Q4 2020 Earnings Call
Greetings and welcome to the Transcat fourth quarter fiscal year 2020 financial results call. At this time all participants are in listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference.
Please press Star zero on your telephone keypad. Please note. This conference is being recorded.
I'll now turn the conference over to our host Craig Mahalik Investor Relations for Transcat. Thank you you may begin.
Thank you and good morning, everyone. We certainly appreciate your time today and your interest and Transcat with me on the call today, we have a president and Chief Executive Officer lead Rudolph and our Chief Financial Officer My Chair.
After formal remarks, we will open the call for questions. If you do not have our news release I crossed the wire after markets closed yesterday. They can be found on our web site at Transcat dotcom.
Slides that accompany today's discussion are also on our website. If you please refer to slide two.
As you are aware, we may make forward looking statements during the formal presentation and Q and a portion of this teleconference.
Those statements apply future events, which are subject to risks and uncertainties as well as other factors that could cause actual results could differ materially from where we are today.
These factors are outlined in the news releases as well as with documents filed by the company what the Securities and Exchange Commission.
You can find those on our website, where we regularly post information about the company as well I was on the Fccs web site at FCC Dot Gov.
We undertake no obligation to publicly update or crack to any of the forward looking statements contained in this call whether as result of new information future events or otherwise except as required by law. Please review our forward looking statements in conjunction with these precautionary factors.
I would like to point out as well that during today's call. We will discuss certain non-GAAP measures, which we believe will be useful in evaluating our performance.
Shouldn't not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with gap.
We have provided reconciliations of non-GAAP to comparable GAAP measures and the tables accompanying the earnings release, so with that let me turn the call over to lead to begin the discussion like.
Okay. Thank you Greg Good morning, everyone. Thank you for joining us on the call today I Hope you and your families are in good health.
The call today with an overview of the fourth quarter results in how we ended fiscal 2020.
Provide a quick look into the teaching E Laboratory acquisition, which closed on February 21st about a month before the end of our fiscal year.
And I'll turn things things over to Mike to provide a closer look at the fourth quarter and the full year financials before I return.
To speak to our outlook for fiscal 2021 beyond.
Before I get started I want to take a moment to tell you how proud I am.
The chance Cat organization for both the agile response and the measured actions taken to ensure the health and safety of our employees and our customers as you work through the challenges the co bid 19 pandemic at the same time, we believe we're operating in a fashion that enables the business to prosper over the long term I see.
During our differentiation and critical resources I'll talk to both of those opportunities in a few minutes.
Early in the fourth fiscal quarter, we formed a 10 member cross functional response team that met on a daily basis to establish safety protocols throughout our 42 locations as well as procedures to safely service our customers that their facilities.
We follow CDC, and W.H.O. guidelines to mitigate risk and while so doing we delivered continuous essential services to our customers across a broad range of critical industries, including manufactures of ventilators and test kits as well as pharmaceutical companies conducting research and development on the covert 19th vaccine.
[laughter] within a matter of days, we split shifts in our labs restricted travel and leveraged our recent technology enhancements. So all those who needed to work from home, particularly at our headquarters in Rochester, We're able to do so.
The net result was that Transcat remained operational across the organization and we're fully operational today like I said I'm very proud and thankful for the dedicated service. So all of our employees during these challenging times.
Yesterday, we reported our financial results for the fourth quarter and full year fiscal 2020.
The results reflected strong performance in a challenging environment, they're not surprisingly got more difficult as we move through February and March.
Despite the unexpected headwinds that impacted our topline performance, we still produced record revenue for the quarter and for the year.
The service segment achieved its 44th consecutive quarter a year over year growth.
That's 11 straight years.
[noise] and perhaps more importantly, even with the muted revenue in the back half of the fourth quarter. We delivered both gross margin and operating margin expansion a service gross margins increased 120 basis points and service operating margin increased 40 basis points and we continue to prioritize the leveraging of technology throughout the organization.
Particularly to drive service margin expansion.
