Q2 2025 Transcat Inc Earnings Call

Speaker Change: The New Year's Day

Speaker Change: [inaudible]

Speaker Change: i

Speaker Change: Greetings and welcome to Transcad Ink 2nd Quarter fiscal year 2025 Financial Results Conference

Speaker Change: At the time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star 0 on telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce you to us, Mr Tom Barbato, Chief Financial Officer. Thank you, Mr Barbato. You may begin.

Tom Barbato: Thank you operator, good morning everyone. We appreciate your time in your interest in transcat. With me here on the call today, I was our president in CEO Lee Rudow and our chief operating officer Mike West.

Tom Barbato: We'll begin the call with some pair of remarks and then we'll open up the call for questions.

Tom Barbato: Our earnings release across the wire after market closed yesterday.

Tom Barbato: Both the earnings release and the slides that will be referenced during our prepared remarks can be found on our website, transcat.com, in the investor relations section.

Tom Barbato: If you please report.

Tom Barbato: If you would please refer to slide 2. As you are aware, we make forward-looking statements during the formal presentation and Q&A portion of this teleconference.

Tom Barbato: These statements apply to future events which are subject to risks and uncertainties, as well as other factors that could cause the actual results to differ materially from where we are today.

Tom Barbato: These factors are outlined in the news release as well as in the documents filed by the company with the SEC.

Tom Barbato: You can find those on our website where we regularly post information about the company as well as on the SEC's website at sec.gov.

Tom Barbato: We undertake no obligation to publicly update or correct any of the forward-looking statements contained in this call, whether as a result of new information, future events, or otherwise, except as required by law.

Tom Barbato: Please review our forward-looking statements in conjunction with these precautionary factors.

Tom Barbato: Additionally, during today's call, we will discuss certain non-GAP measures, which we believe will be useful in evaluating our performance.

Tom Barbato: You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP.

Tom Barbato: We've provided reconciliations of non-GAAP to compared GAAP measures in the tables accompanying this earnings release.

Speaker Change: With that, I'll turn the call over to Lee.

Lee Rudow: Thank you, Tom. Good morning, everyone. Thank you for joining us on the call today. TransCat delivered strong performance from our core calibration services business again in the second quarter of fiscal 2025.

Lee Rudow: Consolidated revenue is up 8% to 67.8 million dollars driven by consistent demand for our calibration services as well as solid performance in our traditional rental business which includes both our TransCat and Axiom rental platforms.

Lee Rudow: Consolidated gross profit grew 5% and was driven by growth in both our service and distribution segments.

Lee Rudow: In the second quarter,

Lee Rudow: Service recorded its 62nd straight quarter of year-over-year revenue growth as our Calibration Services continued to perform at a very high level.

Lee Rudow: Overall, service revenue growth was 6% and 4% organic growth.

Lee Rudow: A 6% growth is below historical trends and was significantly impacted by a decline in our NEXA Cost Control and Optimization Services business that was beyond the magnitude of what we anticipated.

Lee Rudow: We've identified the root causes that need to be addressed.

Lee Rudow: which primarily center around the immediate need for NEXA to be fully integrated into TransCat's dynamic, improving sales and marketing processes.

Lee Rudow: In addition, we are renaming the business TransCat Solutions to fully leverage TransCat's industry-leading brand.

Lee Rudow: All of these actions are underway with NEXA. We are making meaningful progress, and we're committed to reverting back to growth in the near future.

Lee Rudow: On a positive note, when excluding NEXA in the second quarter, we generated organic service growth of 9% versus prior year, and we have a strong pipeline of new business opportunities entering the back half of the fiscal year.

Lee Rudow: The core service business continues to benefit from recurring revenue streams as well as our industry-leading value proposition, which continues to resonate throughout the highly regulated markets we serve.

Lee Rudow: including both life sciences and aerospace and defense.

Lee Rudow: Turning to distribution and second quarter gross profits grew 10% on double-digit revenue growth. However, Becquenel revenue and profit was negatively impacted by two hurricanes and the Gulf of Mexico, which pressured second quarter distribution margins.

Lee Rudow: Overall, TransCat's core business performed well in the second quarter of Fiscal 2025, and our exceptional team is working to overcome the near-term NEXA challenges, which we believe are very fixable and include channel marketing and pipeline expansion, which is already strengthening.

Lee Rudow: We are confident that business will return to growth in the first quarter of fiscal 2026.

Lee Rudow: Becknell continues to be a well-run company and a strong niche market with significant opportunity for sustainable growth.

