10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________

FORM 10-Q

(Mark one)

☑  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended: December 24, 2022

or

☐  Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                    to                  

Commission File Number: 000-03905         

TRANSCAT, INC.

(Exact name of registrant as specified in its charter)

Ohio	16-0874418
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

35 Vantage Point Drive, Rochester, New York 14624

(Address of principal executive offices) (Zip Code)

(585) 352-7777

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.50 par value	TRNS	Nasdaq Global Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes ☑   No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes ☑   No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☑
Non-accelerated filer ☐	Smaller reporting company ☐
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐   No ☑

The number of shares of common stock, par value $0.50 per share, of the registrant outstanding as of January 27, 2023 was 7,561,512.

		Page(s)
PART I.	FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements:
	Statements of Income for the Third Quarter and Nine Months Ended December 24, 2022 and December 25, 2021	1
	Statements of Comprehensive Income for the Third Quarter and Nine Months Ended December 24, 2022 and December 25, 2021	2
	Balance Sheets as of December 24, 2022 and March 26, 2022	3
	Statements of Cash Flows for the Nine Months Ended December 24, 2022 and December 25, 2021	4
	Statements of Changes in Shareholders’ Equity for the Third Quarter and Nine Months Ended December 24, 2022 and December 25, 2021	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	31
Item 4.	Controls and Procedures	32
PART II.	OTHER INFORMATION
Item 6.	Exhibits	33
SIGNATURES		34

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

TRANSCAT, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, Except Per Share Amounts)

	(Unaudited)				(Unaudited)
	Third Quarter Ended				Nine Months Ended
	December 24,		December 25,		December 24,		December 25,
	2022		2021		2022		2021
Service Revenue	$	35,977	$	30,237	$	105,120	$	87,338
Distribution Sales		21,425		20,665		63,382		61,741
Total Revenue		57,402		50,902		168,502		149,079
Cost of Service Revenue		25,184		21,254		72,005		59,891
Cost of Distribution Sales		15,818		16,012		47,292		47,421
Total Cost of Revenue		41,002		37,266		119,297		107,312
Gross Profit		16,400		13,636		49,205		41,767
Selling, Marketing and Warehouse Expenses		6,595		5,051		18,315		15,022
General and Administrative Expenses		6,642		6,224		20,497		17,117
Total Operating Expenses		13,237		11,275		38,812		32,139
Operating Income		3,163		2,361		10,393		9,628
Interest and Other Expense, net		1,039		136		1,732		581
Income Before Income Taxes		2,124		2,225		8,661		9,047
Provision for Income Taxes		523		596		1,631		715
Net Income	$	1,601	$	1,629	$	7,030	$	8,332
Basic Earnings Per Share	$	0.21	$	0.22	$	0.93	$	1.11
Average Shares Outstanding		7,559		7,519		7,547		7,487
Diluted Earnings Per Share	$	0.21	$	0.21	$	0.92	$	1.10
Average Shares Outstanding		7,666		7,653		7,644		7,599

See accompanying notes to consolidated financial statements.

1

TRANSCAT, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands)

	(Unaudited)					(Unaudited)
	Third Quarter Ended					Nine Months Ended
	December 24,		December 25,			December 24,			December 25,
	2022		2021			2022			2021
Net Income	$	1,601	$	1,629		$	7,030		$	8,332
Other Comprehensive Income (Loss):
Currency Translation Adjustment		393		(233	)		(878	)		(314	)
Other, net of tax effects of $2 and $7 for the third quarter ended December 24, 2022 and December 25, 2021, respectively; and $(4) and $17 for the nine months ended December 24, 2022 and December 25, 2021, respectively		8		18			(12	)		48
Total Other Comprehensive Income (Loss)		401		(215	)		(890	)		(266	)
Comprehensive Income	$	2,002	$	1,414		$	6,140		$	8,066

See accompanying notes to consolidated financial statements.

2

TRANSCAT, INC.

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share and Per Share Amounts)

	(Unaudited)			(Audited)
	December 24,			March 26,
	2022			2022
ASSETS
Current Assets:
Cash	$	1,593		$	1,396
Accounts Receivable, less allowance for doubtful accounts of $488 and $460 as of December 24, 2022 and March 26, 2022, respectively		37,702			39,737
Other Receivables		377			558
Inventory, net		16,884			12,712
Prepaid Expenses and Other Current Assets		4,141			5,301
Total Current Assets		60,697			59,704
Property and Equipment, net		28,334			26,439
Goodwill		68,826			65,074
Intangible Assets, net		14,843			14,692
Right To Use Assets, net		14,874			11,026
Other Assets		895			827
Total Assets	$	188,469		$	177,762
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable	$	13,845		$	14,171
Accrued Compensation and Other Current Liabilities		9,012			11,378
Current Portion of Long-Term Debt		2,227			2,161
Total Current Liabilities		25,084			27,710
Long-Term Debt		46,941			46,291
Deferred Tax Liabilities, net		6,672			6,724
Lease Liabilities		12,998			9,194
Other Liabilities		1,490			1,667
Total Liabilities		93,185			91,586
Shareholders' Equity:
Common Stock, par value $0.50 per share, 30,000,000 shares authorized; 7,560,420 and 7,529,078 shares issued and outstanding as of December 24, 2022 and March 26, 2022, respectively		3,780			3,765
Capital in Excess of Par Value		27,123			23,900
Accumulated Other Comprehensive Loss		(1,123	)		(233	)
Retained Earnings		65,504			58,744
Total Shareholders' Equity		95,284			86,176
Total Liabilities and Shareholders' Equity	$	188,469		$	177,762

See accompanying notes to consolidated financial statements.

3

TRANSCAT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

	(Unaudited)
	Nine Months Ended
	December 24,			December 25,
	2022			2021
Cash Flows from Operating Activities:
Net Income	$	7,030		$	8,332
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Net Loss on Disposal of Property and Equipment		62			113
Deferred Income Taxes		(52	)		5
Depreciation and Amortization		8,243			6,899
Provision for Accounts Receivable and Inventory Reserves		174			417
Stock-Based Compensation Expense		2,757			1,681
Changes in Assets and Liabilities, net of acquisitions:
Accounts Receivable and Other Receivables		1,850			1,185
Inventory		(3,589	)		(1,794	)
Prepaid Expenses and Other Current Assets		1,074			(3,280	)
Accounts Payable		(424	)		689
Accrued Compensation and Other Current Liabilities		(3,150	)		(1,470	)
Income Taxes Payable		-			(399	)
Net Cash Provided by Operating Activities		13,975			12,378
Cash Flows from Investing Activities:
Purchases of Property and Equipment		(7,149	)		(5,861	)
Proceeds from Sale of Property and Equipment		10			12
Business Acquisitions, net of cash acquired		(8,306	)		(20,910	)
Net Cash Used in Investing Activities		(15,445	)		(26,759	)
Cash Flows from Financing Activities:
Proceeds from Revolving Credit Facility, net		2,286			22,760
Repayments of Term Loan		(1,570	)		(1,565	)
Issuance of Common Stock		503			1,354
Repurchase of Common Stock		(437	)		(5,649	)
Net Cash Provided by Financing Activities		782			16,900
Effect of Exchange Rate Changes on Cash		885			(300	)
Net Increase in Cash		197			2,219
Cash at Beginning of Period		1,396			560
Cash at End of Period	$	1,593		$	2,779
Supplemental Disclosure of Cash Flow Activity:
Cash paid during the period for:
Interest	$	1,510		$	531
Income Taxes, net	$	957		$	3,263
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Common stock issued for acquisitions	$	145		$	2,368
Assets acquired and liabilities assumed in business combinations:
Accrued contingent consideration related to NEXA acquisition	$	-		$	153
Accrued holdback consideration related to Alliance acquisition	$	518		$	-

See accompanying notes to consolidated financial statements.

4

TRANSCAT, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In Thousands, Except Par Value Amounts)

(Unaudited)

							Capital
	Common Stock						In			Accumulated
	Issued						Excess			Other
	$0.50 Par Value						of Par			Comprehensive			Retained
	Shares			Amount			Value			Income (Loss)			Earnings			Total
Balance as of March 27, 2021		7,458		$	3,729		$	19,287		$	(451	)	$	52,513		$	75,078
Issuance of Common Stock		52			26			673			-			-			699
Repurchase of Common Stock		(62	)		(31	)		(755	)		-			(2,591	)		(3,377	)
Stock-Based Compensation		21			10			427			-			-			437
Other Comprehensive Income		-			-			-			182			-			182
Net Income		-			-			-			-			3,688			3,688
Balance as of June 26, 2021		7,469		$	3,734		$	19,632		$	(269	)	$	53,610		$	76,707
Issuance of Common Stock		72			36			2,871			-			-			2,907
Repurchase of Common Stock		(35	)		(18	)		(403	)		-			(1,851	)		(2,272	)
Stock-Based Compensation		12			7			613			-			-			620
Other Comprehensive Loss		-			-			-			(233	)		-			(233	)
Net Income		-			-			-			-			3,015			3,015
Balance as of September 25, 2021		7,518		$	3,759		$	22,713		$	(502	)	$	54,774		$	80,744
Issuance of Common Stock		2			1			115			-			-			116
Stock-Based Compensation		1			-			624			-			-			624
Other Comprehensive Loss		-			-			-			(215	)		-			(215	)
Net Income		-			-			-			-			1,629			1,629
Balance as of December 25, 2021		7,521		$	3,760		$	23,452		$	(717	)	$	56,403		$	82,898

							Capital
	Common Stock						In			Accumulated
	Issued						Excess			Other
	$0.50 Par Value						of Par			Comprehensive			Retained
	Shares			Amount			Value			Income (Loss)			Earnings			Total
Balance as of March 26, 2022		7,529		$	3,765		$	23,900		$	(233	)	$	58,744		$	86,176
Issuance of Common Stock		8			3			363			-			-			366
Repurchase of Common Stock		(7	)		(3	)		(164	)		-			(270	)		(437	)
Stock-Based Compensation		16			8			820			-			-			828
Other Comprehensive Loss		-			-			-			(453	)		-			(453	)
Net Income		-			-			-			-			3,072			3,072
Balance as of June 25, 2022		7,546		$	3,773		$	24,919		$	(686	)	$	61,546		$	89,552
Issuance of Common Stock		3			2			141			-			-			143
Stock-Based Compensation		9			4			1,110			-			-			1,114
Other Comprehensive Loss		-			-			-			(838	)		-			(838	)
Net Income		-			-			-			-			2,357			2,357
Balance as of September 24, 2022		7,558		$	3,779		$	26,170		$	(1,524	)	$	63,903		$	92,328
Issuance of Common Stock		1			-			139			-			-			139
Stock-Based Compensation		1			1			814			-			-			815
Other Comprehensive Income		-			-			-			401			-			401
Net Income		-			-			-			-			1,601			1,601
Balance as of December 24, 2022		7,560		$	3,780		$	27,123		$	(1,123	)	$	65,504		$	95,284

See accompanying notes to consolidated financial statements.

5

TRANSCAT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – GENERAL

Description of Business: Transcat, Inc. (“Transcat,” “we,” “us,” “our” or the “Company”) is a leading provider of accredited calibration services, enterprise asset management services, and value-added distributor of professional grade handheld test, measurement and control instrumentation. The Company is focused on providing services and products to highly regulated industries, particularly the life science industry, which includes pharmaceutical, biotechnology, medical device and other FDA-regulated businesses. Additional industries served include industrial manufacturing; energy and utilities, including oil and gas; chemical manufacturing; FAA-regulated businesses, including aerospace and defense and other industries that require accuracy in their processes, confirmation of the capabilities of their equipment, and for which the risk of failure is very costly.

Basis of Presentation: Transcat’s unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, the Consolidated Financial Statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of the Company’s management, all adjustments considered necessary for a fair presentation (consisting of normal recurring adjustments) have been included. The results for the interim periods are not necessarily indicative of what the results will be for the fiscal year. The accompanying Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements as of and for the fiscal year ended  March 26, 2022 (“fiscal year 2022”) contained in the Company’s Annual Report on Form 10-K for fiscal year 2022 filed with the SEC.

Revenue Recognition: Distribution sales are recorded when an order’s title and risk of loss transfers to the customer, which is generally upon shipment. The Company recognizes the majority of its Service revenue based upon when the calibration or other activity is performed and then shipped and/or delivered to the customer. The majority of the Company’s revenue generating activities have a single performance obligation and are recognized at the point in time when control transfers and/or our obligation has been fulfilled. Some Service revenue is generated from managing customers’ calibration programs in which the Company recognizes revenue over time using the output method-time elapsed as this portrays the transfer of control to the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for product shipped or services performed. Sales taxes and other taxes billed and collected from customers are excluded from revenue. The Company generally invoices its customers for freight, shipping, and handling charges. Freight billed to customers is included in revenue. Shipping and handling is not included in revenue. Provisions for customer returns are provided for in the period the related revenue is recorded based upon historical data.

Under Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, we use judgments that could potentially impact both the timing of our satisfaction of performance obligations and our determination of transaction prices used in determining revenue recognized. Such judgments include considerations in determining our transaction prices and when our performance obligations are satisfied for our standard product sales that include general payment terms that are between net 30 and 90 days.

Revenue recognized from prior period performance obligations for the third quarter of the fiscal year ending March 25, 2023 (“fiscal year 2023”) was immaterial. As of December 24, 2022, the Company had no unsatisfied performance obligations for contracts with an original expected duration of greater than one year. Pursuant to Topic 606, the Company applied the practical expedient with respect to disclosure of the deferral and future expected timing of revenue recognition for transaction price allocated to remaining performance obligations. Deferred revenue, unbilled revenue and deferred contract costs recorded on our Consolidated Balance Sheets as of December 24, 2022 and March 26, 2022 were immaterial. See Note 4 for disaggregated revenue information.

Fair Value of Financial Instruments: Transcat has determined the fair value of debt and other financial instruments using a valuation hierarchy. The hierarchy, which prioritizes the inputs used in measuring fair value, consists of three levels. Level 1 uses observable inputs such as quoted prices in active markets; Level 2 uses inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, which is defined as unobservable inputs in which little or no market data exists, requires the Company to develop its own assumptions. The carrying amount of debt on the Consolidated Balance Sheets approximates fair value due to variable interest rate pricing on a portion of the debt with the balance bearing an interest rate approximating current market rates, and the carrying amounts for cash, accounts receivable and accounts payable approximate fair value due to their short-term nature. Investment assets, which fund the Company’s non-qualified deferred compensation plan, consist of mutual funds and are valued based on Level 1 inputs. At each of December 24, 2022 and March 26, 2022, investment assets totaled $0.2 million, and are included as a component of other assets (non-current) on the Consolidated Balance Sheets.

6

 

Stock-Based Compensation: The Company measures 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. The Company records 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. Excess tax benefits for share-based award activity are reflected in the Consolidated Statements 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. The Company did not capitalize any stock-based compensation costs as part of an asset. The Company estimates forfeiture rates based on its historical experience. During the first nine months of fiscal year 2023 and fiscal year 2022, the Company recorded non-cash stock-based compensation expense of $2.8 million and $1.7 million, respectively, in the Consolidated Statements of Income.

Foreign Currency Translation and Transactions: The accounts of Cal OpEx Limited (d/b/a NEXA Enterprise Asset Management), an Irish company, Galium Limited (d/b/a Complete Calibrations), an Irish company, and Transcat Canada Inc., all of which are wholly-owned subsidiaries of the Company, are maintained in the local currencies, the Euro, Euro and Canadian dollar, respectively, and have been translated to U.S. dollars. Accordingly, the amounts representing assets and liabilities have been translated at the period-end rates of exchange and related revenue and expense accounts have been translated at an average rate of exchange during the period. Gains and losses arising from translation of Cal OpEx Limited’s, Galium Limited's and Transcat Canada Inc.’s financial statements into U.S. dollars are recorded directly to the accumulated other comprehensive loss component of shareholders’ equity.

Transcat records foreign currency gains and losses on business transactions denominated in foreign currency. The net foreign currency loss was less than $0.1 million in each of the first nine months of fiscal year 2023 and fiscal year 2022. The Company continually utilizes short-term foreign exchange forward contracts to reduce the risk that its future earnings denominated in Canadian dollars would be adversely affected by changes in currency exchange rates. The Company does not apply hedge accounting and therefore the net change in the fair value of the contracts, which totaled a gain of $0.3 million and less than $0.1 million during the first nine months of fiscal years 2023 and 2022, respectively, was recognized as a component of Interest and Other Expenses, net in the Consolidated Statements of Income. The change in the fair value of the contracts is offset by the change in fair value on the underlying accounts receivables denominated in Canadian dollars being hedged. On December 24, 2022, the Company had a foreign exchange contract, which matured in January 2023, outstanding in the notional amount of $3.0 million. This contract was subsequently renewed and remains in place. The Company does not use hedging arrangements for speculative purposes.

Earnings Per Share: Basic earnings per share of common stock is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share of common stock reflect the assumed conversion of stock options and unvested restricted stock units using the treasury stock method in periods in which they have a dilutive effect. In computing the per share effect of assumed conversion, proceeds received from the exercise of options and unvested restricted stock units are considered to have been used to purchase shares of common stock at the average market prices during the period, and the resulting net additional shares of common stock are included in the calculation of average shares of common stock outstanding.

For the third quarter of fiscal year 2023, the net additional common stock equivalents had no effect on the calculation of diluted earnings per share. For the third quarter of fiscal year 2022, the net additional common stock equivalents had a ($0.01) effect on the calculation of diluted earnings per share. For the first nine months of fiscal year 2023, and fiscal year 2022, the net additional common stock equivalents had a ($0.01) effect on the calculation of diluted earnings per share. The average shares outstanding used to compute basic and diluted earnings per share are as follows (amounts in thousands):

	Third Quarter Ended				Nine Months Ended
	December 24,		December 25,		December 24,		December 25,
	2022		2021		2022		2021
Average Shares Outstanding – Basic		7,559		7,519		7,547		7,487
Effect of Dilutive Common Stock Equivalents		107		134		97		112
Average Shares Outstanding – Diluted		7,666		7,653		7,644		7,599
Anti-dilutive Common Stock Equivalents		148		-		163		100

7

 

Goodwill and Intangible Assets: Goodwill represents the excess of the purchase price over the fair values of the underlying net assets of an acquired business. The Company tests goodwill for impairment for each reporting unit on an annual basis during the fourth quarter of its fiscal year, or immediately if conditions indicate that such impairment could exist. The Company is permitted, but not required, to qualitatively assess indicators of a reporting unit’s fair value to determine whether it is necessary to perform the two-step goodwill impairment test. If a quantitative test is deemed necessary, a discounted cash flow analysis is prepared to estimate fair value.

