TRANSCAT INC

NOTE1 – GENERAL

**Description of Business:**Transcat, Inc. (“Transcat,” “we,” “us,” “our” or the “Company”) is a leading provider of accredited calibration services, cost control and optimization services, and distribution and rental of value-added professional grade handheld test, measurement, and control instrumentation. The Company is focused on providing services and products to highly regulated industries, particularly the life science industry, which includes pharmaceutical, biotechnology, medical device and other FDA-regulated businesses. Additional industries served include industrial manufacturing; energy and utilities, including oil and gas; chemical manufacturing; FAA-regulated businesses, including aerospace and defense and other industries that require accuracy in their processes, confirmation of the capabilities of their equipment, and for which the risk of failure is very costly.

**Principles of Consolidation:**The consolidated financial statements of Transcat include the accounts of Transcat and the Company’s wholly-owned subsidiaries, Transcat Canada, Inc., WTT Real Estate Acquisition, LLC, Cal OpEx Limited (d/b/a Transcat Ireland), Cal OpEx Inc. (d/b/a NEXA EAM), SteriQual LLC, Tangent Labs LLC, TIC-MS, LLC and Axiom Test Equipment, LLC. All interco mpany balances and transactions have been eliminated in consolidation.

**Use of Estimates:*The preparation of Transcat’s Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States (“GAAP”) requires that the Company make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions are used for, butnot limited to, allowance for credit losses and returns, inventory reserves, estimated levels of achievement for performance-based restricted stock units, fair value of stock options, depreciable lives of fixed assets, estimated lives of major catalogs and intangible assets, fair value of the goodwill reporting units, and the valuation of assets acquired, liabilities assumed and consideration transferred in business acquisitions. Future events and their effects cannot be predicted with certainty; accordingly, accounting estimates require the exercise of judgment. The accounting estimates used in the preparation of the Consolidated Financial Statements may*change as new events occur, as more experience is acquired, as additional information is obtained and as the operating environment changes. Actual results could differ from those estimates. Such changes and refinements in estimation methodologies are reflected in reported results of operations in the period in which the changes are made and, if material, their effects are disclosed in the Notes to the Consolidated Financial Statements.

Fiscal Year:Transcat operates on a52/53-week fiscal year, ending the last Saturday in March.In a52-week fiscal year, each of thefour quarters is a13-week period. In a53-week fiscal year, the last quarter is a14-week period. The fiscal year ended March 30, 2024 ("fiscal year2024") consisted of53 weeks and fiscal year2023 which ended on* March 25, 2023* consisted of52 weeks.

Cash and Cash Equivalents: Cash equivalents consist of highly liquid investments with an original maturity when purchased ofthree months or less and are stated at cost, which approximates fair value.

**Marketable Securities:**Marketable securities consist of highly liquid investments with an original maturity when purchased of more thanthree months and are stated at fair value on the Consolidated Balance Sheets. These securities are considered trading securities. Earnings on the marketable securities are included in interest income in the Consolidated Statements of Income.

Accounts Receivable:Accounts receivable represent amounts due from customers in the ordinary course of business. These amounts are recorded net of the allowance for credit losses and returns in the Consolidated Balance Sheets. The allowance for credit losses is based upon the expected collectability of accounts receivable. The Company applies a specific formula to its accounts receivable aging, which maybe adjusted on a specific account basis where the formula maynot appropriately reserve for loss exposure. After all attempts to collect a receivable have failed, the receivable is written-off against the allowance for credit losses. The accounts receivable balance, less the allowance, as of* March 26, 2022,*was $39.7 million.

Inventory:Inventory consists of products purchased for resale and is valued at the lower of average cost or net realizable value. Costs are determined using the average cost method of inventory valuation. The Company performs physical inventory counts and cycle counts on inventory throughout the year and adjusts the recorded balance to reflect the results. Inventory is reduced by a reserve for itemsnot saleable at or above cost by applying a specific loss factor, based on historical experience, to specific categories of inventory. The Company evaluates the adequacy of the reserve on a quarterly basis. The Company had reserves for inventory losses totaling $0.3 million at both March 30, 2024 and March 25, 2023.

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**Property and Equipment, Depreciation and Amortization:**Property and equipment are stated at cost. Depreciation and amortization are computed under the straight-line method over the following estimated useful lives:

Property and equipment determined to haveno value are written off at their then remaining net book value. The Company capitalizes certain costs, including internal payroll costs incurred in the procurement and development of computer software used for internal purposes. Leasehold improvements are amortized under the straight-line method over the estimated useful life or the lease term, whichever is shorter. Maintenance and repairs are expensed as incurred. See Note2 for further information on property and equipment.

**Business Acquisitions:The Company applies the acquisition method of accounting for business acquisitions. Under the acquisition method, identifiable assets acquired, liabilities assumed and consideration transferred are measured at their acquisition-date fair value. The Company uses a valuation hierarchy, as further described under Fair Value of Financial Instruments below, to determine the fair values. Historically, we have relied, in part, upon the use of reports fromthird-party valuation specialists to assist in the estimation of fair values. Purchase price allocations are subject to revision within the measurement period,not to exceedone year from the date of acquisition. Costs to acquire a business mayinclude, but arenot limited to, fees for accounting, legal and valuation services, and are expensed as incurred in the Consolidated Statements of Income.

**Goodwill and Intangible Assets:Goodwill represents the excess of the purchase price over the fair values of the underlying net assets of an acquired business. The Company tests goodwill for impairment for each reporting unit on an annual basis during thefourth quarter of its fiscal year, or immediately if conditions indicate that such impairment could exist. The Company is permitted, butnot required, to qualitatively assess indicators of a reporting unit’s fair value to determine whether it is necessary to perform thetwo-step goodwill impairment test. If a quantitative test is deemed necessary, a discounted cash flow analysis is prepared to estimate fair value. The Company determined thatno impairment was indicated as of March 30, 2024and March 25, 2023.

Intangible assets, namely customer base and covenantsnot to compete, represent an allocation of purchase price to identifiable intangible assets of an acquired business. 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. A summary of changes in the Company’s goodwill and intangible assets is as follows (amounts in thousands):

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The intangible assets are being amortized on an accelerated basis over their estimated useful lives of up to 15 years. Amortization expense relating to intangible assets is expected to be $5.4 million in fiscal year2025, $4.2 million in fiscal year2026, $2.6 million in fiscal year2027, $2.0 million in fiscal year2028 and $0.9 million in fiscal year2029.

