Transcat (NASDAQ:TRNS) Inc reported robust performance for the second quarter of fiscal 2024, with an 11% rise in consolidated revenue to $62.8 million. The company's Service segment experienced a 17% growth in revenue, including 10% organic growth. The Distribution segment also witnessed growth, with a 1% increase in revenue, primarily driven by the higher-margin rental business.
Key takeaways from the earnings call include:
- Consolidated gross margin grew by 230 basis points to 32%, with Service gross margin increasing by 140 basis points and Distribution gross margin expanding by 340 basis points.
- Adjusted EBITDA increased by 24% to $9.3 million, and the operating cash flow for the quarter was $8.5 million.
- Transcat completed its largest acquisition to date, acquiring Axiom Test Equipment rentals and SteriQual, a life science service company.
- The company anticipates high single-digit to low double-digit organic service growth for the full fiscal year, along with continued gross margin expansion.
CEO Lee Rudow highlighted the company's strategy for the third quarter of fiscal year 2024 during the earnings call. He emphasized the importance of developing, recruiting, and retaining superior management and leadership within the organization.
Transcat expects synergies from the recent acquisition of Axiom, particularly in selling their respective inventories to each other's customer base and leveraging marketing expertise to help grow each other's businesses. The rental revenue from the distribution business is expected to constitute 20-25% of total distribution revenue, with rental margins of 55% or better.
The company also noted the growth and synergies of their acquisition, NEXA. Over the past 2.5 years, the business has doubled in size. The integration of SteriQual into NEXA is expected to expand their suite of services and contribute to future growth.
Transcat executives also discussed the company's progress in automation, which has positively impacted margins. They estimate they are in the mid-phase of their automation initiative, with robotics playing a significant role. They also mentioned plans to grow their calibration business in the Irish market organically.
In terms of future financials, Transcat expects distribution margins to be in the 28% to 30% range. The company will be participating in upcoming conferences and will release their third-quarter results in due course.
InvestingPro Insights
Transcat Inc's performance aligns with several InvestingPro Tips and data. The company has been profitable over the last twelve months, with a positive return over the last decade. However, there is a noticeable declining trend in earnings per share, and the stock is currently in oversold territory. Transcat is trading at a high earnings multiple, with an adjusted P/E Ratio of 81.45 as of Q2 2024.
InvestingPro data also shows that Transcat has a robust market cap of 718.22M USD. Despite the declining trend in earnings per share, the company's revenue growth has been steady, with an 11.47% growth in the last twelve months as of Q2 2024. The company's liquid assets exceed short term obligations, indicating a strong financial position.
InvestingPro Tips also suggest that the company operates with a moderate level of debt, which aligns with the company's strategy of growth through acquisitions. However, it's important to note that Transcat does not pay a dividend to shareholders, which may be a factor for potential investors to consider.
In terms of valuation, Transcat is trading at a high EBIT valuation multiple and a high Price / Book multiple of 5.19 as of Q2 2024. This suggests that the market has high expectations for the company's future earnings growth.
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