Intangible assets, namely customer base and covenants not to compete, represent an allocation of purchase price to identifiable intangible assets of an acquired business. 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. A summary of changes in the Company’s goodwill and intangible assets is as follows (amounts in thousands):

	Goodwill								Intangible Assets
	Distribution		Service			Total			Distribution			Service			Total
Net Book Value as of March 26, 2022	$	11,458	$	53,616		$	65,074		$	647		$	14,045		$	14,692
Additions		-		4,496			4,496			-			3,576			3,576
Measurement Period Adjustments		-		(203	)		(203	)		-			-			-
Amortization		-		-			-			(152	)		(3,259	)		(3,411	)
Currency Translation Adjustment		-		(541	)		(541	)		-			(14	)		(14	)
Net Book Value as of December 24, 2022	$	11,458	$	57,368		$	68,826		$	495		$	14,348		$	14,843

Recently Issued Accounting Pronouncements: In June 2016, the Financial Accounting Standard Board (“FASB”) issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), which significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The ASU replaces the "incurred loss" model with an "expected credit loss" model that requires entities to estimate an expected lifetime credit loss on financial assets, including trade accounts receivable. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Allowance for doubtful accounts is the most significant item for the Company under this ASU. As credit losses from the Company's trade receivables have not historically been significant, the Company anticipates that the adoption of the ASU will not have a material impact on its consolidated financial statements.

NOTE 2 – LONG-TERM DEBT

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 the Company’s 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 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.

8

 

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”) was reduced 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 the Company’s ability to repurchase its shares and pay dividends. Amendment Two also had modified the leverage ratio and fixed charge coverage ratio covenants with which the Company was 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 December 24, 2022, $80.0 million was available under the revolving credit facility, of which $42.2 million was outstanding and included in long-term debt on the Consolidated Balance Sheets. During the first nine months of fiscal year 2023, $8.3 million was used for three business acquisitions.

As of December 24, 2022, $7.0 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.

Interest and Other Costs: Interest on outstanding borrowings under the revolving credit facility accrue, at Transcat’s 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% 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 at a fixed rate of 3.90% during the second quarter of fiscal year 2022 and accrues at a fixed rate of 3.90% over the term of the loan for subsequent periods. 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 the Company’s calculated leverage ratio. The Company’s interest rate for the revolving credit facility for the first nine months of fiscal year 2023 ranged from 1.6% to 6.0%.

Covenants: The 2021 Credit Agreement has certain covenants with which the Company must comply, including a fixed charge ratio covenant and a leverage ratio covenant. The Company was in compliance with all loan covenants and requirements during the third quarter of fiscal year 2023. Our leverage ratio, as defined in the 2021 Credit Agreement, was 1.66 at December 24, 2022, compared with 1.74 at March 26, 2022.

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.

Other Terms: The Company has pledged all of its U.S. tangible and intangible personal property, the equity interests of its U.S.-based subsidiaries, and a majority of the common stock of Transcat Canada Inc. as collateral security for the loans made under the revolving credit facility.

9

 

NOTE 3 – STOCK-BASED COMPENSATION

In September 2021, the Transcat, Inc. 2021 Stock Incentive Plan (the “2021 Plan”) was approved by shareholders and became effective. The 2021 Plan replaced the Transcat, Inc. 2003 Incentive Plan (the “2003 Plan”). Shares available for grant under the 2021 Plan include any shares remaining available for issuance under the 2003 Plan and any shares that are subject to outstanding awards under the 2003 Plan that are subsequently canceled, expired, forfeited, or otherwise not issued or are settled in cash. The 2021 Plan provides for, among other awards, grants of restricted stock units and stock options to directors, officers and key employees at the fair market value at the date of grant. At December 24, 2022, 0.7 million shares of common stock were available for future grant under the 2021 Plan.

The Company receives an excess tax benefit related to restricted stock vesting and stock options exercised and redeemed. The discrete tax benefits related to share-based compensation and stock option activity during the first nine months of fiscal year 2023 and fiscal year 2022 were $0.5 million and $1.7 million, respectively.

Restricted Stock Units: The Company grants time-based and performance-based restricted stock units as a component of executive and key employee compensation. Expense for restricted stock unit grants is recognized on a straight-line basis for the service period of the stock award based upon fair value of the award on the date of grant. The fair value of the restricted stock unit grants is the quoted market price for the Company’s common stock on the date of grant. These restricted stock units are either time vested, or vest following the third fiscal year from the date of grant subject to cumulative diluted earnings per share targets over the eligible period.

Compensation cost ultimately recognized for performance-based 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, the Company records compensation cost based on the estimated level of achievement of the performance conditions. The expense relating to the time vested restricted stock units is recognized on a straight-line basis over the requisite service period for the entire award.

The Company achieved 82% of the target level for the performance-based restricted stock units granted in the fiscal year ended March 28, 2020 and as a result, issued 16 thousand shares of common stock to executive officers and certain key employees during the first quarter of fiscal year 2023. The following table summarizes the non-vested restricted stock units outstanding as of December 24, 2022 (in thousands, except per unit data):

		Total	Grant Date		Estimated
		Number	Fair		Level of
Date	Measurement	of Units	Value		Achievement at
Granted	Period	Outstanding	Per Unit		December 24, 2022
October 2018	October 2018 – September 2027	6	$	20.81	Time Vested
April 2020	April 2020 – March 2023	2	$	26.25	Time Vested
July 2020	July 2020 – July 2023	26	$	27.08	Time Vested
September 2020	September 2020 – July 2023	4	$	28.54	Time Vested
September 2020	September 2020 – July 2023	5	$	29.76	Time Vested
September 2020	September 2020 – September 2023	3	$	29.76	Time Vested
January 2021	January 2021 – January 2024	1	$	34.62	Time Vested
May 2021	May 2021 – May 2024	1	$	54.21	Time Vested
June 2021	June 2021 – March 2024	10	$	53.17	150% of target level
June 2021	June 2021 – March 2024	11	$	53.17	Time Vested
September 2021	September 2021 – September 2024	4	$	67.76	Time Vested
December 2021	December 2021 – December 2024	1	$	90.41	Time Vested
January 2022	January 2022 – March 2024	2	$	90.92	Time Vested
March 2022	March 2022 – March 2025	2	$	76.31	Time Vested
May 2022	May 2022-March 2025	12	$	63.17	100% of target level
May 2022	May 2022-March 2025	11	$	63.17	Time Vested
August 2022	August 2022-August 2025	1	$	78.04	Time Vested
December 2022	December 2022 -December 2025	1	$	81.26	Time Vested
December 2022	December 2022 - December 2025	1	$	67.48	Time Vested
September 2022	September 2022-September 2023	5	$	73.80	Time Vested

10

 

Total expense relating to restricted stock units, based on grant date fair value and the achievement criteria, was $1.7 million and $1.2 million in the first nine months of fiscal year 2023 and fiscal year 2022, respectively. As of December 24, 2022, unearned compensation, to be recognized over the grants’ respective service periods, totaled $2.7 million.

Stock Options: The Company grants stock options to employees and directors with an exercise price equal to the quoted market price of the Company’s stock at the date of the grant. The fair value of stock options is estimated using the Black-Scholes option pricing formula that requires assumptions for expected volatility, expected dividends, the risk-free interest rate and the expected term of the option. Expense for stock options is recognized on a straight-line basis over the requisite service period for each award. 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.

We calculate the fair value of the stock options granted using the Black-Scholes model. There were no stock options granted during the three months ended December 24, 2022 and December 25, 2021.  The following weighted-average assumptions were used to value options granted during the first nine months of fiscal year 2023 and fiscal year 2022:

	Nine Months Ended
	December 24,			December 25,
	2022			2021
Risk-Free Interest Rate		2.65	%		1.00	%
Volatility Factor		37.62	%		29.95	%
Expected Term (in Years)		4.58			6.38
Annual Dividend Rate		0.00	%		0.00	%

We calculate expected volatility for stock options by taking an average of historical volatility over the expected term. The computation of expected term was determined based on safe harbor rules, giving consideration to the contractual terms of the stock-based awards and vesting schedules. The interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield in effect at the time of grant. We assume no expected dividends. Under FASB ASC Topic 718, “Compensation – Stock Compensation”, the Company has elected to account for forfeitures as they occur.

During the first nine months of fiscal year 2023, the Company granted options for 46,000 shares of common stock in the aggregate to Company employees that vest over three years and an option for 10,000 shares of common stock to a Board of Directors member that vests over five years.

During the first nine months of fiscal year 2022, the Company granted options for 25,000 shares of common stock in the aggregate to Company employees that vest over three to five years, an option for 2,000 shares of common stock each to five employees (10,000 shares in the aggregate) that vests over three years and options for 90,000 shares of common stock in the aggregate to Company employees that vest over five years.

The expense related to all stock option awards was $1.1 million in the first nine months of fiscal year 2023 and $0.4 million in the first nine months of fiscal year 2022.

11

 

The following table summarizes the Company’s options as of and for the first nine months ended December 24, 2022 (in thousands, except price per option data and years):

				Weighted		Weighted
				Average		Average
	Number			Exercise		Remaining		Aggregate
	Of			Price Per		Contractual		Intrinsic
	Options			Option		Term (in years)		Value
Outstanding as of March 26, 2022		165		$	53.27
Granted		56		$	62.46
Exercised		(4	)	$	6.19
Forfeited		-		$	-
Outstanding as of December 24, 2022		217		$	56.25		7	$	2,980
Exercisable as of December 24, 2022		28		$	53.76		9	$	454

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the third quarter of fiscal year 2023 and the exercise price, multiplied by the number of in-the-money stock options) that would have been received by the option holders had all holders exercised their options on December 24, 2022. The amount of aggregate intrinsic value will change based on the fair market value of the Company’s common stock.

Total unrecognized compensation cost related to non-vested stock options as of December 24, 2022 was $2.2 million, which is expected to be recognized over a period of three years. The aggregate intrinsic value of stock options exercised during the first nine months of fiscal year 2023 and fiscal year 2022 was $0.2 million and $6.9 million, respectively. Cash received from the exercise of options in the first nine months of fiscal year 2023 and fiscal year 2022 was less than $0.1 million and $1.0 million, respectively.

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NOTE 4 – SEGMENT INFORMATION

The basis for determining our operating segments is the manner in which financial information is used in monitoring our operations. Transcat has two reportable segments: Service and Distribution. Through our Service segment, we offer calibration, repair, inspection, analytical qualifications, preventative maintenance, consulting and other related services. Through our Distribution segment, we sell and rent national and proprietary brand instruments to customers globally. The Company has no inter-segment sales. We believe that reporting performance at the operating income level is the best indicator of segment performance. The following table presents segment and geographic data for the third quarter and first nine months of fiscal year 2023 and fiscal year 2022 (dollars in thousands):

	Third Quarter Ended				Nine Months Ended
	December 24,		December 25,		December 24,		December 25,
	2022		2021		2022		2021
Revenue:
Service	$	35,977	$	30,237	$	105,120	$	87,338
Distribution		21,425		20,665		63,382		61,741
Total		57,402		50,902		168,502		149,079
Gross Profit:
Service		10,793		8,983		33,115		27,447
Distribution		5,607		4,653		16,090		14,320
Total		16,400		13,636		49,205		41,767
Operating Expenses:
Service (1)		8,957		7,322		26,240		20,165
Distribution (1)		4,280		3,953		12,572		11,974
Total		13,237		11,275		38,812		32,139
Operating Income:
Service		1,836		1,661		6,875		7,282
Distribution		1,327		700		3,518		2,346
Total		3,163		2,361		10,393		9,628
Unallocated Amounts:
Interest and Other Expense, net		1,039		136		1,732		581
Provision for Income Taxes		523		596		1,631		715
Total		1,562		732		3,363		1,296
Net Income	$	1,601	$	1,629	$	7,030	$	8,332
Geographic Data:
Revenues to Unaffiliated Customers (2)
United States (3)	$	51,209	$	46,005	$	151,242	$	136,359
Canada		4,221		3,749		12,075		10,849
Other International		1,972		1,148		5,185		1,871
Total	$	57,402	$	50,902	$	168,502	$	149,079

(1) Operating expense allocations between segments are based on actual amounts, a percentage of revenues, headcount, and management’s estimates.

(2) Revenues to unaffiliated customers are attributed to the countries based on the destination of a product shipment or the location where service is rendered.

(3) United States includes Puerto Rico.

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NOTE 5 – BUSINESS ACQUISITIONS

Complete Calibrations: Effective September 28, 2022, Transcat purchased all of the outstanding capital stock of Galium Limited (d/b/a Complete Calibrations) ("Complete Calibrations"), an Irish company.  This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that expand the depth and breadth of the Company’s Service capabilities. 

All the goodwill related to the Complete Calibrations acquisition has been allocated to the Service segment. Amortization of goodwill related to the Complete Calibrations acquisition is not deductible for tax purposes.  The goodwill is primarily attributable to the workforce acquired, as well as operational synergies and other intangibles that do not qualify for separate recognition.

The total purchase price paid for Complete Calibrations was approximately $1.2 million in cash.  In connection with this transaction, the Company also entered into a Technology License Agreement with Calibration Robots Limited, an Irish company and related party to Complete Calibrations, for the use of their proprietary robotics in completing calibrations.  The Technology License Agreement includes transactional royalties in the amount of 3 Euros ($3) per calibration performed by technology covered under this license agreement, with a royalty term of up to ten years commencing from the earlier of (i) the date on which cumulative revenue earned from technology covered under this license agreement equals 0.75 million Euros ($0.80 million), and (ii) March 28, 2024.  In addition to the transactional royalties, as long as a key employee is employed by the Company, there is an annual royalty fee of 0.1 million Euros ($0.1 million).  For purposes of this paragraph, we used a conversion rate of 1.0617 to convert Euro to U.S. dollar as of December 24, 2022.

The purchase price allocation is subject to revision based upon our final review of assets acquired, and liabilities assumed. The following is a summary of the preliminary purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of Complete Calibrations’ assets and liabilities acquired on September 28, 2022 (in thousands):

Goodwill		$	1,123
Plus:	Cash		10
	Inventory		44
Total Purchase Price		$	1,177

From the date of acquisition, Complete Calibrations has contributed revenue of $0.1 million and operating income of less than $0.1 million.

e2b: Effective September 27, 2022, Transcat acquired substantially all of the assets of e2b Calibration (“e2b”), an Ohio based provider of calibration services.  This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that expand the depth and breadth of the Company’s Service capabilities. 

The e2b goodwill is primarily attributable to the workforce acquired, as well as operational synergies and other intangibles that do not qualify for separate recognition. All the goodwill and intangible assets relating to the e2b acquisition has been allocated to the Service segment. Intangible assets related to the e2b acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up to fifteen years and are deductible for tax purposes. Amortization of goodwill related to the e2b acquisition is deductible for tax purposes.

The total purchase price paid for the assets of e2b was approximately $3.1 million in cash.  Pursuant to the asset purchase agreement, the Company has $0.9 million of the purchase price in escrow for certain potential post-closing adjustments.   

14

 

The purchase price allocation is subject to revision based upon our final review of intangible asset valuation assumptions, working capital adjustments, assets acquired, and liabilities assumed. The following is a summary of the preliminary purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of e2b’s assets and liabilities acquired on September 27, 2022 (in thousands):

Goodwill		$	1,590
Intangible Assets – Customer Base & Contracts			746
Intangible Assets – Covenant Not to Compete			396
			2,732
Plus:	Accounts Receivable		361
	Other Current Assets		24
	Property and Equipment		103
Less:	Current Liabilities		(121	)
Total Purchase Price		$	3,099

From the date of acquisition, e2b has contributed revenue of $0.9 million and operating income of $0.2 million, which includes the negative impact of amortization of the acquired intangible assets.

Alliance: Effective May 31, 2022, Transcat acquired substantially all of the assets of Charlton Jeffmont Inc., Raitz Inc. and Toolroom Calibration Inc. d/b/a Alliance Calibration (“Alliance”), an Ohio based provider of calibration services. This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that expand the depth and breadth of the Company’s service capabilities.

The Alliance goodwill is primarily attributable to the workforce acquired, as well as operational synergies and other intangibles that do not qualify for separate recognition. All the goodwill and intangible assets relating to the Alliance acquisition has been allocated to the Service segment. Intangible assets related to the Alliance acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up to fifteen years and are deductible for tax purposes. Amortization of goodwill related to the Alliance acquisition is deductible for tax purposes.

The purchase price for Alliance was approximately $4.7 million and was paid with $4.0 million in cash and the issuance of 2,284 shares of our common stock valued at $0.1 million. Pursuant to the asset purchase agreement, the Company held back $0.5 million of the purchase price for certain potential post-closing adjustments, and the purchase price will be subject to reduction by $0.5 million if a key customer relationship is not retained.

The purchase price allocation is subject to revision based upon our final review of intangible asset valuation assumptions, working capital adjustments, assets acquired, and liabilities assumed. The following is a summary of the preliminary purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of Alliance’s assets and liabilities acquired on May 31, 2022 (in thousands):

Goodwill		$	1,783
Intangible Assets – Customer Base & Contracts			2,320
Intangible Assets – Covenant Not to Compete			114
			4,217
Plus:	Accounts Receivable		343
	Property and Equipment		170
Less:	Current Liabilities		(27	)
Total Purchase Price		$	4,703

From the date of acquisition, Alliance has contributed revenue of $1.3 million and operating income of $0.1 million, which includes the negative impact of amortization of the acquired intangible assets.

15

 

Tangent: Effective December 31, 2021, Transcat purchased all the outstanding membership units of Tangent Labs, LLC (“Tangent”). Tangent provides in-house and on-site calibrations of precision measurement and control instrumentation to customers in the life science, aerospace and other regulated industries, and has lab locations in Indianapolis, Indiana and Huntsville, Alabama. This transaction aligned with a key component of the Company’s strategy of acquiring local capabilities in attractive geographies.

The Tangent goodwill is primarily attributable to the workforce acquired, as well as operational synergies and other intangibles that do not qualify for separate recognition. All the goodwill and intangible assets relating to the Tangent acquisition has been allocated to the Service segment. Intangible assets related to the Tangent acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up to fifteen years and are deductible for tax purposes. Amortization of goodwill related to the Tangent acquisition is not deductible for tax purposes.

The purchase price for Tangent was approximately $8.9 million, all paid in cash, and is subject to certain customary holdback provisions and a portion of which was placed in escrow to secure the sellers’ obligations in the event that a key employee terminates employment with Tangent on or before the first anniversary of the closing of the transaction.  $7.9 million was paid in cash and $1.0 million of the purchase price has been put into escrow for indemnification claims, if any.

During the second quarter of fiscal year 2023, the key employee terminated their employment with the Company.  As a result, the Company took $0.2 million out of the escrow account and it was recorded as a gain in the Company's Consolidated Statement of Income.

During the second quarter of fiscal year 2023, a measurement period adjustment was recorded to recognize the fair value of Property and Equipment acquired, with a corresponding reduction to Goodwill. There was no remeasurement period adjustment in the third quarter of fiscal year 2023. The following is a summary of the purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of Tangent’s assets and liabilities acquired on December 31, 2021 (in thousands):

Goodwill		$	5,385
Intangible Assets – Customer Base & Contracts			4,150
Intangible Assets – Covenant Not to Compete			220
			9,755
Plus:	Cash		26
	Accounts Receivable		187
	Other Current Assets		16
	Property and Equipment		203
Less:	Current Liabilities		(68	)
	Deferred Tax Liability		(1,195	)
Total Purchase Price		$	8,924

During the first nine months of fiscal year 2023, Tangent contributed revenue of $1.7 million and operating loss of less than $0.1 million, which includes the negative impact of amortization of the acquired intangible assets.

