10q10k10q10k.net

What changed in TRANSCAT INC's 10-K — 2022 vs 2023

vs

Paragraph-level year-over-year comparison of TRANSCAT INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+246 added−248 removedSource: 10-K (2023-06-06) vs 10-K (2022-06-09)

Top changes in TRANSCAT INC's 2023 10-K

246 paragraphs added · 248 removed · 202 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

48 edited+8 added−9 removed102 unchanged
Biggest changeThis has been demonstrated by the acquisition of Tangent Labs, LLC, Cal OpEx Limited (d/b/a NEXA Enterprise Asset Management) which owns all of the issued and outstanding capital stock of its U.S. based subsidiary, Cal OpEx Inc., a Delaware corporation (collectively, “NEXA”), and Upstate Metrology Inc. in fiscal year 2022 and the acquisitions of BioTek Services, Inc. in our fiscal year ended March 27, 2021 (“fiscal year 2021”), and the acquisition of TTE Laboratories, Inc. in our fiscal year ended March 28, 2020 (“fiscal year 2020”).
Biggest changeThis has been demonstrated by the acquisitions of Elite Calibration, LLC ("Elite"), Galium Limited (d/b/a Complete Calibrations) ("Complete Calibrations"), e2b Calibration ("e2b"), and Charlton Jeffmont Inc., Raitz Inc. and Toolroom Calibration Inc. d/b/a Alliance Calibration ("Alliance") in fiscal year 2023, and the acquisitions of Tangent Labs, LLC ("Tangent"), Cal OpEx Limited (d/b/a Transcat Ireland) which owns all of the issued and outstanding capital stock of its U.S. based subsidiary, Cal OpEx Inc.
We also have a 1 Table of Contents fleet of mobile calibration laboratories that can provide service at customer sites which may not have the space or utility capabilities we require to service their equipment. Through the Company’s acquisition strategy, we have been focused on building out our Services segment by entering adjacent and complimentary markets.
We also have a fleet of mobile calibration laboratories that can provide service at customer sites which may not have the space or utility capabilities we require to service their equipment. 1 Table of Contents Through the Company’s acquisition strategy, we have been focused on building out our Services segment by entering adjacent and complimentary markets.
We provide employees with compensation packages that include base salary and may also include annual incentive bonuses and/or long-term incentive awards, depending upon the employee’s position. We believe that a compensation program with both short-term and long-term incentive awards provides fair and competitive compensation and aligns employee and shareholder interests.
We provide employees with competitive compensation packages that include base salary and may also include annual incentive bonuses and/or long-term incentive awards, depending upon the employee’s position. We believe that a compensation program with both short-term and long-term incentive awards provides fair and competitive compensation and aligns employee and shareholder interests.
Under our integrated sales model, we have both inside and outside sales teams that seek to acquire new customers in our targeted markets by leveraging our unique value proposition, including our broad geographic footprint and comprehensive suite of services. We target regulated, enterprise customers with multiple manufacturing operations throughout North America.
Under our integrated sales model, we have both inside and outside sales teams that seek to acquire new customers in our targeted markets by leveraging our unique value proposition, including our broad geographic footprint and comprehensive suite of services. We target regulated, enterprise customers with multiple manufacturing operations throughout North America and Europe.
Service Competition . The calibration services industry is highly fragmented and is composed of companies ranging from internationally recognized and accredited OEMs to non-accredited sole proprietors as well as companies that perform their own calibrations in-house, resulting in a tremendous range of service levels and capabilities.
The calibration services industry is highly fragmented and is composed of companies ranging from internationally recognized and accredited OEMs to non-accredited sole proprietors as well as companies that perform their own calibrations in-house, resulting in a tremendous range of service levels and capabilities.
Our calibration services strategy encompasses multiple ways to manage a customer’s calibration and laboratory instrument service needs: ● We offer an “Integrated Calibration Service Solution” that provides a complete wrap-around service, which can be delivered in the following ways: ● in-house services: services are performed at one of our twenty-four Calibration Service Centers (often accompanied by pick-up and delivery services); ● periodic onsite services: Transcat technicians travel to a customer’s location, including aboard vessels docked at shipyards, and provide bench-top or in-line calibration or laboratory services on predetermined service cycles; ● client-based-laboratory services: Transcat establishes and manages a calibration service program within a customer’s facility; and ● mobile calibration services: services are completed on a customer’s property within one of our mobile calibration units. ● For companies that maintain an internal calibration operation, we can provide: ● calibration of their primary calibration assets, also called “standards”; and ● overflow capability, either onsite or at one of our Calibration Service Centers, during periods of high demand. ● Enterprise Asset Management ● Calibration – criticality risk assessment; calibration interval analysis; calibration plans/task lists; planning and scheduling. ● Maintenance and Spares – PM optimization; spares/BOM management; PM plans/task lists; planning and scheduling. ● Reliability – asset criticality assessments; asset hierarchy development; PdM plans/task lists; FMECA/RCA. ● CMMS – implementation and migration; data optimization; business intelligence; CMMS KPIs/reporting. ● Quality and Compliance – technical writing; compliance audits; remediation; compliance management. ● Validation – validation master plan; confidence assessment model; validation interval analysis; validation method/process optimization.
Our calibration services strategy encompasses multiple ways to manage a customer’s calibration and laboratory instrument service needs: ● We offer an “Integrated Calibration Service Solution” that provides a complete wrap-around service, which can be delivered in the following ways: ● in-house services: services are performed at one of our twenty-seven Calibration Service Centers (often accompanied by pick-up and delivery services); ● periodic onsite services: Transcat technicians travel to a customer’s location, including aboard vessels docked at shipyards, and provide bench-top or in-line calibration or laboratory services on predetermined service cycles; ● client-based-laboratory services: Transcat establishes and manages a calibration service program within a customer’s facility; and ● mobile calibration services: services are completed on a customer’s property within one of our mobile calibration units. ● For companies that maintain an internal calibration operation, we can provide: ● calibration of their primary calibration assets, also called “standards”; and ● overflow capability, either onsite or at one of our Calibration Service Centers, during periods of high demand. 6 Table of Contents ● Enterprise Asset Management ● Calibration – criticality risk assessment; calibration interval analysis; calibration plans/task lists; planning and scheduling. ● Maintenance and Spares – PM optimization; spares/BOM management; PM plans/task lists; planning and scheduling. ● Reliability – asset criticality assessments; asset hierarchy development; PdM plans/task lists; FMECA/RCA. ● CMMS – implementation and migration; data optimization; business intelligence; CMMS KPIs/reporting. ● Quality and Compliance – technical writing; compliance audits; remediation; compliance management. ● Validation – validation master plan; confidence assessment model; validation interval analysis; validation method/process optimization.
For example, the URL www.pipettes.com was obtained in connection with the acquisition of TTE (now known as pipettes.com). Pipettes.com focuses on selling pipettes, pipette supplies and related services to customers. We use a multichannel approach to reach our customers and prospective customers including our master catalog, periodic supplemental catalogs, website, e-newsletters, and other direct sales and marketing programs.
For example, the URL www.pipettes.com was obtained in connection with the acquisition of TTE Laboratories, Inc. (now known as pipettes.com). Pipettes.com focuses on selling pipettes, pipette supplies and related services to customers. We use a multichannel approach to reach our customers and prospective customers including our master catalog, periodic supplemental catalogs, website, e-newsletters, and other direct sales and marketing programs.
This initiative is resulting in increased productivity and operational efficiency and further differentiation from our competitors as we leverage technology, automation, and process improvements to enhance our effectiveness and our customers’ experiences. We also implemented Transcat University’s build-a-tech program. This program attracts fresh talent to the organization and provides training and career advancement opportunities for our existing employees.
This initiative is resulting in increased productivity and operational efficiency and further differentiation from our competitors as we leverage technology, automation, and process improvements to enhance our effectiveness and our customers’ experiences. We also continued Transcat University’s build-a-tech program. This program attracts fresh talent to the organization and provides training and career advancement opportunities for our existing employees.
We believe that effective purchasing is a key element to maintaining and enhancing our position as a provider of high-quality test and measurement instruments. We frequently evaluate our purchase requirements and suppliers’ offerings to obtain products at the best possible cost. We obtain our products from approximately 500 suppliers of brand name and private-labeled equipment.
We believe that effective purchasing is a key element to maintaining and enhancing our position as a provider of high-quality test and measurement instruments. We frequently evaluate our purchase requirements and suppliers’ offerings to obtain products at the best possible cost. We obtain our products from approximately 550 suppliers of brand name and private-labeled equipment.
Utilization of such diagnostic instrumentation also allows for continuous improvement processes to be in place, increasing the accuracies of their measurements. The industrial test and measurement instrumentation market, in those geographic areas where we predominately operate, has historically been serviced by broad-based national equipment distributors and niche or specialty-focused 8 Table of Contents organizations such as Transcat.
Utilization of such diagnostic instrumentation also allows for continuous improvement processes to be in place, increasing the accuracies of their measurements. The industrial test and measurement instrumentation market, in those geographic areas where we predominately operate, has historically been serviced by broad-based national equipment distributors and niche or specialty-focused organizations such as Transcat.
Our scopes of accreditation can be found at http://www.transcat.com/calibration-services/accreditation/calibration-lab-certificates. Distribution Segment Distribution Summary. We distribute professional grade test, measurement and control instrumentation throughout North America and internationally. Our customers use test and measurement instruments to ensure that their processes, and ultimately their end products, are within specification.
Our scopes of accreditation can be found at http://www.transcat.com/calibration-services/accreditation/calibration-lab-certificates. 8 Table of Contents Distribution Segment Distribution Summary. We distribute professional grade test, measurement and control instrumentation throughout North America and internationally. Our customers use test and measurement instruments to ensure that their processes, and ultimately their end products, are within specification.
In fiscal year 2022, we shipped approximately 30,000 product orders. Distribution Backlog . Distribution 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.
In fiscal year 2023, we shipped approximately 30,000 product orders. Distribution Backlog . Distribution 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.
Through our vendor relationships we have access to more than 150,000 products, which we market to our existing and prospective customers both with and without value-added service options that are unique to Transcat.
Through our vendor relationships we have access to more than 140,000 products, which we market to our existing and prospective customers both with and without value-added service options that are unique to Transcat.
We believe our calibration services are of the highest technical and quality levels, with broad ranges of accreditation. 6 Table of Contents Our compliance services strategy is to identify and establish long-term relationships with life science research and development and manufacturing customers who require analytical qualifications, validation, remediation and/or preventative maintenance services.
We believe our calibration services are of the highest technical and quality levels, with broad ranges of accreditation. Our compliance services strategy is to identify and establish long-term relationships with life science research and development and manufacturing customers who require analytical qualifications, validation, remediation and/or preventative maintenance services.
These co-branded marketing initiatives typically feature specific vendors, new products or targeted product categories and take the form of direct mailers, web-based initiatives or outbound sales efforts. Distribution Competition. The distribution market for industrial test and measurement instrumentation is fragmented and highly competitive.
These co-branded marketing initiatives typically feature specific vendors, new products or targeted product categories and take the form of direct mailers, web-based initiatives or outbound sales efforts. 9 Table of Contents Distribution Competition. The distribution market for industrial test and measurement instrumentation is fragmented and highly competitive.
Our close knowledge of 7 Table of Contents the products we distribute also allows our service staff to consult and advise customers on what products are best suited for their in-house calibration needs. We also believe that our proprietary software is a key differentiator from our competitors.
Our close knowledge of the products we distribute also allows our service staff to consult and advise customers on what products are best suited for their in-house calibration needs. We also believe that our proprietary software is a key differentiator from our competitors.
Whether a facility is in preconstruction, operational or decommissioning stage, NEXA’s experienced teams can deliver results in all 5 Table of Contents phases of the asset lifecycle. NEXA’s full suite of services or combination solutions are customizable to meet our customer’s unique needs. Other Services.
Whether a facility is in preconstruction, operational or decommissioning stage, NEXA’s experienced teams can deliver results in all phases of the asset lifecycle. NEXA’s full suite of services or combination solutions are customizable to meet our customer’s unique needs. Other Services.
We strive to differentiate ourselves within the markets we serve and build barriers to competitive entry by offering a broad range of products and services and by integrating these solutions in a value-added manner to benefit our customers’ operations. During fiscal year 2022, we renewed our commitment to capital, people and leadership investments, advancing our “Operational Excellence” initiative.
We strive to differentiate ourselves within the markets we serve and build barriers to competitive entry by offering a broad range of products and services and by integrating these solutions in a value-added manner to benefit our customers’ operations. During fiscal year 2023, we continued our commitment to capital, people and leadership investments, advancing our “Operational Excellence” initiative.
NEXA provides technical, consulting, and staffing solutions in the US, Canada, Ireland, Europe, and Asia Pacific to improve asset management programs for our most highly-regulated customers, especially those in the pharmaceutical, biotechnology, and medical device industries. NEXA offers six service tracks that support the creation or optimization of our client’s enterprise asset management program.
Through NEXA we provide technical, consulting, and staffing solutions in the US, Canada, Ireland, Europe, and Asia Pacific to improve asset management programs for our most highly-regulated customers, especially those in the pharmaceutical, biotechnology, and medical device industries. NEXA offers six service tracks that support the creation or optimization of our client’s enterprise asset management program.
To 9 Table of Contents address our customers’ needs for technical support and product application assistance, we employ a staff of highly trained technical sales specialists. In order to maintain this competitive advantage, technical training is an integral part of developing our sales staff.
To address our customers’ needs for technical support and product application assistance, we employ a staff of highly trained technical sales specialists. In order to maintain this competitive advantage, technical training is an integral part of developing our sales staff.
The Company recorded vendor rebates of $1.0 million and $0.7 million in fiscal years 2022 and 2021, respectively, as a reduction of cost of distribution sales. Distribution Operations. Our Distribution operations primarily take place at our 48,500 square-foot facility in Rochester, New York which includes 17,000 square feet of warehouse space.
The Company recorded vendor rebates of $0.6 million and $1.0 million in fiscal years 2023 and 2022, respectively, as a reduction of cost of distribution sales. Distribution Operations. Our Distribution operations primarily take place at our 48,500 square-foot facility in Rochester, New York which includes 17,000 square feet of warehouse space.
Through our Distribution segment, we sell and rent national and proprietary brand instruments to customers globally. Through our website, in-house sales team and printed and digital marketing materials, we offer access to more than 150,000 test, measurement and control instruments, including products from approximately 500 leading brands.
Through our Distribution segment, we sell and rent national and proprietary brand instruments to customers globally. Through our website, in-house sales team and printed and digital marketing materials, we offer access to more than 140,000 test, measurement and control instruments, including products from approximately 550 leading brands.
The table below illustrates the strategic drivers for the acquisitions described above: Geographic Expansion Increased Capabilities Leveraged Infrastructure Tangent ✓ ✓ NEXA ✓ ✓ Upstate Metrology ✓ BioTek ✓ ✓ We believe our combined Service and Distribution segment offerings, experience, technical expertise and integrity create a unique and compelling value proposition for our customers, and we intend to continue to grow our business through organic revenue growth and business acquisitions.
The table below illustrates the strategic drivers for the acquisitions described above: Geographic Expansion Increased Capabilities Leveraged Infrastructure Elite ✓ Complete Calibrations ✓ ✓ e2b ✓ ✓ Alliance ✓ ✓ Tangent ✓ ✓ NEXA ✓ ✓ Upstate Metrology ✓ We believe our combined Service and Distribution segment offerings, experience, technical expertise and integrity create a unique and compelling value proposition for our customers, and we intend to continue to grow our business through organic revenue growth and business acquisitions.
NEXA provides calibration optimization and other technical solutions to improve asset and reliability management programs to pharmaceutical, biotechnology, and medical device companies worldwide. ● Effective April 29, 2021, Transcat acquired substantially all of the assets of Upstate Metrology Inc.
