midwest investment conference 2016 - transcat...fy 2012 fy 2013 fy 2014 fy 2015 fy 2016 service...
TRANSCRIPT
1
June 22 2016
Lee D. RudowPresident and CEO
Michael J. TschidererChief Financial Officer
Midwest Investment Conference
2© 2016 Transcat Inc.
Safe Harbor Statement
This presentation contains forward‐looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward‐looking statements are not statements of historical fact and thus are subject to risks, uncertainties and assumptions. Forward‐looking statements are identified by words such as “expects,” “estimates,” “projects,” “anticipates,” “believes,” “could,” and other similar words. All statements addressing operating performance, events, or developments that Transcat, Inc. expects or anticipates will occur in the future, including but not limited to statements relating to anticipated revenue, profit margins, sales operations, capital expenditures, cash flows, operating income, growth strategy, segment growth, potential acquisitions, market position, customer preferences and changes in market conditions in the industries in which Transcat operates are forward‐looking statements. Forward‐looking statements should be evaluated in light of important risk factors and uncertainties. These risk factors and uncertainties are more fully described in Transcat’s Annual and Quarterly Reports filed with the Securities and Exchange Commission, including under the heading entitled “Risk Factors.” Should one or more of these risks or uncertainties materialize, or should any of the Company’s underlying assumptions prove incorrect, actual results may vary materially from those currently anticipated. In addition, undue reliance should not be placed on the Company’s forward‐looking statements. Except as required by law, the Company disclaims any obligation to update or publicly announce any revisions to any of the forward‐looking statements contained in this presentation.
3© 2016 Transcat Inc.
Leader in Fragmented Calibration & Laboratory Instrument Service Market
Value‐Added Distributor of Test, Measurement & Control Instrumentation
Market Capitalization $70.0 Million
52‐Week Price Range $8.70‐ $11.85
Average Volume (3 mo.) 6,000
Recent Price $10.14
Common Shares Outstanding 6.9 MillionOwnership: Institutions 55%
Insiders 8%Adjusted EBITDA* (FY 2016) $10.6 MillionEPS (FY 2016) $0.58
Service segment is our primary growth engine
Achieved critical revenue mass in the Service segment
Long‐term operating earnings to grow faster than revenue
Strong leadership in place to drive company to next level
Market data as of June 17, 2016 [Source: Bloomberg]; ownership as of most recent filing * See supplemental slides for Adjusted EBITDA reconciliation and other important disclaimers regarding Adjusted EBITDA
4© 2016 Transcat Inc.
Two Complementary Segments
$59.2MM(48%)
$63.0MM(52%)
Service Distribution
FY 2016 Revenue: $122.2MM Service
– Double‐digit growth
– Recurring revenue stream
– Strong operating leverage
– Driven by regulation
Unique value proposition
Strong cash generation
Leverage between segments
5© 2016 Transcat Inc.
23%22%
10%10%
20%
25%OEMs
35% In‐house
Laboratories
1 Estimated Addressable North American Calibration Market2 Percentage of Revenue (North America), management estimates
#2 in Market Share by Revenue for 3rd Party Service Providers2
$1.0 Billion Addressable Market¹
Transcat15%
Tektronix
Transcat
Trescal
SIMCO Electronics
Calibration Services Market
Regionals ($5mm‐$15mm)
Others (highly fragmented; $500k‐$5mm)
40%3rd Party Service Providers
6© 2016 Transcat Inc.
Unique Service Value Proposition
Flexible Service Delivery Options:
Permanent on‐site
Periodic on‐site
Mobile
In‐house
Pickup & Delivery
Fully Accredited Calibration Provider with Highest Quality in the Industry
7© 2016 Transcat Inc.
Broad and Diverse Blue Chip Customer Base
*Revenue and Percentages as of FY 2016
Other24%
Chemical 6%
Industrial24%
Percentage of Service Revenue *
Life Science / FDA‐regulated
39%Energy / Utilities
7%
8© 2016 Transcat Inc.
Serve an expanded Life Science market
Mission critical services
Full Suite of Products and Services
Superior Quality
New Instrument Calibration
Calibration Services
Validation &
LaboratoryServices
Product Distribution and Rental (New & Used Equipment)
Unique Among Competition
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Financial Results
10© 2016 Transcat Inc.
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Consolidated Revenue
$123.6$110.0 $112.3 $118.5 $122.2
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Consolidated Operating Income
$6.3$5.4 $5.9
$6.8$6.7
Distribution Service
Consolidated Results($ in millions)
© 2016 Transcat Inc.