NEXA: Effective August 31, 2021, Transcat purchased all of the outstanding capital stock of Cal OpEx Limited (d/b/a NEXA Enterprise Asset Management), an Irish company, which owns all of the issued and outstanding capital stock of its U.S.-based subsidiary, Cal OpEx Inc., a Delaware corporation (collectively, “NEXA”). NEXA provides calibration optimization and other technical solutions to improve asset and reliability management programs to pharmaceutical, biotechnology, and medical device companies worldwide. This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that expand the depth and breadth of the Company’s Service capabilities.

The NEXA goodwill is primarily attributable to the workforce acquired, as well as operational synergies and other intangibles that do not qualify for separate recognition. All of the goodwill and intangible assets relating to the NEXA acquisition has been allocated to the Service segment. Intangible assets related to the NEXA acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up to five years and are deductible for tax purposes. Amortization of goodwill related to the NEXA acquisition is not deductible for tax purposes.

16

 

The purchase price for NEXA was approximately $26.2 million and was paid with $23.9 million in cash and the issuance of 34,943 shares of our common stock valued at $2.4 million. Additionally, there are potential earn-out payments of up to $7.5 million over the four-year period following the closing of the transaction based upon NEXA achieving certain annual revenue and EBITDA goals. If achieved, the earn-out payments will also be made in shares of common stock unless certain criteria is met for cash payment. As of August 31, 2021 the estimated fair value for the contingent earn-out payments, classified as Level 3 in the fair value hierarchy, was $0.2 million and included in the purchase price allocation below. This amount was calculated using a Geometric Brownian motion distribution that was then used in a Monte Carlo simulation model. Assumptions used in the Monte Carlo simulation model included: 1) weighted-average cost of capital of 6.60%, 2) risk-free interest rate of 0.58%, 3) asset volatility of 20.00%, and 4) forecasted revenue and EBITDA. This contingent consideration is remeasured quarterly. If, as a result of remeasurement, the value of the contingent consideration changes, any charges or income will be included in the Company's Consolidated Statements of Income.  During the second quarter of fiscal year 2023, the Company reduced the contingent consideration down to zero.  As a result of remeasurement, the change was included in the Company’s Consolidated Statements of Income.  There were no remeasurement adjustments during the third quarter of fiscal year 2023. $0.1 million of the purchase price has been put into escrow for indemnification claims, if any.

The following is a summary of the purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of NEXA’s assets and liabilities acquired on August 31, 2021 (in thousands):

Goodwill		$	15,679
Intangible Assets – Customer Base & Contracts			5,600
Intangible Assets – Backlog			490
Intangible Assets – Covenant Not to Compete			600
			22,369
Plus:	Cash		3,732
	Accounts Receivable		2,434
	Non-Current Assets		38
Less:	Current Liabilities		(572	)
	Deferred Tax Liability		(1,769	)
Total Purchase Price		$	26,232

During the first nine months of fiscal year 2023, NEXA contributed revenue of $9.8 million and operating income of $0.2 million, which includes the negative impact of amortization of the acquired intangible assets.

Upstate Metrology: 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 the Company’s acquisition strategy of targeting businesses that can leverage the Company’s already existing operating infrastructure.

All the goodwill related to the Upstate Metrology acquisition has been allocated to the Service segment. Amortization of goodwill related to the Upstate Metrology acquisition is deductible for tax purposes.  The goodwill is primarily attributable to the workforce acquired, as well as operational synergies and other intangibles that do not qualify for separate recognition.

The total purchase price for the assets of Upstate Metrology was approximately $0.9 million. The following is a summary of the purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of Upstate Metrology’s assets and liabilities acquired on April 29, 2021 (in thousands):

Goodwill		$	483
Plus:	Current Assets		189
	Non-Current Assets		270
Less:	Current Liabilities		(11	)
Total Purchase Price		$	931

Since this operation was integrated immediately into our existing operation, Upstate Metrology’s separate operating income in undeterminable.

17

 

The results of acquired businesses are included in Transcat’s consolidated operating results as of the dates the businesses were acquired. The following unaudited pro forma information presents the Company’s results of operations as if the acquisitions of Complete Calibrations, e2b, Alliance, Tangent, NEXA and Upstate Metrology had occurred at the beginning of fiscal year 2022. The pro forma results do not purport to represent what the Company’s results of operations actually would have been if the transactions had occurred at the beginning of the period presented or what the Company’s operating results will be in future periods.

	(Unaudited)				(Unaudited)
	Third Quarter Ended				Nine Months Ended
(in thousands except per share information)	December 24, 2022		December 25, 2021		December 24, 2022		December 25, 2021
Total Revenue	$	57,402	$	52,760	$	170,648	$	158,848
Net Income	$	1,601	$	1,648	$	7,245	$	9,749
Basic Earnings Per Share	$	0.21	$	0.22	$	0.96	$	1.30
Diluted Earnings Per Share	$	0.21	$	0.22	$	0.95	$	1.28

Certain of the Company’s acquisition agreements include provisions for contingent consideration and other holdback amounts. The Company accrues for contingent consideration and holdback provisions based on their estimated fair value at the date of acquisition.  There is uncertainty of the fair value measurement from the use of significant unobservable inputs if those inputs reasonably could have been different at the reporting date. Changes in those significant unobservable inputs to a different amount might result in a significantly higher or lower fair value.  As of December 24, 2022, $0.5 million of other holdback amounts unpaid are reflected in current liabilities on the Consolidated Balance Sheets. During the first nine months of fiscal year 2023 and fiscal year 2022, no contingent consideration or other holdback amounts were paid.

During the first nine months of fiscal year 2023, acquisition costs of $0.1 million were recorded as incurred as general and administrative expenses in the Consolidated Statements of Income.  During the first nine months of fiscal year 2022, acquisition costs were $0.9 million.

18

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements. This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to expectations, estimates, beliefs, assumptions and predictions of future events and are identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “seek,” “strategy,” “target,” “could,” “may,” “will,” “would,” and other similar words. Forward-looking statements are not statements of historical fact and thus are subject to risks, uncertainties and other factors that could cause actual results to differ materially from historical results or those expressed in such forward-looking statements. You should evaluate forward-looking statements in light of important risk factors and uncertainties that may affect our operating and financial results and our ability to achieve our financial objectives. These factors include, but are not limited to, general economic conditions applicable to our business, the impact of the COVID-19 pandemic, inflationary impacts, the highly competitive nature of the industries in which we compete and in the nature of our two business segments, the concentration of Service segment customers in the life science and other regulated and industrial manufacturing industries, tariffs and trade relations, any impairment of our goodwill or intangible assets, cybersecurity risks, the risk of significant disruptions in our information technology systems, our ability to recruit, train and retain quality employees, skilled technicians and senior management, fluctuations in our operating results, competition in the rental market, the volatility of our stock price, our ability to adapt our technology, reliance on our enterprise resource planning system, technology updates, risks related to our acquisition strategy and the integration of the businesses we acquire, volatility in our customers’ industries, changes in vendor rebate programs, supply chain delays or disruptions, the risks related to current and future indebtedness, risks related to our intellectual property, the relatively low trading volume of our common stock, foreign currency rate fluctuations, adverse weather events or other catastrophes or natural disasters, changes in tax rates, and changes in accounting standards, legal requirements and listing standards. These risk factors and uncertainties are more fully described by us under the heading “Risk Factors” in our reports filed with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the fiscal year ended March 26, 2022. You should not place undue reliance on our forward-looking statements, which speak only as of the date they are made. Except as required by law, we undertake no obligation to update or publicly announce any revisions to any of the forward-looking statements contained in this report, whether as a result of new information, future events or otherwise.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

There have been no material changes to our critical accounting policies and estimates from the information provided in our Annual Report on Form 10-K for the fiscal year ended March 26, 2022.

RESULTS OF OPERATIONS

Executive Summary

During our third quarter of fiscal year 2023, we had consolidated revenue of $57.4 million. This represented an increase of $6.5 million or 12.8% versus the third quarter of fiscal year 2022. This increase was primarily due to the recently completed acquisitions, strong demand in our Service segment’s highly-regulated end markets and improved market conditions in our Distribution segment, especially rentals.

Our third quarter of fiscal year 2023 gross profit was $16.4 million. This was an increase of $2.8 million or 20.3% versus the third quarter of fiscal year 2022. In addition, consolidated gross margin was 28.6%, an increase of 180 basis points, versus the third quarter of fiscal year 2022. This increase was largely the result of operating leverage on our fixed costs and accretive gross margins from our rental business.

Total operating expenses were $13.2 million in the third quarter of fiscal year 2023, an increase of $2.0 million or 17.4% when compared to the prior year third quarter. Included in operating expenses during the third quarter of fiscal year 2023 were incremental operating expenses related to the acquisitions of Alliance, e2b and Complete Calibrations, investments in technology and higher incentive-based employee costs due to higher sales. As a percentage of total revenue, operating expenses were 23.1% in the third quarter of fiscal year 2023, up 90 basis points from 22.2% in the third quarter of fiscal year 2022. Operating income was $3.2 million, an increase of $0.8 million, or 34.0% and operating margin increased from 4.6% to 5.5% in the third quarter of fiscal year 2023.

Net income was $1.6 million for each of the third quarter of fiscal year 2023 and fiscal year 2022.  The difference between higher operating income and flat net income compared to the prior period is due to higher interest expense.

19

The following table presents, for the third quarter of fiscal year 2023 and fiscal year 2022, the components of our Consolidated Statements of Income:

	(Unaudited)						(Unaudited)
	Third Quarter Ended						Nine Months Ended
	December 24,			December 25,			December 24,			December 25,
	2022			2021			2022			2021
As a Percentage of Total Revenue:
Service Revenue		62.7	%		59.4	%		62.4	%		58.6	%
Distribution Sales		37.3	%		40.6	%		37.6	%		41.4	%
Total Revenue		100.0	%		100.0	%		100.0	%		100.0	%
Gross Profit Percentage:
Service Gross Profit		30.0	%		29.7	%		31.5	%		31.4	%
Distribution Gross Profit		26.2	%		22.5	%		25.4	%		23.2	%
Total Gross Profit		28.6	%		26.8	%		29.2	%		28.0	%
Selling, Marketing and Warehouse Expenses		11.5	%		10.0	%		10.9	%		10.1	%
General and Administrative Expenses		11.6	%		12.2	%		12.1	%		11.4	%
Total Operating Expenses		23.1	%		22.2	%		23.0	%		21.5	%
Operating Income		5.5	%		4.6	%		6.2	%		6.5	%
Interest and Other Expense, net		1.8	%		0.2	%		1.0	%		0.4	%
Income Before Income Taxes		3.7	%		4.4	%		5.2	%		6.1	%
Provision for Income Taxes		0.9	%		1.2	%		1.0	%		0.5	%
Net Income		2.8	%		3.2	%		4.2	%		5.6	%

Third Quarter Ended December 24, 2022 COMPARED TO Third Quarter Ended December 25, 2021 (dollars in thousands):

Revenue:

	Third Quarter Ended				Change
	December 24,		December 25,
	2022		2021		$		%
Revenue:
Service	$	35,977	$	30,237	$	5,740		19.0	%
Distribution		21,425		20,665		760		3.7	%
Total	$	57,402	$	50,902	$	6,500		12.8	%

Total revenue was $57.4 million, an increase of $6.5 million, or 12.8%, in our fiscal year 2023 third quarter compared to the prior fiscal year third quarter.

Service revenue, which accounted for 62.7% and 59.4% of our total revenue in the third quarter of fiscal years 2023 and 2022, respectively, increased 19.0% from the third quarter of fiscal year 2022 to the third quarter of fiscal year 2023. This year-over-year increase included $2.1 million in revenue from acquisitions, and also included organic revenue growth of 12.0% driven by improvement in end market conditions and continued market share gains.

20

Our fiscal years 2023 and 2022 Service revenue growth, in relation to prior fiscal year quarter comparisons, was as follows:

	FY 2023									FY 2022
	Q3			Q2			Q1			Q4			Q3			Q2			Q1
Service Revenue Growth		19.0	%		19.4	%		22.9	%		19.6	%		22.1	%		20.4	%		20.0	%

The growth in Service segment revenue during the third quarter of fiscal year 2023 versus the third quarter of fiscal year 2022 reflected both organic growth and acquisitions.

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

The following table presents the trailing twelve-month Service segment revenue for the first, second and third quarter of fiscal year 2023 and each quarter in fiscal year 2022 as well as the trailing twelve-month revenue growth as a comparison to that of the prior fiscal year period:

	FY 2023									FY 2022
	Q3			Q2			Q1			Q4			Q3			Q2			Q1
Trailing Twelve-Month:
Service Revenue	$	139,787		$	134,047		$	128,324		$	122,005		$	116,315		$	110,854		$	105,864
Service Revenue Growth		20.2	%		20.9	%		21.2	%		20.5	%		19.5	%		17.2	%		13.1	%

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 the first, second and third quarter of fiscal year 2023 and for each quarter during fiscal year 2022:

	FY 2023									FY 2022
	Q3			Q2			Q1			Q4			Q3			Q2			Q1
Percent of Service Revenue:
In-House		86.2	%		86.2	%		85.4	%		85.4	%		84.1	%		83.2	%		83.1	%
Outsourced		12.6	%		12.6	%		13.2	%		13.1	%		14.4	%		15.3	%		15.4	%
Freight Billed to Customers		1.2	%		1.2	%		1.4	%		1.5	%		1.5	%		1.5	%		1.5	%
		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

21

Our Distribution sales accounted for 37.3% of our total revenue in the third quarter of fiscal year 2023 and 40.6% of our total revenue in the third quarter of fiscal year 2022. During the third quarter of fiscal year 2023, Distribution segment sales showed an increase of 3.7% or $0.8 million to $21.4 million. This increase was primarily due to strong demand for rental orders.

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

	FY 2023									FY 2022
	Q3			Q2			Q1			Q4			Q3			Q2			Q1
Distribution Sales Growth		3.7	%		1.6	%		2.7	%		7.2	%		7.2	%		22.2	%		27.0	%

The change in the third quarter of fiscal year 2023 versus the third quarter of fiscal year 2022 for the Distribution segment reflected organic 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. Backorders are the total dollar value of orders received for which revenue has not yet been recognized. 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. 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 at the end of the third quarter of fiscal year 2023 were $9.5 million, an increase of $0.6 million versus the end of the third quarter of fiscal year 2022 and an increase of $1.8 million since March 26, 2022. The year-over-year increase in pending product shipments and backorders was a result of the disruption to the supply of products as well as increased orders.

The following table presents our total pending product shipments and the percentage of total pending product shipments that were backorders at the end of the first, second and third quarter of fiscal year 2023 and each quarter of fiscal year 2022:

	FY 2023									FY 2022
	Q3			Q2			Q1			Q4			Q3			Q2			Q1
Total Pending Product Shipments	$	9,543		$	9,116		$	9,034		$	7,747		$	8,943		$	7,707		$	8,272
% of Pending Product
Shipments that were Backorders		78.4	%		80.8	%		78.1	%		83.2	%		80.5	%		77.2	%		77.5	%

Gross Profit:

	Third Quarter Ended				Change
	December 24,		December 25,
	2022		2021		$		%
Gross Profit:
Service	$	10,793	$	8,983	$	1,810		20.1	%
Distribution		5,607		4,653		954		20.5	%
Total	$	16,400	$	13,636	$	2,764		20.3	%

Total gross profit for the third quarter of fiscal year 2023 was $16.4 million, an increase of $2.8 million or 20.3% versus the third quarter of fiscal year 2022. Total gross margin was 28.6% in the third quarter of fiscal year 2023, up from 26.8% in the third quarter of fiscal year 2022, a 180 basis point increase.

Service gross profit in the third quarter of fiscal year 2023 increased $1.8 million, or 20.1%, from the third quarter of fiscal year 2022. Service gross margin was 30.0% in the third quarter of fiscal year 2023, a 30 basis point increase versus the third quarter of fiscal year 2022. This increase in gross margin was the result of improved productivity offset by increased start-up costs from new client-based lab implementations.

22

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

	FY 2023									FY 2022
	Q3			Q2			Q1			Q4			Q3			Q2			Q1
Service Gross Margin		30.0	%		32.6	%		32.0	%		33.1	%		29.7	%		32.9	%		31.8	%

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:

	FY 2023									FY 2022
	Q3			Q2			Q1			Q4			Q3			Q2			Q1
Distribution Gross Margin		26.2	%		24.9	%		25.0	%		24.5	%		22.5	%		23.5	%		23.6	%

Distribution segment gross margin was 26.2% in the third quarter of fiscal year 2023 versus 22.5% in the third quarter of fiscal year 2022, a 370 basis point increase. The increase in segment gross margin was primarily due to a favorable mix of higher margin products sold and rented.

Operating Expenses:

	Third Quarter Ended				Change
	December 24,		December 25,
	2022		2021		$		%
Operating Expenses:
Selling, Marketing and Warehouse	$	6,595	$	5,051	$	1,544		30.6	%
General and Administrative		6,642		6,224		418		6.7	%
Total	$	13,237	$	11,275	$	1,962		17.4	%

Total operating expenses were $13.2 million in the third quarter of fiscal year 2023 versus $11.3 million during the third quarter of fiscal year 2022. 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. 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.

As a percentage of total revenue, operating expenses were 23.1% in the third quarter of fiscal year 2023 and 22.2% in the third quarter of fiscal year 2022, an increase of 90 basis points.

Income Taxes:

	Third Quarter Ended				Change
	December 24,		December 25,
	2022		2021		$			%
Provision for Income Taxes	$	523	$	596	$	(73	)		(12.2	)%

Our effective tax rate for the third quarter of fiscal years 2023 and 2022 was 24.6% and 26.8%, respectively. The decrease in the tax provision is due to the mix of net income by country. Our quarterly 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 each of the third quarter of fiscal years 2023 and 2022 was less than $0.1 million.

23

Net Income:

	Third Quarter Ended				Change
	December 24,		December 25,
	2022		2021		$			%
Net Income	$	1,601	$	1,629	$	(28	)		(1.7	)%

Net income for the third quarter of fiscal year 2023 was flat compared to the third quarter of fiscal year 2022.  This is primarily due to higher operating income offset by increased interest expense.

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, acquisition related transaction expenses, 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, 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.