NEXA provides calibration optimization and other technical solutions to improve asset and reliability management programs to pharmaceutical, biotechnology, and medical device companies worldwide. ● Effective April 29, 2021, Transcat acquired substantially all of the assets of Upstate Metrology, a New York based provider of calibration services.
As of the end of our fiscal year ended March 26, 2022 (“fiscal year 2022”), we operated twenty-four calibration service centers (“Calibration Service Centers”) strategically located across the United States, Puerto Rico, and Canada. We also serve our customers onsite at their facilities for daily, weekly or longer-term periods.
As of the end of our fiscal year ended March 25, 2023 (“fiscal year 2023”), we operated twenty-seven calibration service centers (“Calibration Service Centers”) strategically located across the United States, Puerto Rico, Canada and Ireland. We also serve our customers onsite at their facilities for daily, weekly or longer-term periods.
We utilize print media, trade shows and web-based initiatives to market our services to customers and prospective customers with a strategic focus in the highly regulated industries including life science and other FDA-regulated industries, aerospace and defense, energy and utilities, and chemical manufacturing. We also target industrial manufacturing and other industries that appreciate the value of quality calibrations.
We utilize print media, trade shows and web-based initiatives to market our services to customers and prospective customers with a strategic focus in the highly regulated industries including life science and other FDA-regulated industries, aerospace and defense, energy and utilities, and chemical manufacturing.
Compensation and Benefits Our compensation and benefits program is designed to attract and reward individuals who demonstrate the ability to support and advance our operational and strategic goals and create long-term value for our shareholders.
Compensation and Benefits Our compensation and benefits program is designed to attract and reward individuals who demonstrate the ability and desire to enhance our workplace culture, support our values, drive our operational and strategic goals, and create long-term value for our shareholders.
ENVIRONMENTAL MATTERS We believe that we are in compliance with federal, state, and local provisions relating to the protection of the environment, and that continued compliance will not have any material effect on our capital expenditures, earnings, or competitive position.
Fiscal year 2024 which ends on March 30, 2024 (“fiscal year 2024”) will have 53 weeks. ENVIRONMENTAL MATTERS We believe that we are in compliance with federal, state, and local provisions relating to the protection of the environment, and that continued compliance will not have any material effect on our capital expenditures, earnings, or competitive position.
This NEXA suite of services, combined with the existing Transcat service offerings, provides a very comprehensive and robust value proposition to existing and new customers, which allows us to manage the complexity that is tied to doing business in these highly regulated industries.
This NEXA suite of services, combined with the existing Transcat service offerings, provides a very comprehensive and robust value proposition to existing and new customers, which allows us to manage the complexity that is tied to doing business in these highly regulated industries. All of our Calibration Service Centers have obtained ISO/IEC 17025:2017 scopes of accreditation.
Our total backlog was $7.7 million and $6.3 million as of March 26, 2022 and March 27, 2021, respectively. CUSTOMER SERVICE AND SUPPORT Key elements of our customer service approach are our business development sales team, outbound sales team, account management team, inbound sales and customer service organization.
Our total backlog was $8.1 million and $7.7 million as of March 25, 2023 and March 26, 2022, respectively. 10 Table of Contents CUSTOMER SERVICE AND SUPPORT Key elements of our customer service approach are our business development sales team, outbound sales team, account management team, inbound sales and customer service organization.
To maintain our competitive position in this segment, we maintain internationally recognized third-party accredited quality systems, further detailed in the section entitled “Service Quality” below, and provide our customers with access to proprietary asset management software solutions, which offer tools to manage their internal calibration programs and provide them with visibility to their service records.
To maintain our competitive position in this segment, we maintain internationally recognized third-party accredited quality systems, further detailed in the section entitled “Service Quality” below, and provide our customers with access to proprietary asset management software solutions, which offer tools to manage their internal calibration programs and provide them with visibility to their service records. 5 Table of Contents Through our Service segment, we perform recurring periodic calibrations (typically ranging from three-month to twenty-four month intervals) on new and customer-owned instruments.
To ensure the quality of service provided, we monitor our customer service through customer surveys, call monitoring and daily statistical reports. 10 Table of Contents Customers may place orders via: ● Mail to Transcat, Inc., 35 Vantage Point Drive, Rochester, NY 14624; ● Telephone at 1-800-828-1470; ● Email at sales@transcat.com; ● Online at www.transcat.com; or ● Fax at 1-800-395-0543 INFORMATION REGARDING EXPORT SALES In each of fiscal years 2022 and 2021, approximately 10% of our total revenue resulted from sales to customers outside the United States.
Customers may place orders via: ● Mail to Transcat, Inc., 35 Vantage Point Drive, Rochester, NY 14624; ● Telephone at 1-800-828-1470; ● Email at sales@transcat.com; ● Online at www.transcat.com; or ● Fax at 1-800-395-0543 INFORMATION REGARDING EXPORT SALES In fiscal year 2023, approximately 10% of our total revenue resulted from sales to customers outside the United States.
Of those export sales in fiscal year 2022, approximately 8% were denominated in U.S. dollars, 81% were denominated in Canadian dollars and 11% were denominated in Euros.
Of those export sales in fiscal year 2023, approximately 7% were denominated in U.S. dollars, 69% were denominated in Canadian dollars and 24% were denominated in Euros.
Our ultimate goal is to achieve a level of work-related injuries as close to zero as possible through continuous investment in our safety programs. We provide protective gear (e.g., eye protection, masks, and gloves) as required by applicable standards and as appropriate given employee job duties.
We conduct policy and procedure reviews to ensure compliance with health and safety guidelines and regulatory requirements. We provide protective gear (e.g., eye protection, masks, and gloves) as required by applicable standards and as appropriate. Our goal is to achieve a level of work-related injuries as close to zero as possible through continuous investment in our safety program.
We believe our customers do business with us because of our integrity and commitment to quality service, our broad range of product and service offerings, our proprietary asset management system, CalTrak®, and our online customer portal, C3®.
We believe our customers do business with us because of our integrity and commitment to quality service, our broad range of product and service offerings, our proprietary asset management system, CalTrak®, and our online customer portal, C3®. In our fiscal years 2023 and 2022, no customer or controlled group of customers accounted for 5% or more of our total revenue.
This differentiation and diversification strategy has been deliberately instituted in recent years as a means to mitigate the effect of price-driven competition and to lessen the impact that any particular industry or market will have on the overall performance of this segment. 3 Table of Contents As part of our growth strategy, we completed three acquisitions during our fiscal year 2022 and one business acquisition during our fiscal year 2021: ● Effective December 31, 2021, Transcat purchased all of the outstanding membership units of Tangent Labs, LLC, a privately-held company (“Tangent”).
This differentiation and diversification strategy has been deliberately instituted in recent years as a means to mitigate the effect of price-driven competition and to lessen the impact that any particular industry or market will have on the overall performance of this segment. 3 Table of Contents As part of our growth strategy, we completed four acquisitions during our fiscal year 2023 and three acquisitions during our fiscal year 2022: ● Effective February 2, 2023, Transcat acquired substantially all of the assets of Elite, a California based provider of pipette calibration services. ● Effective September 28, 2022, Transcat purchased all of the outstanding capital stock of Complete Calibrations, an Irish company.
HUMAN CAPITAL MANAGEMENT As of March 26, 2022, we had 918 employees, of which 812 were employed in the United States and 106 were employed outside of the United States. None of our employees are covered by collective bargaining agreements or work councils. Overall, we consider our employee relations to be good.
HUMAN CAPITAL MANAGEMENT As of March 25, 2023, we had 1,030 employees, 899 of whom were employed in the United States and 131 employed outside the United States. None of our employees are covered by collective bargaining agreements or work councils.
For customers’ calibration needs in less common and highly specialized disciplines, we subcontract some calibrations to third-party vendors that have unique or proprietary capabilities.
We perform approximately 800,000 calibrations annually and can address a significant majority of the items requested to be calibrated with our in-house capabilities. For customers’ calibration needs in less common and highly specialized disciplines, we subcontract some calibrations to third-party vendors that have unique or proprietary capabilities.
In fiscal year 2022, our top 10 vendors accounted for approximately 64% of our aggregate Distribution sales. In fiscal year 2022, the COVID-19 pandemic impacted the supply of products from our vendors resulting in increased lead times and an increase in our backlog.
In fiscal year 2023, our top 10 vendors accounted for approximately 60% of our aggregate Distribution sales. In fiscal year 2023, lead times for the supply of products from our vendors was still challenging as the backlog increased year-over-year.
As a result, we might not be able to maintain our domain names or obtain comparable domain names, which could harm our business. SEASONALITY Our business has certain historical seasonal factors. Historically, our fiscal third and fourth quarters have been stronger than our fiscal first and second quarters due to the operating cycles of our industrial sector customers.
As a result, we might not be able to maintain our domain names or obtain comparable domain names, which could harm our business. 11 Table of Contents SEASONALITY Our business has certain historical seasonal factors.
Our diversity and inclusion principles are also reflected in our employee training, in particular with respect to our policies against harassment and bullying and the elimination of bias in the workplace.
Diversity and Inclusion Recognizing and respecting our employees’ backgrounds and experiences, and our international presence, we strive to maintain a diverse workforce and inclusive work environment everywhere we operate. Our diversity and inclusion principles are reflected in our employee training, in particular with respect to our policies against harassment and bullying and the elimination of bias in the workplace.
In a 53-week fiscal year, the last quarter is a 14-week period. Fiscal year 2022 and fiscal year 2021 both consisted of 52 weeks. Fiscal year 2023 which ends on March 25, 2023 (“fiscal year 2023”) will also have 52 weeks.
FISCAL YEAR We operate on a 52/53-week fiscal year, ending the last Saturday in March. In a 52-week fiscal year, each of the four quarters is a 13-week period. In a 53-week fiscal year, the last quarter is a 14-week period. Fiscal years 2023 and 2022 each consisted of 52 weeks.
We are headquartered in Rochester, New York. Our executive offices are located at 35 Vantage Point Drive, Rochester, New York 14624. Our telephone number is 585-352-7777. Our website is www.transcat.com. Information available on our website is not a part of, and is not incorporated into, this Annual Report on Form 10-K.
Our website is www.transcat.com. Information available on our website is not a part of, and is not incorporated into, this Annual Report on Form 10-K.
In addition to cash and equity compensation, we also offer employees benefits such as life and health (medical, dental and vision) insurance, paid time off, paid parental leave, and a 401(k) plan.
In addition to cash and equity compensation, we also offer employees benefits including health (medical, dental and vision), life, and disability insurance, paid time off, paid parental leave, tuition benefits, and a 401(k) plan. 12 Table of Contents AVAILABLE INFORMATION We file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and other information with the Securities and Exchange Commission (“SEC”).
In addition, to support our employees’ mental health and emotional well-being, all employees and their dependents worldwide have access to an Employee Assistance Program ("EAP"), at no cost to them. This includes access to visits with mental health care providers.
Wellness Our Calibrated Wellness Program prioritizes our employees’ well-being and is designed to enhance their health. Our program includes wellness resources, health education, pharmaceutical cost guidance, and a no-cost Employee Assistance Program, which includes worldwide access to visits with mental health care providers.
In our fiscal year 2021 and in fiscal year 2022, no customer or controlled group of customers accounted for 5% or more of our total revenue. The loss of any single customer would not have a material adverse effect on our business, cash flows, balance sheet, or results of operations. Transcat was incorporated in Ohio in 1964.
The loss of any single customer would not have a material adverse effect on our business, cash flows, balance sheet, or results of operations. Transcat was incorporated in Ohio in 1964. We are headquartered in Rochester, New York. Our executive offices are located at 35 Vantage Point Drive, Rochester, New York 14624. Our telephone number is 585-352-7777.
Our culture is important to the overall success of the Company. Health and Safety The health and safety of our employees is of utmost importance to us. We conduct regular self-assessments and audits to ensure compliance with our health and safety guidelines and regulatory requirements.
Overall, we consider our employee relations to be good and believe our culture to be central to the success of the Company. Health and Safety The health and safety of our employees is of utmost importance to us. We are enhancing our Safety Program with additional training and internal risk and hazard assessments.
Rebates had been cut significantly in fiscal year 2021 as our vendors implemented cost cutting measures in response to the COVID-19 pandemic. During fiscal year 2022, our Distribution sales were high enough that we saw an increase in the rebates offered by our vendors.
During fiscal year 2022, the volume of our Distribution sales resulted in an increase in the rebates earned from our vendors. During fiscal year 2023, we saw a decrease in the rebates offered by our vendors.
Removed
TTE Laboratories, Inc. and BioTek Services, Inc. provided Transcat entry into pipette calibration, repair, refurbishment or replacement, calibration management and user training, by enabling both in lab and on-site services to life sciences and other regulated industry customers.
Added
(d/b/a NEXA EAM), a Delaware corporation (collectively, "NEXA"), and Upstate Metrology Inc. ("Upstate Metrology") in our fiscal year ended March 26, 2022 ("fiscal year 2022").
Removed
TTE Laboratories, Inc. also provided Transcat with an opportunity to strengthen its Distribution sales platform with incremental product sales through their growing e-commerce website, www.pipettes.com All of our Calibration Service Centers have obtained ISO/IEC 17025:2017 scopes of accreditation. Our accreditations are the cornerstone of our quality program, which we believe is among the best in the industry.
Added
Our accreditations are the cornerstone of our quality program, which we believe is among the best in the industry.
Removed
(“Upstate Metrology”), a New York based provider of calibration services. ● Effective December 16, 2020, Transcat acquired substantially all of the assets of BioTek Services, Inc. (“BioTek”), a Virginia based provider of pipette calibration services.
Added
Complete Calibrations is an ISO 17025 accredited calibration company specializing in calibration services for the life sciences industry. ● Effective September 27, 2022, Transcat acquired substantially all of the assets of e2b, an Ohio based provider of calibration services. ● Effective May 31, 2022, Transcat acquired substantially all of the assets of Alliance, an Ohio based provider of calibration services. ● Effective December 31, 2021, Transcat purchased all of the outstanding membership units of Tangent, a privately-held company.
Removed
Through our Service segment, we perform recurring periodic calibrations (typically ranging from three-month to twenty-four month intervals) on new and customer-owned instruments. We perform approximately 800,000 calibrations annually and can address a significant majority of the items requested to be calibrated with our in-house capabilities.
Added
We also target industrial manufacturing and other industries that appreciate the value of quality calibrations. 7 Table of Contents Service Competition .
Removed
Our Distribution segment has historically been strongest in our third fiscal quarter while Service has historically been strongest in our fourth fiscal quarter. 11 Table of Contents FISCAL YEAR We operate on a 52/53-week fiscal year, ending the last Saturday in March. In a 52-week fiscal year, each of the four quarters is a 13-week period.
Added
To ensure the quality of service provided, we monitor our customer service through customer surveys, call monitoring and daily statistical reports.
Removed
Additionally, in response to the COVID-19 pandemic, we invested heavily in safety measures and other initiatives to help ensure the health of our employees. Hiring Practices We recruit the best people for the job without regard to race, ethnicity, gender, sexual orientation or any other protected status.
Added
Historically, our fiscal third and fourth quarters have been stronger than our fiscal first and second quarters due to the operating cycles of our industrial sector customers. Our Distribution segment has historically been strongest in our third fiscal quarter while Service has historically been strongest in our fourth fiscal quarter.
Removed
It is our policy to comply fully with all domestic, foreign and local non-discrimination employment laws. Diversity and Inclusion Recognizing and respecting our employees’ backgrounds and experiences, and our international presence, we strive to maintain a diverse workforce and inclusive work environment everywhere we operate.
Added
Hiring Practices We seek to recruit and hire the most qualified people for our open positions without regard to protected status (age, color, creed, disability, domestic violence victim status, gender identity, genetic predisposition or carrier status, marital status, national origin, pregnancy, race religion, sex, sexual orientation, status as a protected veteran or as a member of any other protected group or status).
Removed
In response to the COVID-19 pandemic, we implemented significant changes that we determined were in the best interest of our employees as well as the communities in which we operate. This includes having the vast majority of our corporate employees work from home while also implementing a number of safety measures for employees continuing critical onsite work.
Added
Our program also incentivizes health and well-being by providing reduced health insurance premiums for employees who complete certain actions that encourage health and wellness.
Removed
Employees in our Calibration Service Centers were given additional paid time off as well as incremental pay if they were required to work offsite at a customer location. 12 Table of Contents AVAILABLE INFORMATION We file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and other information with the Securities and Exchange Commission (“SEC”).