Throughout fiscal 2020, we demonstrated both the effectiveness of our strategy and our ability to execute it we generated solid cash from operations, which funded the advancement of our technology infrastructure organic growth opportunities acquisitions and debt repayments.
Turning to the acquisition of T. T laboratories, the timing could not have been better for Transcat. The business is complimentary and geared almost entirely to life Sciences.
TT East specializes in the sales and service a pipettes and operates primarily in the New England region, which is the United States number one life science cluster.
Hi, bets are laboratory tools, commonly used in chemistry, biology, and medicine to transport a measured volume of liquid often as a media dispenser.
We look forward to executing the sale synergies that exists between Trans cats core life science customer base, and TT east specialized capabilities and of course, the other way around as well selling transcat broad suite of life Science services to Tds current pipe at customers. We believe that deal is a big win for both companies.
Moving on to distribution, our diversified channels continue to foster solid performance in the fourth quarter, the rental market achieved double digit growth in the quarter and for the full 2020 year.
And while distribution revenue increased in the fourth quarter.
An unfavorable mix drove a 70 point.
Declining gross margin percentage still.
The segment grew 4% for the year and most importantly.
As distribution segment, our distribution segment continues to be a differentiator for transcat producing sales leads that ultimately fostered 8.4% organic service growth and 11% total service growth for the full fiscal 2020 year.
But that I'll turn things over to Mike.
Thanks, Lee and good morning, everyone.
Today I'll be starting on slide six which provides detail for our revenue on a consolidated basis and by segment.
As a reminder, we have two reportable business segments service in distribution.
Our results include a five weeks tea, which was acquired in late February 2020.
As we mentioned our fourth quarter performance was solid considering the impact of the cold at 19 pandemic and the latter half of the quarter, especially in March which historically is the strongest month of our fiscal year consolidated revenue for the quarter was up nearly 3% to $45.8 million, which represents a record level.
No.
The increase in service revenue to $25 million reflects 1.1% organic growth largely from new business within the life science market in the quarter over quarter increase was 2.9%, including the incremental revenue from GE.
Distribution sales were up 2.9% in the fourth quarter versus the prior year fourth quarter with higher rental revenue as we mentioned rentals was up 11% over the same quarter last year.
Full year consolidated topline results were solid reaching a record level of $173 million highlights include 10.7% service revenue growth with 8.4% on an organic revenue basis and distribution growing 4.2%, including.
Higher rental revenue, 19% year over year for the full year.
Our consolidated gross margin performance in the quarter was also a bright spot and further demonstrated the strength that overall importance. The service business has on our margin profile.
Quarterly service segment gross margin improved 120 basis points from our various and ongoing productivity initiatives Inspite of the cobot 19 impact on March revenues as described.
Well distribution gross margin was positively impacted by the higher margin profile of rentals. We did have an unfavorable mix in the quarter, which resulted in a 70% excuse me 70 point decline.
However, as Lee mentioned distribution is doing what we want providing leads everyday to service while generating cash.
We're very pleased with the 40 basis point improvement and full fiscal year service gross margin in spite of a tough finish to the fiscal year in March for the full fiscal year distribution gross margin declined 20 basis points.
Slide seven shows are operating performance, we got flow through from our service margin performance, although that leverage was somewhat muted at the operating income line as we continue to invest in our technology capabilities to both support current and planned growth to advance our operational excellence initiative.
This also onetime as she M&A costs of approximately $150000 of legal and other TT transaction closing costs were incurred in the quarter.
On slide eight we show our net income results, which reached a full fiscal year record of $8.1 million up nearly 13%.
Net income for the quarter it was down slightly due to the higher quarterly tax rate, which reflected the timing of discrete income tax benefits related to certain share based awards.
We expect our income tax rate to range between 24, and 25% in fiscal 2021, including federal state and Canadian taxes.
On slide nine we show adjusted EBITDA and adjusted EBITDA margin. Among other measures we use adjusted EBITDA, which is a non-GAAP measure to gauge the performance of our segments. Because we believe it is a good measure of operating performance and is used by investors and others to evaluate and compare Peru.
