TRANSCAT INC (TRNS) FY 2022 MD&A

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of financial condition
and results of operations should be read in conjunction with our financial statements and related notes appearing elsewhere in this annual
report. In addition to historical information, the following discussion and analysis includes forward looking statements that involve
risks, uncertainties and assumptions. Our actual results and the timing of events could differ materially from those anticipated in these
forward-looking statements as a result of a variety of factors, including those discussed in “Risk Factors” and elsewhere
in this annual report. See the discussion under “Forward Looking Statements” beginning on page 1 of this annual report

OVERVIEW

Operational Overview. We are a leading provider
of accredited calibration services, enterprise asset management services, and value-added distributor of professional grade handheld test,
measurement and control instrumentation.

We operate our business through two reportable business
segments, Service and Distribution, which offer a comprehensive range of services and products to the same customer base.

Our strength in our Service segment is based upon our wide
range of disciplines, our investment in quality systems and our ability to provide accredited calibrations to customers in highly-regulated
targeted market segments. Our services range from the calibration and repair of a single unit to managing a customer’s entire calibration
program. We believe our Service segment offers an opportunity for long-term growth and the potential for continuing revenue from established
customers with regular calibration cycles and recurring laboratory instrument service requirements.

Our Service segment has shown consistent revenue growth
over the past several years, ending fiscal year 2022 with its 52nd consecutive quarter of year-over-year growth. This segment has benefited
from both organic growth as

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well as acquisitions over those 52
quarters. The business acquisitions that we made have been heavily focused on expanding our service capabilities, increasing our
geographic reach and leveraging our Calibration Service Centers and other infrastructure to create operational synergies.

Our Service segment revenue growth was 20.5% for fiscal year
2022 from fiscal year 2021, and included a combination of organic growth and acquisition related revenue. The Service segment gross margin
increased by 160 basis points. Service segment gross profit and gross margin increases were primarily due to operating leverage on our
fixed cost base, accretive margins from recent acquisitions and continued strong technician productivity.

In our Distribution segment, we sell and offer for rent,
professional grade handheld test and measurement instruments. Because we specialize in professional grade handheld test and measurement
instruments, as opposed to a wide array of industrial products, our sales and customer service personnel can provide value-added technical
assistance to our customers to aid them in determining what product best meets their particular application requirements. We have expertise
in the procurement and sale of used equipment, furthering our ability to add value for our customers. We also have a higher-end electronic
test and measurement equipment rental business that augments our organically grown test and measurement equipment rental business. Through
our website and sales teams, customers can place orders for test and measurement instruments and can elect to have their purchased instruments
calibrated and certified by our Calibration Service Centers before shipment as well as on regular post-purchase intervals. Pre-shipment
calibration and certification allows our customers to place newly purchased instruments into service immediately upon receipt.

Sales in our Distribution segment are generally not consumable
items but are instruments purchased as replacements, upgrades or for expansion of manufacturing or research and development facilities.
As such, this segment can be heavily impacted by changes in the economic environment. As customers increase or decrease capital and discretionary
spending, our Distribution sales will typically be directly impacted.

In fiscal year 2022, Distribution segment sales increased
by 15.1%. This increase in sales was due to increased orders in fiscal year 2022 and an easier comparison to fiscal year 2021, which was
adversely impacted by the COVID-19 pandemic. In fiscal year 2021, Distribution sales decreased by 10.0% and were impacted by the COVID-19
pandemic, with reduced demand from oil and gas related businesses and most other industrial manufacturing sectors.

The Distribution segment gross margin in fiscal year 2022
increased by 210 basis points. The increase in segment gross margin was primarily due to a favorable mix of products sold, strong demand
for our higher-margin rentals business and an increase in cooperative advertising and rebate programs. These programs had been reduced
in fiscal year 2021 as certain vendors reduced these programs to lower their costs in response to the COVID-19 pandemic.