Lee Rudow: We fully expect Becknell to deliver sequential improvements in the third and fourth quarters and distribution margins to return to levels consistent with the second half of fiscal 2024.

Lee Rudow: The balance sheet remains strong, our revolving credit facility was paid off last year, and we are in an excellent capital position to support our strategic growth plan that includes a very active M&A initiative.

Speaker Change: With that, I'll turn things over to Tom for a more detailed look at the second quarter financial results.

Tom Barbato: Thanks, Lee. I'll start on slide four of the earnings deck posted on our website, which provides detail regarding our revenue on a consolidated basis and by segment for the second quarter of fiscal 2025.

Tom Barbato: Second quarter consolidated revenue of 67.8 million was up 8% versus prior year.

Tom Barbato: Looking at it by segment, service revenue grew 6% with 4% of the growth coming organically and the other 2% from acquisition. As Lee mentioned, service revenue grew 9% organically when excluding NEXA.

Tom Barbato: Turning the distribution revenue of $23.7 million grew 11%, but we continue to see good performance from the higher margin traditional rental businesses.

Tom Barbato: Turning to slide 5, our consolidated gross profit for the second quarter of $21.2 million was up 5% from prior year. Service gross profit increased 4% versus prior year.

Tom Barbato: We continue to leverage higher levels of technician productivity and our differentiated value proposition, but that could not offset the pressure we saw as a result of the lower-than-expected NEXA revenue.

Tom Barbato: Distribution segment gross profit of 6.6 million was up 10% but margins were lower than expected as a result of the two Gulf of Mexico hurricanes impacting Becnal results in the quarter.

Tom Barbato: Turning to slide 6, Q2 net income of 3.3 million was up from half a million dollars in the prior year.

Tom Barbato: Q2 of last year included a 2.8 million dollar non-cash charge related to the amended NEXA earn out agreement.

Tom Barbato: Diluted earnings per share came in at 35 cents.

Tom Barbato: We reported adjusted diluting earnings per share as well to normalize for the impact of upfront and ongoing acquisition related costs.

Tom Barbato: Q2 adjusted diluted earnings per share was $0.52.

Tom Barbato: Flipping to side seven where we show our adjusted EBITDA and adjusted EBITDA margin.

Tom Barbato: We use adjusted EBITDA, which is non-GAAP, to gauge the performance of our business because we believe it is the best measure of our operating performance and ability to generate cash.

Tom Barbato: As well as the increased level of non-cash expenses that will hit our income statement from acquisition purchase accounting

Tom Barbato: With that in mind, second quarter consolidated adjusted EBITDA of $8.9 million was down 5% from the same quarter in the prior year, as lower-than-expected NEXA revenue negatively impacted Services EBITDA and Becknow Pressure Distribution EBITDA.

Tom Barbato: Q2 capital expenditures were $2.2 million higher than prior year.

Tom Barbato: continue to be centered around service segment capabilities, rental pool assets, technology, and future growth projects.

Tom Barbato: The spend was in line with expectations.

Tom Barbato: Slide 9 highlights our strong balance sheet. At quarter end we had total net cash of 20.8 million dollars with a leverage ratio of 0.08x. We had 80 million available from our credit facility.

Speaker Change: Lastly, we expect to file our Form 10-Q on November 6th. With that, I'll turn it back to you, Lee.

Lee Rudow: Okay, thanks Tom.

Lee Rudow: Over the past 12 years, we've successfully and consistently delivered organic service revenue growth, sustainable gross margin expansion, and delivered strong free cash flow.

Lee Rudow: We expect these metrics to improve in the back half of fiscal 2025 and return to more normal levels in the first half of fiscal 2026.

Lee Rudow: Given the temporary setback in the Nexus sales channel, for the full 2025 fiscal year, we expect organic service revenue growth in the mid-single digits when normalized for the extra week in fiscal 2024.

Lee Rudow: Our M&A strategy has been very successful

Lee Rudow: to continue to strengthen our core business and expand our adjustable markets.

Lee Rudow: Through acquisitions, we expect to expand our geographical footprint, capabilities, and expertise. And, of course, we're always interested in bolt-on opportunities where we can leverage our current infrastructure to drive both cost synergies and growth opportunities.

Lee Rudow: We currently have a very robust acquisition pipeline with the potential to increase the trajectory of our business. And as I mentioned earlier, we have a strong balance sheet which will continue to support the conversion of our M&A pipeline.