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

42 edited+21 added−19 removed68 unchanged
Biggest changeSuccessful integration involves many challenges, including: ● The difficulty of integrating acquired operations and personnel with our existing operations; ● The difficulty of developing and marketing new products and services; ● The diversion of our management’s attention as a result of evaluating, negotiating and integrating acquisitions; ● Our exposure to unforeseen liabilities of acquired companies; and ● The loss of key employees of an acquired operation. 18 Table of Contents In addition, an acquisition could adversely impact cash flows and/or operating results, and dilute shareholder interests, for many reasons, including: ● Charges to our income to reflect the impairment of acquired intangible assets, including goodwill; ● Contingent consideration payments; ● Interest costs and debt service requirements for any debt incurred in connection with an acquisition or new business venture; and ● Any issuance of securities in connection with an acquisition or new business venture that dilutes or lessens the rights of our current shareholders.
Biggest changeIn addition, an acquisition could adversely impact cash flows and/or operating results, and dilute shareholder interests, for many reasons, including: ● Charges to our income to reflect the impairment of acquired intangible assets, including goodwill; ● Contingent consideration payments; ● Agreements to provide indemnification for certain potential liabilities; ● Interest costs and debt service requirements for any debt incurred in connection with an acquisition or new business venture; and ● Any issuance of securities in connection with an acquisition or new business venture that dilutes or lessens the rights of our current shareholders.
Our Service segment has a concentration of customers in the life science and other FDA-regulated and industrial manufacturing industries. A number of our Service segment customers operate in the pharmaceutical and other FDA-regulated or industrial manufacturing industries.
Our Service segment has a concentration of customers in the life science and other FDA-regulated and industrial manufacturing industries. A number of our Service segment customers operate in the life science, pharmaceutical and other FDA-regulated or industrial manufacturing industries.
For example, in fiscal year 2022, our supply chains have been and may continue to be negatively impacted by the COVID-19 pandemic and general economic factors such as rising inflation. When shortages occur, our suppliers often allocate products among distributors.
For example, in fiscal year 2023, our supply chains have been and may continue to be negatively impacted by the COVID-19 pandemic and general economic factors such as rising inflation. When shortages occur, our suppliers often allocate products among distributors.
Risks Related to our Stock Our stock price may be volatile. The stock market, from time to time, has experienced significant price and volume fluctuations that are both related and unrelated to the operating performance of companies. Our stock may be affected by market volatility and by our own performance.
The stock market, from time to time, has experienced significant price and volume fluctuations that are both related and unrelated to the operating performance of companies. Our stock may be affected by market volatility and by our own performance.
We are required to meet financial tests on a 17 Table of Contents quarterly basis and comply with other covenants customary in secured financings. Although we believe that we will continue to comply with such covenants, if we do not remain in compliance with such covenants, our lender may demand immediate repayment of amounts outstanding.
We are required to meet financial tests on a quarterly basis and comply with other covenants customary in secured financings. Although we believe that we will continue to comply with such covenants, if we do not remain in compliance with such covenants, our lender may demand immediate repayment of amounts outstanding.
This is of particular significance to our Distribution segment business because the products we sell are often only available from one source. Any limits to product access could materially and adversely affect our Distribution segment business. Our future success may be affected by our current and future indebtedness.
This is of particular significance to our Distribution segment business because the products we sell are often only available from one source. Any limits to product access could materially and adversely affect our Distribution segment business. 18 Table of Contents Our future success may be affected by our current and future indebtedness.
If we were to experience a prolonged system disruption in the IT systems that involve our interactions with customers or suppliers, 15 Table of Contents it could result in the loss of sales and customers and significant incremental costs, which could adversely affect our business.
If we were to experience a prolonged system disruption in the IT systems that involve our interactions with customers or suppliers, it could result in the loss of sales and customers and significant incremental costs, which could adversely affect our business.
Security breaches could result in the unauthorized publication of our confidential business or proprietary information, the unauthorized release of 16 Table of Contents customer, vendor, or employee data and payment information, the violation of privacy or other laws, and the exposure to litigation, any of which could harm our business and results of operations.
Security breaches could result in the unauthorized publication of our confidential business or proprietary information, the unauthorized release of customer, vendor, or employee data and payment information, the violation of privacy or other laws, and the exposure to litigation, any of which could harm our business and results of operations.
The following factors, among others, may have a significant effect on the market price of our common stock: ● The impact of the COVID-19 pandemic; ● Developments in our relationships with current or future manufacturers of products we distribute; ● Announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments; ● Litigation or governmental proceedings or announcements involving us or our industry; ● Economic and other external factors, such as inflation, recession, disasters or other national or global crises; ● Sales of our common stock or other securities in the open market; ● Repurchases of our common stock on the open market or in privately-negotiated transactions; ● Period-to-period fluctuations in our operating results; and ● Our ability to satisfy our debt obligations.
The following factors, among others, may have a significant effect on the market price of our common stock: ● Developments in our relationships with current or future manufacturers of products we distribute; ● Announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments; ● Litigation or governmental proceedings or announcements involving us or our industry; ● Economic and other external factors, such as inflation, recession, disasters or other national or global crises; ● Public health issues including pandemics and epidemics, such as the COVID-19 pandemic; ● Sales of our common stock or other securities in the open market; ● Repurchases of our common stock on the open market or in privately-negotiated transactions; ● Period-to-period fluctuations in our operating results; and ● Our ability to satisfy our debt obligations.
The industries in which we compete are highly competitive, and we may not be able to compete successfully.
Risk Factors." The industries in which we compete are highly competitive, and we may not be able to compete successfully.
The relatively low trading volume of our common stock may limit your ability to sell your shares. Although our shares of common stock are listed on the Nasdaq Global Market, we have historically experienced a relatively low trading volume of approximately 35,000 shares a day.
The relatively low trading volume of our common stock may limit your ability to sell your shares. Although our shares of common stock are listed on the Nasdaq Global Market, we have historically experienced a relatively low trading volume of approximately 44,700 shares a day.
We currently transact a portion of our business in foreign currencies, namely the Canadian dollar and the Euro. During fiscal years 2022 and 2021, less than 10% of our total revenues were denominated in Canadian dollars and Euros.
We currently transact a portion of our business in foreign currencies, namely the Canadian dollar and the Euro. During fiscal years 2023 and 2022, approximately 10% of our total revenues were denominated in Canadian dollars and Euros.
During fiscal year 2022, the value of the U.S. dollar relative to one Canadian dollar and to one Euro ranged from 1.20 to 1.29 and from 0.81 to 0.92, respectively. 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.
During fiscal year 2023, the value of the U.S. dollar relative to one Canadian dollar and to one Euro ranged from 1.25 to 1.39 and from 0.90 to 1.04, respectively. 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.
Under our credit agreement, as of March 26, 2022, we owed $48.5 million to our secured creditor, a commercial bank, including $8.5 million borrowed under a $15.0 million term loan to fund acquisitions and provide additional working capital. We may borrow additional funds in the future to support our growth and working capital needs.
Under our credit agreement, as of March 25, 2023, we owed $49.1 million to our secured creditor, a commercial bank, including $6.4 million borrowed under a $15.0 million term loan to fund acquisitions and provide additional working capital. We may borrow additional funds in the future to support our growth and working capital needs.
In addition, to successfully complete targeted acquisitions, we may issue additional equity securities that could dilute our stockholders’ ownership, or we may incur additional debt, which could increase our leverage and our risk of default under our existing credit facility. If we fail to successfully acquire businesses, our growth and results of operations could be adversely affected.
In addition, to successfully complete targeted acquisitions, we may issue additional equity securities that could dilute our stockholders’ ownership, or we may incur additional debt, which could increase our leverage and our risk of default under our existing credit facility.
In each of the industries in which we compete, some of our competitors have greater financial and other resources than we do, which could allow them to compete more successfully. In the future, we may be unable to compete successfully and competitive pressures may reduce our sales. Competition in our Distribution segment is changing with an increase in web-based distributors.
In each of the industries in which we compete, some of our competitors have greater financial and other resources than we do, which could allow them to compete more successfully. In the future, we may be unable to compete successfully and competitive pressures may reduce our sales.
In addition, although we believe we are in full compliance with all such existing rules, regulations and standards, should we be or become unable to comply with any of such rules, regulations and standards, as they presently exist or as they may exist in the future, our results of operations could be adversely affected and the market price of our common stock could decline.
In addition, although we believe we are in full compliance with all such existing rules, regulations and standards, should we be or become unable to comply with any of such rules, regulations and standards, as they presently exist or as they may exist in the future, our results of operations could be adversely affected and the market price of our common stock could decline. 20 Table of Contents Our international operations expose us to legal and regulatory risks, which could have a material effect on our business.
If we fail to adapt our technology to meet customer needs and preferences, the demand for our products and services may diminish. Our future success will depend on our ability to develop services and solutions that keep pace with technological change, evolving industry standards and changing customer preferences in the markets we serve.
Our future success will depend on our ability to develop services and solutions that keep pace with technological change, evolving industry standards and changing customer preferences in the markets we serve.
Additionally, if the ERP system does not operate as intended, the effectiveness of our internal control over financial reporting could be adversely affected or our ability to assess it adequately could be delayed. A change in vendor rebate programs could adversely affect our gross margins and results of operations .
Additionally, if the ERP system does not operate as intended, the effectiveness of our internal control over financial reporting could be adversely affected or our ability to assess it adequately could be delayed.
Operational Risks Cybersecurity incidents could adversely affect our business by causing a disruption to our operations, a compromise or corruption of our confidential information and/or damage to our business relationships, all of which could negatively impact our business, results of operations or financial condition.
If we fail to successfully acquire businesses, our growth and results of operations could be materially and adversely affected. 15 Table of Contents Operational Risks Cybersecurity incidents could adversely affect our business by causing a disruption to our operations, a compromise or corruption of our confidential information and/or damage to our business relationships, all of which could negatively impact our business, results of operations or financial condition.
We may not be able to compete successfully. We face substantial and increased competition throughout the world, especially in our Distribution segment. The competition is changing, with web-based distributors becoming more prevalent and increasing their market share. Some of our competitors are much larger than us.
We face substantial and increased competition throughout the world, especially in our Distribution segment. The competition is changing, with certain of our vendors engaging directly with customers and web-based distributors continuing to be a presence with increasing their market share. Some of our competitors are much larger than us.
The 19 Table of Contents Tax Cuts and Jobs Act of 2017 (the “Tax Act”) made broad and complex changes to the U.S. tax code, including, but not limited to reducing the Federal corporate income tax rate from 35% to 21%.
The Tax Cuts and Jobs Act of 2017 (the “Tax Act”) made broad and complex changes to the U.S. tax code, including, but not limited to reducing the Federal corporate income tax rate from 35% to 21%. Any additional modifications to key aspects of the tax code could materially affect our tax obligations and negatively impact our effective tax rate.
Future determinations of significant write-offs of goodwill or intangible assets because of an impairment test or any accelerated amortization of other intangible assets could have a material negative impact on our results of operations and financial condition.
Future determinations of significant write-offs of goodwill or intangible assets because of an impairment test or any accelerated amortization of other intangible assets could have a material negative impact on our results of operations and financial condition. 14 Table of Contents Tariffs imposed by the U.S. and other countries, as well as changing trade relations, could have a material adverse effect on our business and results of operations.
Our enterprise resource planning system is aging, and we may experience issues from any implementation of a new enterprise resource planning system. We have an enterprise resource planning system (“ERP”) to assist with the collection, storage, management and interpretation of data from our business activities to support future growth and to integrate significant processes.
We have an ERP to assist with the collection, storage, management and interpretation of data from our business activities to support future growth and to integrate significant processes.
Our failure to keep pace with changes in technology, industry standards and customer preferences in the markets we serve could diminish our ability to retain and attract customers and retain our competitive position, which could adversely impact our business and results of operations.
Our failure to keep pace with changes in technology, industry standards and customer preferences in the markets we serve could diminish our ability to retain and attract customers and retain our competitive position, which could adversely impact our business and results of operations. 17 Table of Contents We rely on our CalTrak ®, Application Plus (our enterprise resource planning system) and other management information systems for inventory management, distribution, workflow, accounting and other functions.
Changes in U.S. and foreign governments’ trade policies have resulted in, and may continue to result in, tariffs on imports into and exports from the U.S. In response, some foreign governments have proposed or implemented their own tariffs on certain products, increasing our costs of doing business.
Changes in U.S. and foreign governments’ trade policies have resulted in, and may continue to result in, tariffs on imports into and exports from the U.S. Tariffs on certain products can increase our costs of doing business. If we are unable to recover these costs, our profit margins may be negatively impacted.
Fluctuations in industrial demand for products we sell and services we provide could cause our revenues and operating results to fluctuate. If our operating results in some quarters fail to meet the expectations of stock market analysts and investors, our stock price may decline.
Fluctuations in industrial demand for products we sell and services we provide could cause our revenues and operating results to fluctuate.
Our ERP system is critical to our ability to accurately maintain books and records, record transactions, provide important information to our management and prepare our consolidated financial statements.
ERP implementations are complex and time-consuming and involve substantial expenditures on system software and implementation activities, as well as changes in business processes. Our ERP system is critical to our ability to accurately maintain books and records, record transactions, provide important information to our management and prepare our consolidated financial statements.
Although interest rates have increased and are expected to increase further, inflation may continue. Further, increased interest rates could have a negative effect on the securities markets generally which may, in turn, have a material adverse effect on the market price of our common stock.
Further, increased interest rates could have a negative effect on the securities markets generally which may, in turn, have a material adverse effect on the market price of our common stock. Further, uncertainty about future economic conditions could negatively affect our current and prospective customers causing them to delay purchase of services or test and measurement instruments.
If we are unable to recover these costs, our profit margins may be negatively impacted. In the event of diminished trade relations between the U.S. and other countries, as well as any escalation of tariffs, could have a material adverse effect on our financial performance and results of operations.
Diminished trade relations between the U.S. and other countries, as well as any escalation of tariffs, could have a material adverse effect on our financial performance and results of operations. Risks Related to Acquisitions We may not successfully integrate business acquisitions. We completed four acquisitions during fiscal year 2023 and three acquisitions during fiscal year 2022.
In addition, climate change could lead to an increase in intensity or occurrence of hurricanes or other adverse weather events, including severe winter storms. Future occurrences of these events, as well as regional or national catastrophes or natural disasters, and their effects may adversely impact our business or results of operations.