Initiatives implemented within this segment include adding
new in-demand vendors and product lines, expanding the number of SKUs that we offer with and without pre-shipment calibration and offering
equipment rental and used equipment options. Management believes this diversification strategy will mitigate the impact that any particular
industry or sector will have on the overall performance of this segment as well as help to further differentiate us from our competitors
going forward.

Financial Overview. In evaluating our results
for fiscal year 2022, investors should consider that we operate on a 52/53-week fiscal year, ending the last Saturday in March. In a 52-week
fiscal year, each of the four quarters is a 13-week period. In a 53-week fiscal year, the last quarter is a 14-week period. Fiscal years
2022 and 2021 each consisted of 52 weeks.

Management's discussion and analysis of financial condition
and results of operations for the fiscal year ended March 26, 2022 omits a comparative discussion regarding the fiscal year ended March
28, 2020. Such information is located in Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the fiscal year ended March 27, 2021.

Total revenue for fiscal year 2022 was $205.0 million. This
represented an increase of $31.6 million or 18.2% versus total revenue of $173.3 million for fiscal year 2021. Total revenue increased
due to increases in both Service revenue and Distribution sales increases.

Service revenue was $122.0 million in fiscal year 2022,
an increase of $20.7 million or 20.5%. Service revenue accounted for 59.5% of our total revenue during fiscal year 2022. Of our Service
revenue in fiscal year 2022, 84.0%

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was generated by our Calibration Service Centers and enterprise asset management services while 14.5%
was generated through subcontracted third-party vendors, compared with 83.6% and 14.9%, respectively, in fiscal year 2021. The remainder
of our Service revenue in each period was derived from freight charges.

Distribution sales increased 15.1% to $83.0 million in fiscal
year 2022. Distribution sales accounted for 40.5% of our total revenue in fiscal year 2022.

Sales to domestic customers comprised 93.4% of total Distribution
sales in fiscal year 2022, while 5.6% were to Canadian customers and 1.0% were to customers in other international markets.

Total gross profit was $58.4 million in fiscal year 2022
compared to $46.1 million in fiscal year 2021, an increase of $12.3 million or 26.7%. Total gross margin was 28.5%, which is a 190 basis
point increase versus fiscal year 2021. Service gross margin was 31.9% in fiscal year 2022 compared with 30.3% in fiscal year 2021, a
160 basis point increase. Distribution gross margin was 23.5% in fiscal year 2022 compared with 21.4% in fiscal year 2021, a 210 basis
point increase. This increase in service gross margin in fiscal year 2022 was primarily due to operating leverage on our fixed cost base,
accretive margins from recent acquisitions and continued strong technician productivity. The increase in distribution segment gross margin
was primarily due to a favorable mix of products sold, strong demand for our higher-margin rentals business and an increase in cooperative
advertising and rebate programs.

Operating expenses were $44.3 million, or 21.6% of total
revenue, in fiscal year 2022 compared with $35.0 million, or 20.2% of total revenue, in fiscal year 2021. Operating income was $14.1 million,
or 6.9% of total revenue, in fiscal year 2022 compared with $11.1 million, or 6.4% of total revenue, in fiscal year 2021. The year-over-year
increase in selling, marketing and warehouse expenses was due to higher performance-based sales incentives and direct marketing costs.
The year-over-year increase in general and administrative expenses was due to by incremental expenses from acquired businesses (including
stock expense), increased intangibles amortization expense, investments in technology and our employee base to support future growth and
one-time transaction expenses related to acquisitions that closed in the fiscal year.

