of accounts payable acquired during the year.

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

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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 2023, accrued compensation and other liabilities decreased by $1.2 million, primarily due to reduced accrued incentives.

During fiscal year 2022, accrued compensation and other liabilities increased by $1.0 million, inclusive of $0.5 million of accrued compensation and other liabilities acquired as part of three acquisitions completed during the period.

During fiscal year 2024, accrued compensation and other liabilities increased by $6.5 million, inclusive of $3.1 million from assumed liabilities, contingent consideration and purchase price holdbacks from acquisition transactions.

During fiscal year 2023 , accrued compensation and other liabilities decreased by $1.2 million.

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 2023, income taxes payable was consistent with the prior year.

During fiscal year 2022, income taxes payable decreased by $0.4 million.

During fiscal year 2024, income taxes payable increased $2.9 million.

During fiscal year 2023, income taxes payable decreas ed by $0.4 milli on.

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

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During fiscal year 2024 , we invested $13.3 million in capital expenditures that was used primarily for customer-driven expansion of Service segment capabilities and capacity and our rental business.

During fiscal year 2022, we invested $10.2 million in capital expenditures that was used primarily for customer-driven expansion of Service segment capabilities and our rental business.

During fiscal year 2023 , we invested $9.4 million in capital expenditures that was used primarily for customer-driven expansion of Service segment capabilities and our rental business.

During fiscal year 2024 , we used $12.9 million for business acquisitions.

During fiscal year 2022, we used $29.8 million for business acquisitions.

During each of fiscal year 2023 and fiscal year 2022, no contingent consideration or other holdback amounts were paid related to a business acquisition.

During fiscal year 2023 , we used $9.1 million for business acquisitions.

During each of fiscal year 2024 and fiscal year 2023, no contingent consideration was paid related to a business acquisition.

During fiscal year 2024, $0.8 million of holdback amounts were paid.

During fiscal year 2023, no holdback amounts were paid.

During fiscal year 2024, we purchased $15.5 million of marketable securities with the proceeds from our stock offering.

Financing Activities :

During fiscal year 2023, $2.8 million was borrowed from our revolving line of credit and $0.7 million in cash was generated from the issuance of common stock.

In addition, we used $2.1 million for scheduled repayments of our term loan and $0.4 million for the “net”

awarding of certain share awards to cover employee tax-withholding obligations for share award and stock option activity in fiscal year 2023, which is shown as a repurchase of shares of our common stock on our Consolidated Statements of Cash Flows.

During fiscal year 2024, $77.2 million in cash was generated from the issuance of common stock, net of direct costs, inclusive of $75.2 million from the Offering.

In addition, we used $42.7 million to repay our revolving credit facility, $2.2 million for scheduled repayments of our term loan and $4.9 million for the “net” awarding of certain share awards to cover employee tax-withholding obligations for share award and stock option activity in fiscal year 2024, which is shown as a repurchase of shares of our common stock on our Consolidated Statements of Cash Flows.

During fiscal year 2023, $2.8 million was borrowed from the revolving line of credit and $0.7 million in cash was generated from the issuance of our common stock.

In addition, we used $2.1 million for scheduled repayments of our term loan and $6.7 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 on our Consolidated Statements of Cash Flows.

In addition, we used $2.1 million for scheduled repayments of our term loan and $0.4 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 on our Consolidated Statements of Cash Flows.

Recent Events

Effective March 27, 2023, we purchased all of the outstanding capital stock of TIC-MS, Inc.

(“TIC-MS”), a Missouri 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 our Service capabilities.

The total purchase price paid for TIC-MS was approximately $9.8 million, of which $2.9 million was paid in cash, including $0.5 million place in escrow for certain post-closing adjustments and indemnification claims, if any, and the issuance of 77,387 shares of our common stock valued at approximately $6.8 million.

Pursuant to the purchase agreement, the purchase price will be subject to reduction by up to $0.5 million if a key customer relationship is not retained.

As we think ahead into fiscal year 2024, despite macroeconomic uncertainty that looms over the business world, we expect another year of growth and margin expansion across our Service channels.

Our business continues to benefit from a predominately life science-oriented market, driven by high levels of regulation and recurring revenue streams, along with a growing rentals business that tends to perform well throughout various economic cycles including more challenged economic environments.

In the year ahead, we expect organic Service revenue growth in the high single-digits and gross margin improvement to continue.

We are investing in our high-growth NEXA business as well as new client-based labs, which will support additional organic revenue growth and margin expansion in the second half of the year but will temporarily weigh on year-over-year gross margin expansion in the first quarter of fiscal year 2024.

Accretive acquisitions that strengthen our fundamental value proposition will be a key component of our go-forward strategy.

Our robust and diverse acquisition pipeline enables opportunities for us to expand addressable markets and increase our capabilities like we did with NEXA and the pipettes business.

We have generated consistent margin improvement over the past several years and we believe the improvement will continue.

Automation of our calibration processes and overall process improvement will be key enablers to future margin expansion.

We anticipate demonstrating more selling, general and administrative expense leverage in the second half of fiscal year 2024.

We believe the Service segment has substantial runway ahead for growth, both organically and through acquisitions.

We have a long history of generating sustainable value for our shareholders and providing a dynamic, rewarding workplace for our team.

We expect our income tax rate to range between 21.0% and 23.0% in fiscal year 2024.

This estimate includes Federal, various state, Canadian and Irish income taxes and reflects the discrete tax accounting associated with share-based payment awards. 

Although the tax rate is consistent with recent years, there will be a difference in calendarization of the tax benefit from vesting of share-based payments in fiscal year 2024.  

These benefits are normally realized in the first quarter, but in fiscal year 2024, we will see the benefit in the second quarter, due to a timing difference of when the awards were made. 

In the first quarter of fiscal year 2023, this benefit positively impacted the tax rate by approximately 13% and we would expect a similar impact in second quarter of fiscal year 2024.

Effective April 15, 2024, the Company acquired Becnel Rental Tools LLC (“Becnel”).

This transaction aligned with a key component of our acquisition strategy of targeting businesses that expand the depth and breadth of our rental capabilities.

The total purchase price of $50.8 million was paid in combination of $33.3 million in Company common stock and $17.5 million in cash, and is subject to certain customary holdback provisions, post-closing adjustments, and indemnification claims, if any.

See Note 11 to our Consolidated Financial Statements in this report for further details.

The Transcat team continues to deliver strong revenue growth and sustainable gross margin expansion as can be seen over the past decade and a half of profitable growth.

As we think ahead into fiscal 2025, our business will continue to benefit from recurring revenue streams in highly regulated end markets, including life sciences, along with a growing Rentals business that performs well throughout various economic cycles.

We expect another year of organic Service revenue growth in the high-single digit to low double-digit range when normalized for the extra week in fiscal 2024 and gross margin expansion.

Automation of our calibration processes and overall process improvement will continue to be key enablers of future margin expansion.

Transcat expects its income tax rate to range between 24.0% and 26.0% in fiscal 2025.

This estimate includes Federal, various state, Canadian and Irish income taxes and reflects the discrete tax accounting associated with share-based payment awards.

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 5. Market for Registrant’s Common Equity