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Note 5 - Business Acquisitions | 6 Months Ended
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Sep. 28, 2024
Notes to Financial Statements |
Business Combination Disclosure [Text Block] | NOTE 5 – BUSINESS ACQUISITIONS Becnel: Effective April 15, 2024, the Company acquired Becnel Rental Tools, LLC, a privately-held Louisiana limited liability company (“Becnel”), pursuant to an Agreement and Plan of Merger (the “Becnel agreement”), by and among the Company, Becnel and the other parties thereto. Becnel is an ISO 9001:2015 certified provider of rental tools and services primarily utilized in the decommissioning and maintenance of oil wells. This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that expand the depth and breadth of the Company’s service and rental capabilities. The Becnel goodwill is primarily attributable to the workforce acquired, as well as operational synergies and other intangibles that do not qualify for separate recognition. The goodwill and intangible assets relating to the Becnel acquisition have preliminarily been allocated to both the Service and Distribution segment. Intangible assets related to the Becnel acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up to eleven years and are deductible for tax purposes. Amortization of goodwill related to the Becnel acquisition is deductible for income tax purposes. The total purchase price for Becnel was approximately $49.8 million consisting of up to $17.5 million in cash and the issuance of our common stock valued at $32.3 million. Pursuant to the Becnel agreement, the Company held back approximately $2.5 million of the purchase price for certain potential post-closing adjustments. This includes $0.5 million withheld for ordinary post-closing adjustments and $2.0 million withheld that is subject to revenue target achievement. Pursuant to the Becnel agreement, the purchase price is subject to reduction by $2.0 million if certain revenue targets are not met through April 15, 2026. As of April 15, 2024 and September 28, 2024, the estimated fair value of this contingent consideration, classified as Level 3 in the fair value hierarchy, was approximately $1.5 million and $1.6 million, respectively. This amount was calculated using a Geometric Brownian motion distribution that was then used in a Monte Carlo simulation model. Assumptions used in the Monte Carlo simulation model included: 1) discount rate of 11.00%, 2) risk-free interest rate of 5.00%, 3) asset volatility of 30.00%, and 4) forecasted revenue. 50% of this contingent consideration is payable in cash and 50% of this contingent consideration is payable in 9,283 shares of Transcat common stock. The cash portion of the contingent consideration is classified as a liability and is recorded in other liabilities in the Consolidated Balance Sheets. The stock portion of the contingent consideration is classified as equity and is recorded in shareholders equity in the Consolidated Balance Sheets. The contingent consideration payout will either be $0 or $2.0 million depending on the revenue target achievement. This cash portion of the contingent consideration is remeasured quarterly. If, as a result of remeasurement, the value of the cash portion of the contingent consideration changes, any charges or income will be included in the Company’s Consolidated Statements of Income. There was no impact from the remeasurement done during the first six months of fiscal year 2025. Due to the uncertainty with utilizing these significant unobservable inputs for this Level 3 fair value measurement, materially higher or lower fair value measurements may be recognized at subsequent remeasurement periods. The stock portion of the contingent consideration is remeasured quarterly. If, as a result of the measurement, the value of the stock portion of the contingent consideration changes, any changes will be included in the Consolidated Balance Sheets as a component of shareholders equity. The purchase price allocation is subject to revision based upon our final review of tangible and intangible asset valuation assumptions, working capital adjustments, assets acquired, liabilities assumed and consideration transferred. The following is a summary of the preliminary purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of Becnel's assets and liabilities acquired on April 15, 2024 (in thousands):
Goodwill |  | $32,537 |
Intangible Assets – Customer Base & Contracts |  |  | 7,200 |
Intangible Assets – Trademarks and Tradenames |  |  | 840 |
|  |  |  | 40,577 |
Plus: | Cash |  |  | 214 |
| Accounts Receivable |  |  | 3,041 |
| Property and Equipment |  |  | 6,122 |
| Other Current Assets |  |  | 79 |
Less: | Current Liabilities |  |  | (210 | )
Total Purchase Price |  | $ | 49,823 |
