Transcat Reports 10.3% Revenue Growth in First Quarter of Fiscal 2009

Transcat, Inc. (Nasdaq: TRNS), a leading global distributor of professional grade test and measurement instruments and accredited provider of calibration, 3-D metrology and repair services, today reported revenue of $17.9 million in the first quarter of fiscal 2009, which ended June 28, 2008, a 10.3% increase compared with revenue of $16.2 million in the first quarter of fiscal 2008. Net sales of the Company’s Distribution Products (Product segment), which represented 69.0% of net revenue in the quarter, increased 12.7% to $12.3 million in the first quarter of fiscal 2009 compared with $10.9 million in the same period of the prior fiscal year. The sales expansion reflected solid growth in all of its market channels, except Canada, and was led by strong demand for electrical instrumentation. Calibration Services (Service segment) revenue was $5.5 million in the first quarter of fiscal 2009, a 5.3% increase compared with revenue of $5.3 million in the first quarter of fiscal 2008. Charles P. Hadeed, President, CEO and COO of Transcat, commented, "New product introductions from our strategic vendor partners and strong growth in international product sales drove our double digit sales expansion this quarter. We continue to diversify our customer base, expand our product offerings and focus on key calibration accounts in order to gain market share. We believe consistent delivery of premium quality electronic test and measurement instruments and the precise, reliable and fast calibration service that we provide give us a strong competitive advantage.” Net income for the quarter was relatively flat compared with the prior year’s first quarter at $0.2 million, or $0.03 per diluted share. Net income was positively impacted by a reduction in interest expense and foreign currency losses. First Quarter Fiscal 2009 Review Gross profit was $4.5 million in the first quarter of fiscal 2009, up 7.0% compared with gross profit of $4.2 million in the first quarter of fiscal 2008, or 25.3% and 26.1% of total revenue, respectively. The lower gross profit margin reflects changes in the mix of market channels for Product segment sales, as well as a result of higher Service segment operating costs that were not fully offset by growth in revenue. Operating income for the quarter was $0.4 million, or 2.2% of net revenue, compared with $0.4 million, or 2.8% of net revenue, in the first quarter of fiscal 2008. Strong operating profit growth resulting from the increase in product sales helped to offset the increase in costs associated with strategic investments in sales and marketing for the Service segment. Selling, marketing and warehouse expense increased 12.6%, or $0.3 million, over the fiscal 2008 first quarter primarily due to additional investment in sales management and earned incentives. The effective tax rate in the first quarter of fiscal 2009 was 40.2%. For the fiscal year, the effective tax rate is expected to be in the 38% to 40% range. Product and Service Segment Review Transcat is uniquely positioned to serve the life science, manufacturing, utility and process industries by its ability to bundle a wide variety of premium test and measurement instruments with quality calibration, 3-D metrology and repair services for its customers. Transcat’s calibration capabilities and product delivery systems enable it to rapidly respond to its customers’ requirements for quick turn-around times for instrument purchases and calibration, 3-D metrology and repair services. Product Segment Through its Product segment, Transcat markets and distributes national and proprietary brand instruments to over 12,500 global customers. The Company’s Master Catalog offers access to more than 25,000 test and measurement instruments. The Product segment primarily uses direct catalog marketing and the Company’s website, which has online ordering capabilities, to market to end-users, as well as to resellers. Product segment net sales increased 12.7% to $12.3 million in the first quarter of fiscal 2009 compared with $10.9 million in the same period of the prior fiscal year. Average Product segment sales per business day increased to $192 thousand in the first quarter of fiscal 2009, compared with $171 thousand in the first quarter of fiscal 2008. Increased web presence and improved functionality of the Company’s website combined with a weak U.S. Dollar and the strength of the oil refining and petrochemical manufacturing industries helped to improve international sales in the quarter. International Product segment net sales, excluding Canada, for the fiscal 2009 first quarter were up $0.6 million, or a 43.2% increase in net sales over the same period of the prior year. This increase was primarily attributable to strong performances in the Middle East, Latin America and Europe markets. In addition, sales of new products primarily sold into the North American market, provided substantial contribution to product sales growth. Gross margin for the Product segment is determined by three factors: market channel mix, product mix and