Formants of core operations from period to period.
I encourage you to look at the provided reconciliation of adjusted EBITDA to the closest GAAP measures, which for us our operating income and net income.
Slide 10 provide some detail regarding our balance sheet and cash flow.
In fiscal 2020 net cash provided by operations was solid at $11.6 million.
Was used to fund capital expenditures of $6.6 million make acquisition payments and pay down debt.
At fiscal year end, we had total debt of $30.3 million with $12.3 million available under our revolving credit facility.
We had used $12.2 million during the fourth quarter to acquire the assets of TD and during the full fiscal year. We spent the total of $13.8 million for acquisitions, including releasing certain final hold backs from other previous deals.
Our leverage ratio at the end of the fiscal year was 1.53 to one.
And as calculated as the total debt on our balance sheet at a period end divided by the trailing 12 months adjusted EBITDA, including giving credit for any acquired EBITDA.
Other companies may calculate such a metric differently.
As we noted in the press release and on the slides, we have pulled some prudent levers on the cost side.
The management team and board have taken temporary reduction in salary in fees.
We are aligning variable cost with demand and tightly controlling discretionary spending and we'll continue to closely monitor our cost structure and liquidity.
For areas outside of technology, we have also put a temporary freeze on hiring in wage increases.
We don't qualify for the Paycheck protection program, but we are monitoring various carriers EQT programs and leveraging various federal and state government payroll cost sharing and tax deferral opportunities.
On Monday, we executed an amendment to our credit facility, which among other things gives us an additional $10 million and borrowing capacity and financial covenant modifications going forward.
The amendment now extends the credit facility to October of 2022.
This amendment gives us more dry powder for investment opportunities such as acquisitions, while providing further liquidity capacity, even though it is not expected to be needed under any current operating scenario.
Given the actions we have taken to further strengthen our balance sheet liquidity. We believe we are in good position to whether this current challenging economic environment, while still making investments that will benefit the company and its shareholders in the longer term.
As noted on slide 11, we're forecasting our capital expenditures for fiscal 2021 to be in a range of 5 million to $5.5 million.
The focus is expected to center on further investments in technology.
To fund growth oriented opportunities within both segments and the purchase of rental pool assets.
This amount includes maintenance capex, which is expected to be consistent with fiscal 2020 at approximately $1 million to $1.5 million for the year.
And lastly, we expect a timely file our form 10-K on approximately junaid.
With that I'll turn it back to Uli.
Okay. Thank you Mike.
No doubt were all concerned about the high level of uncertainty that exists both in our personal lives as well as for our business perspective at Transcat. We're looking forward and there are few points I want to make sure I communicate well back in 2013 chassis that made a strategic decision to focus our time and our resources towards it.
Spansion and development of the life science sector of our calibration services business.
We knew the market was essential the demographics attractive and the revenue stream recurring and driven by regulation. We also understood that the cost of failure within the life science sector is high and calibration plays an important role in the mitigation of risk.
Life Science is a difficult market to get into and performed well in but we are committed to developing the market. Unlike calibration services in general it represents our primary growth engine today more than ever Im glad we did.
It's in difficult times like these that we believe our life science orientation provides both stability and opportunity and we believe it adds a significant degree of resilience to our operation.
We also believe our service segment as a whole by its nature tends to be assessing resistant, but even more so in life Sciences.
While we expect our distribution business to feel more downward pressure from an extended economic slowdown our service business is expected to continue to be steady and strong and better position us over the longer term.
Because we believe we're in a good position in our markets and with our customers. We have the opportunity to focus on a couple of important things.
First and foremost is taking care of our most critical resource our people.
While we are proactively managing our costs in the cobot 19 environment. We have made a strategic decision to fully retain all of our technical talent, even if that means having some excess capacity for a short period of time.
In time covert 19 will pass and when it does by maintaining our technical workforce, we will be at the ready to support expected strong organic growth levels. We also believe there will be a higher level of acquisition opportunities coming out of the current economic slowdown.
It is our goal to be ready, both organically and through acquisition to capitalize on growth opportunities as we encounter them.
