Transcat, Inc. · NASDAQ:TRNS
Transcat — Western New York Investors Conference 2012
43 slides from Transcat's conference presentation, Sep 28, 2012
Slide 1: Western New York Investors Conference
TRANSGAT: Coo] Transcat™ Western New York Investors Conference September 28, 2012 Charles P. Hadeed Lee D. Rudow John J. Zimmer Chief Executive Officer President and COO Sr. Vice President of Finance and CFO Copyright Transcat 2012 www.TRANSCAT.com
Slide 2: Forward-looking statements
Before I get started, you should know that the presentation you are about to hear contains “forward looking statements”. As you should read on the slide, these statements are made based on management’s knowledge and understanding of our business and the industries we serve. However, there are risks,
Slide 3: Headquartered in Rochester NY, founded 1964
Headquartered in Rochester NY, Transcat was founded in 1964 as Transmation Inc. and has been publicly traded since 1968. The company was renamed Transcat in 2002. We are a leading distributor of premium brand hand held test and measurement instrumentation and a nationally- recognized, highly respect
Slide 4: Our history and core competencies
Our history has provided the basis for the development of our core competencies. We were originally a manufacturer of test equipment, primarily focused on process industries. Process industries tend to have formulas – or recipes if you will – that result in an output that cannot be distilled back in
Slide 5: Industry focus and revenue mix
Today, our industry focus is life sciences and energy, reinforced by a strong industrial customer base. In our last fiscal year, two thirds of our nearly $110 million in revenue was derived from product sales and the other two thirds from service revenue 5
Slide 6: Product segment: test and measurement distribution
Our product segment is our hand-held test and measurement distribution business. We’ve developed our leading market position as a result of our strong reputation, responsive service and the breadth and quality of our product offerings both of which are the result of our extensive inventory investmen
Slide 7: Service segment: calibration
Our service segment, until recently expanded through our latest acquisition, has historically been calibration. Calibration is a comparison of measurements, comparing one instrument with a known correctness, or standard, with another instrument, the unit under test. All measuring instruments are des
Slide 8: Growth strategy and outlook
I would now like to shift my discussion to our growth strategy and outlook 8
Slide 9: Our strategy to differentiate
Our strategy is to differentiate ourselves by being uniquely dedicated to the sales and marketing of the highest quality hand-held test and measurement instrumentation and delivering the highest quality calibration, compliance and related services; and then integrating those products and services to
Slide 10: Expected segment growth rates
Over the longer term, we expect our product segment growth rate to be in the low to mid single digit range , in what is a relatively mature, highly competitive market. On the other hand, we expect our service segment growth rate to exceed 10% and we have invested the resources to achieve that goal.
Slide 11: Acquisition strategy criteria
For our acquisition strategy, which is focused on our service business, we have developed a set of criteria that we use to assess potential acquisition opportunities, beyond being financially accretive. First and foremost among our criteria, we only consider quality- oriented calibration services or
Slide 12: Our objectives
Our objectives are clear and simple: - Grow our service segment double the rate of our product segment - Actively execute our acquisition strategy - Drive incremental operating cash flow to support our strategic initiatives - Reward our shareholders with double digit growth in earnings per share 12
Slide 13: Turning over to Lee Rudow
I will now turn this presentation over to Lee Rudow, our President and Chief Operating Officer, who will provide more insight into our two business segments. 13
Slide 14: Product segment highlights
Thank you Charlie and good morning. For over 25 years, Transcat has been a leading provider of Test and Measurement instrumentation throughout North America. As Charlie stated we operate both a product segment as well as a service segment. In the next few minutes I will review general segment highli
Slide 15: 50,000 instruments, 15,000 customers, partners
Transcat offers over 50,000 instruments and serves over 15,000 customers primarily across North America. Over the years we have built a strong partner-based network which includes the industry’s premier manufacturers like Fluke, Agilent, GE Sensing, Emerson and Rosemount. 15
Slide 16: Product groups and calibration market share
Generally speaking our products are used to test, measure, control and calibrate key manufacturing processes or standards used to test the equipment used in the manufacturing process. We break down the product groups by electrical test products, process test products and calibration products. While
Slide 17: Strategic vendor partners
The Majority of manufacturers sell their products through distributors like Transcat. We identify manufacturers we believe are the best in class and designate them as strategic partners. In fiscal 2012 - 78% of our product sales came from our strategic vendor partners. The strategy to differentiate
Slide 18: Driving demand: catalog, mailers, website
We drive demand for our products in a variety of ways. First and foremost by the production and circulation of our master instrumentation catalog which serves as the “industry bible” for test and measurement products. Secondly by the circulation of mailers, supplements and a variety of direct mail c
Slide 19: Digital marketing initiatives
Relative to our website and online marketing in general - Transcat invest s in 4 major digital marketing initiatives: • Pay-per-click advertising - Which positions Transcat at the point of demand, where customers proactively search for products and services. • Search engine optimization - Which incr
Slide 20: Product business well positioned
We believe that our product business is well positioned in high growth markets and well supported by premium manufacturers. In the future we plan to expand our portfolio through new vendor relationships and new product introductions. 20