**Catalog Costs:Transcat capitalizes the cost of each master catalog mailed and amortizes the cost over the respective catalog’s estimated productive life. The Company reviews response results from catalog mailings on a continuous basis, and if warranted, modifies the period over which costs are recognized. The Company amortizes the cost of each master catalog over aneighteen-month period and amortizes the cost of each catalog supplement over athree-month period. There wereno unamortized catalog costs at March 30, 2024.Total unamortized catalog costs, included as a component of prepaid expenses and other current assets on the Consolidated Balance Sheets, were $0.1 million at March 25, 2023.

**Deferred Taxes:**The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the consolidated financial statement carrying amounts and the tax bases of its assets and liabilities. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in income tax rates is recognized in the Consolidated Statements of Income in the period that includes the enactment date. The Company establishes valuation allowances if it believes that it is more-likely-than-not that some or all of its deferred tax assets willnot be realized. See Note4 for further discussion on income taxes.

**Fair Value of Financial Instruments:Transcat has determined the fair value of debt and other financial instruments using a valuation hierarchy. The hierarchy, which prioritizes the inputs used in measuring fair value, consists ofthree levels. Level1 uses observable inputs such as quoted prices in active markets; Level2 uses inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level3, which is defined as unobservable inputs in which little orno market data exists, requires the Company to develop its own assumptions. The carrying amount of debt on the Consolidated Balance Sheets approximates fair value due to variable interest rate pricing on a portion of the debt with the balance bearing an interest rate approximating current market rates, and the carrying amounts for cash and cash equivalents, marketable securities, accounts receivable and accounts payable approximate fair value due to their short-term nature. Investment assets, which fund the Company’s non-qualified deferred compensation plan, consist of mutual funds and are valued based on Level1 inputs. At March 30, 2024and March 25, 2023, investment assets totaled $0.1 million and $0.2 million, respectively and are included as a component of other assets (non-current) on the Consolidated Balance Sheets.

Stock-Based Compensation: The Company measures the cost of services received in exchange for all equity awards granted, including stock options and restricted stock units, based on the fair market value of the award as of the grant date. The Company records 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. Excess tax benefits for share-based award activity are reflected in the Consolidated Statements of Income as a component of the provision for income taxes. Excess tax benefits are realized benefits from tax deductions for exercised awards in excess of the deferred tax asset attributable to stock-based compensation costs for such awards. The Company didnot capitalize any stock-based compensation costs as part of an asset. The Company estimates forfeiture rates based on its historical experience. During fiscal years2024,2023 and2022, the Company recorded non-cash stock-based compensation cost in the amount of $4.5 million, $3.4 million and $2.3 million, respectively, in the Consolidated Statements of Income.

**Revenue Recognition:**Distribution non-rental sales are recorded when an order’s title and risk of loss transfers to the customer, which is generally upon shipment. Distribution rental sales are recognized over time using the time-elapsed output method as this portrays the transfer of control to the customer. The Company recognizes the majority of its Service revenue based upon when the calibration or other activity is performed and then shipped and/or delivered to the customer. The majority of the Company’s revenue generating activities have a single performance obligation and are recognized at the point in time when control transfers and/or our obligation has been fulfilled. Some Service revenue is generated from managing customers’ calibration programs in which the Company recognizes revenue over time using the time-elapsed output method as this portrays the transfer of control to the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for product shipped or services performed. Sales taxes and other taxes billed and collected from customers are excluded from revenue. The Company generally invoices its customers for freight, shipping, and handling charges. Freight billed to customers is included in revenue. Shipping and handling isnot included in revenue. Provisions for customer returns are provided for in the period the related revenue is recorded based upon historical data.

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Under Accounting Standards Codification ("ASC") Topic606, Revenue from Contracts with Customers, we use judgments that could potentially impact both the timing of our satisfaction of performance obligations and our determination of transaction prices used in determining revenue recognized. Such judgments include considerations in determining our transaction prices and when our performance obligations are satisfied for our standard product sales that include general payment terms that are between net30 and90 days.

Revenue recognized from prior period performance obligations for fiscal year2024 was immaterial. As of* March 30, 2024*, the Company hadno unsatisfied performance obligations for contracts with an original expected duration of greater thanone year. Pursuant to ASC Topic606, the Company applied the practical expedient with respect to disclosure of the deferral and future expected timing of revenue recognition for transaction price allocated to remaining performance obligations. Deferred revenue, unbilled revenue and deferred contract costs recorded on our Consolidated Balance Sheets as of* March 30, 2024and March 25, 2023* were immaterial. See Note7 for disaggregated revenue information.

The following table presents a summary of the Company's net sales by revenue recognition method as a percentage of total net sales:

**Vendor Rebates:**Vendor rebates are generally based on specified cumulative levels of purchases and/or incremental distribution sales and are recorded as a reduction of cost of distribution sales. Purchase rebates are calculated and recorded quarterly based upon the volume of purchases with specific vendors during the quarter. Point of sale rebate programs that are based on year-over-year sales performance on a calendar year basis are recorded as earned, on a quarterly basis, based upon the expected level of annual achievement. Point of sale rebate programs that are based on year-over-year sales performance on a quarterly basis are recorded as earned in the respective quarter. The Company recorded vendor rebates of $0.6 million,$0.6 million and $1.0 million in fiscal years2024,2023 and2022, respectively, as a reduction of cost of distribution sales.

**Cooperative Advertising Income:**The Company participates in co-op advertising programs with certain of its vendors. The Company records cash consideration received from these vendors for advertising as a reduction of cost of distribution sales. The Company recorded consideration in the amountof $1.1 million, $1.0 million and $0.8 million in fiscal years2024,2023 and2022, respectively, in connection with these programs.

Advertising Costs: Advertising costs, other than catalog costs, are expensed as they are incurred and are included in Selling, Marketing and Warehouse Expenses in the Consolidated Statements of Income. Advertising costs were approxim ately $1.6 million, $1.2 million and $1.1 million in fiscal years2024,2023 and2022, respectively.

**Shipping and Handling Costs:**Freight expense and direct shipping costs are included in the cost of revenue. These costs totaled approximately $3.1 million, $2.9 million and $2.7 million in fiscal years2024,2023 and2022, respectively. Direct handling costs, the majority of which represent direct compensation of employees who pick, pack, and prepare merchandise for shipment to customers, are reflected in selling, marketing and warehouse expenses. Direct handling costs were approximately $0.5 million,$0.7 million and $0.8 million in fiscal years2024,2023 and2022, respectively.

**Foreign Currency Translation and Transactions:**The accounts of Cal OpEx Limited (d/b/a Transcat Ireland), an Irish company, and Transcat Canada Inc., both of which are wholly-owned subsidiaries of the Company, are maintained in their local currencies, the Euro and the Canadian dollar, respectively, and have been translated to U.S. dollars. Accordingly, the amounts representing assets and liabilities have been translated at the period-end rates of exchange and related revenue and expense accounts have been translated at an average rate of exchange during the period. Gains and losses arising from translation of Cal OpEx Limited’s and Transcat Canada Inc.’s financial statements into U.S. dollars are recorded directly to the accumulated other comprehensive loss component of shareholders’ equity.

