transcat2012/09/28 · be regarded as the company’s current plans, estimates and beliefs. the...
TRANSCRIPT
Copyright Transcat 2012 1
Transcat®
Western New York Investors Conference September 28, 2012
Charles P. Hadeed
Chief Executive Officer
Lee D. Rudow
President and COO
John J. Zimmer
Sr. Vice President of
Finance and CFO
Copyright Transcat
2012 2
www.TRANSCAT.com Safe Harbor Statement
These slides, and the accompanying oral discussion, contain “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act of
1995. Such statements involve known and unknown risks, uncertainties and other
factors that could cause the actual results of the Company to differ materially from
the results expressed or implied by such statements, including general economic
and business conditions, conditions affecting the industries served by the Company
and its subsidiaries, conditions affecting the Company’s customers and suppliers,
competitor responses to the Company’s products and services, the overall market
acceptance of such products and services, the effect of the Company’s strategy and
other factors disclosed in the Company’s periodic reports filed with the Securities
and Exchange Commission. Consequently, such forward looking statements should
be regarded as the Company’s current plans, estimates and beliefs. The Company
does not undertake and specifically declines any obligation to publicly release the
results of any revisions to these forward-looking statements that may be made to
reflect any future events or circumstances after the date of such statements or to
reflect the occurrence of anticipated or unanticipated events.
Copyright Transcat
2012 3
www.TRANSCAT.com At a Glance
NASDAQ: TRNS
Common shares outstanding 7.4 million
Market capitalization $40.9 million
52-week price range $13.99 - $5.39
Most recent price $5.52
Avg. daily trading volume (90 day) 13,374
Ownership
– Institutions 65.5%
– Insiders 7.2%
Market data as of September 25, 2012 (Bloomberg); ownership as of most recent filing
A leading distributor of professional grade handheld test,
measurement and control instruments and accredited provider
of calibration, repair, inspection and other compliance services
Copyright Transcat
2012 4
www.TRANSCAT.com Future Defined by Corporate Experience
Established as manufacturer of test equipment in 1964
• Focused on process industry
Developed unique test instrument catalog in 1981
• Customer service for process engineers
• Expanded to serve discreet manufacturing
Opened first calibration lab in 1988
• Value add for customers
• Strategic position advantage: distribution and calibration
• Exited manufacturing in 2001
Copyright Transcat
2012 5
www.TRANSCAT.com Products and Services
67%
33%
Q1 FY 2013 TTM Revenue = $109.5 million
Services
Products
Target industries: Life Sciences & Energy
Copyright Transcat
2012 6
www.TRANSCAT.com Product Segment
Market Size:
$0.7 Billion (est.)
On-hand inventory for same
day service
Increasing online
presence
Accelerated growth with
strategic partners
First choice for new
products
Value-added
technical application assistance
Copyright Transcat
2012 7
www.TRANSCAT.com Service Segment
3rd Party Calibration
Market Size: $500 million
(est.)
Leverage calibration
data to provide value-
added services Highly
fragmented competitive landscape
Organic Growth
Acquisitions Geographic
reach
Growth among existing
customers
Target industries
that demand high quality
Copyright Transcat 2012 8
STRATEGY AND OUTLOOK
Copyright Transcat
2012 9
www.TRANSCAT.com The Transcat Advantage
Scalable business with recurring revenue base
Leverage portfolio of products and services
Top-line growth and expanding margins
Strong balance sheet and cash flow
A Leader in the Test and Measurement Instruments
and Calibration Services Markets
Copyright Transcat
2012 10
www.TRANSCAT.com Multi-Faceted Growth Strategy
New
customers
Acquisitions
Leveraging relationships
and capabilities
Long-term
projected growth
Services: Greater than 10%
Products: 3% to 6%
Copyright Transcat
2012 11
www.TRANSCAT.com Acquisition Strategy - Service
Acquire calibration companies which align with our strategy and fit our business model
Continuity of management and employees
Expand market reach
Broaden service capabilities
Copyright Transcat
2012 12
www.TRANSCAT.com Objectives
Grow the Service segment double the rate of the Product segment
Execute acquisition strategy
Cash generation for strategic initiatives
Double digit growth in earnings per share
Copyright Transcat 2012 13
Transcat®
Western New York Investors Conference
Lee D. Rudow
President and COO
Copyright Transcat 2012 14
PRODUCT SEGMENT
Copyright Transcat
2012 15
www.TRANSCAT.com Diverse Products & Customer Base
More than 25,000 test and
measurement instruments
Premium brands
Nearly
15,000
customers
worldwide
Copyright Transcat
2012 16
www.TRANSCAT.com
Product Market Size: $0.7 Billion (est.)