In addition, climate change could lead to an increase in intensity or occurrence of hurricanes or other adverse weather events, including severe winter storms.
Their current customer base and relationships, as well as their relationships and ability to negotiate with manufacturers, may also provide them with a competitive advantage. If we are unable to effectively compete with our current and future competitors, our ability to sell products could be harmed and could result in a negative impact on our Distribution segment.
If we are unable to effectively compete with our current and future competitors, our ability to sell products could be harmed and could result in a negative impact on our Distribution segment. Any erosion of our competitive position could have a material adverse effect on our business, results of operations, and financial condition.
Some of our competitors may offer similar equipment for rent at lower prices and may offer more extensive servicing, or financing options. In addition, if the supply of rental equipment available on the market significantly increases, demand for and pricing of our rental products could be adversely impacted lowering our gross margins on rentals.
In addition, if the supply of rental equipment available on the market significantly increases, demand for and pricing of our rental products could be adversely impacted lowering our gross margins on rentals. Further, customers confronting competing budget priorities and more limited resources could lead to less demand for rental equipment and increased pressure on pricing.
Although we use current versions of software and have support agreements in place, due to the age of our ERP, we anticipate that a new ERP will be required to be implemented sometime in the future. ERP implementations are complex and time-consuming and involve substantial expenditures on system software and implementation activities, as well as changes in business processes.
Although we use current versions of software and have support agreements in place, due to the age of our ERP it may not be capable of integrating management information systems that we use or are used by companies we acquire. We anticipate that a new ERP will be required to be implemented sometime in the future.
An inflationary environment can increase our cost of labor as well as our energy and other operating costs which may have a material adverse impact on our financial results. In addition, economic conditions could impact and reduce the number of customers who purchase our products or services as credit becomes more expensive or unavailable.
In addition, economic conditions could impact and reduce the number of customers who purchase our products or services as credit becomes more expensive or unavailable. Although interest rates have increased and are expected to increase further, inflation may continue.
We cannot predict the extent to which the COVID-19 pandemic may disrupt our workforce and internal operations and we cannot guarantee that we will be able to adequately staff our operations when needed. 13 Table of Contents Rising inflation may result in increased costs of operations and negatively impact the credit and securities markets generally, which could have a material adverse effect on our results of operations and the market price of our common stock.
Macroeconomic and Business Risks Adverse changes in economic and market conditions, including rising inflation, or uncertainty about future market conditions, may result in increased costs of operations and negatively impact the credit and securities markets generally, which could have a material adverse effect on our results of operations and the market price of our common stock.
Further, customers confronting competing budget priorities and more limited resources could lead to less demand for rental equipment and increased pressure on pricing. Failure to adequately forecast the adoption of and demand for equipment may cause us not to meet our customers’ rental equipment requirements and may adversely affect our operating results.
Failure to adequately forecast the adoption of and demand for equipment may cause us not to meet our customers’ rental equipment requirements and may adversely affect our operating results. If we fail to adapt our technology to meet customer needs and preferences, the demand for our products and services may diminish.
If we do not effectively compete in the rental test and measurement equipment market, our operating results may be adversely affected. We compete in the rental market on the basis of a number of factors, including equipment availability, price, service and reliability.
If we are unable to achieve and maintain adequate rates for our services, our profit margin and profitability could decline, and our results of operations could be materially adversely affected. If we do not effectively compete in the rental test and measurement equipment market, our operating results may be adversely affected.
We are subject to the risks arising from adverse changes in general economic market conditions, including the negative impact to the U.S. and global economy from the COVID-19 pandemic or other global health situation, inflation, and any recessionary impacts.
We are subject to risks arising from adverse changes in general economic market conditions, including supply chain delays or interruptions, labor shortages, wage pressures, rising inflation, volatility in the banking industry, geopolitical events, global health crises, including epidemics and pandemics such as the COVID-19 pandemic, or interruptions and other force majeure events.
Inflation has accelerated in the U.S. and globally due in part to global supply chain issues, a rise in energy prices, and strong consumer demand as economies continue to reopen from restrictions related to the COVID-19 pandemic.
Inflation has accelerated in the U.S. and globally due in part to global supply chain issues, a rise in energy prices, and strong consumer demand. An inflationary environment can increase our cost of labor as well as our energy and other operating costs which may have a material adverse impact on our financial results.
An abrupt or unforeseen change in conditions in these industries could adversely affect customer demand for our services, which could have a material adverse effect on our financial results. 14 Table of Contents Tariffs imposed by the U.S. and those imposed in response by other countries, as well as rapidly changing trade relations, could have a material adverse effect on our business and results of operations.
An abrupt or unforeseen change in conditions in these industries could adversely affect customer demand for our services, which could have a material adverse effect on our financial results. We face significant competition in our Distribution segment, including from suppliers and web-based distributors. We may not be able to compete successfully.
Uncertainty about future economic conditions could negatively affect our current and prospective customers causing them to delay the purchase of necessary services or test and measurement instruments. Poor economic conditions could harm our business, financial condition, operating results and cash flows.
Poor economic conditions could materially and adversely impact our business, financial condition, operating results and cash flows. The impact of widespread public health crises, pandemics or other epidemics is difficult to predict and could materially and adversely affect our business and results of operations .
Removed
Macroeconomic and Business Risks Adverse changes in general economic conditions, including from the impact of the COVID-19 pandemic, or uncertainty about future economic conditions could materially and adversely affect us.
Added
Our results of operations and the implementation of our business strategy could be materially and adversely affected by general conditions in the U.S. and global economy, including financial and economic conditions that are outside of our control.
Removed
The COVID-19 pandemic has negatively affected the U.S. and global economies, disrupted global supply chains, resulted in significant travel and transport restrictions, and created significant disruption of the financial markets.
Added
Any adverse widespread public health developments in locations where we conduct business, as well as any governmental restrictive measures implemented to control such outbreaks and consumer responses to such outbreaks, could have a material adverse impact on our business and results of operations. These impacts, which are highly uncertain and cannot be accurately predicted, could be significant and long term.
Removed
While the COVID-19 pandemic did not have a material adverse effect on our reported results for fiscal year 2022, we continue to closely monitor the impact of the COVID-19 pandemic and emerging variants on all aspects of our business, including the impact to our customers, employees and supply chain.
Added
Further, any actions taken to mitigate any health crises could lead to an economic recession.
Removed
The health of our workforce, customers and communities continues to be of primary concern and we have taken, and may take in the future, actions as may be required by government authorities or as we determine are in the best interests of our employees, customers and others.
Added
For example, the COVID-19 pandemic and the efforts to control it caused significantly increased economic uncertainty, inflationary pressure in the U.S. and globally, supply chain disruptions, volatility in the capital markets, a decline in consumer confidence, changes in consumer behavior, significant economic deterioration, and an increasingly competitive labor market.
Removed
These actions have required, and may continue to require, expenditures of significant time, attention and resources to manage the effects of the pandemic on our business and workforce.
Added
The ultimate impact of the COVID-19 pandemic or any other widespread public health crisis on our business and results of operations will depend on, among other things, the severity and length of the health crisis, the duration, effectiveness and extent of the mitigation measures and actions designed to contain the outbreak, the emergence, contagiousness and threat of new and different strains of the disease, the availability and efficacy of vaccines and effective treatments, public acceptance of vaccines and treatments for the disease, if any, changes in customer and consumer behavior as a result of the crisis, as well as the resulting economic conditions and how quickly and to what extent normal economic and operating conditions resume, all of which are highly uncertain.
Removed
The extent to which our operations may be impacted by the COVID-19 pandemic or any global health situation will depend largely on future developments which are highly uncertain and we are unable to predict the ultimate impact that it may have on our business, future results of operations, financial position or cash flows.
Added
Such extraordinary events and their aftermaths can cause investor fear and panic, which could further materially and adversely affect our operations, the economies in which we operate, and the financial markets generally in ways that cannot necessarily be predicted. 13 Table of Contents The effects of the COVID-19 pandemic, or any future public health crisis, and mitigation measures taken in response, could have a material and adverse impact on our business and results of operations and may amplify many of the other risk factors disclosed elsewhere in this "Item 1A.
Removed
Even while government restrictions and responses to the COVID-19 pandemic have lessened, we may experience materially adverse impacts to our business due to any resulting supply chain disruptions, economic recession or depression. Furthermore, the impacts of a potential worsening of global economic conditions and the continued disruptions to and volatility in the financial markets remain unknown.
Added
Their current customer base and relationships, as well as their relationships and ability to negotiate with manufacturers, may also provide them with a competitive advantage.
Removed
Our management team has, and will likely continue to, spend significant time, attention and resources monitoring the COVID-19 pandemic and seeking to manage its effects on our business and workforce. The impact of the COVID-19 pandemic may also exacerbate other risks discussed in this section, any of which could have a material adverse effect on us.
Added
Additionally, our vendors who decide to sell directly to customers, may choose to not to sell to us or to provide products to us on less favorable and more costly terms, any of which could have a material and adverse impact on our results of operations.
Removed
This pandemic is still ongoing and additional impacts may arise that we are not aware of currently. The COVID-19 pandemic may significantly disrupt our workforce and internal operations .
Added
Successful integration of acquisitions involves many challenges, including: ● The difficulty of integrating acquired operations and personnel with our existing operations; ● Implementation or remediation of controls, procedures, and policies at the acquired company; ● Integration of the acquired company’s accounting and other administrative systems; ● In the case of foreign acquisitions, the need to integrate operations across different cultures and languages and to address the particular economic, currency, political, and regulatory risks associated with specific countries; ● Currency and regulatory risks associated with operations in foreign countries; ● The difficulty of developing and marketing new products and services; ● The diversion of our management’s attention as a result of evaluating, negotiating and integrating acquisitions; ● Our exposure to unforeseen liabilities of acquired companies; and ● The loss of key employees of an acquired operation .
Removed
The COVID-19 pandemic may significantly disrupt our workforce if a significant percentage of our employees are unable to work due to illness, quarantines, government actions, facility closures in response to the pandemic, or fear of acquiring COVID-19 while performing essential business functions.
Added
If our operating results in some quarters fail to meet the expectations of stock market analysts and investors, our stock price may decline. 16 Table of Contents The profitability of our subsidiary, NEXA, depends to a large extent on our ability to achieve or maintain adequate utilization and pricing rates for our technical service providers.
Removed
During the fourth quarter of fiscal year 2022, we experienced a higher than usual rate of employee absenteeism related to COVID-19, which resulted in additional employee related costs which, in turn, impacted our operational costs.
Added
In our Service segment our subsidiary, NEXA, provides all of its services in the technical, consulting and staffing solutions market by providing services to improve asset management programs for customers in the life science, pharmaceutical and other FDA-regulated or industrial manufacturing industries.
Removed
Any erosion of our competitive position could have a material adverse effect on our business, results of operations, and financial condition. Volatility in the oil and gas industry has had, in the past, and could have in the future, a negative impact on our operating results.
Added
The profitability of NEXA depends in part on ensuring that our technical service providers maintain adequate utilization rates (i.e., the percentage of our provider’s working hours devoted to billable activities).
Removed
A portion of our products and services customer base is directly or indirectly related to the oil and gas industry. As a result, demand for some of our products is dependent on the level of expenditures by the oil and gas industry.
Added
Our utilization rates are affected by a number of factors, including: ● The number, scope and timing of ongoing client engagements; ● The timing of the commencement, completion and termination of engagements, which in many cases is unpredictable; ● Our ability to continually secure new business engagements; ● Our ability to transition technical service providers promptly from completed projects to new assignments, and to engage newly-hired technical service providers quickly in revenue-generating activities; ● Our ability to forecast demand for our services and thereby maintain appropriate headcount in each of our geographies and workforces; ● Unanticipated changes in the scope of client engagements; ● Our need to devote time and resources to sales, training, professional development and other non-billable activities; ● Our ability to retain key colleagues and consulting professionals; ● Conditions affecting the life sciences industry; and ● General financial and economic conditions.
Removed
In addition to the more significant impact on our Distribution segment, an extended downturn in the oil and gas industry or continued volatility in oil and gas prices, including as a result of any global hostilities, could impact customers’ demand for some of our services (generally excluding life sciences, our largest industry customer sector), which could have a material adverse effect on our financial condition, results of operations and cash flows.
Added
If the utilization rate for our technical service providers declines, our revenues, profit margin and profitability could decline, and our results of operations could be materially adversely affected. The profitability of our Service segment, including the NEXA business, depends in part on the prices we are able to charge for our services .
Removed
We rely on our CalTrak® , Application Plus (our enterprise resource planning system) and other management information systems for inventory management, distribution, workflow, accounting and other functions.
Added
The prices we charge for our services, including the NEXA business, are affected by a number of factors, including: ● Clients’ perception of our ability to add value through our services; ● The market demand for the services we provide; ● Our ability to develop new services and the introduction of new services by competitors; ● The pricing policies of our competitors; ● The extent to which our clients develop in-house or other capabilities to perform the services that they might otherwise purchase from us; and ● General financial and economic conditions.
Removed
The terms on which we purchase products from certain of our suppliers entitle us to receive a rebate based on the volume of our purchases. These rebates effectively reduce our costs for products. During fiscal year 2022, we saw a number of our vendors continue to reduce the rebates offered to us as a result of current economic conditions.
Added
We compete in the rental market on the basis of a number of factors, including equipment availability, price, service and reliability. Some of our competitors may offer similar equipment for rent at lower prices and may offer more extensive servicing, or financing options.
Removed
If suppliers adversely change the terms of some or all of these programs, the changes may lower our gross margins on products we sell and may have an adverse effect on our operating results.
Added
For example, we sell our products and services to customers in several industries that may experience rapid technological changes, new product introductions, and evolving industry standards, including the life science, pharmaceutical and other FDA-regulated or industrial manufacturing industries.
Removed
Risks Related to Acquisitions We may not successfully integrate business acquisitions. We completed three acquisitions during fiscal year 2022 and one acquisition during fiscal year 2021.
Added
Our enterprise resource planning system ( “ ERP ” ) is aging and may not be capable of integrating management information systems that we use or are used by companies we acquire, and we may experience issues from any implementation of a new ERP or be required to operate some management information systems separately from our ERP.
Removed
Any additional modifications to key aspects of the tax code could materially affect our tax obligations and negatively impact our effective tax rate.
Added
Future occurrences of these events, as well as regional or national catastrophes or natural disasters, and their effects may adversely impact our business or results of operations. 19 Table of Contents Risks Related to our Stock Our stock price may be volatile.