And as in addition to our people.
Our underlying strength will be our technology.
In fiscal 2020, our work on the technology front yielded productivity gains margin expansion process improvement and improved data analytics.
We expect continued improvement all these areas on a go forward basis.
In fact, several of our key technology initiatives are being accelerated in fiscal 2021 to be ready to support growth and productivity.
Outside of technology, and our technical workforce, we have taken prudent cost actions in anticipation of headwinds throughout the first quarter fiscal 2021.
In the first quarter fiscal 2021, we believe will be in the range of breaking even on a consolidated operating income level and we expect positive adjusted EBITDA.
And the general idea generation of sufficient sufficient cash from our operations.
Over the mid to long term, we expect our scale, our unique value proposition and our strategy to play in our favor.
With that operator, please open the line for questions.
Thank you.
At this time, we will conduct our question and answer session. If you would like to ask a question. Please press star one on your telephone keypad a confirmation total indicate that your line is in the question Q.
Press Star followed by the number two.
Remove your question from the Q4 participants is a speaker equipment and may be necessary to pick up your handset before pressing the star.
Once again to ask a question press star one on your telephone keypad.
We'll pause for a moment to pull for questions. Thank you.
Okay.
Our first question comes from Jerry Sweeney with Roth Capital. Please state your question.
Good morning, Mike.
Michael.
Good morning, Gerry injury.
Obviously give us a little bit insight into what you're expecting for.
Q.
Could you give us a little bit more detail, maybe I mean with April slower.
I see a little bit of a backup and then.
Maybe build of backlog of different services.
Have you spoken with any of your customers and what they're saying about.
The demand how they're coming out of.
Okay.
Okay.
Yeah.
Different changes to how they are allocating working at that youre going to be doing.
Just to.
Got it give us a little bit more details.
In this.
Well, we're dealing with.
Yes fair enough. Jerry this is Lee so so at a relatively high level, we have been pretty pleased with the service pipeline and the level of service activity, we've seen throughout the organization in our Cbls our client base labs are very steady just inherently.
The amount of work workload in the beginning of.
The quarter tended to be off by a few percentage points, but picked up throughout the quarter and even most recently we like.
The the pulse the level of.
No work that we're being asked to perform in first quarter and I'll, even make a comment that generally speaking I think we're pleasantly surprised it's held up really well in addition to that the the.
The pipeline on a go forward basis as I mentioned in the earnings releases is really quite strong and so some of its a matter of timing right companies wanting to make the change in the switch over to using Transcat services. So I like the pipeline I like the work levels and most of the anticipated that.
Lines are on the distribution business, which has absolutely no surprise and that that will work itself in and out as the economy goes, but but yes service is doing what we wanted service to do and that's why in the script I talked a little bit about 2013, making that pivot and I think it's worked in our favor.
Got it and that's it.
Environment, maybe change how some of your customers look at using Transcat I mean would they could there be a shift more to CBL client base laps over.
It's opportunities any talk on matters installed.
Too early but in other words, yes, I feel changing out little bit.
Right now not yet and not really I have not gotten any feedback relative that I get the nature of the question right now our Cbls everything is pretty steady state for us we havent seen a lot of conversions, we have converted on many of our on site to depot and that makes a whole lot of sense right, but that may or may not come.
When you I'd love it for it to continue but.
That may not continue over time, but no no fundamental shift based upon.
Cove, it that I can pick up yet.
In the Loopnet, we detect something Jerry I'll, just one Ed Ed one thing on to that and I think it's a kind of an advantage.
And at the end.
On sites and having to work done in depots, we proactively reached out to customers.
Because we are worried about their visit or protocols as one of the advantages of Transcat has is having 21 calibration facilities around the country, where we're able to do that.
And we've been lucky that they are all operational and there has been a number of customers that have wanted to move their site.
To the facilities instead of having US go out there, but it's one of those where I think being decentralized does give us some ground cover if there was going to be some some issue at a particular lab, we have a lot of other levers to move the work into whether it's on sites to a lab water from one lab to another lab.