discounts to customers. Product segment gross profit for the first quarter of fiscal 2009 was $3.4 million, up 9.8%, or $0.3 million, compared with the same period of the prior year. Product segment gross margin was 27.3% in the first quarter of fiscal 2009, down from 28.0% in the same period of the prior fiscal year. Sales were stronger than expected to customers in international markets and resellers, market channels with lower margin potential, and sales were lower than expected to customers in Canada, which generally have higher margins. Mr. Hadeed noted, "International and reseller sales exceeded our expectations this last quarter and helped to offset softness in our Canadian market. Importantly, U.S. core sales grew as expected on the strength of new products. The shift in market channels had the effect of reducing gross margin, nonetheless, the incremental profit gained resulted in strong operating leverage that expanded Product segment operating income by 35.8%.” Product segment operating income was $1.0 million in the first quarter of fiscal 2009 compared with $0.7 million in the same period of the prior fiscal year, or 7.7% and 6.4% of net product sales, respectively. Service Segment Transcat’s customers purchase calibration services for the purpose of measurably reducing their risk of product or process failures that can be caused by inaccurate measurements. Transcat annually performs more than 125,000 calibrations at its eleven Calibration Centers of Excellence, located throughout the United States, Canada and Puerto Rico, or at its customers’ locations. Service segment revenue was $5.5 million in the first quarter of fiscal 2009, a 5.3% increase compared with $5.3 million in the same period of the prior fiscal year. The timing of calibration orders and segment expenses can vary on a quarter-to-quarter basis based on the nature of a customers’ business and calibration requirements. In general, a trailing twelve month trend provides a better indication of the progress of this segment. Service segment revenue for the trailing twelve months that ended June 28, 2008 were $23.2 million, up 9% when compared with $21.3 million for the trailing twelve month period that ended June 30, 2007. Within the calibration industry, there is a broad array of measurement disciplines making it costly and inefficient for any one provider to invest the needed capital for facilities, equipment and uniquely trained personnel necessary to perform all calibrations in-house. Transcat’s strategy has been to focus its investments in the core electrical, temperature, pressure and dimensional disciplines, and it has historically subcontracted 15% to 20% of its customers’ equipment to outside vendors. In the first quarter of fiscal 2009, approximately 81% of Service segment revenue was generated by the Company’s staff of technicians while 16% was subcontracted to outside vendors. Service segment gross margin of 21.0% was 120 basis points lower than the first quarter of fiscal 2008 primarily as a result of a 6.9% increase in operational costs that was not fully offset by the growth in revenue. Operating loss for the Service segment in the fiscal 2009 first quarter was $0.6 million compared with an operating loss of $0.2 million in the same period of the prior fiscal year. Mr. Hadeed continued, "We have strategically invested in our sales and marketing infrastructure in order to achieve our goal of becoming the premier calibration services provider in the U.S. We have added breadth and depth to our sales management team and further expanded our coverage of accounts nationally. We believe these investments will fuel our future calibration services growth.” Balance Sheet and Cash Management In the first quarter of fiscal 2009, cash generated from operations was $0.4 million compared with $1.1 million in the same period of the prior fiscal year. In the quarter, $0.3 million was used to pay the remaining debt balance on the Company’s $10.0 million revolving line of credit. At June 28, 2008, inventory was $6.6 million compared with $5.4 million at March 29, 2008. Approximately $1.6 million of the inventory increase was related to the launch of an aggressive product sales and marketing campaign in affiliation with one of the Company’s primary test and measurement instrument suppliers. Capital expenditures in the first quarter of fiscal 2009 were $0.2 million compared with $0.5 million in the same period of the prior fiscal year and were primarily used for laboratory equipment replacement and upgrades. Transcat expects capital spending for fiscal 2009 to be in the range of $2.0 to $2.3 million. Outlook Mr. Hadeed concluded, "Although we may see some shift in the timing of calibration orders on a quarter-by-quarter basis, we continue to expect calibration revenue to grow 10% to 12% this year. We also intend to capitalize on new product introductions and the international opportunities gained from the weaker dollar and the expansion and activity of the key industries we serve while expanding our product lines and web presence in order to potentially exceed our mid- to upper- single digit