Net income for fiscal year 2022 was $11.4 million compared
with $7.8 million in fiscal year 2021, a $3.6 million increase. Diluted earnings per share for fiscal year 2022 was $1.50 compared with
$1.03 for fiscal year 2021, a $0.47 per diluted share increase.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Use of Estimates. The preparation of our Consolidated
Financial Statements in accordance with accounting principles generally accepted in the United States (“GAAP”) requires that
we 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, but not limited to, allowance for doubtful accounts 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, 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, our accounting
estimates require the exercise of judgment. The accounting estimates used in the preparation of our Consolidated Financial Statements
will change as new events occur, as more experience is acquired, as additional information is obtained, and as our operating environment
changes. Our estimates are evaluated on an ongoing basis and are drawn from historical experience and other assumptions that we believe
to be reasonable under the circumstances. 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 our Consolidated Financial Statements.

The following items in our Consolidated Financial Statements
require significant estimation or judgment:

Accounts Receivable. Accounts receivable represent
amounts due from customers in the ordinary course of business. These amounts are recorded net of the allowance for doubtful accounts and
returns in the Consolidated Balance Sheets. The allowance for doubtful accounts is based upon the expected collectability of accounts
receivable. We apply a specific formula to our accounts receivable aging, which may be adjusted on a specific account basis where the
formula may not appropriately reserve for loss exposure. After all attempts to collect a

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receivable have failed, the receivable is written-off
against the allowance for doubtful accounts. A returns reserve is calculated based upon the historical rate of returns applied to revenues
over a specific timeframe. The returns reserve will increase or decrease as a result of changes in the level of revenues and/or the historical
rate of returns. Management believes that the allowances are appropriate to cover anticipated losses under current conditions. However,
unexpected changes or deterioration in economic conditions could materially change these expectations.

Inventory. Inventory consists of products
purchased for resale and is valued at the lower of cost or net realizable value. Costs are determined using the average cost method of
inventory valuation. Inventory is reduced by a reserve for items not saleable at or above cost by applying a specific loss factor, based
on historical experience and current demand, to specific categories of our inventory. Inventory is at risk of obsolescence if economic
conditions change. Relevant economic conditions include changing consumer demand, customer preferences or increasing competition. We believe
these risks are largely mitigated because our inventory typically turns several times per year. We evaluate the adequacy of the reserve
on a quarterly basis.

Business Acquisitions. We apply 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. We use a valuation hierarchy to determine the fair values used. Historically,
we have relied, in part, upon the use of reports from third-party valuation specialists to assist in the estimation of fair values. Purchase
price allocations are subject to revision within the measurement period, not to exceed one year from the date of acquisition. Administration
costs to acquire a business may include, but are not limited to, fees for accounting, legal and valuation services and are recorded as
incurred in our Consolidated Statement of Income.

Goodwill and Intangible Assets. Goodwill represents
the excess of the purchase price over the values assigned to the underlying net assets of an acquired business and is not amortized. As
of March 26, 2022, we had $65.1 million of recorded goodwill.

Intangible assets, namely customer base and covenants not
to compete, represent an allocation of purchase price to identifiable intangible assets of an acquired business. These intangible assets
are amortized over their estimated useful lives and are reviewed for impairment if and when indicators are present. We estimate the fair
value of our reporting units using the fair market value measurement requirement.

We test goodwill for impairment for each reporting unit
on an annual basis during the fourth quarter of each fiscal year or immediately if conditions indicate that such impairment could exist.
We have the option to perform a qualitative assessment to determine if it is more likely than not that the fair value of a segment has
declined below its carrying value. This assessment considers various financial, macroeconomic, industry and segment specific qualitative
factors.

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. Based on the results
of our qualitative impairment testing reviews, we have determined that it was more likely than not that the fair values exceeded the carrying
values of goodwill and there were no impairments as of each of March 26, 2022 and March 27, 2021.

Income Taxes. We record deferred income taxes
for the effects of timing differences between financial and tax reporting. These differences relate primarily to accrued expenses, bad
debt reserves, inventory reserves, operating leases, goodwill and intangible assets, depreciation and amortization and stock-based compensation.
We base our deferred income taxes, accrued income taxes and provision for income taxes upon income, statutory tax rates, the legal structure
of our Company, interpretation of tax laws and tax planning opportunities available to us in the various jurisdictions in which we operate.
We file income tax returns in the U.S. federal jurisdiction, various states, Canada and Ireland. We are regularly audited by federal,
state and foreign tax authorities, but a number of years may elapse before an uncertain tax position, for which we have unrecognized tax
benefits, is audited and finally resolved. From time to time, these audits result in assessments of additional tax. If a loss is determined
to be probable as a result of an audit, an accrual is established.