Lee Rudow: We will continue to leverage continuous process improvement and automation as key enablers to future margin expansion, and we expect service gross margin

Lee Rudow: expansion for the full 2025 fiscal year. As we move through the back half of fiscal 2025, our dedicated and talented team will continue to focus on generating sustainable long-term value for our shareholders.

Lee Rudow: With that, Operator, please open the line for questions.

Speaker Change: Thank you. We will now be conducting a

Speaker Change: A confirmation tone will indicate your line is in the question queue.

Speaker Change: You may press star 2 if you would like to remove your questions from the queue.

Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start keys. One moment please while we poll for questions.

Speaker Change: The first question comes from the line of Scott Buck with HC Wainwright. Please go ahead.

Scott Buck: Hey, good morning guys. Thanks for taking my questions. Lee, can you give us a sense of when you started to recognize that NEXA was kind of falling short of expectations?

Speaker Change: you know, at any given time, in any given quarter, they're not all going to be...

Speaker Change: operating to full, you know, capacity, all cylinders, if you will. And so, you know, and, you know, there's always...

Speaker Change: you know, little pockets that you keep your eye on. And I think, you know, we probably saw some of that in the first quarter, but nothing that would have led us to believe that we would have the drop off we had in Q2.

Speaker Change: So that kind of came up a little unexpected. Like I said in the earnings script, I mean, we dove right into the root causes. It's a really good business, but we dove right into the root causes and just saw that there was just some very fixable…

Speaker Change: processes within their, the way they manage their pipeline. And so we're all over it and we'll get them turned around pretty quickly. But that, you know, it's kind of subtle in the first quarter and just kind of hit us a little bit unexpected in a second. That's how I would characterize it.

Speaker Change: I appreciate that and it sounds like there's no you know additional read through on the rest of the business or any kind of macroeconomic read through based on the softness you saw in the second quarter there right

Speaker Change: No, I don't think so. I mean, like I said, the core calibration business organically grew 9%, so we like not only the performance in the second quarter, we like the pipeline going into the back half of the year, so that's steady.

Speaker Change: Certainly the rental business, which is a big component these days of the distribution segment, that's very strong and we expect

Speaker Change: Becknell performed well. So as we look in the back half of the year now, I think the other areas of the company are performing as we would expect. We just have this sort of isolated miss that we're going to fix.

Speaker Change: No, that's helpful. And then on M&A, besides the larger deal at the beginning of the year, it's been relatively slow. Can you talk a little bit about...

Speaker Change: pricing and what you're seeing there clearly you guys are open to doing deals I'm just curious what the the other side of those transactions look like today

Speaker Change: Right, so from an M&A pipeline perspective, I don't have any concern. We have a as good of an M&A pipeline as robust. We like to use that word.

Speaker Change: I think it characterizes it well and accurately. We have a great pipeline. We're working strategic deals that we think are a good fit for the company, and it appears quiet externally. I get that. Internally, it's not quiet at all, and we'll continue to work that pipeline.

Speaker Change: I think you'll see...

Speaker Change: You know, you look at what we've done in the past, you'll see that layout in the near future as time goes by, and we have the capacity to get even more deals done if they're appropriate and they're a good fit than we've got done in the past because we built the infrastructure, Scott, to do that. So no, no concern on my end. I like the way the pipeline looks.

Scott Buck: Great, appreciate that, Lee. And then last one, Tom, just curious, OPEX for the second half of the year, is the first half a fair run rate or should we see some, you know, operating expense creep there as you support some of these growth initiatives?

Tom Barbato: Yeah, I would expect some increase sequentially into Q3 and Q4.

Scott Buck: Okay, perfect. I appreciate the time guys, thank you.

Speaker Change: Thank you.

Speaker Change: Next question comes to the line of Craig Palm with Craig Hallum Capital Group. Please go ahead.

Craig Palm: Yeah, thanks. Good morning. Thanks for taking the questions. I wanted to follow up a little bit on.

Craig Palm: on NEXA. You know, it wasn't too long ago that you were, you know, kind of characterizing that business as, you know, exceeding expectations. I think it was even, I don't know, end of last year, earlier this year, where you talked about, you know, that business more than doubled since

Speaker Change: being acquired. So I guess I'm still a little bit confused on what went wrong in such a short amount of time. Maybe you can just dig into that a little bit more if you can.

Speaker Change: Yeah, I get the question. Thanks, Greg. Yeah, look, this business, the first couple of years since we acquired them, the first couple of years was really flying high. We're talking about high growth rates.