Slide 21: Calibration service segment
While the distribution of test and measurement products forms a stable foundation for Transcat, our calibration service segment provides a base for expanding our future earnings power - through higher margins and recurring revenue streams. 21
Slide 22: Why calibration is important
Let me begin by explaining why calibration is so important. In a quality-oriented manufacturing or research environment there is no point using test and measurement equipment unless one can be absolutely certain that the results are accurate. Calibration provides customers with the confidence that t
Slide 23: $500 million segment of $1.5 billion market
Transcat targets a $500 million segment of a $1.5 billion calibration service market. The targeted segment contains companies who rely on 3rd party service providers to ensure that their instruments are properly calibrated and their quality programs are in compliance. Transcat’s target service custo
Slide 24: Target customers: Fortune 1000
Within the 3rd party service provider market Transcat primarily targets Fortune 1000 companies who occupy the Life Science, Energy and Process Manufacturing space. 24
Slide 25: 17 calibration and repair laboratories
Transcat is among the largest 3rd party calibration providers in North America operating 17 full-service calibration and repair laboratories. These labs focus on high-demand measurements including temperature, pressure, electrical and dimensional disciplines. 25
Slide 26: Service growth strategy
From a growth strategy perspective, the competitive landscape is highly fragmented and we will continue to invest significant capital to expand our capabilities and offer a differentiated “one-stop” service offering. In addition, we will capture additional market share by leveraging product customer
Slide 27: Acquisition activity
As you can see from an acquisition perspective we have been active, and we expect to remain active in the future. In closing I would like to take a final minute and tell you a little about Anacor Compliance Services, our most recent acquisition, which took place in July. 27
Slide 28: Anacor Compliance Services acquisition
Anacor is a nationally recognized and respected provider of a specialized suite of compliance services to the life sciences sector, including the biotechnology, medical device, and pharmaceutical industries. They specialize in process validation and compliance, analytical instrumentation qualificati
Slide 29: Financial review
Thank you Lee and Good Morning 29
Slide 30: Fiscal 2012 most successful year
Fiscal 2012 was Transcat’s most successful year in the Company’s nearly 50-year history. We surpassed $100 million in annual revenue, which was a significant milestone for our Company. Since 2009, our revenue has increased by a 12.2% compounded rate of growth. Fiscal 2012 was highlighted by record a
Slide 31: Product segment net sales
Product segment net sales were $73.6 million in fiscal 2012, an increase of 23% from $59.9 million in the prior year. This atypical growth was driven by the expansion of our product portfolio, our acquisition of Wind Turbine Tools in January 2011 and the effectiveness of our sales and marketing camp
Slide 32: Product margins in Q1 fiscal 2013
slightly on lower sales volume. 31
Slide 33: Service segment net revenue
Looking at our Service segment, net revenue increased 16% to $36.4 million in fiscal 2012, of which the majority of the increase was acquired. Operating income for the segment was less than we would normally expect, given the revenue growth and inherent leverage within that business. As we execute o
Slide 34: Operating expenses as percentage of revenue
Over the past several years as we have grown, our operating expenses have declined as a percentage of revenue due to the leverage that is inherent in our business. Since 2009, we have seen an overall decline of 160 basis points in our operating expenses as a percentage of revenue. 33
Slide 35: Operating income growth
As a result of revenue growth and expense control, we have experienced a 24.3% compound annual growth rate in operating income since fiscal 2009, a rate that is two times the rate of our revenue growth. We continue to be focused on profitable growth rather than growth for growth’s sake. 34
Slide 36: Net income and EPS growth
Consistent with our growth in operating income, our net income and earnings per share have increased at a compound annual growth rate of greater than 25% since fiscal 2009. 35
Slide 37: EBITDA growth
We believe EBITDA, though a non-GAAP financial measure, gives investors a sense of the cash generation of our businesses. We experienced a 21% increase in 2012 to $8.3 million and since 2009, a compound annual growth rate of 20%. Our ability to generate cash allows us to increase our marketing effor
Slide 38: Strong balance sheet and financial flexibility
We have a strong balance sheet and the financial flexibility to fund our future growth, both organically and through acquisitions. Our business is a strong cash generator enabling us to quickly pay down debt that we have utilized to fund acquisitions. During fiscal 2012, we reduced our long term deb
Slide 39: Capital expenditures
Capital expenditures were $1.4 million in fiscal 2012, used primarily to expand our calibration services capacity and capabilities. We plan to increase our capital expenditures in fiscal 2013, excluding acquisitions, to approximately $2.5 million. In addition to continuing to invest in the expansion
Slide 40: Return on assets and conclusion
We believe one of the best measures of the success of our capital investments and acquisitions is our return on assets, which as you can see has been expanding. Our investments and acquisitions may not always be accretive in year one, but ultimately, our goal is to achieve a 10% return, or greater o
Slide 41: Western New York Investors Conference
TRANSGAT: Coo] Transcat® Western New York Investors Conference September 28, 2012 Copyright Transcat 2012 www.TRANSCAT.com
Slide 42: Supplemental Information
SUPPLEMENTAL INFORMATION 41
Slide 43: EBITDA Reconciliation
e EBITDA Reconciliation IRSGaT FY09 FY10 FY14 FY12 _ Q4 FY2013 Service Operating Income S (762) $94 $ 192 S (175) $ (196) Service Depreciation & Amortization S954 $1,136 $1,377 $1850 $279 Service EBITDA S$ 192 $ 1,230 $ 1,569 $1675 $ 83 Product Operating Income S$ 3,448 $ 2,287 $ 4,395 $5603 $ 557 P
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