	Third Quarter Ended
	December 24,			December 25,
	2022			2021
Net Income	$	1,601		$	1,629
+ Interest Expense		726			194
+ Other (Income) / Expense		313			(58	)
+ Tax Provision		523			596
Operating Income	$	3,163		$	2,361
+ Depreciation & Amortization		2,824			2,368
+ Transaction Expense		96			55
+ Other Income / (Expense)		(313	)		58
+ Noncash Stock Compensation		815			624
Adjusted EBITDA	$	6,585		$	5,466

Total Adjusted EBITDA for the third quarter of fiscal year 2023 was $6.6 million, an increase of $1.1 million or 20.5% versus the third quarter of fiscal year 2022. As a percentage of revenue, Adjusted EBITDA increased to 11.5% for the third quarter of fiscal year 2023 from 10.7% for the third quarter of fiscal year 2022. The increase in Adjusted EBITDA during the third quarter of fiscal year 2023 was primarily driven by the increase in depreciation and amortization expense and interest expense.

24

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. 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.

Adjusted Diluted Earnings Per Share 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 Diluted Earnings Per Share and, therefore, should not be used in isolation of, but in conjunction with, the GAAP measure. Adjusted Diluted Earnings Per Share, 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.

	Third Quarter Ended
	December 24,			December 25,
	2022			2021
Net Income	$	1,601		$	1,629
+ Amortization of Intangible Assets		1,180			947
+ Acquisition Amortization of Backlog		-			300
+ Acquisition Deal Costs		254			293
+ Income Tax Effect @ 25%		(359	)		(385	)
Adjusted Net Income		2,676			2,784
Average Diluted Shares Outstanding		7,666			7,653
Diluted Earnings Per Share – GAAP	$	0.21		$	0.21
Adjusted Diluted Earnings Per Share	$	0.35		$	0.36

nine months ended December 24, 2022 COMPARED TO nine months ended December 25, 2021:

Revenue:

	Nine Months Ended				Change
(dollars in thousands)	December 24,		December 25,
	2022		2021		$		%
Revenue:
Service	$	105,120	$	87,338	$	17,782		20.4	%
Distribution		63,382		61,741		1,641		2.7	%
Total	$	168,502	$	149,079	$	19,423		13.0	%

Service revenue, which accounted for 62.4% of our total revenue during the first nine months of fiscal year 2023 and 58.6% of our total revenue during the first nine months of fiscal year 2022, increased $17.8 million, or 20.4%, from the first nine months of fiscal year 2022 compared to the first nine months of fiscal year 2023. This year-over-year increase reflected increased demand from the life sciences and other highly-regulated end markets and included $9.0 million of incremental revenue from acquisitions.

Our Distribution sales accounted for 37.6% and 41.4% of our total revenue in the first nine months of fiscal years 2023 and 2022, respectively. For the first nine months of fiscal year 2023, Distribution sales increased $1.6 million, or 2.7%, compared to the first nine months of fiscal year 2022. This increase in revenue was due to increased orders in the first nine months of fiscal year 2023 and strong demand for rental orders.

25

Gross Profit:

	Nine Months Ended				Change
(dollars in thousands)	December 24,		December 25,
	2022		2021		$		%
Gross Profit:
Service	$	33,115	$	27,447	$	5,668		20.7	%
Distribution		16,090		14,320		1,770		12.4	%
Total	$	49,205	$	41,767	$	7,438		17.8	%

Total gross profit for the first nine months of fiscal year 2023 was $49.2 million, an increase of $7.4 million or 17.8% versus the first nine months of fiscal year 2022. Total gross margin was 29.2%, a 120 basis points increase compared to 28.0% in the first nine months of fiscal year 2022. This increase in gross margin was primarily due to operating leverage on our fixed cost base in the Service segment and a favorable mix of products sold and rented in the Distribution segment.

Operating Expenses:

	Nine Months Ended				Change
(dollars in thousands)	December 24,		December 25,
	2022		2021		$		%
Operating Expenses:
Selling, Marketing and Warehouse	$	18,315	$	15,022	$	3,293		21.9	%
General and Administrative	$	20,497		17,117		3,380		19.7	%
Total	$	38,812	$	32,139	$	6,673		20.8	%

Total operating expenses for the first nine months of fiscal year 2023 were $38.8 million, an increase of $6.7 million or 20.8% versus the first nine months of fiscal year 2022. The year-over-year increase in selling, marketing and warehouse 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 increase in general and administrative expenses includes incremental expenses related to acquired companies, increased payroll costs from new employees and continued investments in technology.  As a percentage of total revenue, operating expenses during the first nine months of fiscal year 2023 were 23.0%, compared to 21.6% in the first nine months of fiscal year 2022, an increase of 140 basis points.

Provision for Income Taxes:

	Nine Months Ended				Change
(dollars in thousands)	December 24,		December 25,
	2022		2021		$		%
Provision for Income Taxes	$	1,631	$	715	$	916		128.1	%

Our effective tax rates for the first nine months of fiscal years 2023 and 2022 were 18.8% and 7.9%, respectively. The increase in our tax rate is due to the decreased 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 the first nine months of fiscal years 2023 and 2022 were $0.5 million and $1.7 million, respectively.

26

Net Income:

	Nine Months Ended				Change
	December 24,		December 25,
	2022		2021		$			%
Net Income	$	7,030	$	8,332	$	(1,302	)		(15.6	)%

Net income for the first nine months of fiscal year 2023 was $7.0 million, a decrease of $1.3 million or 15.6% versus the first nine months of fiscal year 2022. The year over year decrease in net income was due higher operating income offset by higher operating expenses, higher interest expense and a higher provision for income taxes.

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, acquisition related transaction expenses, 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, 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.

	Nine Months Ended
(dollars in thousands)	December 24,			December 25,
	2022			2021
Net Income	$	7,030		$	8,332
+ Interest Expense		1,636			552
+ Other Expense		96			29
+ Tax Provision		1,631			715
Operating Income		10,393			9,628
+ Depreciation & Amortization		8,243			6,499
+ Transaction Expense		126			876
+ Other Expense		(96	)		(29	)
+ Noncash Stock Compensation		2,757			1,681
Adjusted EBITDA	$	21,423		$	18,655

During the first nine months of fiscal year 2023, Adjusted EBITDA was $21.4 million, an increase of $2.8 million or 14.8% versus the first nine months of fiscal year 2022. As a percentage of revenue, Adjusted EBITDA was 12.7% for the first nine months of fiscal year 2023 compared to 12.5% for the first nine months of fiscal year 2022. The increase in Adjusted EBITDA during the first nine months of fiscal year 2023 was primarily driven by the increase in interest expense, tax provision, depreciation and amortization expense and noncash stock compensation expense.

27

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. 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.

Adjusted Diluted Earnings Per Share 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 Diluted Earnings Per Share and, therefore, should not be used in isolation of, but in conjunction with, the GAAP measure. Adjusted Diluted Earnings Per Share, 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.

	Nine Months Ended
	December 24,			December 25,
	2022			2021
Net Income	$	7,030		$	8,332
+ Amortization of Intangible Assets		3,411			2,296
+ Acquisition Amortization of Backlog		-			400
+ Acquisition Deal Costs		792			1,193
+ Income Tax Effect @ 25%		(1,051	)		(972	)
Adjusted Net Income		10,182			11,249
Average Diluted Shares Outstanding		7,644			7,599
Diluted Earnings Per Share – GAAP	$	0.92		$	1.10
Adjusted Diluted Earnings Per Share	$	1.33		$	1.48

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. We believe that these sources of financing will be adequate to meet our future requirements.

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 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.

28

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”) was reduced 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 December 24, 2022, $80.0 million was available under the revolving credit facility, of which $42.2 million was outstanding and included in long-term debt on the Consolidated Balance Sheets. During the first nine months of fiscal year 2023 and 2022, we used $8.3 million and $20.9 million, respectively, for business acquisitions.

As of December 24, 2022, $7.0 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 the third quarter of fiscal year 2023. Our leverage ratio, as defined in the 2021 Credit Agreement, was 1.66 at December 24, 2022, 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% 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 accrue at a fixed rate of 3.90% during the second quarter of fiscal year 2022 and over the term of the loan for subsequent periods. 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.

29

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

	Nine Months Ended
	December 24,			December 25,
	2022			2021
Cash Provided by (Used in):
Operating Activities	$	13,975		$	12,378
Investing Activities	$	(15,445	)	$	(26,759	)
Financing Activities	$	782		$	16,900

Operating Activities: Net cash provided by operations was $14.0 million during the first nine months of fiscal year 2023 compared to $12.4 million of net cash provided by operating activities during the first nine months of fiscal year 2022. The year-over-year increase in cash provided by operations was primarily the result of changes in net working capital (defined as current assets less current liabilities). The significant working capital fluctuations were as follows:

● Receivables: Accounts receivable decreased $2.0 million during the first nine months of fiscal year 2023 inclusive of $0.7 million of accounts receivable acquired during the period. During the first nine months of fiscal year 2022, accounts receivable increased by a net amount of $0.8 million inclusive of $2.6 million of accounts receivable acquired during the period. The year-over-year variation reflects changes in the timing of collections. The following table illustrates our “days sales outstanding” as of December 24, 2022 and December 25, 2021 (dollars in thousands):

	December 24,		December 25,
	2022		2021
Net Sales, for the last two fiscal months	$	40,088	$	34,743
Accounts Receivable, net	$	37,702	$	34,702
Days Sales Outstanding		59		63

● Inventory: 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 SKU’s 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 $4.2 million during the first nine months of fiscal year 2023. Our inventory balance increased by $2.2 million during the first nine months of fiscal year 2022.

● 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 $0.3 million during the first nine months of fiscal year 2023 inclusive of $0.1 million of accounts payable acquired during the period.  Accounts payable increased $0.7 million during the first nine months of fiscal year 2022. The variances are largely due to the timing of inventory and capital expenditures and other payments in the respective periods.

● 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 timing of payments to employees.

During the first nine months of fiscal year 2023, accrued compensation and other current liabilities decreased by $2.4 million. During the first nine months of fiscal year 2022, accrued compensation and other current liabilities decreased by $1.1 million. The change from the first nine months of fiscal year 2022 was largely due to the annual payment of incentive based compensation accruals.

● Income Taxes Payable: In any given period, net working capital may be affected by the timing and amount of income tax payments. During the first nine months of fiscal year 2023 the net income tax receivable decreased by $0.8 million. During the first nine months of fiscal year 2022, income taxes payable decreased by $0.4 million. The year-over-year difference is due to timing of income tax payments.

30

Investing Activities: During the first nine months of fiscal year 2023, we invested $7.1 million in capital expenditures that was used primarily for customer-driven expansion of Service segment capabilities and our rental business.

During the first nine months of fiscal year 2022, we invested $5.9 million in capital expenditures that was used primarily for customer-driven expansion of Service segment capabilities and our rental business.

During the first nine months of fiscal year 2023, we used $8.3 million for business acquisitions. During the first nine months of fiscal year 2022, we used $20.9 million for business acquisitions.

During each of the first nine months of fiscal year 2023 and fiscal year 2022, no contingent consideration or other holdback amounts were paid related to business acquisitions.

Financing Activities: During the first nine months of fiscal year 2023, $2.3 million was borrowed from our revolving line of credit and $0.5 million in cash was generated from the issuance of common stock. In addition, we used $1.6 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 are shown as a repurchase of shares of our common stock.

During the first nine months of fiscal year 2022, $22.8 million was borrowed from our revolving line of credit and $1.4 million in cash was generated from the issuance of common stock. In addition, we used $1.6 million for scheduled repayments of our term loan and $5.6 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 2022, which are shown as a repurchase of shares of our common stock.

OUTLOOK

We are pleased with the growth across all of our business channels including double-digit organic Service growth in our third quarter of fiscal 2023. We expect our unique value proposition will continue to drive a sustainable competitive advantage in the highly regulated markets that we serve, particularly the Life Science and Aerospace and Defense markets.

We are confident our work around differentiation, including Nexa's service tracks and consulting platform, will foster continued organic revenue growth.  Driven by recurring revenue streams and regulation, we expect our Service segment to outperform through various economic cycles.

Our acquisition pipeline is very active. Acquisitions, which have generated compelling returns throughout fiscal year 2023, will continue to be an important component of Service growth. In addition, in both the fourth quarter of fiscal year 2023 and fiscal year 2024, we expect organic Service revenue growth to remain in the high-single digit range. We also expect gross margin improvement to continue in those periods as a by-product of both growth and successful execution of various ongoing productivity enhancement programs.

We expect our income tax rate to range between 21% and 23% for full fiscal year 2023. This estimate includes Federal, various state, Canadian and Irish income taxes and reflects the discrete tax accounting associated with share-based payment awards.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATES

Our exposure to changes in interest rates results from our borrowing activities. In the event interest rates were to move by 1%, our yearly interest expense would increase or decrease by approximately $0.4 million assuming our average borrowing levels remained constant. As of December 24, 2022, $80.0 million was available under our revolving credit facility, of which $42.2 million was outstanding and included in long-term debt on the Consolidated Balance Sheets. As described above under “Liquidity and Capital Resources,” we also have a $15.0 million (original principal) term loan. The 2018 Term Loan is considered a fixed interest rate loan. As of December 24, 2022, $7.0 million was outstanding on the 2018 Term Loan and was included in long-term debt and current portion of long-term debt on the Consolidated Balance Sheets. The 2018 Term Loan requires total (principal and interest) repayments of $0.2 million per month.

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At our option, we borrow from our revolving credit facility at the variable one-month LIBOR or at a fixed rate for a designated period at the LIBOR corresponding to such period (subject to a 1% floor during the first quarter of fiscal year 2022 and a 0.25% floor for subsequent periods), in each case, plus a margin. Our interest rate margin is determined on a quarterly basis based upon our calculated leverage ratio. Our interest rate during the first nine months of fiscal year 2023 for our revolving credit facility ranged from 1.6% to 6.0%. Interest on outstanding borrowings of the 2018 Term Loan accrued at a fixed rate of 4.15% over the term of the loan during the first quarter of fiscal year 2022 and 3.90% over the term of the loan for subsequent periods. Our revolving credit facility includes a mechanism for adoption of a different benchmark rate upon the discontinuation of LIBOR. On December 24, 2022, we had no hedging arrangements in place for our revolving credit facility to limit our exposure to upward movements in interest rates.

FOREIGN CURRENCY

Approximately 90% of our total revenues for each of the first nine months of fiscal year 2023 and 2022 were denominated in U.S. dollars, with the remainder denominated in Canadian dollars and Euros. A 10% change in the value of the Canadian dollar to the U.S. dollar and the Euro to the U.S. dollar would impact our revenue by approximately 1%. We monitor the relationship between U.S. and Canadian currencies and the U.S. dollar and the Euro on a monthly basis and adjust sales prices for products and services sold in Canadian dollars or Euros as we believe to be appropriate.

We continually utilize short-term foreign exchange forward contracts to reduce the risk that future earnings denominated in Canadian dollars would be adversely affected by changes in currency exchange rates. We do not apply hedge accounting and therefore the net change in the fair value of the contracts, which totaled a gain of $0.3 million and less than $0.1 million during the first nine months of each of the fiscal years 2023 and 2022, respectively, was recognized as a component of Interest and Other Expense, net in the Consolidated Statements of Income. The change in the fair value of the contracts is offset by the change in fair value on the underlying accounts receivables denominated in Canadian dollars being hedged. On December 24, 2022, we had a foreign exchange contract, which matured in January 2023, outstanding in the notional amount of $3.0 million. The foreign exchange contract was renewed in January 2023 and continues to be in place. We do not use hedging arrangements for speculative purposes.

ITEM 4. CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures. Our principal executive officer and our principal financial officer evaluated our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this quarterly report. Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our principal executive officer and principal financial officer to allow timely decisions regarding required disclosure. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of such date.

Changes in Internal Control over Financial Reporting. There has been no change in our internal control over financial reporting that occurred during the last fiscal quarter covered by this quarterly report (our third quarter of fiscal year 2023) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

32

PART II. OTHER INFORMATION

ITEM 6. EXHIBITS

INDEX TO EXHIBITS

Exhibit No.	Description
(31)	Rule 13a-14(a)/15d-14(a) Certifications
	31.1*	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2*	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(32)	Section 1350 Certifications
	32.1**	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(101)	Interactive Data File
101.INS*		Inline XBRL Instance Document
101.SCH*		Inline XBRL Taxonomy Extension Schema Document
101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document
(104)		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Exhibit filed with this report.

** Exhibit furnished with this report.

33

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	TRANSCAT, INC.
Date: February 1, 2023	/s/ Lee D. Rudow
	Lee D. Rudow
	President and Chief Executive Officer (Principal Executive Officer)
Date: February 1, 2023	/s/ Thomas L. Barbato
	Thomas L. Barbato
	Senior Vice President of Finance and Chief Financial Officer (Principal Financial Officer)

34

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Lee D. Rudow, President and Chief Executive Officer of Transcat, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Transcat, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 1, 2023	/s/ Lee D. Rudow
	Lee D. Rudow
	President and Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Thomas L. Barbato, Senior Vice President of Finance and Chief Financial Officer of Transcat, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Transcat, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 1, 2023	/s/ Thomas L. Barbato
	Thomas L. Barbato
	Senior Vice President of Finance and Chief Financial Officer (Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with this quarterly report on Form 10-Q of Transcat, Inc., Lee D. Rudow, the Chief Executive Officer of Transcat, Inc. and Thomas L. Barbato, the Chief Financial Officer of Transcat, Inc. certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of their knowledge, that:

1. This quarterly report on Form 10-Q for the third quarter ended December 24, 2022 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in this quarterly report on Form 10-Q for the third quarter ended December 24, 2022 fairly presents, in all material respects, the financial condition and results of operations of Transcat, Inc.

Date: February 1, 2023	/s/ Lee D. Rudow
	Lee D. Rudow
	President and Chief Executive Officer (Principal Executive Officer)

Date: February 1, 2023	/s/ Thomas L. Barbato
	Thomas L. Barbato
	Senior Vice President of Finance and Chief Financial Officer (Principal Financial Officer)

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to Transcat, Inc. and will be retained by Transcat, Inc. and furnished to the SEC or its staff upon request.