Process test
& measurement
Calibrators
Electrical test &
measurement
Competition:
Specialty distributors
MRO distributors
Industrial distributors
43%
43%
14%
Large Addressable Market
Copyright Transcat
2012 17
www.TRANSCAT.com Transcat’s Competitive Advantage
Wide variety
of
proprietary
brands
Immediate
availability of
high-demand
products
Latest and
most-
advanced
technology
More than
25 years of catalog
distribution
experience
Large
scale
distributor Consultative
selling
approach
Copyright Transcat
2012 18
www.TRANSCAT.com Driving Demand – The Transcat Way
www.transcat.com
Direct Mail
Direct Sales
Copyright Transcat
2012 19
www.TRANSCAT.com Advanced Distribution & Marketing
Progressive Channels
Digital Marketing
Search Engine Optimization – SEO
Marketing Automation – Prospect Identification
Remarketing – Targeted Exposure Campaigns
State-Of-The-Art Website
Pay per click
$1.5 $1.5 $1.8
$2.1 $1.9
Q1 FY12
Q2 FY12
Q3 FY12
Q4 FY12
Q1 FY13
On-line Sales ($ in millions)
Copyright Transcat
2012 20
www.TRANSCAT.com Growth Opportunities - Product
New product introductions
New strategic vendor partnerships
Increasing online presence
Presence in growth industries
Copyright Transcat 2012 21
SERVICE SEGMENT
Copyright Transcat
2012 22
www.TRANSCAT.com Importance of Calibration
Meet
increasing
regulatory
requirements
Avoid
risks of
substandard
quality
Prevent
operational
failure
costs
Copyright Transcat
2012 23
www.TRANSCAT.com
Competition:
Local labs
Regional labs (2-5 labs)
National labs
Calibration: $1.5 Billion Market (est.)
Subcontracted Government
In-house
Target market: Understands and cares
about quality and
integrity of calibration
services
Copyright Transcat
2012 24
www.TRANSCAT.com Service Segment Industry Focus
Life Science &
FDA-Regulated
Industrial
Manufacturing
Chemical
Process
Energy &
Utilities
Copyright Transcat
2012 25
www.TRANSCAT.com Broad Geographic Lab Coverage
Fully Accredited, Experienced
Calibration Provider
Electrical
Temperature
Pressure
Dimensional
High-Demand Disciplines:
17 Centers of Excellence
On Site Services
Copyright Transcat
2012 26
www.TRANSCAT.com Growth Opportunities - Service
Investments in quality
Leverage product relationships
Acquisitions
Presence in growth and regulated industries
Copyright Transcat
2012 27
www.TRANSCAT.com Recent Acquisitions
ACA TMetrix Inc.
Lab in Canada
Nov 2010
Wind Turbine
Tools Inc.
Jan 2011
CMC Instrument Services,
Inc.
April 2011
Newark’s Calibration Business
Sep 2011
Anacor Compliance
Services
July 2012
United Scale &
Engineering Corp.
Jan 2010
Copyright Transcat
2012 28
www.TRANSCAT.com
Compliance
Services
Validation
Analytical
Qualifications
Calibration
Remediation
Validation – Process used to confirm
validity and applicability of employed
process or procedure
Analytical Qualification - Maintain
Stability in Service Operations of
High-end Analytical Instrumentation
Remediation - FDA Consent Decree
litigation requiring evaluating, auditing,
repairing and/or rebuilding complex
calibration and maintenance systems
Compliance Services - Anacor
Copyright Transcat 2012 29
FINANCIAL HIGHLIGHTS
John J. Zimmer
Chief Financial Officer
Copyright Transcat
2012 30
www.TRANSCAT.com Expanding Revenue
$51.5 $53.1 $59.9$73.6 $72.8
$23.9 $27.9$31.3
$36.4 $36.7
FY2009 FY2010 FY2011 FY2012 Q1 FY2013 TTM
Service Product
$109.5
$75.4
($ in millions)
$81.0
12.2%
CAGR 2009 -
Q1 FY13 TTM
$91.2
$110.0
*CAGR – Compound annual growth rate (Q1 FY2013 TTM / FY2009)^(1/3.25)-1
Copyright Transcat
2012 31
www.TRANSCAT.com
$51.5 $53.1$59.9
$73.6 $72.8
FY2009 FY2010 FY2011 FY2012 Q1FY2013 TTM
Product Sales Gross Margin Operating Margin
Product Segment Profitability
25.4% 23.4% 25.7% 25.1% 25.3%