From the date of acquisition through the end of the second quarter of fiscal year 2025, Becnel has contributed revenue of $4.7 million and an operating loss of $0.2 million, which includes the negative impact of amortization of the acquired intangible assets. Axiom: Effective August 8, 2023, Transcat purchased all of the outstanding capital stock of Axiom Test Equipment, Inc. (“Axiom”), a privately-held California rental provider of electronic test equipment to customers across the United States. This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that expand the depth and breadth of the Company’s Distribution capabilities. The Axiom goodwill is primarily attributable to the workforce acquired, as well as operational synergies and other intangibles that do not qualify for separate recognition. All the goodwill and intangible assets relating to the Axiom acquisition has been allocated to the Distribution segment. Intangible assets related to the Axiom acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up to twelve years and are not deductible for tax purposes. Amortization of goodwill related to the Axiom acquisition is not deductible for tax purposes. The total purchase price for Axiom was approximately $38.7 million and was paid with $10.0 million in cash and the issuance of our common stock valued at $28.6 million. Pursuant to the asset purchase agreement, the Company held back approximately $3.9 million of the purchase price for certain potential post-closing adjustments. The following is a summary of the purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of Axiom's assets and liabilities acquired on August 8, 2023 (in thousands):
Goodwill |  | $ | 26,758 |
Intangible Assets – Customer Base & Contracts |  |  | 7,900 |
|  |  |  | 34,658 |
Plus: | Cash |  |  | 161 |
| Accounts Receivable |  |  | 925 |
| Inventory |  |  | 1,796 |
| Other Current Assets |  |  | 40 |
| Property and Equipment |  |  | 4,965 |
Less: | Current Liabilities |  |  | (579 | )
| Deferred Tax Liability |  |  | (3,242 | )
Total Purchase Price |  | $ | 38,724 |
During the first six months of fiscal year 2025, Axiom has contributed revenue of $4.7 million and operating income of $0.3 million, which includes the negative impact of amortization of the acquired intangible assets. SteriQual: Effective July 12, 2023, Transcat purchased all of the outstanding capital stock of SteriQual, Inc. (“SteriQual”), a Florida based provider of expert consulting services to pharmaceutical, biopharmaceutical, medical device and diagnostic equipment manufacturers. This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that expand the depth and breadth of the Company’s Service capabilities. The SteriQual goodwill is primarily attributable to the workforce acquired, as well as operational synergies and other intangibles that do not qualify for separate recognition. All the goodwill and intangible assets relating to the SteriQual acquisition has been allocated to the Service segment. Intangible assets related to the SteriQual acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up to fifteen years and are not deductible for tax purposes. Amortization of goodwill related to the SteriQual acquisition is not deductible for tax purposes. The total purchase price for SteriQual was approximately $4.3 million and was paid by the issuance of our common stock. Pursuant to the asset purchase agreement, the Company held back approximately $0.9 million of the purchase price for certain potential post-closing adjustments. Pursuant to the asset purchase agreement, the purchase price is subject to reduction by $0.5 million if certain revenue targets are not met through July 12, 2024. The revenue targets were not met and the remaining $0.4 million of the holdback was paid during the second quarter of fiscal year 2025. The purchase price was reduced to $3.8 million as of December 23, 2023 as the Company recorded a receivable in the amount of $0.5 million related to the revenue target contingent consideration. This receivable was recognized based on the facts and circumstances at the date of acquisition and is recognized as a component of goodwill and not recorded in the Consolidated Statement of Income. The following is a summary of the purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of SteriQual's assets and liabilities acquired on July 12, 2023 (in thousands):
Goodwill |  | $ | 2,175 |
Intangible Assets – Customer Base & Contracts |  |  | 1,062 |
Intangible Assets – Covenant Not to Compete |  |  | 392 |
Intangible Assets – Sales Backlog |  |  | 95 |
|  |  |  | 3,724 |
Plus: | Accounts Receivable |  |  | 666 |
Less: | Current Liabilities |  |  | (211 | )
| Deferred Tax Liability |  |  | (395 | )
Total Purchase Price |  | $ | 3,784 |