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Transcat records foreign currency gains and losses on business transactions denominated in foreign currency. The net foreign currency loss was $0.1 millionin fiscal year2024, a loss of $0.7 million in fiscal year2023 and a gain of $0.1 million in fiscal year2022. The Company continually utilizes short-term foreign exchange forward contracts to reduce the risk that its future earnings denominated in Canadian dollars would be adversely affected by changes in currency exchange rates. The Company doesnot 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, again of $0.4 million and a loss of less than $0.1 million in fiscal year2024,2023 and2022, respectively, was recognized as a component of Interest and Other Expenses, net in the Consolidated Statements of Income. 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 30, 2024*, the Company had a foreign exchange contract, which matured in* April 2024,outstanding in the notional amount of $1.8 million. This contract was subsequently renewed and remains in place. The Company doesnot* use hedging arrangements for speculative purposes.

Other Comprehensive Income (Loss): Other comprehensive income (loss) is composed of currency translation adjustments, unrecognized prior service costs from post retirement plan, net of tax, and unrealized gains or losses on other assets, net of tax.

The Company determines the expense and obligations for its post-retirement plans using assumptions related to discount rates, expected long-term rates of return on invested plan assets, and certain other factors. The Company determines the fair value of plan assets and benefit obligations as of the end of each fiscal year. The unrecognized portion of the gain or loss on plan assets is included in the consolidated balance sheets as a component of accumulated other comprehensive loss in shareholders’ equity and is recognized into the plans’ expense over time. See Note5 for further discussion on the Company’s post retirement plan.

The Company has a non-qualified deferred compensation plan for the benefit of certain management employees and non-employee directors. Investment assets, which fund the Company’s non-qualified deferred compensation plan, consist of mutual funds. The unrecognized portion of the gain or loss on plan assets is included in the Consolidated Statements of Income.

At* March 30, 2024*, accumulated other comprehensive loss consisted of cumulative currency translation losses of $0.9 million, unrecognized prior service costs, net of tax, of less than $0.1 million and an unrealized gain on other assets, net of tax, of less than $0.1 million. At* March 25, 2023*, accumulated other comprehensive loss consisted of cumulative currency translation losses of $1.1 million, unrecognized prior service costs, net of tax, of $0.1 million and an unrealized gain on other assets, net of tax, of less than $0.1 million.

**Earnings Per Share:**Basic earnings per share of the Company's common stock, par value $0.50 per share ("common stock"), are computed based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share of common stock reflect the assumed conversion of stock options and unvested restricted stock units using the treasury stock method in periods in which they have a dilutive effect. In computing the per share effect of assumed conversion, proceeds received from the exercise of options and unvested restricted stock units are considered to have been used to purchase shares of common stock at the average market prices during the period, and the resulting net additional shares of common stock are included in the calculation of average shares of common stock outstanding.

For the fiscal year2024, the net additional common stock equivalents hada $(0.03) per share effect on the calculation of dilutive earnings per share. For each of fiscal years2023 and2022, the net additional common stock equivalents hada $(0.02) per share effect on the calculation of dilutive earnings per share. The average shares outstanding used to compute basic and diluted earnings per share are as follows (amounts in thousands):

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Other Liabilities: A summary of other current and non-current liabilities is as follows (amounts in thousands):

Recently Adopted Accounting Pronouncements:

In* June 2016,the Financial Accounting Standard Board (“FASB”) issued ASU2016*-13, Financial Instruments - Credit Losses (Topic326), which significantly changes how entities will measure credit losses for most financial assets and certain other instruments that arenot measured at fair value through net income. The ASU replaces the “incurred loss” model with an “expected credit loss” model that requires entities to estimate an expected lifetime credit loss on financial assets, including trade accounts receivable. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after* December 15, 2022.Allowance for credit losses for accounts receivable is the most significant item for the Company under this ASU. The Company adopted ASU2016*-13 effective on* March 26, 2023.The adoption of this standard didnot* have a material impact on our consolidated financial statements.

Recent Accounting GuidanceNot Yet Adopted:

In* December 2023,the FASB issued ASU2023*-09, Income Taxes (Topic740): Improvements to Income Tax Disclosures. The ASU expands the income tax disclosure requirements, principally related to the rate reconciliation table and income taxes paid. ASU2023-09 is effective for annual periods beginning in fiscal2025, with early adoption permitted. The adoption of the ASU isnot expected to have a material impact on the Company’s financial statement disclosures.

******Reclassification of Amounts:**Certain reclassifications of financial information for prior fiscal years have been made to conform to the presentation for the current fiscal year.

NOTE2 – PROPERTY AND EQUIPMENT

Property and equipment consists of (amounts in thousands):

Total depreciation and amortization expense relating to property and equipment amountedto $7.8 million, $6.5 million and $5.7 million in fiscal years2024,2023 and2022, respectively.

NOTE3 – LONG-TERM DEBT

On* July 7, 2021,*the Company entered into the Second Amended and Restated Credit Facility Agreement (the “Credit Agreement”) with Manufacturers and Traders Trust Company (“M&T”), that amended and restated in its entirety the Company’s prior credit agreement with M&T.

The Credit Agreement provides for a revolving credit commitment (the “revolving credit facility”) of $80.0 million through* June 2026,with a letter of credit subfacility of $10.0 million. The Company's2018* term loan, with an original principal amount of $15.0 million (the*"2018* Term Loan"), is also provided for under the Credit Agreement.

The Credit Agreement allows the Company to use up to $50.0 million under the revolving credit facility for acquisitions in any single fiscal year. The Credit Agreement restricts the Company's ability to complete acquisitions of businesses with a principal place of business located in the United Kingdom or the European Union to an aggregate purchase price of $40.0 million during the term of the Credit Agreement, if the acquisition is financed directly or indirectly with the revolving credit facility.

Under the Credit Agreement, the Company* may*make restricted payments up to $25.0 million in the aggregate over the term of the Credit Agreement and $10.0 million in any single fiscal year to repurchase shares and pay dividends.

As of* March 30, 2024*, $80.0 million was available for borrowing under the revolving credit facility. As of* March 30, 2024* there wereno amounts outstanding under the revolving credit facility. During fiscal year2024, $12.9 million from the revolving credit facility was used forthree business acquisitions.