Got it okay switching gears, a little bit you've talked a little bit about the operating line and just.
Speeding up some investment I believe that if I heard your correctly.
Yes, I can you maybe talk about what you're doing there and.
Potential outcomes are what they expected outcome would be on.
Margin.
Well, you're looking at but just.
Got a little bit how much more.
Sort of speeding up.
Yeah, I'd be happy too. So we have in the past couple of years invested in cyber security and our infrastructure. We are building integration tools. Some of them are done some of them are really close to completion, we've invested in automation as you know our C software, which is the portal for our customers too.
Sort of act in a self service fashion and we're really.
We committed to this journey a couple of years ago, and we're just starting now and you can see in our margins were just starting now to see some of the fruits of our labor and it's exciting and so as we pick up momentum.
You kind of get you know.
Awfully excited by it and so we want to see it continue and in this environment, rather they make a choice to to cut back on like the expenses relative to technology, we want to keep going forward in fact.
We're actually in a hiring mode, both programmers and some project managers, because we feel like the opportunities real its its current and if we are and if we capitalize on it.
These things will make a lot of sense to accelerate versus doing the opposite and that's what I meant to say in and we're going to we're going to stick to that plan because.
It will come out stronger because of it.
Got it perfect.
Really helpful I'll jump back in line. Thank you very much okay.
Our next question comes from Dick Ryan with Dougherty and company. Please state your question.
Thank you.
Sadly.
In your stress test of the business model for Q1.
Can you give a sense of what revenue level that you might be looking at.
Foreign operational breakeven scenario.
Or maybe it.
Sure look at it more specifically can you give us a little more feel of what you're thinking kind of the declines could either be in the service and distribution side.
Sure. If you look back at first quarter of last year, Dick you'll you'll notice that we had $1.2 million are operating income and distribution at about 700000 in the first quarter for service. So we would expect.
You know that service to hold up quite well relative to last year and wouldn't even be surprised if we outperformed but where you're going to see the decline is going to be in distribution. So instead of <unk> million to that's more of what we're looking at in terms of breaking even.
There may have rebates involved as well for volume and some of those go away in the short term and so we'd like to see we'd like to see getting close to breakeven on the distribution year over year and then we expect a service to hold up pretty strong now you know it's possible we could outperform our estimate.
Yes, I wouldn't surprise me, but we wanted to take a conservative approach and say hey, if we hit breakeven plus or minus $100000. That's about where we think we're going to be there is some upside I think to that but I want to be a little conservative.
Sure I appreciate it.
Our the kind of offensive stance, you're taking on keeping your tax employed kind of given the speed bump.
I think is.
Commendable.
What.
What do you see on the M&A side, I mean, do you think coming out of this.
The opportunities that are going to be there.
And what could they do the multiples that you were maybe looking pre covidien 19.
Right. So I you know.
Having been through some some economic slowdowns in the past each and every time, we saw an increased level of opportunities around acquisitions. So there's no reason to believe that wouldn't be the case. This time as well now exactly the size and the pace at which you know thats likely to occur I'm not sure multiples at this point not really.
Sure we tend to be fairly disciplined between four and six times EBITDA, but for for T.D., we extended ourselves a little bit because the fit was so good I'm going to reserve answering that question at this point because I'm just not sure what's going to happen. It's too early to tell a multiples, but history would tell you that there should be an increased level and that's why.
We talk to that possibility and as time goes by and when we report on first quarter Bill will give an update on those expectations.
Sure just to refresh me you've got 20 Cbls. What did you have I mean, what what did that grow in fiscal two.
20 and what.
What kind of.
You know trajectory could we see from Cbls over the next 234 years.
Right well to refresh your memory. If you go back beyond last year, we typically would when one of these opportunities once or twice a year for several years that was pre average and I think at one time, we had about five or so yes seven of them. If you go back to last 12 to 24 months therein lies the difference and there's the 10 or.
12 opportunity. So we saw a pick up from one or two a year to five or six a year over the last couple of years.