growth goal in product sales.” ABOUT TRANSCAT Transcat, Inc. is a leading global distributor of professional grade test and measurement instruments and accredited provider of calibration, 3-D metrology and repair services primarily for the life science, manufacturing, utility and process industries. Through its distribution products segment, Transcat markets and distributes national and proprietary brand instruments to approximately 12,500 global customers. The Company’s Master Catalog offers access to more than 25,000 test and measurement instruments. Transcat delivers precise, reliable, fast calibration, 3-D metrology and repair services across the United States, Canada and Puerto Rico through its eleven strategically located Centers of Excellence. Transcat’s calibration laboratories are all ISO-9001:2000 certified and the scope of accreditation for ISO/IEC 17025 is believed to be the broadest in the industry. Transcat’s growth strategy is to expand both its distribution products and calibration services in markets that value product breadth and availability and rely on accredited calibration services to maintain the integrity of their processes. More information about Transcat can be found on its website at: www.transcat.com. Safe Harbor Statement This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks, uncertainties and assumptions and are identified by words such as "expects,” "estimates,” "projects,” "anticipates,” "believes,” "could,” and other similar words. All statements addressing operating performance, events, or developments that Transcat, Inc. expects or anticipates will occur in the future, including but not limited to statements relating to anticipated revenue, profit margins, sales operations, its strategy to build its sales representative channel, customer preferences and changes in market conditions in the industries in which Transcat operates are forward-looking statements. Because they are forward-looking, they should be evaluated in light of important risk factors and uncertainties. These risk factors and uncertainties are more fully described in Transcat’s Annual and Quarterly Reports filed with the Securities and Exchange Commission, including under the heading entitled "Risk Factors.” Should one or more of these risks or uncertainties materialize, or should any of the Company’s underlying assumptions prove incorrect, actual results may vary materially from those currently anticipated. In addition, undue reliance should not be placed on the Company’s forward-looking statements. Except as required by law, the Company disclaims any obligation to update or publicly announce any revisions to any of the forward-looking statements contained in this press release. Transcat, Inc. Consolidated Statements of Operations (Amounts in thousands, except per share data)     (Unaudited) First Quarter Ended June 28,   June 30, 2008 2007   Product Sales $ 12,311 $ 10,927 Service Revenue   5,542     5,263   Net Revenue   17,853     16,190     Cost of Products Sold 8,949 7,866 Cost of Services Sold   4,379     4,097   Total Cost of Products and Services Sold   13,328     11,963     Gross Profit   4,525     4,227   Gross margin 25.3 % 26.1 %   Selling, Marketing and Warehouse Expenses 2,595 2,305 Administrative Expenses   1,542     1,473   Total Operating Expenses   4,137     3,778     Operating Income   388     449   Operating margin 2.2 % 2.8 %   Interest (Income) Expense (1 ) 34 Other Expense, net   8     81   Total Other Expense   7     115     Income Before Income Taxes 381 334 Provision for Income Taxes   153     96     Net Income $ 228   $ 238       Basic Earnings Per Share $ 0.03 $ 0.03 Average Shares Outstanding 7,186 7,068   Diluted Earnings Per Share $ 0.03 $ 0.03 Average Shares Outstanding 7,399 7,460   Note: Certain prior period balances have been reclassified to conform with the current period presentation. Transcat, Inc. Consolidated Balance Sheets (Amounts in thousands, except share and per share data)     (Unaudited)   June 28, March 29, 2008 2008 ASSETS Current Assets: Cash $ 130 $ 208 Accounts Receivable, less allowance for doubtful accounts of $74 and $56 as of June 28, 2008 and March 29, 2008, respectively 7,501 9,346 Other Receivables 535 370 Inventory, net 6,557 5,442 Prepaid Expenses and Other Current Assets 824 773 Deferred Tax Asset   299     248   Total Current Assets 15,846 16,387 Property and Equipment, net 3,154 3,211 Goodwill 2,967 2,967 Deferred Tax Asset 1,386 1,435 Other Assets   343     344   Total Assets $ 23,696   $ 24,344     LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts Payable $ 6,085 $ 5,947 Accrued Compensation and Other Liabilities 1,410 2,489 Income Taxes Payable   144     62   Total Current Liabilities 7,639 8,498 Long-Term Debt - 302 Other Liabilities   471     427   Total Liabilities   8,110     9,227     Shareholders' Equity: Common Stock, par value $0.50 per share, 30,000,000 shares authorized; 7,460,373 and 7,446,223 shares issued as of June 28, 2008 and March 29, 2008, respectively; 7,184,591 and 7,170,441 shares outstanding as of June 28, 2008 and March 29, 2008, respectively 3,730 3,723 