6.7% 4.3% 7.3% 7.6% 7.7%
Margin Factors:
Direct vs. resellers
Customer discounts
Product mix
Rebates/Co-op
($ in millions)
Copyright Transcat
2012 32
www.TRANSCAT.com
$23.9$27.9
$31.3$36.4 $36.7
FY2009 FY2010 FY2011 FY2012 Q1FY2013
TTM
Service Revenue Gross Margin Operating Margin
23.7% 24.5% 25.3% 23.7% 23.4%
(3.2)% 0.3% 0.6% (0.5)% (0.5)%
Service Segment Profitability
Margin Factors:
Organic vs. acquisition growth
In-house vs. subcontracted
($ in millions)
$0.2
$1.2 $1.6 $1.7 $1.6
FY2009 FY2010 FY2011 FY2012 Q1FY2013 TTM
Service Segment EBITDA
Copyright Transcat
2012 33
www.TRANSCAT.com
$16.1 $16.9$18.7
$21.7 $21.6
FY2009 FY2010 FY2011 FY2012 Q1FY2013 TTM
21.3%
20.9% 20.5%
19.7% 19.7%
Operating Expenses
% of Net Revenue
More Efficient Organization ($ in millions)
Copyright Transcat
2012 34
www.TRANSCAT.com
$2.7 $2.4
$4.6
$5.4 $5.5
FY2009 FY2010 FY2011 FY2012 Q1 FY2013 TTM
Operating Income
3.6% 2.9%
5.0% 4.9% 5.0%
Operating Margin
24.3%
CAGR 2009 -
Q1 FY13 TTM
Improved Leverage
*CAGR – Compound annual growth rate (Q1 FY2013 TTM / FY2009)^(1/3.25)-1
Copyright Transcat
2012 35
www.TRANSCAT.com Bottom-Line Growth
Earnings per share
$0.21 $0.19 $0.37 $0.43 $0.44
$1.6 $1.5
$2.8$3.3 $3.3
FY2009 FY2010 FY2011 FY2012 Q1FY2013 TTM
($ in millions; except per share data)
Net Income 26.5%
CAGR 2009 -
Q1 FY13 TTM
25.6%
CAGR 2009 -
Q1 FY13 TTM
Copyright Transcat
2012 36
www.TRANSCAT.com
$4.2 $3.0 $5.1 $6.4 $6.5
$0.2 $1.2
$1.6
$1.7 $1.6
FY2009 FY2010 FY2011 FY2012 Q1FY2013 TTM
Product Service Unallocated
Strong Cash Generation ($ in millions)
EBITDA*
20% CAGR from
FY2009 through Q1
FY2013 TTM
Strengthened
earnings power
$4.5 $4.4
$6.9
$8.3 $8.2
* See supplemental slides for EBITDA reconciliation and other important disclaimers regarding EBITDA
** EBITDA totals include unallocated amounts for each period : FY 2009 = $0.1, FY 2010 = $0.2, FY 2011 = $0.2 and FY 2012 = $0.1
CAGR – Compound annual growth rate (Q1 FY2013 TTM / FY2009)^(1/3.25)-1
Copyright Transcat
2012 37
www.TRANSCAT.com Strong Balance Sheet ($ in millions)
$3.6 $2.5
$5.3 $3.4
$5.9
$18.6 $20.3
$23.3
$27.4 $27.8
$4.9 $5.9
$7.6 $6.4 $7.2
FY2009 FY2010 FY2011 FY2012 Q1FY2013
Long-Term Debt Equity Inventory
Copyright Transcat
2012 38
www.TRANSCAT.com
Capital Expenditures
$1.8
$1.1
$1.6 $1.4
$2.5
FY2009 FY2010 FY2011 FY2012 FY2013F
Investments for the Future
Expansion of Service
segment capabilities
and capacity
Cost reduction efforts
Software solutions
to drive Service
segment sales
($ in millions)
Copyright Transcat
2012 39
www.TRANSCAT.com Return on Assets
5.8%
4.5%
7.2% 7.6% 7.5%
FY2009 FY2010 FY2011 FY2012 Q1FY2013 TTM
Copyright Transcat 2012 40
Transcat®
Western New York Investors Conference September 28, 2012
Copyright Transcat 2012 41
SUPPLEMENTAL INFORMATION
Copyright Transcat
2012 42
www.TRANSCAT.com EBITDA Reconciliation
*The Company believes that when used in conjunction with GAAP measures, EBITDA, or earnings before interest, taxes
and depreciation and amortization, 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. 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.
FY09 FY10 FY11 FY12 Q1 FY2013
Service Operating Income $ (762) $ 94 $ 192 $ (175) $ (196)
Service Depreciation & Amortization $ 954 $ 1,136 $ 1,377 $ 1,850 $ 279
Service EBITDA $ 192 $ 1,230 $ 1,569 $ 1,675 $ 83
Product Operating Income $ 3,448 $ 2,287 $ 4,395 $ 5,603 $ 557
Product Depreciation & Amortization $ 778 $ 742 $ 673 $ 787 $ 528
Product EBITDA $ 4,226 $ 3,029 $ 5,068 $ 6,390 $ 1,085
Product $ 4,226 $ 3,029 $ 5,068 $ 6,390 $ 1,085
Service $ 192 $ 1,230 $ 1,569 $ 1,675 $ 83
Unallocated $ 98 $ 167 $ 211 $ 211 $ -
Total EBITDA $ 4,516 $ 4,426 $ 6,848 $ 8,276 $ 1,168