To the second half of your question do we see that continuing I don't see why not I mean, if he covanta side, yes, the speed bump aside.
So.
We were we had a nice pipeline, we're marketing well in selling well and performing well and in that particular space and I don't know I can't really speak to reason why that wouldn't continue there's no guarantee.
Some of our pipelines have been delayed a little bit at people are China you know.
Make sense out of whether they want to change now versus next quarter or next month or a couple of months from now, but the general feeling from our sales folks are that.
The value prop is strong around cbls and we expect that to continue at the same levels last year's perhaps maybe a little lighter maybe a lever. We don't know at this point I would expect about the same you know if I had if I had to guess.
Okay great.
Thank you and congratulations on the strong execution.
Thanks, Dave Thanks Dick.
Our next question comes from Mitra Ramgopal with Sidoti. Please state your question.
Yes, hi, good morning, Thanks for taking the questions first I just had a question on the.
Service segment.
Lee I believe you had mentioned.
Some of customers are delaying their project decisions.
Just curious.
I'm, assuming it's ended non life sciences areas, maybe aerospace defense et cetera, just wondering if you could maybe give us a little more color on that.
I mean, it's actually a mix of both and so we had some nice opportunities we've been sort of given a thumbs up a variable hey, you guys were going to go with you, but we just we're not going to make a change in the first quarter.
You're right a couple of those tend to be.
In a Andy as opposed to life Sciences, but yes, there's some in life sciences as well so I don't I don't see it as a major set back I see it maybe a quarter quarter and a half I mean, if things do pick up as we expect in it and the first quarter is sort of the bottom period for us I would expect that sentiment the change.
At a fairly.
A rapid pace, but right now thats, just I'm, giving you a feedback on what we've heard and again it hasn't stopped us from growing to this point. It's just I think it's just muting, what we could be doing I expected to reserve reverse itself at some point.
Okay, that's great and then.
As it relates to the.
Organic growth you're obviously.
What about longer term.
Specs and I know you've added some technicians over last year and obviously you have held the line in terms of any potential reduction of headcount I'm just curious on the flip side given the.
We could labor market, if it's that's providing you maybe with some opportunities.
Can you maybe at some technicians it might not have been available a few months ago.
Right. So it's actually interesting point I mean, we're not really focused on adding technicians at this point because we think we're more overcapacity than under capacity for the short term now that doesn't mean, if a sensational opportunity presented itself with someone with a specialized needed skill set that we wouldn't jump on that and we probably in fact, we course, we would but.
Our general Playbook says, let's stick with the technicians we have.
We are less concern with the you know profitability over the next 30 to 90 days based upon having an overcapacity of technicians and more excited about having the opportunity to grow our business at some later point in the year. So we're going to stick to that game plan.
And be open minded to talent, if it's out there and it makes us better.
I wouldn't probably hesitate, but the plan is not to go looking proactively for more technical resources. When we think we're already have more than enough in the first quarter, yet and I think that makes sense Lee and certainly I think a higher unemployment rate.
Just to converse when it lower unemployment rate, where it hurt you can get technical labor you would think that in theory there'd be more resources available. When the time is right and we'll always look for the best athlete available I think we'll be in a position.
To.
Take advantage of that when things settle down a little bit major.
Okay I noticed that this fair.
And on the acquisition front that CTP still early days, yet than with the environment really difficult maybe to assess.
From an under normal conditions, but I'm just curious if you had any additional color as it relates to the integration and from what you've been able to see so far from that acquisition, if it's sort of meeting or even exceeding your expectations.
Yes, so so from it.
From a personal perspective, I love TT, it's probably of the 11 or so acquisitions is probably my favorite I like the way fits from a strategic perspective, I like the way, it's Ron and I like the upside.
To market their services throughout all of our labs and vice versa. So I'm I'm.
Pretty bullish on where I think that can go and I have that I've I've theres no signs to point to anything different than that.
In this environment.
That particular space in that particular says suite of services that they offer should do well and I like their management team, which is one of the reasons why we acquired them. So I'm I'm going to stick to my.