Capital in Excess of Par Value 6,875 6,649 Accumulated Other Comprehensive Income 444 436 Retained Earnings 5,525 5,297 Less: Treasury Stock, at cost, 275,782 shares as of June 28, 2008 and March 29, 2008   (988 )   (988 ) Total Shareholders' Equity   15,586     15,117   Total Liabilities and Shareholders' Equity $ 23,696   $ 24,344   Transcat, Inc. Consolidated Statements of Cash Flows (Amounts in thousands)     (Unaudited) First Quarter Ended June 28,   June 30, 2008 2007 Cash Flows from Operating Activities: Net Income $ 228 $ 238 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Deferred Income Taxes 6 191 Depreciation and Amortization 358 382 Provision for (Recovery of) Accounts Receivable and Inventory Reserves 25 (14 ) Stock-Based Compensation Expense 175 144 Changes in Assets and Liabilities: Accounts Receivable and Other Receivables 1,671 1,802 Inventory (1,127 ) 167 Prepaid Expenses and Other Assets (156 ) (95 ) Accounts Payable 138 (581 ) Accrued Compensation and Other Liabilities (1,032 ) (1,031 ) Income Taxes Payable   73     (42 ) Net Cash Provided by Operating Activities   359     1,131     Cash Flows from Investing Activities: Purchase of Property and Equipment   (195 )   (477 ) Net Cash Used in Investing Activities   (195 )   (477 )   Cash Flows from Financing Activities: Chase Revolving Line of Credit, net (302 ) (851 ) Issuance of Common Stock 49 85 Excess Tax Benefits Related to Stock-Based Compensation   9     -   Net Cash Used in Financing Activities   (244 )   (766 )   Effect of Exchange Rate Changes on Cash   2     13     Net Decrease in Cash (78 ) (99 ) Cash at Beginning of Period   208     357   Cash at End of Period $ 130   $ 258   Transcat Inc. Additional Information   Business Segment Data (Dollars in thousands)     (Unaudited)   (Unaudited)     Quarter ended June 28, 2008 Quarter ended June 30, 2007 $ Change % Change   Products Net sales $ 12,311 $ 10,927 $ 1,384 12.7 %   Gross profit 3,362 3,061 301 9.8 % Margin 27.3 % 28.0 %   Operating income 948 698 250 35.8 % Margin 7.7 % 6.4 %   Services Net revenue $ 5,542 $ 5,263 $ 279 5.3 %   Gross profit 1,163 1,166 (3 ) (0.3 %) Margin 21.0 % 22.2 %   Operating loss (560 ) (249 ) (311 ) (124.9 %) Margin (10.1 %) (4.7 %)   Consolidated Net revenue $ 17,853 $ 16,190 $ 1,663 10.3 %   Gross profit 4,525 4,227 298 7.0 % Margin 25.3 % 26.1 %   Operating income 388 449 (61 ) (13.6 %) Margin 2.2 % 2.8 % Transcat Inc. Additional Information   PRODUCTS SEGMENT SALES BY MARKET CHANNEL (Dollars in thousands) (Unaudited)     FY 2009     Q1               FY 2009 YTD Total   % of Total Direct   $ 10,074               $ 10,074   81.8 % Reseller     2,039                 2,039   16.6 % Freight Billed to Customers     198                 198   1.6 % Total Product Sales   $ 12,311               $ 12,311       FY 2008     Q1   Q2   Q3   Q4   FY 2008 Total   % of Total Direct   $ 9,170   $ 9,520   $ 11,137   $ 10,465   $ 40,292   84.8 % Reseller     1,587     1,520     1,686     1,731     6,524   13.7 % Freight Billed to Customers     170     179     182     192     723   1.5 % Total Product Sales   $ 10,927   $ 11,219   $ 13,005   $ 12,388   $ 47,539     PRODUCTS SEGMENT SALES BY REGION (Dollars in thousands) (Unaudited)     FY 2009     Q1               FY 2009 YTD Total   % of Total United States   $ 9,484               $ 9,484   77.0% Canada   784               784   6.4% Other International   1,845               1,845   15.0% Freight Billed to Customers   198               198   1.6% Total   $ 12,311               $ 12,311       FY 2008     Q1   Q2   Q3   Q4   FY 2008 Total   % of Total United States   $ 8,443   $ 8,630   $ 10,093   $ 9,803   $ 36,969   77.8% Canada   1,026   888   1,176   966   4,056   8.5% Other International   1,288   1,522   1,554   1,427   5,791   12.2% Freight Billed to Customers   170   179   182   192   723   1.5% Total   $ 10,927   $ 11,219   $ 13,005   $ 12,388   $ 47,539     PRODUCT SEGMENT SALES PER BUSINESS DAY (Dollars in thousands) (Unaudited)     FY 2009     Q1               FY 2009 YTD Total Number of Business Days     64                 64 Total Product Sales   $ 12,311               $ 12,311 Sales per Day   $ 192               $ 192   FY 2008     Q1   Q2   Q3   Q4   FY 2008 Total Number of Business Days     64     63     61     63     251 Total Product Sales   $ 10,927   $ 11,219   $ 13,005   $ 12,388   $ 47,539 Sales per Day   $ 171   $ 178   $ 213   $ 197   $ 189 SERVICE SEGMENT REVENUE BY TYPE (Dollars in thousands) (Unaudited)     FY 2009     Q1               FY 2009 YTD Total   % of Total Depot/On-site   $ 4,478               $ 4,478   80.8 % Outsourced     911                 911   16.4 % Freight Billed to Customers     153                 153   2.8 % Total Service Revenue   $ 5,542               $ 5,542       FY 2008     Q1   Q2   Q3   Q4   FY 2008 Total   % of Total Depot/On-site   $ 4,170   $ 4,266   $ 4,284   $ 5,516   $ 18,236   79.6 % Outsourced     956     995     1,009     1,118     4,078   17.8 % Freight Billed to Customers     137     145     142     176     600   2.6 % Total Service Revenue   $ 5,263   $ 5,406   $ 5,435   $ 6,810   $ 22,914