XML

Document And Entity Information - shares	9 Months Ended
	Dec. 24, 2022	Jan. 27, 2023
Document Information [Line Items]
Entity Central Index Key	0000099302
Entity Registrant Name	TRANSCAT INC
Amendment Flag	false
Current Fiscal Year End Date	--03-24
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2023
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Dec. 24, 2022
Document Transition Report	false
Entity File Number	000-03905
Entity Incorporation, State or Country Code	OH
Entity Tax Identification Number	16-0874418
Entity Address, Address Line One	35 Vantage Point Drive
Entity Address, City or Town	Rochester
Entity Address, State or Province	NY
Entity Address, Postal Zip Code	14624
City Area Code	585
Local Phone Number	352-7777
Title of 12(b) Security	Common Stock, $0.50 par value
Trading Symbol	TRNS
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		7,561,512

XML

Consolidated Statements of Income (Unaudited) - USD ($) shares in Thousands, $ in Thousands		3 Months Ended		9 Months Ended
		Dec. 24, 2022	Dec. 25, 2021	Dec. 24, 2022	Dec. 25, 2021
Revenue	[1]	$ 57,402	$ 50,902	$ 168,502	$ 149,079
Cost of Revenue		41,002	37,266	119,297	107,312
Gross Profit		16,400	13,636	49,205	41,767
Selling, Marketing and Warehouse Expenses		6,595	5,051	18,315	15,022
General and Administrative Expenses		6,642	6,224	20,497	17,117
Total Operating Expenses		13,237	11,275	38,812	32,139
Operating Income		3,163	2,361	10,393	9,628
Interest and Other Expense, net		1,039	136	1,732	581
Income Before Income Taxes		2,124	2,225	8,661	9,047
Provision for Income Taxes		523	596	1,631	715
Net Income		$ 1,601	$ 1,629	$ 7,030	$ 8,332
Basic Earnings Per Share (in dollars per share)		$ 0.21	$ 0.22	$ 0.93	$ 1.11
Average Shares Outstanding (in shares)		7,559	7,519	7,547	7,487
Diluted Earnings Per Share (in dollars per share)		$ 0.21	$ 0.21	$ 0.92	$ 1.10
Average Shares Outstanding (in shares)		7,666	7,653	7,644	7,599
Service [Member]
Revenue		$ 35,977	$ 30,237	$ 105,120	$ 87,338
Cost of Revenue		25,184	21,254	72,005	59,891
Distribution Service [Member]
Revenue		21,425	20,665	63,382	61,741
Cost of Revenue		$ 15,818	$ 16,012	$ 47,292	$ 47,421

[1] Revenues are attributed to the countries based on the destination of a product shipment or the location where service is rendered.

XML

Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Dec. 24, 2022	Dec. 25, 2021	Dec. 24, 2022	Dec. 25, 2021
Net Income	$ 1,601	$ 1,629	$ 7,030	$ 8,332
Other Comprehensive Income (Loss):
Currency Translation Adjustment	393	(233)	(878)	(314)
Other, net of tax effects of $2 and $7 for the third quarter ended December 24, 2022 and December 25, 2021, respectively; and $(4) and $17 for the nine months ended December 24, 2022 and December 25, 2021, respectively	8	18	(12)	48
Total Other Comprehensive Income (Loss)	401	(215)	(890)	(266)
Comprehensive Income	$ 2,002	$ 1,414	$ 6,140	$ 8,066

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Consolidated Statements of Comprehensive Income (Unaudited) (Parentheticals) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Dec. 24, 2022	Dec. 25, 2021	Dec. 24, 2022	Dec. 25, 2021
Other, tax effect	$ 2	$ 7	$ (4)	$ 17

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Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Dec. 24, 2022	Mar. 26, 2022
Current Assets:
Cash	$ 1,593	$ 1,396
Accounts Receivable, less allowance for doubtful accounts of $488 and $460 as of December 24, 2022 and March 26, 2022, respectively	37,702	39,737
Other Receivables	377	558
Inventory, net	16,884	12,712
Prepaid Expenses and Other Current Assets	4,141	5,301
Total Current Assets	60,697	59,704
Property and Equipment, net	28,334	26,439
Goodwill	68,826	65,074
Intangible Assets, net	14,843	14,692
Right To Use Assets, net	14,874	11,026
Other Assets	895	827
Total Assets	188,469	177,762
Current Liabilities:
Accounts Payable	13,845	14,171
Accrued Compensation and Other Current Liabilities	9,012	11,378
Current Portion of Long-Term Debt	2,227	2,161
Total Current Liabilities	25,084	27,710
Long-Term Debt	46,941	46,291
Deferred Tax Liabilities, net	6,672	6,724
Lease Liabilities	12,998	9,194
Other Liabilities	1,490	1,667
Total Liabilities	93,185	91,586
Shareholders' Equity:
Common Stock, par value $0.50 per share, 30,000,000 shares authorized; 7,560,420 and 7,529,078 shares issued and outstanding as of December 24, 2022 and March 26, 2022, respectively	3,780	3,765
Capital in Excess of Par Value	27,123	23,900
Accumulated Other Comprehensive Loss	(1,123)	(233)
Retained Earnings	65,504	58,744
Total Shareholders' Equity	95,284	86,176
Total Liabilities and Shareholders' Equity	$ 188,469	$ 177,762

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Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ in Thousands	Dec. 24, 2022	Mar. 26, 2022
Accounts Receivable, allowance for doubtful accounts	$ 488	$ 460
Common stock, par value (in dollars per share)	$ 0.50	$ 0.50
Common stock, shares authorized (in shares)	30,000,000	30,000,000
Common stock, shares issued (in shares)	7,560,420	7,529,078
Common stock, shares outstanding (in shares)	7,560,420	7,529,078

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Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Dec. 24, 2022	Dec. 25, 2021
Cash Flows from Operating Activities:
Net Income	$ 7,030	$ 8,332
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Net Loss on Disposal of Property and Equipment	62	113
Deferred Income Taxes	(52)	5
Depreciation and Amortization	8,243	6,899
Provision for Accounts Receivable and Inventory Reserves	174	417
Stock-Based Compensation Expense	2,757	1,681
Changes in Assets and Liabilities, net of acquisitions:
Accounts Receivable and Other Receivables	1,850	1,185
Inventory	(3,589)	(1,794)
Prepaid Expenses and Other Current Assets	1,074	(3,280)
Accounts Payable	(424)	689
Accrued Compensation and Other Current Liabilities	(3,150)	(1,470)
Income Taxes Payable	0	(399)
Net Cash Provided by Operating Activities	13,975	12,378
Cash Flows from Investing Activities:
Purchases of Property and Equipment	(7,149)	(5,861)
Proceeds from Sale of Property and Equipment	10	12
Business Acquisitions, net of cash acquired	(8,306)	(20,910)
Net Cash Used in Investing Activities	(15,445)	(26,759)
Cash Flows from Financing Activities:
Proceeds from Revolving Credit Facility, net	2,286	22,760
Repayments of Term Loan	(1,570)	(1,565)
Issuance of Common Stock	503	1,354
Repurchase of Common Stock	(437)	(5,649)
Net Cash Provided by Financing Activities	782	16,900
Effect of Exchange Rate Changes on Cash	885	(300)
Net Increase in Cash	197	2,219
Cash at Beginning of Period	1,396	560
Cash at End of Period	1,593	2,779
Supplemental Disclosure of Cash Flow Activity:
Interest	1,510	531
Income Taxes, net	957	3,263
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Common stock issued for acquisitions	145	2,368
NEXA [Member]
Assets acquired and liabilities assumed in business combinations:
Accrued contingent consideration	0	153
Alliance [Member]
Assets acquired and liabilities assumed in business combinations:
Accrued contingent consideration	$ 518	$ 0

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Consolidated Statements of Changes in Shareholders' Equity (Unaudited) - USD ($) shares in Thousands, $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	AOCI Attributable to Parent [Member]	Retained Earnings [Member]	Total
Balance (in shares) at Mar. 27, 2021	7,458
Balance at Mar. 27, 2021	$ 3,729	$ 19,287	$ (451)	$ 52,513	$ 75,078
Issuance of Common Stock (in shares)	52
Issuance of Common Stock	$ 26	673	0	0	699
Repurchase of Common Stock (in shares)	(62)
Repurchase of Common Stock	$ (31)	(755)	0	(2,591)	(3,377)
Stock-Based Compensation (in shares)	21
Stock-Based Compensation	$ 10	427	0	0	437
Other Comprehensive Income (Loss)	0	0	182	0	182
Net Income	$ 0	0	0	3,688	3,688
Balance (in shares) at Jun. 26, 2021	7,469
Balance at Jun. 26, 2021	$ 3,734	19,632	(269)	53,610	76,707
Balance (in shares) at Mar. 27, 2021	7,458
Balance at Mar. 27, 2021	$ 3,729	19,287	(451)	52,513	75,078
Net Income					8,332
Other Comprehensive Loss					(266)
Balance (in shares) at Dec. 25, 2021	7,521
Balance at Dec. 25, 2021	$ 3,760	23,452	(717)	56,403	82,898
Balance (in shares) at Jun. 26, 2021	7,469
Balance at Jun. 26, 2021	$ 3,734	19,632	(269)	53,610	76,707
Issuance of Common Stock (in shares)	72
Issuance of Common Stock	$ 36	2,871	0	0	2,907
Repurchase of Common Stock (in shares)	(35)
Repurchase of Common Stock	$ (18)	(403)	0	(1,851)	(2,272)
Stock-Based Compensation (in shares)	12
Stock-Based Compensation	$ 7	613	0	0	620
Other Comprehensive Income (Loss)	0	0	(233)	0	(233)
Net Income	$ 0	0	0	3,015	3,015
Balance (in shares) at Sep. 25, 2021	7,518
Balance at Sep. 25, 2021	$ 3,759	22,713	(502)	54,774	80,744
Issuance of Common Stock (in shares)	2
Issuance of Common Stock	$ 1	115	0	0	116
Stock-Based Compensation (in shares)	1
Stock-Based Compensation	$ 0	624	0	0	624
Net Income	0	0	0	1,629	1,629
Other Comprehensive Loss	$ 0	0	(215)	0	(215)
Balance (in shares) at Dec. 25, 2021	7,521
Balance at Dec. 25, 2021	$ 3,760	23,452	(717)	56,403	82,898
Balance (in shares) at Mar. 26, 2022	7,529
Balance at Mar. 26, 2022	$ 3,765	23,900	(233)	58,744	86,176
Issuance of Common Stock (in shares)	8
Issuance of Common Stock	$ 3	363	0	0	366
Repurchase of Common Stock (in shares)	(7)
Repurchase of Common Stock	$ (3)	(164)	0	(270)	(437)
Stock-Based Compensation (in shares)	16
Stock-Based Compensation	$ 8	820	0	0	828
Other Comprehensive Income (Loss)	0	0	(453)	0	(453)
Net Income	$ 0	0	0	3,072	3,072
Balance (in shares) at Jun. 25, 2022	7,546
Balance at Jun. 25, 2022	$ 3,773	24,919	(686)	61,546	89,552
Balance (in shares) at Mar. 26, 2022	7,529
Balance at Mar. 26, 2022	$ 3,765	23,900	(233)	58,744	86,176
Net Income					7,030
Other Comprehensive Loss					(890)
Balance (in shares) at Dec. 24, 2022	7,560
Balance at Dec. 24, 2022	$ 3,780	27,123	(1,123)	65,504	95,284
Balance (in shares) at Jun. 25, 2022	7,546
Balance at Jun. 25, 2022	$ 3,773	24,919	(686)	61,546	89,552
Issuance of Common Stock (in shares)	3
Issuance of Common Stock	$ 2	141	0	0	143
Stock-Based Compensation (in shares)	9
Stock-Based Compensation	$ 4	1,110	0	0	1,114
Other Comprehensive Income (Loss)	0	0	(838)	0	(838)
Net Income	$ 0	0	0	2,357	2,357
Balance (in shares) at Sep. 24, 2022	7,558
Balance at Sep. 24, 2022	$ 3,779	26,170	(1,524)	63,903	92,328
Issuance of Common Stock (in shares)	1
Issuance of Common Stock	$ 0	139	0	0	139
Stock-Based Compensation (in shares)	1
Stock-Based Compensation	$ 1	814	0	0	815
Other Comprehensive Income (Loss)	0	0	401	0	401
Net Income	$ 0	0	0	1,601	1,601
Other Comprehensive Loss					401
Balance (in shares) at Dec. 24, 2022	7,560
Balance at Dec. 24, 2022	$ 3,780	$ 27,123	$ (1,123)	$ 65,504	$ 95,284

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Note 1 - General

9 Months Ended

Dec. 24, 2022

Notes to Financial Statements

Significant Accounting Policies [Text Block]

NOTE 1 – GENERAL

Description of Business: Transcat, Inc. (“Transcat,” “we,” “us,” “our” or the “Company”) is a leading provider of accredited calibration services, enterprise asset management services, and value-added distributor of professional grade handheld test, measurement and control instrumentation. The Company is focused on providing services and products to highly regulated industries, particularly the life science industry, which includes pharmaceutical, biotechnology, medical device and other FDA-regulated businesses. Additional industries served include industrial manufacturing; energy and utilities, including oil and gas; chemical manufacturing; FAA-regulated businesses, including aerospace and defense and other industries that require accuracy in their processes, confirmation of the capabilities of their equipment, and for which the risk of failure is very costly.

Basis of Presentation: Transcat’s unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, the Consolidated Financial Statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of the Company’s management, all adjustments considered necessary for a fair presentation (consisting of normal recurring adjustments) have been included. The results for the interim periods are not necessarily indicative of what the results will be for the fiscal year. The accompanying Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements as of and for the fiscal year ended  March 26, 2022 (“fiscal year 2022”) contained in the Company’s Annual Report on Form 10-K for fiscal year 2022 filed with the SEC.

Revenue Recognition: Distribution sales are recorded when an order’s title and risk of loss transfers to the customer, which is generally upon shipment. The Company recognizes the majority of its Service revenue based upon when the calibration or other activity is performed and then shipped and/or delivered to the customer. The majority of the Company’s revenue generating activities have a single performance obligation and are recognized at the point in time when control transfers and/or our obligation has been fulfilled. Some Service revenue is generated from managing customers’ calibration programs in which the Company recognizes revenue over time using the output method-time elapsed as this portrays the transfer of control to the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for product shipped or services performed. Sales taxes and other taxes billed and collected from customers are excluded from revenue. The Company generally invoices its customers for freight, shipping, and handling charges. Freight billed to customers is included in revenue. Shipping and handling is not included in revenue. Provisions for customer returns are provided for in the period the related revenue is recorded based upon historical data.

Under Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, we use judgments that could potentially impact both the timing of our satisfaction of performance obligations and our determination of transaction prices used in determining revenue recognized. Such judgments include considerations in determining our transaction prices and when our performance obligations are satisfied for our standard product sales that include general payment terms that are between net 30 and 90 days.

Revenue recognized from prior period performance obligations for the third quarter of the fiscal year ending March 25, 2023 (“fiscal year 2023”) was immaterial. As of December 24, 2022, the Company had no unsatisfied performance obligations for contracts with an original expected duration of greater than one year. Pursuant to Topic 606, the Company applied the practical expedient with respect to disclosure of the deferral and future expected timing of revenue recognition for transaction price allocated to remaining performance obligations. Deferred revenue, unbilled revenue and deferred contract costs recorded on our Consolidated Balance Sheets as of December 24, 2022 and March 26, 2022 were immaterial. See Note 4 for disaggregated revenue information.

Fair Value of Financial Instruments: Transcat has determined the fair value of debt and other financial instruments using a valuation hierarchy. The hierarchy, which prioritizes the inputs used in measuring fair value, consists of three levels. Level 1 uses observable inputs such as quoted prices in active markets; Level 2 uses inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, which is defined as unobservable inputs in which little or no market data exists, requires the Company to develop its own assumptions. The carrying amount of debt on the Consolidated Balance Sheets approximates fair value due to variable interest rate pricing on a portion of the debt with the balance bearing an interest rate approximating current market rates, and the carrying amounts for cash, accounts receivable and accounts payable approximate fair value due to their short-term nature. Investment assets, which fund the Company’s non-qualified deferred compensation plan, consist of mutual funds and are valued based on Level 1 inputs. At each of December 24, 2022 and March 26, 2022, investment assets totaled $0.2 million, and are included as a component of other assets (non-current) on the Consolidated Balance Sheets.

Stock-Based Compensation: The Company measures 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. The Company records 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. Excess tax benefits for share-based award activity are reflected in the Consolidated Statements 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. The Company did not capitalize any stock-based compensation costs as part of an asset. The Company estimates forfeiture rates based on its historical experience. During the first nine months of fiscal year 2023 and fiscal year 2022, the Company recorded non-cash stock-based compensation expense of $2.8 million and $1.7 million, respectively, in the Consolidated Statements of Income.

Foreign Currency Translation and Transactions: The accounts of Cal OpEx Limited (d/b/a NEXA Enterprise Asset Management), an Irish company, Galium Limited (d/b/a Complete Calibrations), an Irish company, and Transcat Canada Inc., all of which are wholly-owned subsidiaries of the Company, are maintained in the local currencies, the Euro, Euro and Canadian dollar, respectively, and have been translated to U.S. dollars. Accordingly, the amounts representing assets and liabilities have been translated at the period-end rates of exchange and related revenue and expense accounts have been translated at an average rate of exchange during the period. Gains and losses arising from translation of Cal OpEx Limited’s, Galium Limited's and Transcat Canada Inc.’s financial statements into U.S. dollars are recorded directly to the accumulated other comprehensive loss component of shareholders’ equity.

Transcat records foreign currency gains and losses on business transactions denominated in foreign currency. The net foreign currency loss was less than $0.1 million in each of the first nine months of fiscal year 2023 and fiscal year 2022. The Company continually utilizes short-term foreign exchange forward contracts to reduce the risk that its future earnings denominated in Canadian dollars would be adversely affected by changes in currency exchange rates. The Company does not apply hedge accounting and therefore the net change in the fair value of the contracts, which totaled a gain of $0.3 million and less than $0.1 million during the first nine months of fiscal years 2023 and 2022, respectively, was recognized as a component of Interest and Other Expenses, net in the Consolidated Statements of Income. The change in the fair value of the contracts is offset by the change in fair value on the underlying accounts receivables denominated in Canadian dollars being hedged. On December 24, 2022, the Company had a foreign exchange contract, which matured in January 2023, outstanding in the notional amount of $3.0 million. This contract was subsequently renewed and remains in place. The Company does not use hedging arrangements for speculative purposes.

Earnings Per Share: Basic earnings per share of common stock is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share of common stock reflect the assumed conversion of stock options and unvested restricted stock units using the treasury stock method in periods in which they have a dilutive effect. In computing the per share effect of assumed conversion, proceeds received from the exercise of options and unvested restricted stock units are considered to have been used to purchase shares of common stock at the average market prices during the period, and the resulting net additional shares of common stock are included in the calculation of average shares of common stock outstanding.

For the third quarter of fiscal year 2023, the net additional common stock equivalents had no effect on the calculation of diluted earnings per share. For the third quarter of fiscal year 2022, the net additional common stock equivalents had a ($0.01) effect on the calculation of diluted earnings per share. For the first nine months of fiscal year 2023, and fiscal year 2022, the net additional common stock equivalents had a ($0.01) effect on the calculation of diluted earnings per share. The average shares outstanding used to compute basic and diluted earnings per share are as follows (amounts in thousands):

	Third Quarter Ended				Nine Months Ended
	December 24,		December 25,		December 24,		December 25,
	2022		2021		2022		2021
Average Shares Outstanding – Basic		7,559		7,519		7,547		7,487
Effect of Dilutive Common Stock Equivalents		107		134		97		112
Average Shares Outstanding – Diluted		7,666		7,653		7,644		7,599
Anti-dilutive Common Stock Equivalents		148		-		163		100

Goodwill and Intangible Assets: Goodwill represents the excess of the purchase price over the fair values of the underlying net assets of an acquired business. The Company tests goodwill for impairment for each reporting unit on an annual basis during the fourth quarter of its fiscal year, or immediately if conditions indicate that such impairment could exist. The Company is permitted, but not required, to qualitatively assess indicators of a reporting unit’s fair value to determine whether it is necessary to perform the two-step goodwill impairment test. If a quantitative test is deemed necessary, a discounted cash flow analysis is prepared to estimate fair value.