Speaker Change: really performing well and I think because of that

Speaker Change: gave them more autonomy than we typically would for an acquisition. You know, Greg, we integrate quickly.

Speaker Change: We do a good job integrating, we get the synergies, we bring these companies together.

Speaker Change: and that's what makes us different and I think we didn't run that playbook to be honest.

Speaker Change: I made the decision, it's kind of on me, and the team made the decision to support me. Let's let them keep doing what they're doing. We collaborated, they helped us win calibration business, but we didn't get involved with the day-to-day operations, the processes, the procedures, the pipeline, the marketing. We just kind of let them do their thing. And I think that was probably a mistake. We probably went too long. We got it now. I mean, we get it. And we have all of our top people working on expanding their pipeline, coordinating the marketing and making them a TransCat company, under the name TransCat Solutions. We're very confident that'll solve the problem. So I guess...

Speaker Change: You know sometimes success hides some flaws and that's probably a fair way to characterize it But again high flyer for two plus years we can you know, that's why kind of cost a little bit off guard But but we'll get it fixed up

Speaker Change: Yeah, no, I appreciate that. That's helpful, Collar. I mean, if you're able to, can you provide the revenue decline specific to NEXA? I don't know if you've got the year-to-date level as well. And just remind us, is it mostly project-based revenue? I'm just kind of curious to know kind of what the visibility is like.

Speaker Change: Yeah, we're not going to get into the specific numbers, but it's a combination so they've got they've got some project based business They've got some sort of ongoing business. It depends on what channel within their company, but it's a mix

Speaker Change: that leans towards project-based, which is, you know, probably some of the, you know, sort of core issues around, you know, what we got behind on, you know, without the recognition. So...

Speaker Change: Yeah, we know how to combat that and fix it, so hopefully it won't be an issue once we get them kind of turned around.

Speaker Change: market-related

Speaker Change: know competitively related something of that of that nature it sounds fixable I guess that's what I'm trying

Speaker Change: I think so. I don't see a problem with the industry. We have other areas of our company that serve the exact same industry, almost in the exact same way. If you remember, we acquired a company called Seraqual. We've got a validation business that operates in the same space with some of the same attributes and characteristics.

Speaker Change: as the next of business and they're performing well. So we don't see it. I mean, that's not to say there aren't certain pockets of industry slowdown within life sciences that cycle in and out quarter to quarter, but nothing systemic. So I think that's why it's isolated and fixable.

Speaker Change: One thing I want to just mention Greg and maybe just correct something

Speaker Change: is, when Lee in his prepared remarks talked about, you know, we're confident the business will return to growth.

Speaker Change: Okay, and then I guess my other last question just on...

Speaker Change: related to the hurricanes. Was there a revenue issue as well, or was it mostly on the cost side?

Speaker Change: And are you able to kind of quantify what that impact was? I don't know if you can give a gross margin, you know, at some...

Speaker Change: kind of like you gave the organic service, you know, ex nexa, but any sort of clarification there would be would be helpful as well.

Speaker Change: Yeah, well, just to clarify, Greg, right, so the issue, you know, with the hurricanes caused a revenue issue, right? So it's both a revenue and profit issue and had we not seen those issues, and I think, you know, the way we've got it in the press release is that we expect distribution margins.

Speaker Change: You know in the second half of this year to be kind of more in line with what we saw in the second half Of last year, so certainly, you know north of 30 percent

Speaker Change: Got it. Okay. All right. I will leave it there. Thanks.

Speaker Change: Thanks Greg.

Speaker Change: Thank you. Next question comes from the line of Ted Jackson with Northland Securities. Please go ahead.

Speaker Change: Hey, good morning. Thanks for taking my questions.

Speaker Change: He's disappointed.

Speaker Change: pipeline management.

Ted Jackson: What's the difference between how TransCat manages the pipeline, you know, and your processes vis-à-vis NEXA? You know, what are the kind of the actual changes that you're making there to refill the pipeline? And then I've got some things outside of NEXA to ask after that. Thanks.

Speaker Change: Well, let me start with your last question first. When you think about pipeline development and you look at the way NEXA performs sales

Speaker Change: executed their sales and marketing plan you know they had one salesperson for example and they grew with that salesperson like I said.

Speaker Change: soon-to-be TrapCat solutions.