… 2 more changes not shown on this page.

Item 2. Properties

Properties — owned and leased real estate

3 edited+0 added−1 removed0 unchanged
Biggest changeWayne, IN 3,600 Calibration Service Center San Juan, PR 1,600 Calibration Service Center Decatur, AL 1,700 Mobile Service Unit and Offices Pittsburgh, PA 6,300 United Scale & Engineering: Calibration Service Center and Warehouse Milwaukee WI 16,000 Calibration Service Center and Warehouse Madison, WI 6,000 Calibration Service Center Green Bay, WI 3,300 Spectrum Technologies Inc.
Biggest changeLouis, MO 5,600 Calibration Service Center San Diego, CA 5,500 Calibration Service Center Charlotte, NC 4,900 Calibration Service Center Chesapeake, VA 4,600 Calibration Service Center Phoenix, AZ 4,200 Calibration Service Center Ottawa, ON 4,000 Calibration Service Center Decatur, AL 1,700 Calibration Service Center San Juan, PR 1,600 Calibration Service Center Cork, Ireland 1,600 Mobile Service Unit and Offices Pittsburgh, PA 6,300 United Scale & Engineering: Calibration Service Center and Warehouse New Berlin, WI 16,000 Calibration Service Center and Warehouse Madison, WI 6,000 Calibration Service Center Green Bay, WI 3,300 Spectrum Technologies Inc.
(“STI”): Calibration Service Center and Warehouse Paxinos, PA 14,500 20 Table of Contents We believe that our properties are in good condition, are well maintained and are generally suitable and adequate to carry on our business in its current form.
(“STI”): Calibration Service Center and Warehouse Paxinos, PA 14,500 We believe that our properties are in good condition, are well maintained and are generally suitable and adequate to carry on our business in its current form. 21 Table of Contents
PROPERTIES The following table presents the leased and owned properties that are material to our business as of March 26, 2022: Approximate Property Location Square Footage Corporate Headquarters, Calibration Service Center and Distribution Center Rochester, NY 48,500 Calibration Service Center and Headquarters for Canadian Operations Montreal, QC 27,500 Calibration Service Center, Rental and Used Equipment Distribution Center Houston, TX 22,300 Calibration Service Center Denver, CO 19,400 Calibration Service Center Los Angeles, CA 18,200 Calibration Service Center Toronto, ON 16,900 Calibration Service Center Philadelphia, PA 14,000 Calibration Service Center Dayton, OH 10,500 Calibration Service Center Boston, MA 8,900 Calibration Service Center Indianapolis, IN 7,600 Calibration Service Center Portland, OR 7,000 Calibration Service Center Hopkinton, MA 6,100 Calibration Service Center St.
PROPERTIES The following table presents the leased and owned properties that are material to our business as of March 25, 2023: Approximate Property Location Square Footage Corporate Headquarters, Calibration Service Center and Distribution Center Rochester, NY 48,500 Calibration Service Center and Headquarters for Canadian Operations Montreal, QC 27,500 Calibration Service Center, Rental and Used Equipment Distribution Center Houston, TX 22,300 Calibration Service Center Denver, CO 19,400 Calibration Service Center Los Angeles, CA 18,200 Calibration Service Center Toronto, ON 16,900 Calibration Service Center Philadelphia, PA 14,000 Calibration Service Center Cleveland, OH 13,800 Calibration Service Center Milford, MA 12,100 Calibration Service Center Dayton, OH 12,000 Calibration Service Center Boston, MA 8,900 Calibration Service Center Indianapolis, IN 7,600 Calibration Service Center Palm Beach, FL 7,600 Calibration Service Center Portland, OR 7,000 Calibration Service Center Cincinnati, OH 5,900 Calibration Service Center St.
Removed
Louis, MO 5,600 Calibration Service Center San Diego, CA 5,500 Calibration Service Center Charlotte, NC 4,900 Calibration Service Center Chesapeake, VA 4,600 Calibration Service Center Phoenix, AZ 4,200 Calibration Service Center Ottawa, ON 4,000 Calibration Service Center Henrico, VA 3,600 Calibration Service Center Ft.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

1 edited+0 added−0 removed1 unchanged
Biggest changeITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is traded on the Nasdaq Global Market under the symbol “TRNS”. As of June 1, 2022, we had approximately 475 shareholders of record.
Biggest changeITEM 5. MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is traded on the Nasdaq Global Market under the symbol “TRNS”. As of June 1, 2023, we had approximately 500 shareholders of record.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