$36.4 $40.7$48.2 $51.8 $59.2
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Service Revenue
$(0.2)
$1.3 $2.4
$3.7 $4.2
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Service Operating Income
Record Service Segment Performance
Revenue increased 14% − Driven by organic growth and
acquisitions
Milestone: exceeded distribution in revenue (53% of Q4)
28 consecutive quarters of YOY revenue growth
Operating income grew 13%
− Margin impacted by incremental expenses from acquired businesses and one‐time acquisition costs
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($ in millions)
(0.5%)
3.2% 4.9% 7.1% 7.0% % of Service Revenue
© 2016 Transcat Inc.
Focus: Stabilizing Distribution
$73.6 $71.6 $70.3 $71.8$63.0
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Distribution Sales
$5.6$4.6 $4.3
$3.1$2.1
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Distribution Operating Income
Sales impacted by:− Soft oil and gas market − Strong U.S. dollar− More on‐line distributors
Opportunities– Rental service – Used equipment– Expanding SKUs– Continue our digital
transformation
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($ in millions)
7.6% 6.5% 6.2% 4.3% 3.4% % of Distribution Sales
© 2016 Transcat Inc. 13
$6.8 $5.8 $5.4 $4.1 $3.1
$2.0 $3.1 $4.6 $6.1 $7.5
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Adjusted EBITDA*
Strong Cash Generation and Bottom‐Line
$10.0$8.8 $8.9$10.3
* See supplemental slides for Adjusted EBITDA reconciliation and other important disclaimers regarding Adjusted EBITDA.
CAGR calculated FY2012 – FY2016
All figures are rounded to the nearest million; therefore, totals shown in graphs may not equal the sum of the segments.
$10.6
($ in millions)
Service segment Adjusted EBITDA+22% in FY16+39% CAGR
Distribution segment generates significant cash
Consolidated Adjusted EBITDA margin up 30 bps to 8.6% in FY16
Net income: +6% CAGR$3.3 $3.7 $4.0 $4.0 $4.1
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Net Income
$0.43 $0.49 $0.54 $0.57 $0.58EPS
Distribution Service
© 2016 Transcat Inc.
$3.4$8.0 $7.6
$12.2$19.1
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Long Term Debt
10.9%
20.2% 20.2%26.2%
32.9%
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Debt to Total Capitalization
Balance Sheet Supports Acquisition Strategy
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($ in millions)
~$14 million in acquisitions in FY16
Financial flexibility
– Strong cash generation and expanded credit facility
– Added $10.0 million term note (subsequent to fiscal year‐end)
– Funded Q1 FY17 Excalibur acquisition with term note
• ~$27M in borrowings after acquisition
– Total debt < 2x proforma Adjusted EBITDA
© 2016 Transcat Inc.
$1.4$2.7 $2.0
$3.5 $4.1
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017E*
Capital Expenditures
Disciplined Capital Deployment
15
($ in millions)
FY 2017 CapEx– Assets for growing rental
business– Lab capabilities/maintenance – Software/IT
Objective: Consistently generate returns in excess of cost of capital
10.7% 10.6% 10.4% 9.2% 8.6%
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Return on Invested Capital(ROIC)
* FY 2017 capital expenditure guidance provided as of May 17, 2016
$5.0‐$5.5
16© 2016 Transcat Inc.
FY 2009 to FY 2016($ in millions)
$0
$10
$20
$30
$40
$50
$60
$70
$80
FY2009 Cash &Investments,
Net
NetIncome
D&A andWorking Capital
Change
Financing/Other FX Effect CapitalExpenditures
BusinessAcquisitions
Repurchase ofCommon Stock
FY2016Cash &
Investments,Net
$0.2
$24.9
$21.6
$2.0 ($17.8)
($43.6)
$0.6
Uses of CashSources of Cash
($8.2)
Generating Cash to Drive Key Investments
$21.5
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Growth Strategy and Outlook
18© 2016 Transcat Inc.
Taking market share
Outsourcing of internal labs
Upgraded sales talent
Integrated sales model –Enterprise sales
Leveraging Distribution segment
Growth‐focused investments
Expanding addressable market
Service Organic Growth Strategy
Organic GrowthStrategy
AcquisitionStrategy
19© 2016 Transcat Inc.
Customizable, web‐based software integrated with proprietary CalTrak system
Meets the critical needs of highly regulated manufacturing environments
Strengthened value proposition Positive customer reaction to software capabilities
C3 Asset Management Software
E‐commerce and CMS platform Flexible and adaptable to changing e‐commerce market Robust promotional and lead nurturing engine Strong SEO integration Increased efficiency in content management Goals: ‐ Increase relevant traffic
‐ Higher conversion rate
Digital Transformation to Drive Growth
20© 2016 Transcat Inc.