As of* March 30, 2024*,$4.2 million was outstanding on the2018 Term Loan, of which$2.3 million was included in current liabilities on the Consolidated Balance Sheets with the remainder included in long-term debt. The2018 Term Loan requires total repayments (principal plus interest) of $0.2 million per month through* December 2025.*

Interest and Other Costs: Effective* July 1, 2023,interest on outstanding borrowings under the revolving credit facility accrue, at Transcat’s election, at either the variable Daily Simple SOFR or a fixed rate for a designated period at the SOFR corresponding to such period (subject to a 0.25% floor), in each case, plus a margin. 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 the Company’s calculated leverage ratio. The Company’s interest rate for the revolving credit facility for fiscal year2024* ranged from 6.4% to 7.1%. Interest on outstanding borrowings under the2018 Term Loan accrue at a fixed rate of 3.90% over the term of the loan.

Covenants: The Credit Agreement has certain covenants with which the Company must comply, including a fixed charge ratio covenant, which prohibits the Company's fixed charge ratio from being less than 1.15 to1.00, and a leverage ratio covenant, which prohibits the Company's leverage ratio from exceeding 3.00 to1.00. The Company was in compliance with all loan covenants and requirements during fiscal years2024 and2023. The Company's leverage ratio, as defined in the Credit Agreement, was 0.10 at* March 30, 2024*, compared with 1.60 at* March 25, 2023*.

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Other Terms: The Company has pledged all of its U.S. tangible and intangible personal property, the equity interests of its U.S.-based subsidiaries, and a majority of the common stock of Transcat Canada Inc. as collateral security for the loans made under the revolving credit facility.

NOTE4 – INCOME TAXES

Transcat’s income before income taxes on the Consolidated Statements of Income is as follows (amounts in thousands):

The provision for income taxes for fiscal years2024,2023 and2022 is as follows:

A reconciliation of the income tax provision computed by applying the statutory U.S. federal income tax rate and the income tax provision reflected in the Consolidated Statements of Income is as follows (amounts in thousands):

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The Company files income tax returns with the U.S. government and various states as well as foreign governments. Open fiscal years subject to U.S. Government federal examination are2021 through2023. Open fiscal years subject to state examination are2019 through2023. The Company also files in Canada and Ireland. Open fiscal years subject to examination for Canada are2020 through2023; open fiscal years subject to examination for Ireland are2020 to2023. There areno income tax years currently under examination by the Internal Revenue Service, states, Canadian and Irish tax authorities. The Company's foreign subsidiary undistributed earnings are considered to be permanently reinvested.

The Company’s policy regarding interest and/or penalties related to income tax matters is to recognize such items as a component of the income tax provision. The Company recognizedno interest expense or penalties associated with uncertain tax benefits accrued for fiscal years2024,2023 and2022. In accordance with applicable accounting guidance, the amount of unrecognized tax liability from uncertain positions was $0 at year-end fiscal year2024,2023 and2022.

The Company assesses its deferred tax assets annually for expected utilization. If deemed necessary, valuation allowances are established to reduce the deferred tax assets to their net realizable value to the extent it is more likely thannot that some portion or all of the deferred tax assets willnot be realized based on the character of the carryforward item, the associated taxing jurisdiction, the relevant history for the particular item, the applicable expiration dates, and identified actions under the control of the Company in realizing such assets. The Company assesses the available positive and negative evidence surrounding the recoverability of the deferred tax assets and applies its judgment in estimating the amount of valuation allowance necessary. The Company has determined that a valuation allowance of $0 is appropriate for fiscal years2024,2023 and2022.

NOTE5 – EMPLOYEE BENEFIT PLANS

Defined Contribution Plan. All of Transcat’s U.S. based employees are eligible to participate in a defined contribution plan, the Long-Term Savings and Deferred Profit Sharing Plan (the “Plan”), provided they meet certain qualifications. In fiscal years2024,2023 and2022, the Company matched 50% of thefirst 6% of pay that eligible employees contribute to the Plan.

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In the long-term savings portion of the Plan (the*“401K* Plan”), plan participants are entitled to a distribution of their vested account balance upon termination of employment or retirement. Plan participants are fully vested in their contributions while Company contributions are fully vested afterthree years of service. The Company’s matching contributions to the401K Plan were approximately $1.5 million,$1.2 million and $1.1 million in fiscal years2024,2023 and2022, respectively.

In the deferred profit sharing portion of the Plan, Company contributions are made at the discretion of the Company’s Board of Directors. The Company madeno profit sharing contributions in fiscal years2024,2023 and2022.

**Employee Stock Purchase Plan.**The Company has an Employee Stock Purchase Plan (the “ESPP”) that allows for eligible employees as defined in the ESPP to purchase common shares of the Company through payroll deductions at a price that is 85% of the closing market price on thesecond last business day of each calendar month (the “Investment Date”).650,000 shares can be purchased under the ESPP. The difference between the closing market price on the Investment Date and the price paid by employees is recorded as a general and administrative expense in the accompanying Consolidated Statements of Income. The expense related to the ESPP was less than $0.1 million in each of fiscal years2024,2023 and2022.

Non-Qualified Deferred Compensation Plan. The Company has available a non-qualified deferred compensation plan (the “NQDC Plan”) for directors and officers. Participants are fully vested in their contributions. At its discretion, the Company* mayelect to match employee contributions, subject to legal limitations in conjunction with the401K* Plan, which fully vest afterthree years of service. During fiscal years2024,2023 and2022, the Company didnot match any employee contributions. Participant accounts are adjusted to reflect performance, whether positive or negative, of selected investment options chosen by each participant during the deferral period. In the event of bankruptcy, the assets of the NQDC Plan are available to satisfy the claims of the Company’s general creditors. The liability for compensation deferred under the NQDC Plan was $0.1 million as of* March 30, 2024* and $0.2 million as of* March 25, 2023*, and is included as a component of other liabilities (non-current) on the Consolidated Balance Sheets.

Post-retirement Health Care Plans. The Company has a defined benefit post-retirement health care plan which provides long-term care insurance benefits, medical and dental insurance benefits and medical premium reimbursement benefits to eligible retired corporate officers and their eligible spouses (the “Officer Plan”).

The change in the post-retirement benefit obligation is as follows (amounts in thousands):

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The accumulated post-retirement benefit obligation is included as a component of other liabilities (non-current) in the Consolidated Balance Sheets. The components of net periodic post-retirement benefit cost and other amounts recognized in other comprehensive income are as follows (amounts in thousands):

The prior service cost is amortized over the average remaining life expectancy of active participants in the Officer Plan. The estimated prior service cost that will be amortized from accumulated other comprehensive income into net periodic post-retirement benefit cost during fiscal year2025 is less than $0.1 million.