99 edited+15 added−17 removed53 unchanged
Biggest changeThe 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 the current fiscal year 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.
Biggest changeThe 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 fiscal year 2023 and 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. 32 Table of Contents 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.
We estimate the fair value of our reporting units using the fair market value measurement requirement. We test goodwill for impairment for each reporting unit on an annual basis during the fourth quarter of each fiscal year or immediately if conditions indicate that such impairment could exist.
We test goodwill for impairment for each reporting unit on an annual basis during the fourth quarter of each fiscal year or immediately if conditions indicate that such impairment could exist. We estimate the fair value of our reporting units using the fair market value measurement requirement.
Interest on the revolving credit facility continues to accrue, at our election, at either the variable one-month LIBOR (subject to a 1% floor during the first quarter of fiscal year 2022 and a 0.25% floor for subsequent periods) or a fixed rate for a designated period at the LIBOR corresponding to such period, in each case, plus a margin.
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 1.0% floor during the first quarter of fiscal year 2022 and a 0.25% floor for subsequent periods), in each case, plus a margin.
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 2022, pursuant to the 2021 Credit Agreement, the allowable leverage ratio is a maximum multiple of 3.0.
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.
Amendment Two also 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.
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.
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 million.
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.
The year-over-year change is a result of strategic inventory purchases during 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.
The year-over-year change is a result of strategic inventory purchases during fiscal year 2023. ● 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.
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 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.
We have the option to perform a qualitative assessment to determine if it is more likely than not that the fair value of a segment has declined below its carrying value. This assessment considers various financial, macroeconomic, industry and segment specific qualitative factors.
We have the option to perform a qualitative assessment to determine if it is more likely than not that the fair value of a reporting unit has declined below its carrying value. This assessment considers various financial, macroeconomic, industry and segment specific qualitative factors.
While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, we believe that our unrecognized tax benefits reflect the most likely outcome. 24 Table of Contents Stock-Based Compensation.
While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, we believe that our unrecognized tax benefits reflect the most likely outcome. 25 Table of Contents Stock-Based Compensation.
In evaluating our results for fiscal year 2022, investors should consider that we operate on a 52/53-week fiscal year, ending the last Saturday in March. In a 52-week fiscal year, each of the four quarters is a 13-week period. In a 53-week fiscal year, the last quarter is a 14-week period.
In evaluating our results for fiscal year 2023, investors should consider that we operate on a 52/53-week fiscal year, ending the last Saturday in March. In a 52-week fiscal year, each of the four quarters is a 13-week period. In a 53-week fiscal year, the last quarter is a 14-week period.
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.
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.
Among those factors are variations in the timing of periodic calibrations 26 Table of Contents 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 a trailing twelve-month trend provides a better indication of the progress of this segment.
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 a trailing twelve-month trend provides a better indication of the progress of this segment.
Financing Activities : During fiscal year 2022, $31.0 million was borrowed from our revolving line of credit and $1.5 million in cash was generated from the issuance of common stock.
During fiscal year 2022, $31.0 million was borrowed from the revolving line of credit and $1.5 million in cash was generated from the issuance of our common stock.
However, unexpected changes or deterioration in economic conditions could materially change these expectations. Inventory. Inventory consists of products purchased for resale and is valued at the lower of cost or net realizable value. Costs are determined using the average cost method of inventory valuation.
However, unexpected changes or deterioration in economic conditions could materially change these expectations. 24 Table of Contents Inventory. Inventory consists of products purchased for resale and is valued at the lower of cost or net realizable value. Costs are determined using the average cost method of inventory valuation.
For a discussion of the newly issued accounting pronouncements see “Recently Issued Accounting Pronouncements” under Note 1 to the Consolidated Financial Statements included in Item 8 of Part II of this report. 25 Table of Contents RESULTS OF OPERATIONS The following table sets forth, for fiscal years 2022 and 2021, the components of our Consolidated Statements of Income.
For a discussion of the newly issued accounting pronouncements see “Recently Issued Accounting Pronouncements” under Note 1 to the Consolidated Financial Statements included in Item 8 of Part II of this report. 26 Table of Contents RESULTS OF OPERATIONS The following table sets forth, for fiscal years 2023 and 2022, the components of our Consolidated Statements of Income.
We apply a specific formula to our accounts receivable aging, which may be adjusted on a specific account basis where the formula may not appropriately reserve for loss exposure. After all attempts to collect a 23 Table of Contents receivable have failed, the receivable is written-off against the allowance for doubtful accounts.
We apply a specific formula to our accounts receivable aging, which may be adjusted on a specific account basis where the formula may not appropriately reserve for loss exposure. After all attempts to collect a receivable have failed, the receivable is written-off against the allowance for doubtful accounts.
In addition, we used $2.1 million for scheduled repayments of our term loan and $6.7 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 is shown as a repurchase of shares of our common stock on our Consolidated Statements of Cash Flows.
In addition, we used $2.1 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 is shown as a repurchase of shares of our common stock on our Consolidated Statements of Cash Flows.
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 27 Table of Contents management review prior to shipment.
Pending product shipments are primarily backorders, but also include the total dollar value of 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.
The following table presents the quarterly historical trend of our Service gross margin as a percent of Service revenue: FY 2022 FY 2021 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Service Gross Margin 33.1% 29.7% 32.9% 31.8% 33.9% 27.9% 32.2% 26.4% 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.
The following table presents the quarterly historical trend of our Service gross margin as a percent of Service revenue: FY 2023 FY 2022 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Service Gross Margin 34.0% 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.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of financial condition and results of operations should be read in conjunction with our financial statements and related notes appearing elsewhere in this annual report.
ITEM 7. MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of financial condition and results of operations should be read in conjunction with our financial statements and related notes appearing elsewhere in this annual report.
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 LIBOR floor from 1.0% to 0.25% and included a mechanism for adoption of a different benchmark rate upon the discontinuation of 31 Table of Contents LIBOR.
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.
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 $1.1 million during fiscal year 2022. Our inventory balance decreased $2.5 million during fiscal year 2021.
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 fiscal year 2023. Our inventory balance increased $1.1 million during fiscal year 2022.
Investing Activities: During fiscal year 2022, we invested $10.2 million in capital expenditures that was used primarily for customer-driven expansion of Service segment capabilities and capacity and our rental business. During fiscal year 2021, we invested $6.6 million in capital expenditures that was used primarily for customer-driven expansion of Service segment capabilities and our rental business.
Investing Activities: During fiscal year 2023, we invested $9.4 million in capital expenditures that was used primarily for customer-driven expansion of Service segment capabilities and capacity and our rental business. During fiscal year 2022, we invested $10.2 million in capital expenditures that was used primarily for customer-driven expansion of Service segment capabilities and our rental business.
Our fiscal years 2022 and 2021 Distribution sales growth (decline) in relation to prior fiscal year quarter comparisons were as follows: FY 2022 FY 2021 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Distribution Sales Growth (Decline) 7.2% 7.2% 22.2% 27.0% (4.6%) (8.6%) (6.6%) (20.3%) 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.
Our fiscal years 2023 and 2022 Distribution sales growth in relation to prior fiscal year quarter comparisons were as follows: FY 2023 FY 2022 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Distribution Sales Growth 5.1% 3.7% 1.6% 2.7% 7.2% 7.2% 22.2% 27.0% 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.
The following table presents the source of our Service revenue and the percentage of Service revenue derived from each source for each quarter during fiscal years 2022 and 2021: FY 2022 FY 2021 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 In-House 85.4 % 84.1 % 83.2 % 83.1 % 83.6 % 83.1 % 83.7 % 82.9 % Outsourced 13.1 % 14.4 % 15.3 % 15.4 % 14.9 % 15.3 % 14.7 % 15.6 % Freight Billed to Customers 1.5 % 1.5 % 1.5 % 1.5 % 1.5 % 1.6 % 1.6 % 1.5 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % Our Distribution sales accounted for 40.5% and 41.6% of our total revenue in fiscal years 2022 and 2021, respectively.
The following table presents the source of our Service revenue and the percentage of Service revenue derived from each source for each quarter during fiscal years 2023 and 2022: FY 2023 FY 2022 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 In-House 86.9 % 86.2 % 86.2 % 85.4% 85.4 % 84.1 % 83.2 % 83.1% Outsourced 11.9 % 12.6 % 12.6 % 13.2% 13.1 % 14.4 % 15.3 % 15.4% Freight Billed to Customers 1.2 % 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 % 100.0% Our Distribution sales accounted for 37.2% and 40.5% of our total revenue in fiscal years 2023 and 2022, respectively.
The allowable leverage ratio under the Prior Credit Agreement for the second, third and fourth fiscal quarter of fiscal year 2021 and the first quarter of fiscal year 2022 was a maximum multiple of 5.0, 5.5, 7.0 and 4.0, respectively, of total debt outstanding compared to EBITDA and non-cash stock-based compensation expense for the preceding four consecutive fiscal quarters.
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.
This year-over-year increase also reflected increased demand from the life sciences and other highly-regulated end markets and included $9.0 million of incremental revenue from acquisitions. Excluding acquired revenue of $9.0 million, the Service segment organic revenue increased by 11.6%.
This year-over-year increase also reflected increased demand from the life sciences and other highly-regulated end markets in fiscal year 2023 and included $10.6 million of incremental revenue from acquisitions. Excluding acquired revenue of $10.6 million, the Service segment organic revenue increased by 10.0%.
In general, our Distribution gross margin can vary based upon the mix of products sold, price discounting, the timing of periodic vendor rebates offered and cooperative advertising programs from suppliers. 28 Table of Contents The following table reflects the quarterly historical trend of our Distribution gross margin as a percent of Distribution sales: FY 2022 FY 2021 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Distribution Gross Margin 24.5% 22.5% 23.5% 23.6% 21.0% 22.5% 21.1% 21.0% Distribution segment gross margin increased 210 basis points in fiscal year 2022 compared to fiscal year 2021.
In general, our Distribution gross margin can vary based upon the mix of products sold, price discounting, the timing of periodic vendor rebates offered and cooperative advertising programs from suppliers. 29 Table of Contents The following table reflects the quarterly historical trend of our Distribution gross margin as a percent of Distribution sales: FY 2023 FY 2022 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Distribution Gross Margin 25.2% 26.2% 24.9% 25.0% 24.5% 22.5% 23.5% 23.6% Distribution segment gross margin increased 180 basis points in fiscal year 2023 compared to fiscal year 2022.
The business acquisitions that we made have been heavily focused on expanding our service capabilities, increasing our geographic reach and leveraging our Calibration Service Centers and other infrastructure to create operational synergies. Our Service segment revenue growth was 20.5% for fiscal year 2022 from fiscal year 2021, and included a combination of organic growth and acquisition related revenue.
The business acquisitions that we made have been heavily focused on expanding our service capabilities, increasing our geographic reach and leveraging our Calibration Service Centers and other infrastructure to create operational synergies. 22 Table of Contents Our Service segment revenue growth was 18.8% for fiscal year 2023 from fiscal year 2022, and included a combination of organic growth and acquisition related revenue.
During fiscal year 2022, we used $29.8 million for business acquisitions. During fiscal year 2021, we used $3.6 million for a business acquisition. During each of fiscal year 2022 and fiscal year 2021, no contingent consideration or other holdback amounts were paid related to a business acquisition.
During fiscal year 2023, we used $9.1 million for business acquisitions. During fiscal year 2022, we used $29.8 million for business acquisitions. During each of fiscal year 2023 and fiscal year 2022, no contingent consideration or other holdback amounts were paid related to a business acquisition.
The following table illustrates our days sales outstanding as of March 26, 2022 and March 27, 2021: For the Fiscal Years Ended March 26, March 27, 2022 2021 Net Sales, for the last two fiscal months $ 42,005 $ 36,536 Accounts Receivable, net $ 39,737 $ 33,950 Days Sales Outstanding 57 56 ● 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 SKUs stocked in anticipation of customer demand, reducing backorders for products with long lead times and optimizing vendor purchase and sales volume discounts.
The following table illustrates our days sales outstanding as of March 25, 2023 and March 26, 2022: As of March 25, March 26, 2023 2022 Net Sales, for the last two fiscal months $ 46,679 $ 42,005 Accounts Receivable, net $ 44,698 $ 39,737 Days Sales Outstanding 57 57 ● 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 SKUs stocked in anticipation of customer demand, reducing backorders for products with long lead times and optimizing vendor purchase and sales volume discounts.
We record 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.
We record 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 for awards expected to vest.
We were in compliance with all loan covenants and requirements during fiscal years 2022 and 2021. Our leverage ratio was 1.74 at March 26, 2022, as defined in the 2021 Credit Agreement, compared with 0.94 at March 27, 2021, as defined in the Prior Credit Agreement.
We were in compliance with all loan covenants and requirements during fiscal years 2023 and 2022. Our leverage ratio, as defined in the 2021 Credit Agreement, was 1.60 at March 25, 2023, compared with 1.74 at March 26, 2022.
The significant working capital fluctuations were as follows: ● Receivables: Accounts receivable increased by a net amount of $5.7 million during fiscal year 2022, inclusive of $2.8 million of accounts receivable acquired as part of three acquisitions completed during the period.
The significant working capital fluctuations were as follows: ● Receivables: Accounts receivable increased by a net amount of $5.0 million during fiscal year 2023, inclusive of $0.8 million of accounts receivable acquired as part of four acquisitions completed during the period.
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. 30 Table of Contents Adjusted Diluted Earnings Per Share is not a measure of financial performance under GAAP and is not calculated through the application of GAAP.
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.
In addition, we repaid $8.8 million of our Revolving Credit Facility, we used $2.0 million for scheduled repayments of our term loan, and used $3.0 million for the “net” award of certain share awards to cover tax-withholding obligations for share award activity in the period which are shown as a repurchase of shares of our common stock on our Consolidated Statements of Cash Flows.
In addition, we used $2.1 million for scheduled repayments of our term loan and $6.7 million for the “net” award of certain share awards to cover tax-withholding obligations for share award activity in the period which are shown as a repurchase of shares of our common stock on our Consolidated Statements of Cash Flows.
Our fiscal years 2022 and 2021 Service revenue growth in relation to prior fiscal year quarter comparisons, was as follows: FY 2022 FY 2021 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Service Revenue Growth 19.6% 22.1% 20.4% 20.0% 15.8% 12.2% 4.5% 2.5% Within any year, while we add new customers, we also have customers from the prior year whose service orders may not repeat for any number of factors.
Our fiscal years 2023 and 2022 Service revenue growth in relation to prior fiscal year quarter comparisons, was as follows: FY 2023 FY 2022 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Service Revenue Growth 14.7% 19.0% 19.4% 22.9% 19.6% 22.1% 20.4% 20.0% 27 Table of Contents Within any year, while we add new customers, we also have customers from the prior year whose service orders may not repeat for any number of factors.
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 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.
Our Service segment has shown consistent revenue growth over the past several years, ending fiscal year 2022 with its 52nd consecutive quarter of year-over-year growth. This segment has benefited from both organic growth as 21 Table of Contents well as acquisitions over those 52 quarters.
Our Service segment has shown consistent revenue growth over the past several years, ending fiscal year 2023 with its 56th consecutive quarter of year-over-year growth. This segment has benefited from both organic growth as well as acquisitions over those 56 quarters.
Based on the results of our qualitative impairment testing reviews, we have determined that it was more likely than not that the fair values exceeded the carrying values of goodwill and there were no impairments as of each of March 26, 2022 and March 27, 2021. Income Taxes.
Based on the results of our qualitative impairment testing, we have determined that it was more likely than not that the fair values exceeded the carrying values of goodwill for each reporting unit and there were no impairments as of each of March 25, 2023 and March 26, 2022.
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 increased $1.5 million, or 23.6%, at the end of fiscal year 2022 compared to the end of fiscal year 2021.
Management uses pending product shipments and backorders as measures of our future business performance and financial performance within the distribution segment. 28 Table of Contents Our total pending product shipments increased $0.4 million, or 4.6%, at the end of fiscal year 2023 compared to the end of fiscal year 2022.
As of March 26, 2022, we had $65.1 million of recorded goodwill. Intangible assets, namely customer base and covenants not to compete, represent an allocation of purchase price to identifiable intangible assets of an acquired business. These intangible assets are amortized over their estimated useful lives and are reviewed for impairment if and when indicators are present.
Intangible assets, namely customer base and covenants not to compete, represent an allocation of purchase price to identifiable intangible assets of an acquired business. These intangible assets are amortized over their estimated useful lives and are reviewed for impairment if and when indicators are present.
As a percentage of revenue, net income was 5.6% in fiscal year 2022, up from 4.5% in fiscal year 2021. This year-over-year change reflects higher operating income discussed and a lower provision for income taxes.
As a percentage of revenue, net income was 4.6% in fiscal year 2023, down from 5.6% in fiscal year 2022. This year-over-year change reflects higher operating income discussed offset by higher interest expense and a higher provision for income taxes.