Intangible assets, namely customer base and covenants not to compete, represent an allocation of purchase price to identifiable intangible assets of an acquired business. 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. A summary of changes in the Company’s goodwill and intangible assets is as follows (amounts in thousands):

	Goodwill								Intangible Assets
	Distribution		Service			Total			Distribution			Service			Total
Net Book Value as of March 26, 2022	$	11,458	$	53,616		$	65,074		$	647		$	14,045		$	14,692
Additions		-		4,496			4,496			-			3,576			3,576
Measurement Period Adjustments		-		(203	)		(203	)		-			-			-
Amortization		-		-			-			(152	)		(3,259	)		(3,411	)
Currency Translation Adjustment		-		(541	)		(541	)		-			(14	)		(14	)
Net Book Value as of December 24, 2022	$	11,458	$	57,368		$	68,826		$	495		$	14,348		$	14,843

Recently Issued Accounting Pronouncements: In June 2016, the Financial Accounting Standard Board (“FASB”) issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), which significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The ASU replaces the "incurred loss" model with an "expected credit loss" model that requires entities to estimate an expected lifetime credit loss on financial assets, including trade accounts receivable. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Allowance for doubtful accounts is the most significant item for the Company under this ASU. As credit losses from the Company's trade receivables have not historically been significant, the Company anticipates that the adoption of the ASU will not have a material impact on its consolidated financial statements.

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Note 2 - Long-term Debt

9 Months Ended

Dec. 24, 2022

Notes to Financial Statements

Long-Term Debt [Text Block]

NOTE 2 – LONG-TERM DEBT

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 the Company’s 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 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”) was reduced 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 the Company’s ability to repurchase its shares and pay dividends. Amendment Two also had modified the leverage ratio and fixed charge coverage ratio covenants with which the Company was 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 December 24, 2022, $80.0 million was available under the revolving credit facility, of which $42.2 million was outstanding and included in long-term debt on the Consolidated Balance Sheets. During the first nine months of fiscal year 2023, $8.3 million was used for three business acquisitions.

As of December 24, 2022, $7.0 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.

Interest and Other Costs: Interest on outstanding borrowings under the revolving credit facility accrue, at Transcat’s 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% 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 at a fixed rate of 3.90% during the second quarter of fiscal year 2022 and accrues at a fixed rate of 3.90% over the term of the loan for subsequent periods. 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 the Company’s calculated leverage ratio. The Company’s interest rate for the revolving credit facility for the first nine months of fiscal year 2023 ranged from 1.6% to 6.0%.

Covenants: The 2021 Credit Agreement has certain covenants with which the Company must comply, including a fixed charge ratio covenant and a leverage ratio covenant. The Company was in compliance with all loan covenants and requirements during the third quarter of fiscal year 2023. Our leverage ratio, as defined in the 2021 Credit Agreement, was 1.66 at December 24, 2022, compared with 1.74 at March 26, 2022.

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.

Other Terms: The Company has pledged all of its U.S. tangible and intangible personal property, the equity interests of its U.S.-based subsidiaries, and a majority of the common stock of Transcat Canada Inc. as collateral security for the loans made under the revolving credit facility.

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Note 3 - Stock-based Compensation

9 Months Ended

Dec. 24, 2022

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

NOTE 3 – STOCK-BASED COMPENSATION

In September 2021, the Transcat, Inc. 2021 Stock Incentive Plan (the “2021 Plan”) was approved by shareholders and became effective. The 2021 Plan replaced the Transcat, Inc. 2003 Incentive Plan (the “2003 Plan”). Shares available for grant under the 2021 Plan include any shares remaining available for issuance under the 2003 Plan and any shares that are subject to outstanding awards under the 2003 Plan that are subsequently canceled, expired, forfeited, or otherwise not issued or are settled in cash. The 2021 Plan provides for, among other awards, grants of restricted stock units and stock options to directors, officers and key employees at the fair market value at the date of grant. At December 24, 2022, 0.7 million shares of common stock were available for future grant under the 2021 Plan.

The Company receives an excess tax benefit related to restricted stock vesting and stock options exercised and redeemed. The discrete tax benefits related to share-based compensation and stock option activity during the first nine months of fiscal year 2023 and fiscal year 2022 were $0.5 million and $1.7 million, respectively.

Restricted Stock Units: The Company grants time-based and performance-based restricted stock units as a component of executive and key employee compensation. Expense for restricted stock unit grants is recognized on a straight-line basis for the service period of the stock award based upon fair value of the award on the date of grant. The fair value of the restricted stock unit grants is the quoted market price for the Company’s common stock on the date of grant. These restricted stock units are either time vested, or vest following the third fiscal year from the date of grant subject to cumulative diluted earnings per share targets over the eligible period.

Compensation cost ultimately recognized for performance-based 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, the Company records compensation cost based on the estimated level of achievement of the performance conditions. The expense relating to the time vested restricted stock units is recognized on a straight-line basis over the requisite service period for the entire award.

The Company achieved 82% of the target level for the performance-based restricted stock units granted in the fiscal year ended March 28, 2020 and as a result, issued 16 thousand shares of common stock to executive officers and certain key employees during the first quarter of fiscal year 2023. The following table summarizes the non-vested restricted stock units outstanding as of December 24, 2022 (in thousands, except per unit data):

		Total	Grant Date		Estimated
		Number	Fair		Level of
Date	Measurement	of Units	Value		Achievement at
Granted	Period	Outstanding	Per Unit		December 24, 2022
October 2018	October 2018 – September 2027	6	$	20.81	Time Vested
April 2020	April 2020 – March 2023	2	$	26.25	Time Vested
July 2020	July 2020 – July 2023	26	$	27.08	Time Vested
September 2020	September 2020 – July 2023	4	$	28.54	Time Vested
September 2020	September 2020 – July 2023	5	$	29.76	Time Vested
September 2020	September 2020 – September 2023	3	$	29.76	Time Vested
January 2021	January 2021 – January 2024	1	$	34.62	Time Vested
May 2021	May 2021 – May 2024	1	$	54.21	Time Vested
June 2021	June 2021 – March 2024	10	$	53.17	150% of target level
June 2021	June 2021 – March 2024	11	$	53.17	Time Vested
September 2021	September 2021 – September 2024	4	$	67.76	Time Vested
December 2021	December 2021 – December 2024	1	$	90.41	Time Vested
January 2022	January 2022 – March 2024	2	$	90.92	Time Vested
March 2022	March 2022 – March 2025	2	$	76.31	Time Vested
May 2022	May 2022-March 2025	12	$	63.17	100% of target level
May 2022	May 2022-March 2025	11	$	63.17	Time Vested
August 2022	August 2022-August 2025	1	$	78.04	Time Vested
December 2022	December 2022 -December 2025	1	$	81.26	Time Vested
December 2022	December 2022 - December 2025	1	$	67.48	Time Vested
September 2022	September 2022-September 2023	5	$	73.80	Time Vested

Total expense relating to restricted stock units, based on grant date fair value and the achievement criteria, was $1.7 million and $1.2 million in the first nine months of fiscal year 2023 and fiscal year 2022, respectively. As of December 24, 2022, unearned compensation, to be recognized over the grants’ respective service periods, totaled $2.7 million.

Stock Options: The Company grants stock options to employees and directors with an exercise price equal to the quoted market price of the Company’s stock at the date of the grant. The fair value of stock options is estimated using the Black-Scholes option pricing formula that requires assumptions for expected volatility, expected dividends, the risk-free interest rate and the expected term of the option. Expense for stock options is recognized on a straight-line basis over the requisite service period for each award. 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.

We calculate the fair value of the stock options granted using the Black-Scholes model. There were no stock options granted during the three months ended December 24, 2022 and December 25, 2021.  The following weighted-average assumptions were used to value options granted during the first nine months of fiscal year 2023 and fiscal year 2022:

	Nine Months Ended
	December 24,			December 25,
	2022			2021
Risk-Free Interest Rate		2.65	%		1.00	%
Volatility Factor		37.62	%		29.95	%
Expected Term (in Years)		4.58			6.38
Annual Dividend Rate		0.00	%		0.00	%

We calculate expected volatility for stock options by taking an average of historical volatility over the expected term. The computation of expected term was determined based on safe harbor rules, giving consideration to the contractual terms of the stock-based awards and vesting schedules. The interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield in effect at the time of grant. We assume no expected dividends. Under FASB ASC Topic 718, “Compensation – Stock Compensation”, the Company has elected to account for forfeitures as they occur.

During the first nine months of fiscal year 2023, the Company granted options for 46,000 shares of common stock in the aggregate to Company employees that vest over three years and an option for 10,000 shares of common stock to a Board of Directors member that vests over five years.

During the first nine months of fiscal year 2022, the Company granted options for 25,000 shares of common stock in the aggregate to Company employees that vest over three to five years, an option for 2,000 shares of common stock each to five employees (10,000 shares in the aggregate) that vests over three years and options for 90,000 shares of common stock in the aggregate to Company employees that vest over five years.

The expense related to all stock option awards was $1.1 million in the first nine months of fiscal year 2023 and $0.4 million in the first nine months of fiscal year 2022.

The following table summarizes the Company’s options as of and for the first nine months ended December 24, 2022 (in thousands, except price per option data and years):

				Weighted		Weighted
				Average		Average
	Number			Exercise		Remaining		Aggregate
	Of			Price Per		Contractual		Intrinsic
	Options			Option		Term (in years)		Value
Outstanding as of March 26, 2022		165		$	53.27
Granted		56		$	62.46
Exercised		(4	)	$	6.19
Forfeited		-		$	-
Outstanding as of December 24, 2022		217		$	56.25		7	$	2,980
Exercisable as of December 24, 2022		28		$	53.76		9	$	454

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the third quarter of fiscal year 2023 and the exercise price, multiplied by the number of in-the-money stock options) that would have been received by the option holders had all holders exercised their options on December 24, 2022. The amount of aggregate intrinsic value will change based on the fair market value of the Company’s common stock.

Total unrecognized compensation cost related to non-vested stock options as of December 24, 2022 was $2.2 million, which is expected to be recognized over a period of three years. The aggregate intrinsic value of stock options exercised during the first nine months of fiscal year 2023 and fiscal year 2022 was $0.2 million and $6.9 million, respectively. Cash received from the exercise of options in the first nine months of fiscal year 2023 and fiscal year 2022 was less than $0.1 million and $1.0 million, respectively.

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Note 4 - Segment Information

9 Months Ended

Dec. 24, 2022

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

NOTE 4 – SEGMENT INFORMATION

The basis for determining our operating segments is the manner in which financial information is used in monitoring our operations. Transcat has two reportable segments: Service and Distribution. Through our Service segment, we offer calibration, repair, inspection, analytical qualifications, preventative maintenance, consulting and other related services. Through our Distribution segment, we sell and rent national and proprietary brand instruments to customers globally. The Company has no inter-segment sales. We believe that reporting performance at the operating income level is the best indicator of segment performance. The following table presents segment and geographic data for the third quarter and first nine months of fiscal year 2023 and fiscal year 2022 (dollars in thousands):

	Third Quarter Ended				Nine Months Ended
	December 24,		December 25,		December 24,		December 25,
	2022		2021		2022		2021
Revenue:
Service	$	35,977	$	30,237	$	105,120	$	87,338
Distribution		21,425		20,665		63,382		61,741
Total		57,402		50,902		168,502		149,079
Gross Profit:
Service		10,793		8,983		33,115		27,447
Distribution		5,607		4,653		16,090		14,320
Total		16,400		13,636		49,205		41,767
Operating Expenses:
Service (1)		8,957		7,322		26,240		20,165
Distribution (1)		4,280		3,953		12,572		11,974
Total		13,237		11,275		38,812		32,139
Operating Income:
Service		1,836		1,661		6,875		7,282
Distribution		1,327		700		3,518		2,346
Total		3,163		2,361		10,393		9,628
Unallocated Amounts:
Interest and Other Expense, net		1,039		136		1,732		581
Provision for Income Taxes		523		596		1,631		715
Total		1,562		732		3,363		1,296
Net Income	$	1,601	$	1,629	$	7,030	$	8,332
Geographic Data:
Revenues to Unaffiliated Customers (2)
United States (3)	$	51,209	$	46,005	$	151,242	$	136,359
Canada		4,221		3,749		12,075		10,849
Other International		1,972		1,148		5,185		1,871
Total	$	57,402	$	50,902	$	168,502	$	149,079

(1) Operating expense allocations between segments are based on actual amounts, a percentage of revenues, headcount, and management’s estimates.

(2) Revenues to unaffiliated customers are attributed to the countries based on the destination of a product shipment or the location where service is rendered.

(3) United States includes Puerto Rico.

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Note 5 - Business Acquisitions

9 Months Ended

Dec. 24, 2022

Notes to Financial Statements

Business Combination Disclosure [Text Block]

NOTE 5 – BUSINESS ACQUISITIONS

Complete Calibrations: Effective September 28, 2022, Transcat purchased all of the outstanding capital stock of Galium Limited (d/b/a Complete Calibrations) ("Complete Calibrations"), an Irish company.  This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that expand the depth and breadth of the Company’s Service capabilities. 

All the goodwill related to the Complete Calibrations acquisition has been allocated to the Service segment. Amortization of goodwill related to the Complete Calibrations acquisition is not deductible for tax purposes.  The goodwill is primarily attributable to the workforce acquired, as well as operational synergies and other intangibles that do not qualify for separate recognition.

The total purchase price paid for Complete Calibrations was approximately $1.2 million in cash.  In connection with this transaction, the Company also entered into a Technology License Agreement with Calibration Robots Limited, an Irish company and related party to Complete Calibrations, for the use of their proprietary robotics in completing calibrations.  The Technology License Agreement includes transactional royalties in the amount of 3 Euros ($3) per calibration performed by technology covered under this license agreement, with a royalty term of up to ten years commencing from the earlier of (i) the date on which cumulative revenue earned from technology covered under this license agreement equals 0.75 million Euros ($0.80 million), and (ii) March 28, 2024.  In addition to the transactional royalties, as long as a key employee is employed by the Company, there is an annual royalty fee of 0.1 million Euros ($0.1 million).  For purposes of this paragraph, we used a conversion rate of 1.0617 to convert Euro to U.S. dollar as of December 24, 2022.

The purchase price allocation is subject to revision based upon our final review of assets acquired, and liabilities assumed. The following is a summary of the preliminary purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of Complete Calibrations’ assets and liabilities acquired on September 28, 2022 (in thousands):

Goodwill		$	1,123
Plus:	Cash		10
	Inventory		44
Total Purchase Price		$	1,177

From the date of acquisition, Complete Calibrations has contributed revenue of $0.1 million and operating income of less than $0.1 million.

e2b: Effective September 27, 2022, Transcat acquired substantially all of the assets of e2b Calibration (“e2b”), an Ohio based provider of calibration services.  This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that expand the depth and breadth of the Company’s Service capabilities. 

The e2b goodwill is primarily attributable to the workforce acquired, as well as operational synergies and other intangibles that do not qualify for separate recognition. All the goodwill and intangible assets relating to the e2b acquisition has been allocated to the Service segment. Intangible assets related to the e2b acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up to fifteen years and are deductible for tax purposes. Amortization of goodwill related to the e2b acquisition is deductible for tax purposes.

The total purchase price paid for the assets of e2b was approximately $3.1 million in cash.  Pursuant to the asset purchase agreement, the Company has $0.9 million of the purchase price in escrow for certain potential post-closing adjustments.   

The purchase price allocation is subject to revision based upon our final review of intangible asset valuation assumptions, working capital adjustments, assets acquired, and liabilities assumed. The following is a summary of the preliminary purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of e2b’s assets and liabilities acquired on September 27, 2022 (in thousands):

Goodwill		$	1,590
Intangible Assets – Customer Base & Contracts			746
Intangible Assets – Covenant Not to Compete			396
			2,732
Plus:	Accounts Receivable		361
	Other Current Assets		24
	Property and Equipment		103
Less:	Current Liabilities		(121	)
Total Purchase Price		$	3,099

From the date of acquisition, e2b has contributed revenue of $0.9 million and operating income of $0.2 million, which includes the negative impact of amortization of the acquired intangible assets.

Alliance: Effective May 31, 2022, Transcat acquired substantially all of the assets of Charlton Jeffmont Inc., Raitz Inc. and Toolroom Calibration Inc. d/b/a Alliance Calibration (“Alliance”), an Ohio based provider of calibration services. This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that expand the depth and breadth of the Company’s service capabilities.

The Alliance goodwill is primarily attributable to the workforce acquired, as well as operational synergies and other intangibles that do not qualify for separate recognition. All the goodwill and intangible assets relating to the Alliance acquisition has been allocated to the Service segment. Intangible assets related to the Alliance acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up to fifteen years and are deductible for tax purposes. Amortization of goodwill related to the Alliance acquisition is deductible for tax purposes.

The purchase price for Alliance was approximately $4.7 million and was paid with $4.0 million in cash and the issuance of 2,284 shares of our common stock valued at $0.1 million. Pursuant to the asset purchase agreement, the Company held back $0.5 million of the purchase price for certain potential post-closing adjustments, and the purchase price will be subject to reduction by $0.5 million if a key customer relationship is not retained.

The purchase price allocation is subject to revision based upon our final review of intangible asset valuation assumptions, working capital adjustments, assets acquired, and liabilities assumed. The following is a summary of the preliminary purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of Alliance’s assets and liabilities acquired on May 31, 2022 (in thousands):

Goodwill		$	1,783
Intangible Assets – Customer Base & Contracts			2,320
Intangible Assets – Covenant Not to Compete			114
			4,217
Plus:	Accounts Receivable		343
	Property and Equipment		170
Less:	Current Liabilities		(27	)
Total Purchase Price		$	4,703

From the date of acquisition, Alliance has contributed revenue of $1.3 million and operating income of $0.1 million, which includes the negative impact of amortization of the acquired intangible assets.

Tangent: Effective December 31, 2021, Transcat purchased all the outstanding membership units of Tangent Labs, LLC (“Tangent”). Tangent provides in-house and on-site calibrations of precision measurement and control instrumentation to customers in the life science, aerospace and other regulated industries, and has lab locations in Indianapolis, Indiana and Huntsville, Alabama. This transaction aligned with a key component of the Company’s strategy of acquiring local capabilities in attractive geographies.

The Tangent goodwill is primarily attributable to the workforce acquired, as well as operational synergies and other intangibles that do not qualify for separate recognition. All the goodwill and intangible assets relating to the Tangent acquisition has been allocated to the Service segment. Intangible assets related to the Tangent acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up to fifteen years and are deductible for tax purposes. Amortization of goodwill related to the Tangent acquisition is not deductible for tax purposes.