The post-retirement benefit obligation was computed by an independentthird-party actuary. Assumptions used to determine the post-retirement benefit obligation and the net periodic postretirement benefit cost were as follows:

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Benefit payments are funded by the Company as needed. Payments toward the cost of a retiree’s medical and dental coverage are initially determined as a percentage of a base coverage plan in the year of retirement and are limited to increase at a rate ofno more than50% of the annual increase in medical and dental costs, as defined in the plan document. The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid as follows (amounts in thousands):

Increasing the assumed health care cost trend rate byone percentage point would increase the accumulated post-retirement benefit obligation and the annual net periodic post-retirement benefit cost by $0.1 million. Aone percentage point decrease in the healthcare cost trend would decrease the accumulated post-retirement benefit obligation and the annual net periodic post-retirement benefit cost by $0.1 million.

NOTE6 – STOCK-BASED COMPENSATION

In* September 2021,the Transcat, Inc.2021 Stock Incentive Plan (the“2021* Plan”) was approved by shareholders and became effective. The2021 Plan replaced the Transcat, Inc.2003 Incentive Plan (the*“2003* Plan”). Shares available for grant under the2021 Plan include any shares remaining available for issuance under the2003 Plan and any shares that are subject to outstanding awards under the2003 Plan that are subsequently canceled, expired, forfeited, or otherwisenot issued or are settled in cash. The2021 Plan provides for, among other awards, grants of restricted stock units and stock options to directors, officers and key employees at the fair market value at the date of grant. At* March 30, 2024*, 0.6 million shares of common stock were available for future grant under the2021 Plan.

The Company receives an excess tax benefit related to restricted stock vesting and stock options exercised and redeemed. The discrete benefits related to share-based compensation and stock option activity in fiscal years2024,2023 and2022 were $0.7 million, $0.4 million and $1.4 million, respectively.

**Restricted Stock Units:**The Company grants time-based and performance-based restricted stock units as a component of executive and key employee compensation. Expense for restricted stock unit grants is recognized on a straight-line basis for the service period of the stock award based upon fair value of the award on the date of grant. The fair value of the restricted stock unit grants is the quoted market price for the Company’s common stock on the date of grant. These restricted stock units are either time vested, or vest following thethird fiscal year from the date of grant subject to cumulative diluted earnings per share or cumulative Adjusted EBITDA targets over the eligible period.

On the date of each annual meeting of shareholders, the Company’s non-employee directors receive an annual grant of restricted stock units valued at $50,000 that vest afterone year.

Compensation cost ultimately recognized for performance-based restricted stock units will equal the grant date fair market value of the unit that coincides with the actual outcome of the performance conditions. On an interim basis, the Company records compensation cost based on the estimated level of achievement of the performance conditions. The expense relating to the time vested restricted stock units is recognized on a straight-line basis over the requisite service period for the entire award.

During fiscal year2024,38,000 shares of time-vested restricted stock units were granted and 10,000 shares of performance-based restricted stock units were granted. During fiscal year2023,19,000 shares of time-vested restricted stock units were granted and 11,000 shares of performance-based restricted stock units were granted. During fiscal year2022,30,000 shares of time-vested restricted stock units were granted and 15,000 shares of performance-based stock units were granted.

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The following table summarizes the restricted stock units vested and shares issued during fiscal years2024,2023 and2022 (amounts in thousands, except per unit data):

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The following table summarizes the non-vested restricted stock units outstanding as of* March 30, 2024* (amounts in thousands, except per unit data):

Total expense relating to restricted stock units, based on grant date fair value and the achievement criteria, was $3.2 million, $2.0 million and $1.6 million in fiscal years2024,2023 and2022, respectively. As of* March 30, 2024*, unearned compensation, to be recognized over the grants’ respective service periods, totaled $3.5 million based on estimated achievement levels as of* March 30, 2024.*If the maximum performance levels were achieved, the unearned compensation could be a maximum of $3.7 million.

**Stock Options:**The Company grants stock options to employees and directors with an exercise price equal to the quoted market price of the Company’s stock at the date of the grant. The fair value of stock options is estimated using the Black-Scholes option pricing formula that requires assumptions for expected volatility, expected dividends, the risk-free interest rate and the expected term of the option. Expense for stock options is recognized on a straight-lined basis over the requisite service period for each award. Options vest either immediately or over a period of up tofive years using a straight-line basis and expire either five years orten years from the date of grant.

We calculate the fair value of the stock options granted using the Black-Scholes model. The following weighted-average assumptions were used to value options granted during fiscal years2024,2023 and2022:

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We calculate expected volatility for stock options by taking an average of historical volatility over the expected term. The computation of expected term was determined based on safe harbor rules, giving consideration to the contractual terms of the stock-based awards and vesting schedules. The interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield in effect at the time of grant. We assumeno expected dividends. Under FASB ASC Topic718, “Compensation – Stock Compensation”, the Company has elected to account for forfeitures as they occur.

During fiscal year2024, the Company granted options for 7,000 shares of common stock in the aggregate to Company employees that vest over three years, an option for 10,000 shares of common stock to a Company employee that vests over five years and options for 30,000 shares of common stock (10,000 each) tothree Company directors that vest over five years.

During fiscal year2023, the Company granted options for 46,000 shares of common stock in the aggregate to Company employees that vest over three years and an option for 10,000 shares of common stock to a Company director that vests over five years.

During fiscal year2022, the Company granted an option for 10,000 shares of common stock each totwo Company directors (20,000 shares in the aggregate) that vest over five years, an option for 2,000 shares of common stock each tofive employees (10,000 shares in the aggregate) that vests over three years, and an option for 90,000 shares of common stock in the aggregate to employees during an acquisition that vests over five years and an option for 6,000 shares of common stock to a Company employee that vests over three years.

The expense related to all stock option awards was $1.3 million in fiscal year2024, $1.4 million in fiscal year2023 and $0.7 million in fiscal year2022.

The following table summarizes the Company’s options for fiscal years2024,2023 and2022 (amounts in thousands, except per option data):

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of fiscal year2024 and the exercise price, multiplied by the number of in-the-money stock options) that would have been received by the option holders had all holders exercised their options on* March 30, 2024*. The amount of aggregate intrinsic value will change based on the fair market value of the Company’s common stock.

Total unrecognized compensation cost related to non-vested stock options as of* March 30, 2024* was $2.4 million, which is expected to be recognized over a period ofthree years. The aggregate intrinsic value of stock options exercised in fiscal years2024,2023 and2022 was $1.3 million, $0.3 million and $5.3 million, respectively. Cash received from the exercise of options in fiscal years2024,2023 and2022 was $1.5 million, $0.1 million and $1.0 million, respectively.