Speaker Change: you know you know operate and so it's the difference of had we gotten our sales engine behind this sooner it just would have helped you know would help them in a big way and so that's the the most obvious and clear solution plus from a marketing perspective from a brand perspective I mean Transcon has such a strong strong brand within the instrumentation world

Speaker Change: So whether you're talking distribution or calibration services, there's just no, we're second to none in terms of brand strength. And so when you put that brand strength behind the solutions business, which was Nexa, you're going to get a lot of benefit. We have a core, we do work with almost every single pharmaceutical company, med device company in North America, I mean, maybe not all of them, but most. And so had we opened up those channels earlier and instead of collaborating really integrated, I think we wouldn't have this problem today.

Speaker Change: So that's what we're doing now. As far as one of your other questions, Ted, about channels. I know we have pipette channels, we have rental channels, biomedical, marine, and like I said

Speaker Change: Generally most of them perform well, but in any given quarter you might see softness here or timing there I mean you could have ships deployed to the Middle East which could you know affect our marine business There's just different things that can happen, but that's normal. That's normal, and you don't you know you don't

Speaker Change: Dive into those numbers as long as you think you're going to hit your aggregated organic number, which we have just very very consistently So but there's a kind of type of channels that we're that we were talking about You know again, that's that's how we characterize. I hope I got to all your questions if I didn't just shoot it back at me

Speaker Change: No, you know you did and I do it I will actually I'm gonna ask a little bit more around Exeter before I move on

Speaker Change: You know, my perception with regards to kind of how you were managing NEXA, you know, granted, you know, it was it was

Speaker Change: you know it was being very successful was that you were letting them kind of you're building a business around them if you would and really kind of letting them operate and you can correct me if I'm wrong and and so to me you know like to me this is why I think you know it seems like such a a shift for us on the outside.

Speaker Change: because we're not on the inside seeing everything that happens. But Nexa, you know, with such a shift in, you know, kind of bringing TransCap processes and channels, because at the end of the day, I mean, it really is somewhat of a restructuring for Nexa. Nexa is at its core a consulting business, which is really more of a person business.

Speaker Change: and TransCat. It's a culture change and that's where I'm going with it. Just some discussion around that and then I'll drop next I promise.

Speaker Change: Okay, I don't see that as concern at all. You know, when I look at what Nexa does well, and still does well, it's the capabilities they have and the delivery of their services. You mentioned consulting services and some of them fit well with that, characterizing it that way. They've always had

Speaker Change: strong delivery of their services. So I don't see, and probably 90% of their staff to 95, that's exactly what they do. You know, they do the CMMS work, they do the reliability work, they do the interval and optimization adjustments.

Speaker Change: That's not gonna change. I mean what we're bringing is really incremental. We're bringing sales and marketing leadership and a strong brand incrementally to the process that they have because

Speaker Change: where their problem is with sales.

Speaker Change: And like in hindsight, it was predictable this was going to happen at some point. So I think when we put the companies together, it really starts to become a one plus one equals three. They'll keep doing what they do well. We'll interject, intercede and integrate where we have the expertise. And I think.

Speaker Change: So I don't I don't see a cultural change at all

Speaker Change: Okay, the other ones won't be as like sort of moosey. Going over to back now, the hurricanes impacted the business and this is just because I'm ignorant with regards to kind of how the business might flow, but you know say you get into like construction equipment and things like that, a lot of times after you have an event, in this case two events,

Speaker Change: that there's actually, it's more than just a business. You have a disruption in the business, but then because there's additional kind of maintenance, additional things that need to be done to actually repair.

Speaker Change: Because of the hurricanes that you actually have some extra wind in your sails Would that be the case with Becknell or is it just to get it back to its it'll just bounce back to kind of its normal, you know State to where it would have been. Do you understand what I'm asking there?

Speaker Change: Yeah, it'll be more normal state, Ted, you know, the amount of incremental that could be generated is not meaningful.

Ted Jackson: Okay, okay. The next question, your inventory dropped by, you know, I mean, close to three million dollars sequentially. Is there something that drove that down? How would we think about that if we go, you know, beyond, you know, we go into third quarter, fourth quarter and beyond?

Ted Jackson: No, it's just, you know, it's something that...

Speaker Change: Myself and Mike West have been hyper focused on the past couple quarters and as you know you know when you get focused on inventory it it takes a little time to build some momentum but obviously you know that's it's just looking to improve the the cash conversion cycle right so we've been hyper focused on that and it's not indicative of you know any changes in that distribution business.

Speaker Change: No, well, but so but would that be kind of the new norm then if I would, you know, you know how much I care about cash. So no, no, no, absolutely not. I'm sorry. I missed I missed making that point. Right. Is that yes, we would expect that to be the new norm. And.