Drivers:
− Geographic Expansion
− Increased Capabilities /Expertise
− Bolt‐On / Leverage Infrastructure
Majority of opportunities: Revenue range of $500K – $5MM
Criteria: 4‐6x EBITDA Minimum IRR of 15%
Service Acquisition Strategy
Organic GrowthStrategy
AcquisitionStrategy
21© 2016 Transcat Inc.
FY 2011 FY 2013FY 2009
Westcon
United Scale and Engineering
ACA Tmetrix
Wind Turbine Tools
CMC Instrument Services
Newark Calibration Services
Anacor Compliance Services
Cal‐Matrix Metrology
Ulrich Metrology
Calibration Technologies
Apex Metrology Solutions
Anmar Metrology
FY 2015 FY 2016FY 2012
Executing Acquisition Strategy
FY 2010
Spectrum Technologies
Dispersion Laboratory
FY 2017
Excalibur Engineering
22© 2016 Transcat Inc.
Acquisition Drivers
Calibration Technologies
Anmar Metrology
Spectrum Technologies
Dispersion Laboratory
Geographic Expansion
Increased Capabilities
Leveraged Infrastructure
Excalibur Engineering
23© 2016 Transcat Inc.
Double‐digit Service segment revenue growth− Expect strong organic growth − Achieve sales and costs synergies to drive operating leverage and margin
expansion− Remain selective and disciplined in acquisition approach
Stabilize Distribution segment− Still face headwinds − Expand rental business and leverage digital transformation
− Excalibur acquisition brings a used equipment distribution business
$175 million to $200 million revenue Double‐digit Adjusted EBITDA margins
* Outlook provided as of May 17, 2016
FY 2017 Outlook*
Long‐term Objectives (within 5 years)
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June 22 2016 Midwest Investment Conference
25
Supplemental Information
26© 2016 Transcat Inc.
($ in thousands)
The Company believes that when used in conjunction with GAAP measures, Adjusted EBITDA, or earnings before interest, income taxes, depreciation and amortization, other income and expenses, and noncash stock compensation expense, which is a non‐GAAP measure, allows investors to view its performance in a manner similar to the methods used by management and provides additional insight into its operating results. Adjusted EBITDA is not calculated through the application of GAAP and is not the required form of disclosure by the Securities and Exchange Commission. As such, it should not be considered as a substitute for the GAAP measure of net income and,therefore, should not be used in isolation of, but in conjunction with, the GAAP measure. The use of any non‐GAAP measure 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.
Adjusted EBITDA ReconciliationFY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Service Operating Income (loss) $ (175) $ 1,311 $ 2,379 $ 3,693 $ 4,155 +Depreciation & Amortization 1,959 1,740 2,144 2,362 3,216 +Other (Expense) / Income (37)
263(84)150
(141)230
(138)224
(64)+Noncash Stock Comp 171
Service Adjusted EBITDA $ 2,010 $ 3,117 $ 4,612 $ 6,141 $ 7,478
Distribution Operating Income $ 5,603 $ 4,635 $ 4,326 $ 3,075 $ 2,147 +Depreciation & Amortization 937 962 801 728 730 +Other (Expense) / Income (11)
290(27)193
12297
27283
16 +Noncash Stock Comp 188
Distribution Adjusted EBITDA $ 6,819 $ 5,763 $ 5,436 $ 4,113 $ 3,081
Service $ 2,010 $ 3,117 $ 4,612 $ 6,141 $ 7,478Distribution $ 6,819 $ 5,763 $ 5,436 $ 4,113 $ 3,081 Total Adjusted EBITDA $ 8,829 $ 8,880 $ 10,048 $ 10,254 $ 10,559
27© 2016 Transcat Inc.
Seasoned Executive Team Driving Growth
Scott D. SutterVice President
of Sales
16 Years Service Segment Experience, SimcoEnterprise Account Development Executive
Joined Transcat in 2013
Rob A. FlackVice President of Operations
17 Years Service Segment Experience, Davis Calibration and Tektronix Service Solutions
Joined Transcat in 2014
Jennifer J. Nelson
Vice President of Human Resources
Joined Transcat in 2012
Lee D. RudowPresident and Chief Executive Officer
27 Years of Industry Experience Demonstrated Growth Record Joined Transcat in 2011
27
Mike W. WestVice President of Marketing
Joined Transcat in 2014
Michael J. TschidererChief Financial
Officer
Joined Transcat in 2015