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NOTE7 – SEGMENT AND GEOGRAPHIC DATA

The basis for determining our operating segments is the manner in which financial information is used in monitoring our operations. Transcat hastwo reportable segments: Service and Distribution. Through our Service segment, we offer calibration, repair, inspection, analytical qualifications, preventative maintenance, consulting and other related services. Through our Distribution segment, we sell and rent national and proprietary brand instruments to customers globally. The Company hasno inter-segment sales. We believe that reporting performance at the operating income level is the best indicator of segment performance. The following table presents segment and geographic data for fiscal years2024,2023 and2022 (dollars in thousands):

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NOTE8 – COMMITMENTS

Leases:

The Company determines if an arrangement is a lease at inception. Our lease agreements generally contain lease and non-lease components. Historically, non-lease components such as utilities have been immaterial. Payments under our lease arrangements are primarily fixed. Lease assets and liabilities are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value of the future lease payments is our incremental borrowing rate, because the interest rate implicit in our leases isnot readily determinable. Our incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in economic environments where the leased asset is located. Our lease terms include periods under options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

Transcat leases facilities, equipment, and vehicles under various non-cancelable operating leases. As of* March 30, 2024*, the remaining lease terms on our operating leases range from approximatelyone year tofifteen years, and include any renewal and/or termination options that are reasonably certain to be exercised by the Company. There isno transfer of title or option to purchase the leased assets upon expiration. The weighted average discount rate for fiscal years2024,2023 and2022 was 4.1%,3.9% and 4.2%, respectively. The weighted average remaining lease term is approximately eleven years. Short-term leases are leases having a term of12 months or less. The Company recognizes short-term leases on an as incurred basis and doesnot record a related lease asset or liability for such leases. Short-term lease expense was immaterial in fiscal years2024,2023 and2022.

The components of lease expense for the current and prior-year comparative periods were as follows (dollars in thousands):

Supplemental cash flow information related to leases was as follows:

Total rental expense was approximately $6.6 million, $5.3 million and $4.3 million in fiscal years2024,2023 and2022, respectively. The minimum future annual rental payments under the non-cancelable leases at* March 30, 2024* are as follows (in millions):

Term Loan:

Effective* December 2018,the Company has term loan repayments (principal plus interest) of $0.2 million per month through December 2025.Principal payments relating to the2018* Term Loan will be $2.3 million in fiscal year2025 and $1.8 million in fiscal year2026.

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Contingent Consideration:

In connection with the acquisition of NEXA, there were potential earn-out payments of up to $7.5 million over thefour-year period following the closing of the transaction based upon NEXA achieving certain annual revenue and EBITDA goals. As of* March 25, 2023,*the estimated fair value for the earn-out payments was zero.

During fiscal year2024, the Company entered into an Amendment to the Share Purchase Agreement (the “First Amendment”). Pursuant to the First Amendment, the potential earn-out payments would have been up to $7.1 million for the Earn-Out years of calendar year2023, 2024 and2025 based upon NEXA achieving certain EBITDA goals. If achieved, the earn-out payments would be made in shares of common stock unless certain criteria is met for cash payment. Subsequent to fiscal year2024, the Company entered into an Amendment to the Share Purchase Agreement (the “Second Amendment”). Pursuant to the Second Amendment, the Company agreed to pay approximately $0.5 million for the Earn-Out year of calendar year2023 and removed the entitlement for any future earn-out payments. As of* March 30, 2024,the estimated fair value of the2023* earn-out payment was approximately $0.5 million. As of* March 30, 2024,the estimated fair value of the2024* and2025 earn-out payments was zero. See Note9.

NOTE9 – BUSINESS ACQUISITIONS

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 donot 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 totwelve years and arenot deductible for tax purposes. Amortization of goodwill related to the Axiom acquisition isnot 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 preliminary purchase price allocation, in the aggregate, to the fair value, based on Level3 inputs, of Axiom's assets and liabilities acquired on* August 8, 2023 (*in thousands):

From the date of acquisition through the end of fiscal year2024, Axiom has contributed revenue of $7.2 million and operating income of $0.7 million, which includes the negative impact of amortization of the acquired intangible assets.

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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 donot 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 tofifteen years and arenot deductible for tax purposes. Amortization of goodwill related to the SteriQual acquisition isnot 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 arenot met through* July 12, 2024.This contingent consideration is remeasured quarterly. If, as a result of remeasurement, the value of the contingent consideration changes, any charges or income will be included in the Company’s Consolidated Statements of Income. The purchase price was reduced to $3.8 million as of December 23, 2023as 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 andnot* recorded in the Consolidated Statement of Income.

The following is a summary of the preliminary purchase price allocation, in the aggregate, to the fair value, based on Level3 inputs, of SteriQual's assets and liabilities acquired on* July 12, 2023 (*in thousands):

From the date of acquisition through the end of fiscal year2024, SteriQual has contributed revenue of $2.6 million and operating income of $0.3 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 donot 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 tofifteen years and arenot deductible for tax purposes. Amortization of goodwill related to the TIC-MS acquisition isnot deductible for tax purposes.

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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 be subject to reduction by up to $0.5 million if a key customer relationship wasnot* retained through* March 27, 2024.As of March 30, 2024,we continued to retain this key customer relationship. As a result, there hasnot* been a receiv able recognized relating to the $0.5 million contingent consideration.

The following is a summary of the purchase price allocation, in the aggregate, to the fair value, based on Level3 inputs, of TIC-MS's assets and liabilities acquired on* March 27, 2023 (*in thousands):

From the date of acquisition through the end of fiscal year2024, TIC-MS has contributed revenue of $3.2 million and operating income of $1.3 million, which includes the negative impact of amortization of the acquired intangible assets.

Elite: Effective* February 2, 2023,*Transcat acquired substantially all of the assets of Elite Calibration LLC (“Elite”), a California based provider of calibration services. This transaction aligned with a key component of the Company’s acquisition strategy of targeting businesses that can leverage the Company’s already existing operating infrastructure.

All the goodwill related to the Elite acquisition has been allocated to the Service segment. Amortization of goodwill related to the Elite acquisition is deductible for tax purposes. The goodwill is primarily attributable to the workforce acquired, as well as operational synergies and other intangibles that donot qualify for separate recognition.

The total purchase price for the assets of Elite was approximately $0.9 million, of which $0.8 million was paid in cash. Pursuant to the asset purchase agreement, the Company held back $0.1 million of the purchase price for certain potential post-closing adjustments. As of* March 30, 2024,no amounts have been paid. The following is a summary of the purchase price allocation, in the aggregate, to the fair value, based on Level3 inputs, of Elite’s assets and liabilities acquired on February 2, 2023 (*in thousands):

Since this operation was integrated immediately into our existing operations, its separate contributed revenue and operating income is undeterminable.