During the first six months of fiscal year 2025, SteriQual has contributed revenue of $1.1 million and operating loss of $0.2 million, which includes the negative impact of amortization of the acquired intangible assets. TIC-MS: Effective March 27, 2023, Transcat purchased all of the outstanding capital stock of TIC-MS, Inc. (“TIC-MS”), a Missouri based provider of calibration services. This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that expand the depth and breadth of the Company’s Service capabilities. The TIC-MS goodwill is primarily attributable to the workforce acquired, as well as operational synergies and other intangibles that do not qualify for separate recognition. All the goodwill and intangible assets relating to the TIC-MS acquisition has been allocated to the Service segment. Intangible assets related to the TIC-MS acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up to fifteen years and are not deductible for tax purposes. Amortization of goodwill related to the TIC-MS acquisition is not deductible for tax purposes. The total purchase price for TIC-MS was approximately $9.7 million and was paid with $2.9 million in cash, including $0.5 million placed in escrow for contingent consideration, certain post-closing adjustments and indemnification claims, if any, and the issuance of 77,387 shares of our common stock valued at $6.9 million. Pursuant to the asset purchase agreement, the purchase price was subject to reduction by up to $0.5 million if a key customer relationship is not retained through March 27, 2024. This key customer relationship was retained and, in the first quarter of fiscal year 2025 the $0.5 million in escrow was released and paid. The following is a summary of the purchase price allocation, in the aggregate, to the fair value, based on Level 3 inputs, of TIC-MS's assets and liabilities acquired on March 27, 2023 (in thousands):
Goodwill |  | $ | 7,218 |
Intangible Assets – Customer Base & Contracts |  |  | 2,303 |
Intangible Assets – Covenant Not to Compete |  |  | 132 |
|  |  |  | 9,653 |
Plus: | Accounts Receivable |  |  | 502 |
| Property and Equipment |  |  | 356 |
Less: | Current Liabilities |  |  | (124 | )
| Deferred Tax Liability |  |  | (712 | )
Total Purchase Price |  | $ | 9,675 |
During the first six months of fiscal year 2025, TIC-MS has contributed revenue of $1.8 million and operating income of $0.9 million, which includes the negative impact of amortization of the acquired intangible assets. The results of acquired businesses are included in Transcat’s consolidated operating results as of the dates the businesses were acquired. The following unaudited pro forma information presents the Company’s results of operations as if the acquisitions of Becnel, Axiom, SteriQual and TIC-MS had occurred at the beginning of fiscal year 2024. The pro forma results do not purport to represent what the Company’s results of operations actually would have been if the transactions had occurred at the beginning of the period presented or what the Company’s operating results will be in future periods.
|  | (Unaudited) |  |  | (Unaudited) |
|  | Second Quarter Ended |  |  | Six Months Ended |
(in thousands except per share information) |  | September 28, 2024 |  |  | September 23, 2023 |  |  | September 28, 2024 |  |  | September 23, 2023 |
Total Revenue |  | $ | 67,826 |  |  | $ | 68,948 |  |  | $ | 134,533 |  |  | $ | 137,828 |
Net Income |  | $ | 3,286 |  |  | $ | 435 |  |  | $ | 7,545 |  |  | $ | 2,879 |
Basic Earnings Per Share |  | $ | 0.36 |  |  | $ | 0.06 |  |  | $ | 0.83 |  |  | $ | 0.37 |
Diluted Earnings Per Share |  | $ | 0.35 |  |  | $ | 0.05 |  |  | $ | 0.82 |  |  | $ | 0.37 |
Certain of the Company’s acquisition agreements include provisions for contingent consideration and other holdback amounts. The Company accrues for contingent consideration and holdback provisions based on their estimated fair value at the date of acquisition and at subsequent remeasurement periods, as applicable. As of September 28, 2024, $0.5 million of other holdback amounts unpaid are reflected in current liabilities on the Consolidated Balance Sheets and $0.8 million of contingent consideration and $1.6 million of other holdback amounts unpaid are reflected in other liabilities on the Consolidated Balance Sheets. During the first six months of fiscal year 2025, $0.5 million was paid to settle the earn-out obligation due to Cal OpEx Limited (d/b/a NEXA Enterprise Asset Management)(“NEXA”) for calendar 2023. This amount was paid in 4,320 shares of Transcat common stock. During the first six months of fiscal year 2025, $2.3 million was paid to settle a holdback due to Axiom. This amount was paid in 26,379 shares of Transcat common stock. During the first six months of fiscal year 2025, $0.4 million was paid to settle a holdback to SteriQual. This amount was paid in 4,763 shares of Transcat common stock. During the first six months of fiscal year 2024, no contingent consideration and $0.3 million of other holdback amounts were paid. During the first six months of fiscal year 2025 and fiscal year 2024, acquisition costs of $0.4 million and $0.2 million, respectively, were recorded as incurred as general and administrative expenses in the Consolidated Statements of Income.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 805 -SubTopic 20 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org/1943274/2147479907/805-20-50-5 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 805 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/805/tableOfContent + Details
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