The following table presents the trailing twelve-month Service segment revenue for each quarter in fiscal years 2022 and 2021 as well as the trailing twelve-month revenue growth as a comparison to that of the prior fiscal year period: FY 2022 FY 2021 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Trailing Twelve-Month: Service Revenue $122,005 116,315 110,854 105,864 101,274 $97,225 $94,624 $93,572 Service Revenue Growth 20.5% 19.5% 17.2% 13.1% 8.9% 5.4% 4.3% 7.4% Our strategy has been to focus our investments in the core electrical, temperature, pressure, physical/dimensional and radio frequency/microwave calibration disciplines.
The following table presents the trailing twelve-month Service segment revenue for each quarter in fiscal years 2023 and 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 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Trailing Twelve-Month: Service Revenue $ 144,883 $ 139,787 $ 134,047 $ 128,324 $ 122,005 $ 116,315 $ 110,854 $ 105,864 Service Revenue Growth 18.8 % 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.
Service revenue, which accounted for 59.5% and 58.4% of our total revenue in fiscal years 2022 and 2021, respectively, increased $20.7 million, or 20.5% from fiscal year 2021 to fiscal year 2022. This year-over-year growth includes a combination of organic and acquisition-related revenue growth.
Service revenue, which accounted for 62.8% and 59.5% of our total revenue in fiscal years 2023 and 2022, respectively, increased $22.9 million, or 18.8% from fiscal year 2022 to fiscal year 2023. This year-over-year growth includes a combination of organic and acquisition-related revenue growth.
Service revenue accounted for 59.5% of our total revenue during fiscal year 2022. Of our Service revenue in fiscal year 2022, 84.0% 22 Table of Contents was generated by our Calibration Service Centers and enterprise asset management services while 14.5% was generated through subcontracted third-party vendors, compared with 83.6% and 14.9%, respectively, in fiscal year 2021.
Service revenue accounted for 62.8% of our total revenue during fiscal year 2023. Of our Service revenue in fiscal year 2023, 86.2% was generated by our Calibration Service Centers and enterprise asset management services while 12.6% was generated through subcontracted third-party vendors, compared with 84.0% and 14.5%, respectively, in fiscal year 2022.
The increase in segment gross margin was primarily due to a favorable mix of products sold, strong demand for our higher-margin rentals business and an increase in cooperative advertising and rebate programs.
The increase in segment gross margin was primarily due to a favorable mix of products sold, strong demand for our higher-margin products sold and rented.
During fiscal year 2022, income taxes payable decreased by $0.4 million. During fiscal year 2021, income taxes payable increased by $0.3 million. The year-over-year difference is due to timing of income tax payments.
During fiscal year 2023, income taxes payable was consistent with the prior year. During fiscal year 2022, income taxes payable decreased by $0.4 million. The year-over-year difference is due to timing of income tax payments.
Interest rate margins and unused fees were determined on a quarterly basis based upon our calculated leverage ratio. On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted.
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. On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted.
For the Fiscal Years Ended March 26, March 27, 2022 2021 Net Income $ 11,380 $ 7,791 + Amortization of Intangible Assets 3,394 2,538 + Acquisition Amortization of Backlog 490 - + Acquisition Deal Costs 1,458 - + Business Restructuring Expense - 650 + Income Tax Effect @ 25% (1,335 ) (797) Adjusted Net Income 15,387 10,182 Average Diluted Shares Outstanding 7,589 7,548 Diluted Earnings Per Share – GAAP $ 1.50 $ 1.03 Adjusted Diluted Earnings Per Share $ 2.03 $ 1.35 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 (as defined below).
Fiscal Year Ended March 25, March 26, 2023 2022 Net Income $ 10,688 $ 11,380 + Amortization of Intangible Assets 4,454 3,394 + Acquisition Amortization of Backlog - 490 + Acquisition Deal Costs 1,018 1,458 + Income Tax Effect @ 25% (1,368 ) (1,335 ) Adjusted Net Income 14,792 15,387 Average Diluted Shares Outstanding 7,645 7,589 Diluted Earnings Per Share – GAAP $ 1.40 $ 1.50 Adjusted Diluted Earnings Per Share $ 1.93 $ 2.03 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 (as defined below).
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 the timing of payments to employees.
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 the timing of payments to employees. During fiscal year 2023, accrued compensation and other liabilities decreased by $1.2 million, primarily due to reduced accrued incentives.
Backorders at the end of fiscal year 2022 were $6.4 million, compared to $4.9 million at the end of fiscal year 2021. The year-over-year increase in pending product shipments was a result of the COVID-19 pandemic and its disruptive impact to the supply of products in fiscal year 2022 as well as overall increased demand.
Backorders at the end of fiscal year 2023 were $6.9 million, compared to $6.4 million at the end of fiscal year 2022. The year-over-year increase in pending product shipments was a result of the disruption to the supply of products as well as increased orders.
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.
The increase in Adjusted EBITDA during fiscal year 2023 was primarily driven by the increase in operating income, depreciation and amortization expense and non-cash stock compensation expense. 31 Table of Contents 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.
FY 2022 FY 2021 As a Percentage of Total Revenue: Service Revenue 59.5 % 58.4 % Distribution Sales 40.5 % 41.6 % Total Revenue 100.0 % 100.0 % Gross Profit Percentage: Service Gross Profit 31.9 % 30.3 % Distribution Gross Profit 23.5 % 21.4 % Total Gross Profit 28.5 % 26.6 % Selling, Marketing and Warehouse Expenses 10.1 % 10.2 % General and Administrative Expenses 11.5 % 10.0 % Total Operating Expenses 21.6 % 20.2 % Operating Income 6.9 % 6.4 % Interest and Other Expenses, net 0.5 % 0.6 % Income Before Provision for Income Taxes 6.4 % 5.8 % Provision for Income Taxes 0.9 % 1.3 % Net Income 5.6 % 4.5 % FISCAL YEAR ENDED MARCH 26, 2022 COMPARED TO FISCAL YEAR ENDED MARCH 27, 2021 (dollars in thousands): Revenue: For the Fiscal Years Ended March 26, March 27, Change 2022 2021 $ % Revenue: Service $ 122,005 $ 101,274 $ 20,731 20.5 % Distribution 82,954 72,061 10,893 15.1 % Total $ 204,959 $ 173,335 $ 31,624 18.2 % Total revenue was $205.0 million in fiscal year 2022 compared to $173.3 million in fiscal year 2021, an increase of $31.6 million or 18.2%.
FY 2023 FY 2022 As a Percentage of Total Revenue: Service Revenue 62.8 % 59.5 % Distribution Sales 37.2 % 40.5 % Total Revenue 100.0 % 100.0 % Gross Profit Percentage: Service Gross Profit 32.2 % 31.9 % Distribution Gross Profit 25.3 % 23.5 % Total Gross Profit 29.6 % 28.5 % Selling, Marketing and Warehouse Expenses 10.7 % 10.1 % General and Administrative Expenses 11.9 % 11.5 % Total Operating Expenses 22.6 % 21.6 % Operating Income 7.0 % 6.9 % Interest and Other Expenses, net 1.2 % 0.5 % Income Before Provision for Income Taxes 5.8 % 6.4 % Provision for Income Taxes 1.2 % 0.9 % Net Income 4.6 % 5.6 % FISCAL YEAR ENDED March 25, 2023 COMPARED TO FISCAL YEAR ENDED March 26, 2022 (dollars in thousands): Revenue: Fiscal Year Ended March 25, March 26, Change 2023 2022 $ % Revenue: Service $ 144,883 $ 122,005 $ 22,878 18.8 % Distribution 85,686 82,954 2,732 3.3 % Total $ 230,569 $ 204,959 $ 25,610 12.5 % Total revenue was $230.6 million in fiscal year 2023 compared to $205.0 million in fiscal year 2022, an increase of $25.6 million or 12.5%.
Our organic Service revenue growth provides some incremental gross margin growth by leveraging certain fixed costs of this segment. The mix of services provided to customers may also affect gross margins in any given period. Service gross margin increased by 160 basis points in fiscal year 2022 versus fiscal year 2021.
Our annual and quarterly Service segment gross margins are a function of several factors. Our organic Service revenue growth provides some incremental gross margin growth by leveraging certain fixed costs of this segment. The mix of services provided to customers may also affect gross margins in any given period.
Accounts receivable increased by a net amount of $3.0 million during fiscal year 2021, inclusive of $0.4 million of accounts receivable acquired as part of the BioTek acquisition completed during the period. The year-over-year change reflects the timing of collections.
Accounts receivable increased by a net amount of $5.7 million during fiscal year 2022, inclusive of $2.8 million of accounts receivable acquired as part of three acquisitions completed during the period. The year-over-year change reflects the timing of collections.
The growth in fiscal year 2022 and fiscal year 2021 reflected both organic growth and acquisitions. The growth in Service segment revenue in the fourth quarter of fiscal year 2022 includes revenue from Tangent and NEXA. The growth in Service segment revenue in the third quarter of fiscal year 2022 includes revenue from NEXA.
The growth in fiscal year 2023 and fiscal year 2022 reflected both organic growth and acquisitions. The growth in Service segment revenue in fiscal year 2023 includes revenue from Alliance, e2b and Complete Calibration. The growth in Service segment revenue in fiscal year 2022 includes revenue from NEXA and Tangent.
The decrease in tax rate is due to the higher 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.
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 fiscal years 2023 and 2022 were $0.4 million and $1.4 million, respectively.
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.
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. In the event a trigger is identified, the carrying value of the asset group is compared to the undiscounted cash flows from that asset group.
This represented an increase of $31.6 million or 18.2% versus total revenue of $173.3 million for fiscal year 2021. Total revenue increased due to increases in both Service revenue and Distribution sales increases. Service revenue was $122.0 million in fiscal year 2022, an increase of $20.7 million or 20.5%.
Total revenue for fiscal year 2023 was $230.6 million. This represented an increase of $25.6 million or 12.5% versus total revenue of $205.0 million for fiscal year 2022. Total revenue increased due to increases in both Service revenue and Distribution sales increases. Service revenue was $144.9 million in fiscal year 2023, an increase of $22.9 million or 18.8%.
We record deferred income taxes for the effects of timing differences between financial and tax reporting. These differences relate primarily to accrued expenses, bad debt reserves, inventory reserves, operating leases, goodwill and intangible assets, depreciation and amortization and stock-based compensation.
These differences relate primarily to accrued expenses, bad debt reserves, inventory reserves, operating leases, goodwill and intangible assets, depreciation and amortization and stock-based compensation.
During fiscal year 2021, accrued compensation and other liabilities increased by $3.5 million, due primarily to increased accrued incentives and payroll related expense 33 Table of Contents and $1.0 million of deferred employer portion of social security payroll tax payments as part of the CARES Act. ● Income Taxes Payable: In any given period, net working capital may be affected by the timing and amount of income tax payments.
During fiscal year 2022, accrued compensation and other liabilities increased by $1.0 million, inclusive of $0.5 million of accrued compensation and other liabilities acquired as part of three acquisitions completed during the period. 34 Table of Contents ● Income Taxes Payable: In any given period, net working capital may be affected by the timing and amount of income tax payments.
We recorded vendor rebates of $1.0 million and $0.7 million in fiscal years 2022 and 2021, respectively, as a reduction of cost of Distribution sales.
During fiscal year 2023, we saw a decrease in the rebates offered by our vendors. We recorded vendor rebates of $0.6 million and $1.0 million in fiscal years 2023 and 2022, respectively, as a reduction of cost of Distribution sales.
During fiscal year 2022, the Company repaid $1.0 million on December 31, 2021 and the other $1.0 million is recorded in accrued compensation and other liabilities on the Consolidated Balance Sheets. 32 Table of Contents Cash Flows: The following table is a summary of our Consolidated Statements of Cash Flows (dollars in thousands): For the Fiscal Years Ended March 26, March 27, 2022 2021 Cash Provided by (Used in): Operating Activities $ 17,618 $ 23,639 Investing Activities $ (39,851 ) $ (10,151) Financing Activities $ 23,694 $ (12,655) Operating Activities: Net cash provided by operating activities was $17.6 million during fiscal year 2022 compared to $23.6 million during fiscal year 2021.
The Company repaid $1.0 million of the deferred amounts and during each of fiscal year 2023 and fiscal year 2022. 33 Table of Contents Cash Flows: The following table is a summary of our Consolidated Statements of Cash Flows (dollars in thousands): Fiscal Year Ended March 25, March 26, 2023 2022 Cash Provided by (Used in): Operating Activities $ 16,951 $ 17,618 Investing Activities $ (18,513 ) $ (39,851 ) Financing Activities $ 876 $ 23,694 Operating Activities: Net cash provided by operating activities was $17.0 million during fiscal year 2023 compared to $17.6 million during fiscal year 2022.
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 the fiscal year 2021.
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.
The following table presents the percentage of total pending product shipments that were backorders at the end of each quarter in fiscal years 2021 and 2020 and our historical trend of total pending product shipments: FY 2022 FY 2021 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Total Pending Product Shipments $7,747 $8,854 $7,612 $8,173 $6,287 $5,533 $4,251 $3,890 % of Pending Product Shipments that were Backorders 83.2% 81.3% 78.1% 78.4% 77.6% 79.3% 76.6% 75.8% Gross Profit: For the Fiscal Years Ended March 26, March 27, Change 2022 2021 $ % Gross Profit: Service $ 38,921 $ 30,695 $ 8,226 26.8 % Distribution 19,518 15,423 4,095 26.6 % Total $ 58,439 $ 46,118 $ 12,321 26.7 % Total gross profit in fiscal year 2022 was $58.4 million compared to $46.1 million in fiscal year 2021, an increase of $12.3 million or 26.7%.
The following table presents the percentage of total pending product shipments that were backorders at the end of each quarter in fiscal years 2023 and 2022 and our historical trend of total pending product shipments: FY 2023 FY 2022 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Total Pending Product Shipments $8,101 $9,543 $9,116 $9,034 $7,747 $8,943 $7,707 $8,272 % of Pending Product Shipments that were Backorders 84.8% 78.4% 80.8% 78.1% 83.2% 80.5% 77.2% 77.5% Gross Profit: Fiscal Year Ended March 25, March 26, Change 2023 2022 $ % Gross Profit: Service $ 46,638 $ 38,921 $ 7,717 19.8 % Distribution 21,717 19,518 2,199 11.3 % Total $ 68,355 $ 58,439 $ 9,916 17.0 % Total gross profit in fiscal year 2023 was $68.4 million compared to $58.4 million in fiscal year 2022, an increase of $9.9 million or 17.0%.
Accounts payable increased $1.9 million during fiscal year 2022. Accounts payable increased by $0.3 million during fiscal year 2021.
Accounts payable increased $1.7 million during fiscal year 2023, inclusive of $0.1 million of accounts payable acquired during the period. Accounts payable increased by $1.9 million during fiscal year 2022.
Administration costs to acquire a business may include, but are not limited to, fees for accounting, legal and valuation services and are recorded as incurred in our Consolidated Statement of Income. Goodwill and Intangible Assets. Goodwill represents the excess of the purchase price over the values assigned to the underlying net assets of an acquired business and is not amortized.
The fair value of contingent consideration is determined at each reporting period with changes reflected in the statement of operations. Administration costs to acquire a business may include, but are not limited to, fees for accounting, legal and valuation services and are recorded as incurred in our Consolidated Statement of Income. Goodwill and Intangible Assets.
Total gross margin was 28.5%, which is a 190 basis point increase versus fiscal year 2021. Service gross margin was 31.9% in fiscal year 2022 compared with 30.3% in fiscal year 2021, a 160 basis point increase. Distribution gross margin was 23.5% in fiscal year 2022 compared with 21.4% in fiscal year 2021, a 210 basis point increase.
Service gross margin was 32.2% in fiscal year 2023 compared with 31.9% in fiscal year 2022, a 30 basis point increase. Distribution gross margin was 25.3% in fiscal year 2023 compared with 23.5% in fiscal year 2022, a 180 basis point increase.
The Service segment gross margin increased by 160 basis points. Service segment gross profit and gross margin increases were primarily due to operating leverage on our fixed cost base, accretive margins from recent acquisitions and continued strong technician productivity. In our Distribution segment, we sell and offer for rent, professional grade handheld test and measurement instruments.
The Service segment gross margin increased by 30 basis points. Service segment gross profit and gross margin increases were primarily due to improved productivity offset by increased start-up costs from new client-based lab implementations. In our Distribution segment, we sell and offer for rent, professional grade handheld test and measurement instruments.
In fiscal year 2022, Distribution segment sales increased by 15.1%. This increase in sales was due to increased orders in fiscal year 2022 and an easier comparison to fiscal year 2021, which was adversely impacted by the COVID-19 pandemic.
The change in fiscal year 2022 versus fiscal year 2021 reflected both organic and an easier comparison to fiscal year 2021, which was adversely impacted by the COVID-19 pandemic.
For the Fiscal Years Ended March 26, March 27, 2022 2021 Net Income $ 11,380 $ 7,791 + Interest Expense 810 850 + Other Expense 143 241 + Tax Provision 1,810 2,191 Operating Income 14,143 11,073 + Depreciation & Amortization 9,077 7,580 + Restructuring Expense - 650 + Transaction Expense 902 - + Other Expense (143 ) (241 ) + Noncash Stock Compensation 2,328 1,513 Adjusted EBITDA $ 26,307 $ 20,575 During fiscal year 2022, Adjusted EBITDA was $26.3 million, an increase of $5.7 million or 27.9% compared to fiscal year 2021.
Fiscal Year Ended March 25, March 26, 2023 2022 Net Income $ 10,688 $ 11,380 + Interest Expense 2,417 810 + Other Expense 344 143 + Tax Provision 2,799 1,810 Operating Income 16,248 14,143 + Depreciation & Amortization 10,955 9,077 + Transaction Expense 185 902 + Other Expense (344 ) (143 ) + Noncash Stock Compensation 3,377 2,328 Adjusted EBITDA $ 30,421 $ 26,307 During fiscal year 2023, Adjusted EBITDA was $30.4 million, an increase of $4.1 million or 15.6% compared to fiscal year 2022.
During fiscal year 2021, $1.2 million in cash was generated from the issuance of our common stock.
Financing Activities : During fiscal year 2023, $2.8 million was borrowed from our revolving line of credit and $0.7 million in cash was generated from the issuance of common stock.
As a percentage of total revenue, total gross margin was 28.5% in fiscal year 2022 compared to 26.6% in fiscal year 2021, a 190 basis point increase. Service gross profit increased $8.2 million, or 26.8%, from fiscal year 2021 to fiscal year 2022. Our annual and quarterly Service segment gross margins are a function of several factors.
As a percentage of total revenue, total gross margin was 29.6% in fiscal year 2023 compared to 28.5% in fiscal year 2022, a 110 basis point increase. Service gross profit was $46.6 million, an increase of $7.7 million, or 19.8%, from fiscal year 2022 to fiscal year 2023.
Net income for fiscal year 2022 was $11.4 million compared with $7.8 million in fiscal year 2021, a $3.6 million increase. Diluted earnings per share for fiscal year 2022 was $1.50 compared with $1.03 for fiscal year 2021, a $0.47 per diluted share increase. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Use of Estimates.
Diluted earnings per share for fiscal year 2023 was $1.40 compared with $1.50 for fiscal year 2022, a $0.10 per diluted share decrease. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Use of Estimates.
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.
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.
Operating Expenses: For the Fiscal Years Ended March 26, March 27, Change 2022 2021 $ % Operating Expenses: Selling, Marketing and Warehouse $ 20,649 $ 17,743 $ 2,906 16.4 % General and Administrative 23,647 17,302 6,345 36.7 % Total $ 44,296 $ 35,045 $ 9,251 26.4 % Total operating expenses were $44.3 million in fiscal year 2022 compared to $35.0 million in fiscal year 2021.
Operating Expenses: Fiscal Year Ended March 25, March 26, Change 2023 2022 $ % Operating Expenses: Selling, Marketing and Warehouse $ 24,761 $ 20,649 $ 4,112 19.9 % General and Administrative 27,346 23,647 3,699 15.6 % Total $ 52,107 $ 44,296 $ 7,811 17.6 % Total operating expenses were $52.1 million in fiscal year 2023 compared to $44.3 million in fiscal year 2022.
During fiscal year 2022, we used $29.8 million for business acquisitions. As of March 26, 2022, $8.5 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.
As of March 25, 2023, $80.0 million was available under the revolving credit facility, of which $42.7 million was outstanding and included in long-term debt on the Consolidated Balance Sheets. During fiscal year 2023 and 2022 we used $9.1 million and $29.8 million, respectively, for business acquisitions.
The discrete benefits related to share-based compensation activity in fiscal years 2022 and 2021 were $1.4 million and $0.3 million, respectively. We continue to evaluate our tax provision on a quarterly basis and adjust, as deemed necessary, our effective tax rate given changes in facts and circumstances expected in the future.
We continue to evaluate our tax provision on a quarterly basis and adjust, as deemed necessary, our effective tax rate given changes in facts and circumstances expected in the future. We expect to receive certain federal, state, Canadian and Irish tax credits in future years.