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Complete Calibrations: Effective* September 28, 2022,*Transcat purchased all of the outstanding capital stock of Galium Limited (d/b/a Complete Calibrations) ("Complete Calibrations"), an Irish company. 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.

All the goodwill related to the Complete Calibrations acquisition has been allocated to the Service segment. Amortization of goodwill related to the Complete Calibrations acquisition isnot deductible for tax purposes. The goodwill is primarily attributable to the workforce acquired, as well as operational synergies and other intangibles that donot qualify for separate recognition.

The total purchase price paid for Complete Calibrations was approximately $1.2 million in cash. In connection with this transaction, the Company also entered into a Technology License Agreement with Calibration Robots Limited, an Irish company and related party to Complete Calibrations, for the use of their proprietary robotics in completing calibrations. The Technology License Agreement includes transactional royalties in the amount of 3 Euros ($3.19) per calibration performed by technology covered under this license agreement, with a royalty term of up toten years commencing from the earlier of (i) the date on which cumulative revenue earned from technology covered under this license agreement equals 0.75 million Euros ($0.80 million), and (ii)* March 28, 2024.In addition to the transactional royalties, as long as a key employee is employed by the Company, there is an annual royalty fee of 0.1 million Euros ($0.11 million). For purposes of this paragraph, we used a conversion rate of 1.0851 to convert Euro to U.S. dollar as of March 30, 2024*. As of* March 30, 2024*, the key employee is still employed by the Company.

The following is a summary of the purchase price allocation, in the aggregate, to the fair value, based on Level3 inputs, of Complete Calibrations’ assets and liabilities acquired on* September 28, 2022 (*in thousands):

During fiscal year2024, Complete Calibrations has contributed revenue of $0.4 million and operating loss of less than $0.1 million.

e2b: Effective* September 27, 2022,Transcat acquired substantially all of the assets ofe2b* Calibration (“e2b”), an Ohio 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.

Thee2b goodwill is primarily attributable to the workforce acquired, as well as operational synergies and other intangibles that donot qualify for separate recognition. All the goodwill and intangible assets relating to thee2b acquisition has been allocated to the Service segment. Intangible assets related to thee2b acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up tofifteen years and are deductible for tax purposes. Amortization of goodwill related to thee2b acquisition is deductible for tax purposes.

The total purchase price paid for the assets ofe2b was approximately $3.1 million in cash. Pursuant to the asset purchase agreement, the Company held back $0.9 million of the purchase price in escrow for certain potential post-closing adjustments. During thethird quarter of fiscal year2023, $0.6 million of the escrow was released to the sellers. During thethird quarter of fiscal year2024, $0.3 million was released to the sellers. As of* March 30, 2024*, there isno money remaining in escrow.

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The following is a summary of the purchase price allocation, in the aggregate, to the fair value, based on Level3 inputs, ofe2b’s assets and liabilities acquired on* September 27, 2022 (*in thousands):

During fiscal year2024, e2b has contributed revenue of $3.1 million and operating income of $0.4 million, which includes the negative impact of amortization of the acquired intangible assets.

Alliance: Effective* May 31, 2022,*Transcat acquired substantially all of the assets of Charlton Jeffmont Inc., Raitz Inc. and Toolroom Calibration Inc. d/b/a Alliance Calibration (“Alliance”), an Ohio 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 Alliance goodwill is primarily attributable to the workforce acquired, as well as operational synergies and other intangibles that donot qualify for separate recognition. All the goodwill and intangible assets relating to the Alliance acquisition has been allocated to the Service segment. Intangible assets related to the Alliance acquisition are being amortized for financial reporting purposes on an accelerated basis over the estimated useful life of up tofifteen years and are deductible for tax purposes. Amortization of goodwill related to the Alliance acquisition is deductible for tax purposes.

The purchase price for Alliance was approximately $4.7 million and was paid with $4.0 million in cash and the issuance of 2,284 shares of our common stock valued at $0.1 million. Pursuant to the asset purchase agreement, the Company held back $0.5 million of the purchase price for certain potential post-closing adjustments, and the purchase price would have been subject to reduction by $0.5 million if a key customer relationship wasnot retained. During thefirst quarter of fiscal year2024, $0.5 million of the holdback was released to the sellers.

The following is a summary of the purchase price allocation, in the aggregate, to the fair value, based on Level3 inputs, of Alliance’s assets and liabilities acquired on* May 31, 2022 (*in thousands):

During fiscal year2024, Alliance has contributed revenue of $2.4 million and operating income of $0.7 million, which includes the negative impact of amortization of the acquired intangible assets.

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NEXA: Effective* August 31, 2021,Transcat purchased all of the outstanding capital stock of Cal OpEx Limited (d/b/a NEXA Enterprise Asset Management), an Irish company, which owns all of the issued and outstanding capital stock of its U.S.-based subsidiary, Cal OpEx Inc., a Delaware corporation (collectively, “NEXA”). On September 11, 2023,the Company entered into thefirst* amendment (the “First Amendment”) to a Share Purchase Agreement dated* August 31, 2021 (the “Purchase Agreement”) with John Cummins and Ross Lane (the “Sellers”) associated with the Company’s purchase of all of the outstanding capital stock of NEXA. As described below, the First Amendment changed the conditions necessary for the Sellers to receive potential earn-out payments, changes the lines of business included in the calculation of earnings before income taxes, depreciation and amortization (“EBITDA”), and changes the outside due date of any potential earn-out payments. On May 20, 2024,the Company entered into thesecond* amendment to the Purchase Agreement (the “Second Amendment”). As described below, the Second Amendment removed the entitlement for future earn-out payments.

Pursuant to the Purchase Agreement, the Sellers were entitled to potential earn-out payments in an aggregate amount of up to $7.5 million for the calendar years ending* December 31, 2022,*2023, 2024, and2025 (each, an “Earn-Out Year”) if NEXA’s consolidated gross revenue, as defined in the Purchase Agreement, equaled or exceeded70% of the target revenue specified in the Purchase Agreement and NEXA’s consolidated EBITDA percentage, as defined in the Purchase Agreement, equaled or exceeded25% for a given earn-out year. The potential earn-out payment of up to $0.4 million for the2022 Earn-Out Year wasnot earned under the Purchase Agreement.