The purchase price for Tangent was approximately $8.9 million, all paid in cash, and is subject to certain customary holdback provisions and a portion of which was placed in escrow to secure the sellers’ obligations in the event that a key employee terminates employment with Tangent on or before the first anniversary of the closing of the transaction.  $7.9 million was paid in cash and $1.0 million of the purchase price has been put into escrow for indemnification claims, if any.

During the second quarter of fiscal year 2023, the key employee terminated their employment with the Company.  As a result, the Company took $0.2 million out of the escrow account and it was recorded as a gain in the Company's Consolidated Statement of Income.

During the second quarter of fiscal year 2023, a measurement period adjustment was recorded to recognize the fair value of Property and Equipment acquired, with a corresponding reduction to Goodwill. There was no remeasurement period adjustment in the third quarter of fiscal year 2023. The following is a summary of the purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of Tangent’s assets and liabilities acquired on December 31, 2021 (in thousands):

Goodwill		$	5,385
Intangible Assets – Customer Base & Contracts			4,150
Intangible Assets – Covenant Not to Compete			220
			9,755
Plus:	Cash		26
	Accounts Receivable		187
	Other Current Assets		16
	Property and Equipment		203
Less:	Current Liabilities		(68	)
	Deferred Tax Liability		(1,195	)
Total Purchase Price		$	8,924

During the first nine months of fiscal year 2023, Tangent contributed revenue of $1.7 million and operating loss of less than $0.1 million, which includes the negative impact of amortization of the acquired intangible assets.

NEXA: Effective August 31, 2021, Transcat purchased all of the outstanding capital stock of Cal OpEx Limited (d/b/a NEXA Enterprise Asset Management), an Irish company, which owns all of the issued and outstanding capital stock of its U.S.-based subsidiary, Cal OpEx Inc., a Delaware corporation (collectively, “NEXA”). NEXA provides calibration optimization and other technical solutions to improve asset and reliability management programs to pharmaceutical, biotechnology, and medical device companies worldwide. This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that expand the depth and breadth of the Company’s Service capabilities.

The NEXA goodwill is primarily attributable to the workforce acquired, as well as operational synergies and other intangibles that do not qualify for separate recognition. All of the goodwill and intangible assets relating to the NEXA acquisition has been allocated to the Service segment. Intangible assets related to the NEXA acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up to five years and are deductible for tax purposes. Amortization of goodwill related to the NEXA acquisition is not deductible for tax purposes.

The purchase price for NEXA was approximately $26.2 million and was paid with $23.9 million in cash and the issuance of 34,943 shares of our common stock valued at $2.4 million. Additionally, there are potential earn-out payments of up to $7.5 million over the four-year period following the closing of the transaction based upon NEXA achieving certain annual revenue and EBITDA goals. If achieved, the earn-out payments will also be made in shares of common stock unless certain criteria is met for cash payment. As of August 31, 2021 the estimated fair value for the contingent earn-out payments, classified as Level 3 in the fair value hierarchy, was $0.2 million and included in the purchase price allocation below. This amount was calculated using a Geometric Brownian motion distribution that was then used in a Monte Carlo simulation model. Assumptions used in the Monte Carlo simulation model included: 1) weighted-average cost of capital of 6.60%, 2) risk-free interest rate of 0.58%, 3) asset volatility of 20.00%, and 4) forecasted revenue and EBITDA. This contingent consideration is remeasured quarterly. If, as a result of remeasurement, the value of the contingent consideration changes, any charges or income will be included in the Company's Consolidated Statements of Income.  During the second quarter of fiscal year 2023, the Company reduced the contingent consideration down to zero.  As a result of remeasurement, the change was included in the Company’s Consolidated Statements of Income.  There were no remeasurement adjustments during the third quarter of fiscal year 2023. $0.1 million of the purchase price has been put into escrow for indemnification claims, if any.

The following is a summary of the purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of NEXA’s assets and liabilities acquired on August 31, 2021 (in thousands):

Goodwill		$	15,679
Intangible Assets – Customer Base & Contracts			5,600
Intangible Assets – Backlog			490
Intangible Assets – Covenant Not to Compete			600
			22,369
Plus:	Cash		3,732
	Accounts Receivable		2,434
	Non-Current Assets		38
Less:	Current Liabilities		(572	)
	Deferred Tax Liability		(1,769	)
Total Purchase Price		$	26,232

During the first nine months of fiscal year 2023, NEXA contributed revenue of $9.8 million and operating income of $0.2 million, which includes the negative impact of amortization of the acquired intangible assets.

Upstate Metrology: 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 the Company’s acquisition strategy of targeting businesses that can leverage the Company’s already existing operating infrastructure.

All the goodwill related to the Upstate Metrology acquisition has been allocated to the Service segment. Amortization of goodwill related to the Upstate Metrology acquisition is deductible for tax purposes.  The goodwill is primarily attributable to the workforce acquired, as well as operational synergies and other intangibles that do not qualify for separate recognition.

The total purchase price for the assets of Upstate Metrology was approximately $0.9 million. The following is a summary of the purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of Upstate Metrology’s assets and liabilities acquired on April 29, 2021 (in thousands):

Goodwill		$	483
Plus:	Current Assets		189
	Non-Current Assets		270
Less:	Current Liabilities		(11	)
Total Purchase Price		$	931

Since this operation was integrated immediately into our existing operation, Upstate Metrology’s separate operating income in undeterminable.

The results of acquired businesses are included in Transcat’s consolidated operating results as of the dates the businesses were acquired. The following unaudited pro forma information presents the Company’s results of operations as if the acquisitions of Complete Calibrations, e2b, Alliance, Tangent, NEXA and Upstate Metrology had occurred at the beginning of fiscal year 2022. The pro forma results do not purport to represent what the Company’s results of operations actually would have been if the transactions had occurred at the beginning of the period presented or what the Company’s operating results will be in future periods.

	(Unaudited)				(Unaudited)
	Third Quarter Ended				Nine Months Ended
(in thousands except per share information)	December 24, 2022		December 25, 2021		December 24, 2022		December 25, 2021
Total Revenue	$	57,402	$	52,760	$	170,648	$	158,848
Net Income	$	1,601	$	1,648	$	7,245	$	9,749
Basic Earnings Per Share	$	0.21	$	0.22	$	0.96	$	1.30
Diluted Earnings Per Share	$	0.21	$	0.22	$	0.95	$	1.28

Certain of the Company’s acquisition agreements include provisions for contingent consideration and other holdback amounts. The Company accrues for contingent consideration and holdback provisions based on their estimated fair value at the date of acquisition.  There is uncertainty of the fair value measurement from the use of significant unobservable inputs if those inputs reasonably could have been different at the reporting date. Changes in those significant unobservable inputs to a different amount might result in a significantly higher or lower fair value.  As of December 24, 2022, $0.5 million of other holdback amounts unpaid are reflected in current liabilities on the Consolidated Balance Sheets. During the first nine months of fiscal year 2023 and fiscal year 2022, no contingent consideration or other holdback amounts were paid.

During the first nine months of fiscal year 2023, acquisition costs of $0.1 million were recorded as incurred as general and administrative expenses in the Consolidated Statements of Income.  During the first nine months of fiscal year 2022, acquisition costs were $0.9 million.

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Note 1 - General (Tables)

9 Months Ended

Dec. 24, 2022

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Third Quarter Ended				Nine Months Ended
	December 24,		December 25,		December 24,		December 25,
	2022		2021		2022		2021
Average Shares Outstanding – Basic		7,559		7,519		7,547		7,487
Effect of Dilutive Common Stock Equivalents		107		134		97		112
Average Shares Outstanding – Diluted		7,666		7,653		7,644		7,599
Anti-dilutive Common Stock Equivalents		148		-		163		100

Schedule of Intangible Assets and Goodwill [Table Text Block]

	Goodwill								Intangible Assets
	Distribution		Service			Total			Distribution			Service			Total
Net Book Value as of March 26, 2022	$	11,458	$	53,616		$	65,074		$	647		$	14,045		$	14,692
Additions		-		4,496			4,496			-			3,576			3,576
Measurement Period Adjustments		-		(203	)		(203	)		-			-			-
Amortization		-		-			-			(152	)		(3,259	)		(3,411	)
Currency Translation Adjustment		-		(541	)		(541	)		-			(14	)		(14	)
Net Book Value as of December 24, 2022	$	11,458	$	57,368		$	68,826		$	495		$	14,348		$	14,843

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Note 3 - Stock-based Compensation (Tables)

9 Months Ended

Dec. 24, 2022

Notes Tables

Share-Based Payment Arrangement, Restricted Stock and Restricted Stock Unit, Activity [Table Text Block]

		Total	Grant Date		Estimated
		Number	Fair		Level of
Date	Measurement	of Units	Value		Achievement at
Granted	Period	Outstanding	Per Unit		December 24, 2022
October 2018	October 2018 – September 2027	6	$	20.81	Time Vested
April 2020	April 2020 – March 2023	2	$	26.25	Time Vested
July 2020	July 2020 – July 2023	26	$	27.08	Time Vested
September 2020	September 2020 – July 2023	4	$	28.54	Time Vested
September 2020	September 2020 – July 2023	5	$	29.76	Time Vested
September 2020	September 2020 – September 2023	3	$	29.76	Time Vested
January 2021	January 2021 – January 2024	1	$	34.62	Time Vested
May 2021	May 2021 – May 2024	1	$	54.21	Time Vested
June 2021	June 2021 – March 2024	10	$	53.17	150% of target level
June 2021	June 2021 – March 2024	11	$	53.17	Time Vested
September 2021	September 2021 – September 2024	4	$	67.76	Time Vested
December 2021	December 2021 – December 2024	1	$	90.41	Time Vested
January 2022	January 2022 – March 2024	2	$	90.92	Time Vested
March 2022	March 2022 – March 2025	2	$	76.31	Time Vested
May 2022	May 2022-March 2025	12	$	63.17	100% of target level
May 2022	May 2022-March 2025	11	$	63.17	Time Vested
August 2022	August 2022-August 2025	1	$	78.04	Time Vested
December 2022	December 2022 -December 2025	1	$	81.26	Time Vested
December 2022	December 2022 - December 2025	1	$	67.48	Time Vested
September 2022	September 2022-September 2023	5	$	73.80	Time Vested

Schedule of Share-Based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

	Nine Months Ended
	December 24,			December 25,
	2022			2021
Risk-Free Interest Rate		2.65	%		1.00	%
Volatility Factor		37.62	%		29.95	%
Expected Term (in Years)		4.58			6.38
Annual Dividend Rate		0.00	%		0.00	%

Share-Based Payment Arrangement, Option, Activity [Table Text Block]

				Weighted		Weighted
				Average		Average
	Number			Exercise		Remaining		Aggregate
	Of			Price Per		Contractual		Intrinsic
	Options			Option		Term (in years)		Value
Outstanding as of March 26, 2022		165		$	53.27
Granted		56		$	62.46
Exercised		(4	)	$	6.19
Forfeited		-		$	-
Outstanding as of December 24, 2022		217		$	56.25		7	$	2,980
Exercisable as of December 24, 2022		28		$	53.76		9	$	454

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Note 4 - Segment Information (Tables)

9 Months Ended

Dec. 24, 2022

Notes Tables

Schedule of Segment Reporting Information, by Segment [Table Text Block]

	Third Quarter Ended				Nine Months Ended
	December 24,		December 25,		December 24,		December 25,
	2022		2021		2022		2021
Revenue:
Service	$	35,977	$	30,237	$	105,120	$	87,338
Distribution		21,425		20,665		63,382		61,741
Total		57,402		50,902		168,502		149,079
Gross Profit:
Service		10,793		8,983		33,115		27,447
Distribution		5,607		4,653		16,090		14,320
Total		16,400		13,636		49,205		41,767
Operating Expenses:
Service (1)		8,957		7,322		26,240		20,165
Distribution (1)		4,280		3,953		12,572		11,974
Total		13,237		11,275		38,812		32,139
Operating Income:
Service		1,836		1,661		6,875		7,282
Distribution		1,327		700		3,518		2,346
Total		3,163		2,361		10,393		9,628
Unallocated Amounts:
Interest and Other Expense, net		1,039		136		1,732		581
Provision for Income Taxes		523		596		1,631		715
Total		1,562		732		3,363		1,296
Net Income	$	1,601	$	1,629	$	7,030	$	8,332
Geographic Data:
Revenues to Unaffiliated Customers (2)
United States (3)	$	51,209	$	46,005	$	151,242	$	136,359
Canada		4,221		3,749		12,075		10,849
Other International		1,972		1,148		5,185		1,871
Total	$	57,402	$	50,902	$	168,502	$	149,079

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Note 5 - Business Acquisitions (Tables)

9 Months Ended

Dec. 24, 2022

Notes Tables

Schedule of Recognized Identified Assets Acquired and Liabilities Assumed [Table Text Block]

Goodwill		$	1,123
Plus:	Cash		10
	Inventory		44
Total Purchase Price		$	1,177

Goodwill		$	1,590
Intangible Assets – Customer Base & Contracts			746
Intangible Assets – Covenant Not to Compete			396
			2,732
Plus:	Accounts Receivable		361
	Other Current Assets		24
	Property and Equipment		103
Less:	Current Liabilities		(121	)
Total Purchase Price		$	3,099

Goodwill		$	1,783
Intangible Assets – Customer Base & Contracts			2,320
Intangible Assets – Covenant Not to Compete			114
			4,217
Plus:	Accounts Receivable		343
	Property and Equipment		170
Less:	Current Liabilities		(27	)
Total Purchase Price		$	4,703

Goodwill		$	5,385
Intangible Assets – Customer Base & Contracts			4,150
Intangible Assets – Covenant Not to Compete			220
			9,755
Plus:	Cash		26
	Accounts Receivable		187
	Other Current Assets		16
	Property and Equipment		203
Less:	Current Liabilities		(68	)
	Deferred Tax Liability		(1,195	)
Total Purchase Price		$	8,924

Goodwill		$	15,679
Intangible Assets – Customer Base & Contracts			5,600
Intangible Assets – Backlog			490
Intangible Assets – Covenant Not to Compete			600
			22,369
Plus:	Cash		3,732
	Accounts Receivable		2,434
	Non-Current Assets		38
Less:	Current Liabilities		(572	)
	Deferred Tax Liability		(1,769	)
Total Purchase Price		$	26,232

Goodwill		$	483
Plus:	Current Assets		189
	Non-Current Assets		270
Less:	Current Liabilities		(11	)
Total Purchase Price		$	931

Business Acquisition, Pro Forma Information [Table Text Block]

	(Unaudited)				(Unaudited)
	Third Quarter Ended				Nine Months Ended
(in thousands except per share information)	December 24, 2022		December 25, 2021		December 24, 2022		December 25, 2021
Total Revenue	$	57,402	$	52,760	$	170,648	$	158,848
Net Income	$	1,601	$	1,648	$	7,245	$	9,749
Basic Earnings Per Share	$	0.21	$	0.22	$	0.96	$	1.30
Diluted Earnings Per Share	$	0.21	$	0.22	$	0.95	$	1.28

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Note 1 - General (Details Textual) - USD ($) $ / shares in Units, $ in Millions	9 Months Ended
	Dec. 24, 2022	Dec. 25, 2021	Mar. 26, 2022
Investments, Total	$ 0.2		$ 0.2
Share-Based Payment Arrangement, Expense	2.8	$ 1.7
Foreign Currency Transaction Gain (Loss), Realized	0.1	0.1
Foreign Currency Transaction Gain (Loss), Unrealized	$ 0.1	$ 0.3
Dilutive Securities, Effect Per Share on Earnings (in dollars per share)	$ 0.01	$ 0.01
Foreign Exchange Contract [Member]
Derivative Asset, Notional Amount	$ 3.0

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Note 1 - General - Computation of Basic and Diluted Earnings Per Share (Details) - shares shares in Thousands	3 Months Ended		9 Months Ended
	Dec. 24, 2022	Dec. 25, 2021	Dec. 24, 2022	Dec. 25, 2021
Average Shares Outstanding – Basic (in shares)	7,559	7,519	7,547	7,487
Effect of Dilutive Common Stock Equivalents (in shares)	107	134	97	112
Average Shares Outstanding – Diluted (in shares)	7,666	7,653	7,644	7,599
Anti-dilutive Common Stock Equivalents (in shares)	148	0	163	100

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Note 1 - General - Summary of Changes in Goodwill and Intangible Assets (Details) $ in Thousands	9 Months Ended
	Dec. 24, 2022 USD ($)
Net Book Value, goodwill	$ 65,074
Net Book Value, intangible assets	14,692
Additions, goodwill	4,496
Additions, intangible assets	3,576
Measurement Period Adjustments	(203)
Amortization, goodwill	0
Amortization, intangible assets	(3,411)
Currency Translation Adjustment, goodwill	(541)
Currency Translation Adjustment, intangible assets	(14)
Net Book Value, goodwill	68,826
Net Book Value, intangible assets	14,843
Distribution Segment [Member]
Net Book Value, goodwill	11,458
Net Book Value, intangible assets	647
Additions, goodwill	0
Additions, intangible assets	0
Measurement Period Adjustments	0
Amortization, goodwill	0
Amortization, intangible assets	(152)
Currency Translation Adjustment, goodwill	0
Currency Translation Adjustment, intangible assets	0
Net Book Value, goodwill	11,458
Net Book Value, intangible assets	495
Service Segment [Member]
Net Book Value, goodwill	53,616
Net Book Value, intangible assets	14,045
Additions, goodwill	4,496
Additions, intangible assets	3,576
Measurement Period Adjustments	(203)
Amortization, goodwill	0
Amortization, intangible assets	(3,259)
Currency Translation Adjustment, goodwill	(541)
Currency Translation Adjustment, intangible assets	(14)
Net Book Value, goodwill	57,368
Net Book Value, intangible assets	$ 14,348

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Note 2 - Long-term Debt (Details Textual) $ in Thousands		3 Months Ended	9 Months Ended	12 Months Ended
	May 18, 2020 USD ($)	Jun. 26, 2021	Dec. 24, 2022 USD ($)	Mar. 26, 2022 USD ($)	Sep. 26, 2021	Jul. 07, 2021 USD ($)
Long-Term Debt, Current Maturities, Total			$ 2,227	$ 2,161
The 2018 Term Loan [Member]
Debt Instrument, Face Amount						$ 15,000
Debt Instrument, Interest Rate, Stated Percentage	4.15%	4.15%	3.90%		3.90%	3.90%
Long-Term Debt, Total			$ 7,000
Long-Term Debt, Current Maturities, Total			2,200
Debt Instrument, Periodic Payment, Total			$ 200
Revolving Credit Facility [Member]
Line of Credit Facility, Maximum Borrowing Capacity	$ 40,000					$ 80,000
Debt Instrument, Covenant, Restriction to Repurchase Shares and Pay Dividends, Aggregate	25,000					10,000
Debt Instrument, Covenant, Restriction to Repurchase Shares and Pay Dividends, Per Year	$ 10,000					$ 3,000
LIBOR Floor	1.00%	1.00%	0.25%			0.25%
Debt Instrument, Covenant, Maximum Excluded Restricted Payments	$ 2,500
Debt Instrument, Covenant, Maximum Capital Expenditures Per Year	$ 5,500
Line of Credit Facility, Current Borrowing Capacity			$ 80,000
Long-Term Line of Credit, Total			42,200
Business Acquisition, Transaction Costs			$ 8,300
Total Leverage Ratio			1.66	1.74
Debt Instrument, Covenant, Maximum Total Leverage Ratio		4.0	3.0
Debt Instrument, Maturity Date	Oct. 20, 2022
Revolving Credit Facility [Member] | Minimum [Member]
Debt Instrument, Permitted Acquisition, Aggregate Purchase Price				$ 1,000
Debt Instrument, Interest Rate, Effective Percentage			1.60%
Revolving Credit Facility [Member] | Maximum [Member]
Debt Instrument, Permitted Acquisition, Aggregate Purchase Price			$ 50,000	$ 65,000
Debt Instrument, Permitted Acquisition, Additional Aggregate Purchase Price			$ 40,000
Debt Instrument, Interest Rate, Effective Percentage			6.00%
Letter of Credit [Member]
Line of Credit Facility, Maximum Borrowing Capacity	$ 2,000					$ 10,000