Speaker Change: On occasion, as you know, we get opportunities to...

Speaker Change: to make strategic buys at additional discounts and we'll continue to do that where it makes good financial sense, but hopefully when we do that, it'll kind of work its way through in the current quarter or maybe the subsequent quarter. But yeah, think of it as more the norm.

Speaker Change: and then on the gross margin side, particularly as it relates to the distribution business.

Speaker Change: I guess, the first quarter of last year. Is that all back now? Is there anything else that went on in there that, you know, caused that to go down or it was just really just this, you know, this one time? No, it's primarily back now. It's primarily back now and that's why we're, you know, comfortable, you know, saying that, you know, for the second half of the year we should be back more to, you know, levels we had in the second half of last year which are, you know, north of 30 percent.

Speaker Change: okay and that's it for me I mean your 10q will be out later today

Speaker Change: No, on Wednesday, November 6th.

Speaker Change: Oh okay, that's it.

Speaker Change: All right. Thank you, Ted. All right. Thank you. Thanks. Bye-bye.

Speaker Change: Thank you.

Speaker Change: Thank you. Next question comes from the line of Martin Yang with Oppenheimer & Co. Please go ahead.

Martin Yang: Hi, good morning. Thanks for taking my question. Can you help us get a sense of how big is NEXA in revenue contribution on an annual basis?

Speaker Change: Yeah it's um when we look at services I'm gonna say and Tom correct me if I'm wrong but it's somewhere between five and ten percent probably you know right in the middle. Yeah closer to ten. Closer to ten and that's what's so interesting you know it's just a small part of the business but you know where you didn't get labor out and you didn't you know kind of anticipate that some of the changes in revenue Martin it's just that you can see the effect it has on the business but again we'll we got our arms around it now.

Tom Barbato: But yeah, I think that range is accurate, yep.

Speaker Change: Thanks. One more question on organic growth for services in the past quarters as well as this just reported quarter.

Speaker Change: When you track all the other acquired business, are they all of them growing, have grown organically?

Speaker Change: Bye.

Speaker Change: so the way we don't really talk about performance at the individual unit level so but you know keep in mind that from a from a service standpoint you know most of our growth is impacted or by organic by organic growth right because we didn't we haven't had a we haven't acquired a services business since you know April of

Speaker Change: of last year. So, you know, we're, the point we made is that when you back out NEXA, you know, our organic growth was at nine percent and the businesses are all, you know, contributing to that growth.

Speaker Change: Got it. One last question for me. So given what you have seen in NEXA, would you apply

Speaker Change: Perhaps a bit more scrutiny to other acquired business in terms of sales marketing or other business processes.

Speaker Change: So interesting, I get the question. I mean my knee-jerk reaction is of course we always will and do, but remember we integrate all the businesses we acquire. When we run the TransCat Acquisition Playbook, it's always our intention to integrate fast.

Speaker Change: and integrate completely, and we think we're really good at it. And historically, our track record shows that.

Speaker Change: Next, it was an exception. It was a different business, although related and very much in the ecosystem in which we perform our calibration services. They were a high flyer. They were performing very, very well for an extended period of time, and we kind of decided not to run the playbook, Martin.

Martin Yang: So, I don't think this applies the other businesses, well, you know, some businesses have better quarters than others.

Martin Yang: Generally speaking, we always review this at the board level and internally as well, these businesses perform very well, I mean, across the board.

Martin Yang: and through the years. So I think NEXA is more of an outlier and an exception and we did learn from it. There's no question about that, and I wouldn't expect that to happen again. So I think we'll get better in that respect for sure.

Speaker Change: Got it. Thanks, Lee.

Speaker Change: Okay, no problem.

Speaker Change: Thank you.

Speaker Change: Thank you. Reminder to all the participants that you may press star and 1 to ask a question.

Speaker Change: As there are no further questions at this time, ladies and gentlemen, we have reached the end of the question and answer session. I would now like to turn the floor over to Lee Rudow for closing comments.

Lee Rudow: Well, thank you all for joining us on today's call. We appreciate your continued interest in TransCat. We'll be attending the Craig Howell 15th Annual Alpha Select Conference, which is in New York City on November 19th. Tom and I will be there. Feel free to check in with us at the conference or really any other time. Otherwise, we'll talk to everybody after the third quarter results. So again, thanks for participating. Take care.

Speaker Change: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.