My bullish outlook on them and like I said I'm I'm.
Due to guide car that come and again in second I think it's going to be really good for us and meet your I think with the technology that we've deployed.
Not being able to kind of have as much face to face as we normally would hasn't really slowed down any integration efforts more kind of used to doing that anyways. So.
So I think we're not going to use that as a reason to slow down any of the integration or get the center the cost or the sales synergies out of it.
Okay, No that's great. Thanks, again for taking the questions.
Thanks, Mike Thank you.
Our next question comes from Chris The Cai with singular research. Please state your question.
Hi, good morning.
Question on the odd.
Distribution sales mix I wanted to get to see.
What do you guys are you looking forward to I guess in the current quarter.
We've seen improvements there.
Well this distribution, Chris will typically follow the general economy, and GDP and so on so if the economy.
Back slides in Q1 as I think we all recognize that potential to occur than you would expect distribution at the front.
Of the line for us to feel that so yes, we the reason why we're projecting out for the first 90 days our fiscal quarter, a break a breakeven sort of operating kind of environment is almost exclusively related to you know some of that you know that the impacts that we think we're going to see on distribution that could change.
Range.
We could have a strong June we could have a strong may still and so we can't predict the future fully but but we do expect distribution to feel the impact of a slow economy and we'll see how it plays out over the 90 days of our first quarter.
Okay.
Great and then one other thing.
Looks like the operating income for the service service segment.
Well it's down.
A year over year can you help me understand a little more about why.
Yeah, Chris It's Mike as we tried to kind of describe kind of a couple of different things. One there's a lot of investment that's happening in technology that goes into the those SGN a the operating expense lines.
And service bears a lot of that business related to that segment and then.
The TT he costs kind of the one timers excuse me the legal and the transaction cost muted operating income on a segment level and on a consolidated level and I would add to that too.
Remember.
Chris that March isn't it an extraordinary month for us from a service perspective every year, it's our largest month and within the month the last week or two tend to be our you know.
When we when we bill and we Mostar a lot of our service business, you know a concentrated level and so.
This particular March and even in February we talk about that muted revenue in the way our business works, we have it sort of fixed costs orientation. If you.
If you missed let's just say the last two or three weeks a million dollars worth of billing that you typically would have every year and you can look at our past fourth quarters to see this that million dollars that incremental million dollars that you missed in a kobin environment really drops to the bottom line at a very high percentage and so you just took a million dollars that half a million would have dropped.
Our three cores and million would have dropped you to see that that operating income wouldn't it performed as you stated so I think I want to make an excuse for Kobe, but no question that you know that had an impact as we instead of began to finished strong we were unable to finish as strong as we normally do and a critical time for us.
Okay that helps but then I guess will those would that be pushed into the.
First quarter.
What you're saying that it's against demand right well that's a good that's a good that's a good question. So we'll beat will it be pushed into the year, where the first quarter hard to tell it's hard to tell with whom we push into the first quarter.
You'll have to wait and see at some point calibrations on service I need to be performed and for that reason you'd believe there'd be pent up demand and that we see that.
If a location shuts down our company goes out of business, which can happen no that's not going to come back, but if up.
Brian as normal as usual at some point during the year you would believe there be pent up demand and we would expect net and Thats why we haven't laid off technicians thats why were staying steady state. So that we're ready to capitalize on that because we think thats going to occur to some degree the exact amount exact.
Impact on that I'm, not 100% sure, but we see something coming back.
Okay, great. Thanks.
Thanks, Chris.
That's just a reminder to ask a question. Please press star one on your telephone keypad.
Our one on your telephone keypad to ask a question, we'll pause for a couple of all missing or any questions.
Ladies and gentlemen, there appears to be no additional request for questions I'll turn it back to management for closing remarks. Thank you.
Well. Thank you all for joining us on the call today. We appreciate your continued interest in Transcat.
Feel free to checking with us at any time, otherwise, we will talk to everybody at the end of our first quarter 2021 again, we appreciate everybody participating in the call take care.
This concludes todays conference all parties may disconnect have a good day.