Pursuant to the First Amendment, the Sellers were entitled to potential earn-out payments in an aggregate amount of up to $7.1 million for the remaining Earn-Out Years (2023, 2024 and2025) if NEXA’s consolidated EBITDA, as defined in the Amendment, equaled or exceeded70% of the target EBITDA specified in the Amendment for a given earn-out year. Pursuant to the First Amendment, the definition of EBITDA was revised to include EBITDA from the Commissioning, Qualification and Validation business ("CQV") and incremental EBITDA from the SteriQual, Inc. business. The maximum earn-out payment would have been received if NEXA’s consolidated EBITDA equaled or exceeded150% of the target EBITDA specified in the First Amendment. The earn-out payments, if any, would be paid in shares of common stock, calculated using the volume-weighted average closing price of the common stock for30 consecutive trading days ending on the trading day that istwo days prior to the date the earn-out payment is to be paid (“VWAP”). If the VWAP is less than $45.07 per share, then the Company* may*pay the earn-out payment in cash in lieu of shares of common stock.

As of* March 25, 2023,the estimated fair value for the total earn-out obligations under the original Purchase Agreement, classified as Level3* in the fair value hierarchy, was zero.

After entering into the First Amendment during thethird quarter of fiscal year2024, the Company revalued the earn-out obligations. As of* September 23, 2023,the estimated fair value for the total earn-out obligations under the First Amendment, classified as Level3* in the fair value hierarchy, was approximately $2.8 million. 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 9.00%,2) risk-free interest rate of 5.00%,3) asset volatility of 25.00%, and4) forecasted revenue and EBITDA. The Company recognized a non-cash expense of $2.8 million, which was recorded in general and administrative expenses in its Consolidated Statement of Income for the quarter ended* September 23, 2023.*

As of* December 23, 2023,the estimated fair value of the total earn-out obligations under the First Amendment was approximately $2.9 million. The change in accrual is due to the actual results of the2023* calendar Earn-Out Year and the accretion of the2024 and2025 Earn-Out Years. As a result, the Company recognized a non-cash expense of $0.1 million, which was recorded in general and administrative expenses in its Consolidated Statement of Income for the quarter ended* December 23, 2023.*

After reviewing the fiscal year2025 budget and revised revenue and EBITDA forecasts for the remainder of calendar2025, during thefourth quarter of fiscal year2024, the Company revalued the earn-out obligations. As of* March 30, 2024,the estimated fair value for the total earn-out obligations under the First Amendment, classified as Level3* in the fair value hierarchy, was zero. 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 12.00%,2) risk-free interest rate of 4.70%,3) asset volatility of 22.50%, and4) forecasted revenue and EBITDA. The Company recognized a non-cash gain of approximately $2.4 million, which was recorded in general and administrative expenses in its Consolidated Statement of Income for the quarter ended* March 30, 2024.As of March 30, 2024,the2023* calendar Earn-Out Year was $0.5 million. This will be paid during thefirst quarter of fiscal year2025.

Contingent consideration is remeasured quarterly. If, as a result of remeasurement, the value of the contingent consideration changes, any charges or income will be included in the Company’s Consolidated Statements of Income. Due to the uncertainty with utilizing these significant unobservable inputs for this Level3 fair value measurement, materially higher or lower fair value measurements* may*be recognized at subsequent remeasurement periods.

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Pursuant to the Second Amendment, the Company agreed to pay approximately $0.5 million for the2023 Earn-Out Year and removed the entitlement for any future earn-out payments.

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 Axiom, SteriQual, TIC-MS, Elite, Complete Calibrations,e2b and Alliance had occurred at the beginning of fiscal year2022. The pro forma results donot 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.

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* March 30, 2024*, $0.5 million of contingent consideration and $2.6 million ofother holdback amounts were unpaid and are reflected in current liabilities on the Consolidated Balance Sheets and $1.6 million of other holdback amounts unpaid are reflected in other liabilities on the Consolidated Balance Sheets. During fiscal year2024,$0.8 million of holdback amounts were paid. During fiscal years2023 and2022, no contingent consideration or other holdback amounts were paid.

During fiscal years2024,2023 and2022, acquisition costs of $1.2 million, $0.2 million and $0.9 million, respectively, were recorded as incurred as general and administrative expenses in the Consolidated Statements of Income.

NOTE10 –** SHAREHOLDERS' EQUITY**

On* September 21, 2023,the Company entered into an underwriting agreement with Oppenheimer & Co. Inc., as representative of several underwriters, for the sale of common stock in an underwritten public offering at a public offering price of $95.00 per share (the “Offering”). The Offering closed on September 25, 2023*and the Company sold an aggregate of 847,371 shares in the Offering, which included 110,526 shares issued upon the exercise by the underwriters of their over-allotment option, for total gross proceeds of $80.5 million. Net proceeds received after direct costs in the Offering were $75.2 million. A portion of the net proceeds from this Offering were used to pay off the revolving credit facility in full.

During fiscal years2024,2023 and2022, the Company repurchased and subsequently retired less than 0.1 million shares, less than 0.1 million shares and 0.1 million shares, respectively, of its common stock. The Company allows its employees the option of satisfying the employee tax withholding obligations with either cash or a net share repurchase. The repurchase of shares was for the net awarding of certain share awards to cover employee tax-withholding obligations for share award and stock option activity, totaling $4.9 million in fiscal year2024, $0.4 million in fiscal year2023 and $6.7 million in fiscal year2022. There wereno stock option redemptions during fiscal year2024, fiscal year2023 or fiscal year2022.

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NOTE11 – SUBSEQUENT EVENT

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 “Agreement”), by and among the Company, Becnel and the other parties thereto. Becnel is an ISO9001:2015* 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 rental capabilities.

Pursuant to the Agreement, the Company acquired Becnel for approximately $50.8 million, consisting of a combination of (i) $17.5 million in cash and (ii) approximately $33.3 million of common stock, or 301,707 shares of common stock. Of the acquisition consideration, approximately $1.5 million in cash and approximately $1.0 million in shares of common stock, or 9,283 shares, are subject to certain customary holdback provisions.

The purchase price allocation hasnot been finalized, due to the timing of the acquisition and the filing date of this Annual Report on Form10-K. Therefore, the allocation of the purchase price to the assets acquired and liabilities assumed, including values to be recognized for goodwill and other intangible assets, will be disclosed in the Quarterly Report on Form10-Q for the fiscal quarter ending* June 29, 2024.The pro forma results of operations from the Becnel acquisition will be disclosed in the Quarterly Report on Form10*-Q for the fiscal quarter ending* June 29, 2024.The goodwill related to Becnel isnot* expected to be deductible for income tax purposes. The goodwill and intangible assets relating to the Becnel acquisition will be allocated to the Distribution segment.

On* May 20, 2024,the Company entered into the Second Amendment to the Purchase Agreement relating to the purchase of all of the outstanding capital stock of NEXA to amend the earn-out terms under the Purchase Agreement. See Note9* for further information on the Second Amendment.

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