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Note 3 - Stock-based Compensation (Details Textual) - USD ($) $ in Millions	3 Months Ended			9 Months Ended		12 Months Ended
	Dec. 24, 2022	Jun. 25, 2022	Dec. 25, 2021	Dec. 24, 2022	Dec. 25, 2021	Mar. 28, 2020
Share-Based Payment Arrangement, Expense, Tax Benefit				$ 0.5	$ 1.7
Share-Based Payment Arrangement, Expense				$ 2.8	1.7
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Grants in Period, Gross (in shares)	0		0	56,000
Share-Based Compensation Arrangement by Share-Based Payment Award, Fair Value Assumptions, Expected Dividend Rate	0.00%		0.00%	0.00%
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Exercises in Period, Intrinsic Value				$ 0.2	6.9
Proceeds from Stock Options Exercised				$ 0.1	$ 1.0
Board of Directors Member [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Grants in Period, Gross (in shares)				10,000
Share-Based Payment Arrangement, Employee [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Grants in Period, Gross (in shares)				46,000	25,000
Share-Based Payment Arrangement, Employee [Member] | Each of Five Employees [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Grants in Period, Gross (in shares)					2,000
Share-Based Payment Arrangement, Employee [Member] | Five Employees [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Grants in Period, Gross (in shares)					10,000
Performance-based Restricted Stock Units [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award, Award Vesting Period (Year)				3 years
Share-Based Compensation Arrangement by Share-Based Payment Award, Percentage of Target Level Acheived						82.00%
Stock Issued During Period, Shares, Restricted Stock Award, Net of Forfeitures, Total (in shares)		16,000
Restricted Stock Units (RSUs) [Member]
Share-Based Payment Arrangement, Expense				$ 1.7	$ 1.2
Share-Based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total	$ 2.7			$ 2.7
Share-Based Payment Arrangement, Option [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award, Award Vesting Period (Year)				5 years
Share-Based Payment Arrangement, Expense				$ 1.1	$ 0.4
Share-Based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total	$ 2.2			$ 2.2
Share-Based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition (Year)				3 years
Share-Based Payment Arrangement, Option [Member] | Board of Directors Member [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award, Award Vesting Period (Year)				5 years
Share-Based Payment Arrangement, Option [Member] | Share-Based Payment Arrangement, Employee [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award, Award Vesting Period (Year)				3 years
Share-Based Payment Arrangement, Option [Member] | Share-Based Payment Arrangement, Employee [Member] | Five Employees [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award, Award Vesting Period (Year)					3 years
Share-Based Payment Arrangement, Option [Member] | Share-Based Payment Arrangement, Employee [Member] | Company Employees, Two [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award, Award Vesting Period (Year)					5 years
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Grants in Period, Gross (in shares)					90,000
Share-Based Payment Arrangement, Option [Member] | Minimum [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award, Expiration Period (Year)				5 years
Share-Based Payment Arrangement, Option [Member] | Minimum [Member] | Share-Based Payment Arrangement, Employee [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award, Award Vesting Period (Year)					3 years
Share-Based Payment Arrangement, Option [Member] | Maximum [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award, Expiration Period (Year)				10 years
Share-Based Payment Arrangement, Option [Member] | Maximum [Member] | Share-Based Payment Arrangement, Employee [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award, Award Vesting Period (Year)					5 years
The 2021 Plan [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award, Number of Shares Available for Grant (in shares)	700,000			700,000

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Note 3 - Stock-based Compensation - Summary of Non-vested Restricted Stock Units (Details) - Performance-based Restricted Stock Units [Member]	Dec. 24, 2022 $ / shares shares
October 2018 [Member]
Total number of units outstanding (in shares) | shares	6
Grant date fair value per unit (in dollars per share) | $ / shares	$ 20.81
April 2020 [Member]
Total number of units outstanding (in shares) | shares	2
Grant date fair value per unit (in dollars per share) | $ / shares	$ 26.25
July 2020 [Member]
Total number of units outstanding (in shares) | shares	26
Grant date fair value per unit (in dollars per share) | $ / shares	$ 27.08
September 2020, First Issuance [Member]
Total number of units outstanding (in shares) | shares	4
Grant date fair value per unit (in dollars per share) | $ / shares	$ 28.54
September 2020, Second Issuance [Member]
Total number of units outstanding (in shares) | shares	5
Grant date fair value per unit (in dollars per share) | $ / shares	$ 29.76
September 2020, Third Issuance [Member]
Total number of units outstanding (in shares) | shares	3
Grant date fair value per unit (in dollars per share) | $ / shares	$ 29.76
January 2021 [Member]
Total number of units outstanding (in shares) | shares	1
Grant date fair value per unit (in dollars per share) | $ / shares	$ 34.62
May 2021 [Member]
Total number of units outstanding (in shares) | shares	1
Grant date fair value per unit (in dollars per share) | $ / shares	$ 54.21
June 2021, First Issuance [Member]
Total number of units outstanding (in shares) | shares	10
Grant date fair value per unit (in dollars per share) | $ / shares	$ 53.17
June 2021, Second Issuance [Member]
Total number of units outstanding (in shares) | shares	11
Grant date fair value per unit (in dollars per share) | $ / shares	$ 53.17
September 2021, First Issuance [Member]
Total number of units outstanding (in shares) | shares	4
Grant date fair value per unit (in dollars per share) | $ / shares	$ 67.76
December 2021 [Member]
Total number of units outstanding (in shares) | shares	1
Grant date fair value per unit (in dollars per share) | $ / shares	$ 90.41
January 2022 [Member]
Total number of units outstanding (in shares) | shares	2
Grant date fair value per unit (in dollars per share) | $ / shares	$ 90.92
March 2022 [Member]
Total number of units outstanding (in shares) | shares	2
Grant date fair value per unit (in dollars per share) | $ / shares	$ 76.31
May 2022, First Issuance [Member]
Total number of units outstanding (in shares) | shares	12
Grant date fair value per unit (in dollars per share) | $ / shares	$ 63.17
May 2022, Second Issuance [Member]
Total number of units outstanding (in shares) | shares	11
Grant date fair value per unit (in dollars per share) | $ / shares	$ 63.17
August 2022 Issuance [Member]
Total number of units outstanding (in shares) | shares	1
Grant date fair value per unit (in dollars per share) | $ / shares	$ 78.04
December 2022 First Issuance [Member]
Total number of units outstanding (in shares) | shares	1
Grant date fair value per unit (in dollars per share) | $ / shares	$ 81.26
December 2022 Second Issuance [Member]
Total number of units outstanding (in shares) | shares	1
Grant date fair value per unit (in dollars per share) | $ / shares	$ 67.48
September 2022 First Issuance [Member]
Total number of units outstanding (in shares) | shares	5
Grant date fair value per unit (in dollars per share) | $ / shares	$ 73.80

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Note 3 - Stock-based Compensation - Weighted Average Assumptions (Details)	3 Months Ended		9 Months Ended
	Dec. 24, 2022	Dec. 25, 2021	Dec. 24, 2022
Risk-Free Interest Rate	2.65%	1.00%
Volatility Factor	37.62%	29.95%
Expected Term (in Years) (Year)	4 years 6 months 29 days	6 years 4 months 17 days
Annual Dividend Rate	0.00%	0.00%	0.00%

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Note 3 - Stock-based Compensation - Summary of Options (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Dec. 24, 2022	Dec. 25, 2021	Dec. 24, 2022
Outstanding, number of options (in shares)			165
Outstanding, weighted average exercise price (in dollars per share)			$ 53.27
Granted, number of options (in shares)	0	0	56
Granted, weighted average exercise price (in dollars per share)			$ 62.46
Exercised, number of options (in shares)			(4)
Exercised, weighted average exercise price (in dollars per share)			$ 6.19
Forfeited, number of options (in shares)			0
Forfeited, weighted average exercise price (in dollars per share)			$ 0
Outstanding, number of options (in shares)	217		217
Outstanding, weighted average exercise price (in dollars per share)	$ 56.25		$ 56.25
Outstanding, weighted average remaining contractual term (Year)			7 years
Outstanding, aggregate intrinsic value	$ 2,980		$ 2,980
Exercisable, number of options (in shares)	28		28
Exercisable, weighted average exercise price (in dollars per share)	$ 53.76		$ 53.76
Exercisable, weighted average remaining contractual term (Year)			9 years
Exercisable, aggregate intrinsic value	$ 454		$ 454

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Note 4 - Segment Information (Details Textual)	9 Months Ended
	Dec. 24, 2022
Number of Reportable Segments	2

XML

Note 4 - Segment Information - Segment and Geographic Data (Details) - USD ($) $ in Thousands		3 Months Ended						9 Months Ended
		Dec. 24, 2022	Sep. 24, 2022	Jun. 25, 2022	Dec. 25, 2021	Sep. 25, 2021	Jun. 26, 2021	Dec. 24, 2022	Dec. 25, 2021
Revenue	[1]	$ 57,402			$ 50,902			$ 168,502	$ 149,079
Gross Profit		16,400			13,636			49,205	41,767
Operating Expenses		13,237			11,275			38,812	32,139
Operating Income		3,163			2,361			10,393	9,628
Interest and Other Expense, net		1,039			136			1,732	581
Provision for Income Taxes		523			596			1,631	715
Total		1,562			732			3,363	1,296
Net Income		1,601	$ 2,357	$ 3,072	1,629	$ 3,015	$ 3,688	7,030	8,332
UNITED STATES
Revenue	[1],[2]	51,209			46,005			151,242	136,359
CANADA
Revenue	[1]	4,221			3,749			12,075	10,849
Other International [Member]
Revenue	[1]	1,972			1,148			5,185	1,871
Service Segment [Member]
Revenue		35,977			30,237			105,120	87,338
Gross Profit		10,793			8,983			33,115	27,447
Operating Expenses	[3]	8,957			7,322			26,240	20,165
Operating Income		1,836			1,661			6,875	7,282
Distribution Segment [Member]
Revenue		21,425			20,665			63,382	61,741
Gross Profit		5,607			4,653			16,090	14,320
Operating Expenses	[3]	4,280			3,953			12,572	11,974
Operating Income		$ 1,327			$ 700			$ 3,518	$ 2,346

[1] Revenues are attributed to the countries based on the destination of a product shipment or the location where service is rendered.

[2] United States includes Puerto Rico.

[3] Operating expense allocations between segments are based on actual amounts, a percentage of revenues, headcount, and management’s estimates.

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Note 5 - Business Acquisitions (Details Textual)									3 Months Ended				6 Months Ended	7 Months Ended	9 Months Ended
		Sep. 28, 2022 USD ($)	Sep. 28, 2022 EUR (€)	Sep. 27, 2022 USD ($)	May 31, 2022 USD ($) shares	Dec. 31, 2021 USD ($)	Aug. 31, 2021 USD ($) shares	Apr. 29, 2021 USD ($)	Dec. 24, 2022 USD ($)	Dec. 24, 2022 USD ($)	Dec. 24, 2022 USD ($)	Dec. 25, 2021 USD ($)	Dec. 24, 2022 USD ($)	Dec. 24, 2022 USD ($)	Dec. 24, 2022 USD ($)	Dec. 25, 2021 USD ($)
Revenues, Total	[1]									$ 57,402,000		$ 50,902,000			$ 168,502,000	$ 149,079,000
Operating Income (Loss), Total										$ 3,163,000		$ 2,361,000			10,393,000	9,628,000
General and Administrative Expense [Member]
Business Combination, Acquisition Related Costs															100,000	900,000
Complete Calibrations [Member]
Revenues, Total									$ 100,000
Operating Income (Loss), Total									$ 100,000
e2b [Member]
Revenues, Total											$ 900,000
Operating Income (Loss), Total											$ 200,000
Alliance [Member]
Revenues, Total														$ 1,300,000
Operating Income (Loss), Total														$ 100,000
Tangent [Member]
Revenues, Total															1,700,000
Operating Income (Loss), Total															100,000
Complete Calibrations [Member]
Payments to Acquire Businesses, Gross		$ 1,200,000
Complete Calibrations [Member] | Technology License Agreement [Member]
Royalties Per Technology Calibration		$ 3	€ 3
Technology License Agreement, Term (Year)		10 years	10 years
Cumulative License Revenue		$ 800,000	€ 750,000
Annual Royalty Fee, Amount		$ 100,000	€ 100,000
e2b [Member]
Payments to Acquire Businesses, Gross				$ 3,100,000
Acquired Finite-Lived Intangible Assets, Weighted Average Useful Life (Year)				15 years
Business Combination, Consideration Held Back				$ 900,000
Alliance [Member]
Payments to Acquire Businesses, Gross					$ 4,000,000.0
Acquired Finite-Lived Intangible Assets, Weighted Average Useful Life (Year)					15 years
Business Combination, Consideration Held Back					$ 500,000
Business Combination, Consideration Transferred, Total					$ 4,700,000
Business Acquisition, Equity Interest Issued or Issuable, Number of Shares (in shares) | shares					2,284
Business Combination, Consideration Transferred, Equity Interests Issued and Issuable					$ 100,000
Business Combination, Consideration Subject to Reduction					$ 500,000
Tangent [Member]
Payments to Acquire Businesses, Gross						$ 7,900,000
Acquired Finite-Lived Intangible Assets, Weighted Average Useful Life (Year)						15 years
Business Combination, Consideration Transferred, Total						$ 8,900,000
Escrow Deposit						$ 1,000,000.0
Cash Out of Escrow Account													$ 200,000
NEXA [Member]
Payments to Acquire Businesses, Gross							$ 23,900,000
Revenues, Total															9,800,000
Operating Income (Loss), Total															200,000
Acquired Finite-Lived Intangible Assets, Weighted Average Useful Life (Year)							5 years
Business Combination, Consideration Transferred, Total							$ 26,200,000
Business Acquisition, Equity Interest Issued or Issuable, Number of Shares (in shares) | shares							34,943
Business Combination, Consideration Transferred, Equity Interests Issued and Issuable							$ 2,400,000
Escrow Deposit							100,000
Business Combination, Contingent Consideration Arrangements, Range of Outcomes, Value, High							$ 7,500,000
Business Combination, Contingent Consideration Arrangements, Period (Year)							4 years
Business Combination, Contingent Consideration, Liability, Total							$ 200,000
NEXA [Member] | Measurement Input, Cost to Sell [Member]
Business Combination, Contingent Consideration, Liability, Measurement Input							0.0660
NEXA [Member] | Measurement Input, Risk Free Interest Rate [Member]
Business Combination, Contingent Consideration, Liability, Measurement Input							0.0058
NEXA [Member] | Measurement Input, Price Volatility [Member]
Business Combination, Contingent Consideration, Liability, Measurement Input							0.2000
Upstate Metrology [Member]
Business Combination, Consideration Transferred, Total								$ 900,000
Payment for Contingent Consideration Liability, Financing Activities															$ 0	$ 0

[1] Revenues are attributed to the countries based on the destination of a product shipment or the location where service is rendered.

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Note 5 - Business Acquisitions - Summary of Purchase Price Allocation (Details) - USD ($) $ in Thousands	Dec. 24, 2022	Sep. 28, 2022	Sep. 27, 2022	May 31, 2022	Mar. 26, 2022	Dec. 31, 2021	Aug. 31, 2021	Apr. 29, 2021
Goodwill	$ 68,826				$ 65,074
Complete Calibrations [Member]
Goodwill		$ 1,123
Cash		10
Inventory		44
Total Purchase Price		$ 1,177
e2b [Member]
Goodwill			$ 1,590
Total Purchase Price			3,099
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, Intangibles and Deferred Taxes			2,732
Accounts Receivable			361
Other current assets			24
Property and equipment			103
Current Liabilities			121
e2b [Member] | Customer-Related Intangible Assets [Member]
Intangible Assets			746
e2b [Member] | Noncompete Agreements [Member]
Intangible Assets			$ 396
Alliance [Member]
Goodwill				$ 1,783
Total Purchase Price				4,703
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, Intangibles and Deferred Taxes				4,217
Accounts Receivable				343
Property and equipment				170
Current Liabilities				27
Alliance [Member] | Customer-Related Intangible Assets [Member]
Intangible Assets				2,320
Alliance [Member] | Noncompete Agreements [Member]
Intangible Assets				$ 114
Tangent [Member]
Goodwill						$ 5,385
Cash						26
Total Purchase Price						8,924
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, Intangibles and Deferred Taxes						9,755
Accounts Receivable						187
Other current assets						16
Property and equipment						203
Current Liabilities						68
Deferred Tax Liability						1,195
Tangent [Member] | Customer-Related Intangible Assets [Member]
Intangible Assets						4,150
Tangent [Member] | Noncompete Agreements [Member]
Intangible Assets						$ 220
NEXA [Member]
Goodwill							$ 15,679
Cash							3,732
Total Purchase Price							26,232
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, Intangibles and Deferred Taxes							22,369
Accounts Receivable							2,434
Current Liabilities							572
Deferred Tax Liability							1,769
Non-Current Assets							38
NEXA [Member] | Customer-Related Intangible Assets [Member]
Intangible Assets							5,600
NEXA [Member] | Noncompete Agreements [Member]
Intangible Assets							600
NEXA [Member] | Order or Production Backlog [Member]
Intangible Assets							$ 490
Upstate Metrology [Member]
Goodwill								$ 483
Total Purchase Price								931
Current Liabilities								11
Non-Current Assets								270
Current Assets								$ 189

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Note 5 - Business Acquisitions - Pro Forma Results (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Dec. 24, 2022	Dec. 25, 2021	Dec. 24, 2022	Dec. 25, 2021
Total Revenue	$ 57,402	$ 52,760	$ 170,648	$ 158,848
Net Income	$ 1,601	$ 1,648	$ 7,245	$ 9,749
Basic Earnings Per Share (in dollars per share)	$ 0.21	$ 0.22	$ 0.96	$ 1.30
Diluted Earnings Per Share (in dollars per share)	$ 0.21	$ 0.22	$ 0.95	$ 1.28