… 51 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

9 edited+0 added−0 removed4 unchanged
Biggest changeWe do not apply hedge accounting and therefore the net change in the fair value of the contracts, which totaled a loss of less than $0.1 million during each of fiscal year 2022 and fiscal year 2021, was recognized as a component of other expense in the Consolidated Statements of Income.
Biggest changeWe do not apply hedge accounting and therefore the net change in the fair value of the contracts, which totaled a gain of $0.4 million and a loss of less than $0.1 million during fiscal year 2023 and 2022, respectively, was recognized as a component of other expense in the Consolidated Statements of Income.
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 (subject to a 1% floor during the first quarter of fiscal year 2022 and a 0.25% floor for subsequent periods) corresponding to such period, in each case, plus a margin.
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 (subject to a 1.0% floor during the first quarter of fiscal year 2022 and a 0.25% floor for subsequent periods) corresponding to such period, in each case, plus a margin.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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 $0.2 million assuming our average borrowing levels remained constant.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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.
On March 26, 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 fiscal years 2022 and 2021 were denominated in U.S. dollars, with the remainder denominated in Canadian dollars and Euros.
On March 25, 2023, 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 fiscal years 2023 and 2022 were denominated in U.S. dollars, with the remainder denominated in Canadian dollars and Euros.
The foreign exchange contract was renewed in April 2022 and continues to be in place. We do not use hedging arrangements for speculative purposes. 35 Table of Contents
The foreign exchange contract was renewed in April 2023 and continues to be in place. We do not use hedging arrangements for speculative purposes. 36 Table of Contents
As of March 26, 2022, $80.0 million was available under our revolving credit facility, of which $39.9 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 March 25, 2023, $80.0 million was available under our revolving credit facility, of which $42.7 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.
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 March 26, 2022, we had a foreign exchange contract, which matured in April 2022, outstanding in the notional amount of $3.3 million.
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 March 25, 2023, we had a foreign exchange contract, which matured in April 2023, outstanding in the notional amount of $2.5 million.
Our interest rate margin is determined on a quarterly basis based upon our calculated leverage ratio. Our interest rate during fiscal year 2022 for our revolving credit facility ranged from 1.0% to 2.2%.
Our interest rate margin is determined on a quarterly basis based upon our calculated leverage ratio. Our interest rate during fiscal year 2023 for our revolving credit facility ranged from 1.6% to 6.5%.
As of March 26, 2022, $8.5 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.
As of March 25, 2023, $6.4 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.

Other TRNS 10-K year-over-year comparisons