We apply a more-likely-than-not threshold to the recognition
and derecognition of uncertain tax positions. Accordingly, we recognize the amount of tax benefit that has a greater than 50% likelihood
of being ultimately realized upon settlement. Future changes in judgments and estimates related to the expected ultimate resolution of
uncertain tax positions will affect income in the quarter of such change. While it is often difficult to predict the final outcome or
the timing of resolution of any particular uncertain tax position, we believe that our unrecognized tax benefits reflect the most likely
outcome.

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Stock-Based Compensation. We measure 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 uses the Black-Scholes option pricing model to estimate the fair value of
stock options granted. The application of this pricing model involves assumptions that require judgment and are sensitive in the determination
of compensation expense. The fair market value of our common stock on the date of each option grant is determined based on the most recent
closing price on our primary trading stock exchange, currently the NASDAQ Global Market.

We record compensation cost related to unvested equity awards
by recognizing, on a straight-line basis, the unamortized grant date fair value over the remaining service period of each award. In accordance
with Accounting Standards Updates (“ASU”) 2016-09, excess tax benefits for share-based award activity are reflected in the
Consolidated Statement 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. We
did not capitalize any stock-based compensation costs as part of an asset. We estimate forfeiture rates based on our historical experience.

We grant timed-based and performance-based restricted stock
units as a component of executive and key employee compensation. These restricted stock units are either time vested or vest following
the third fiscal year from the date of grant subject to cumulative diluted earnings per share growth targets over the eligible period.
Compensation cost ultimately recognized for these 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, we record compensation cost based on the expected
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.

Stock options vest either immediately or over a period of
up to five years using a straight-line basis, and expire either five years or ten years from the date of grant. The expense relating to
options is recognized on a straight-line basis over the requisite service period for the entire award.

See Note 6 to our Consolidated Financial Statements for further
disclosure regarding our stock-based compensation.

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.

For accounting purposes, the defined benefit post-retirement
health care plan requires assumptions to estimate the projected and accumulated benefit obligations, including the following variables:
discount rate; certain employee-related factors, such as retirement age and mortality; and health care cost trend rates. These and other
assumptions affect the annual expense and obligations recognized for the underlying plans. Our assumptions reflect our historical experiences
and management's best judgment regarding future expectations.

Increasing the assumed health care cost trend rate by one
percentage point would increase the accumulated post-retirement benefit obligation and the annual net periodic post-retirement benefit
cost by $0.1 million. A one 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.

Recently Issued Accounting Pronouncements.
In the normal course of business, management evaluates all new accounting pronouncements issued by the Financial Accounting Standards
Board (“FASB”) to determine the potential impact they may have on our consolidated financial statements.  For a
discussion of the newly issued accounting pronouncements see “Recently Issued Accounting Pronouncements” under Note 1 to the
Consolidated Financial Statements included in Item 8 of Part II of this report.

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RESULTS OF OPERATIONS

The following table sets forth, for fiscal years 2022 and 2021, the
components of our Consolidated Statements of Income.

FISCAL YEAR ENDED MARCH 26, 2022 COMPARED TO FISCAL
YEAR ENDED MARCH 27, 2021 (dollars in thousands):

Revenue:

Total revenue was $205.0 million in fiscal year 2022 compared
to $173.3 million in fiscal year 2021, an increase of $31.6 million or 18.2%.

Service revenue, which accounted for 59.5% and 58.4% of
our total revenue in fiscal years 2022 and 2021, respectively, increased $20.7 million, or 20.5% from fiscal year 2021 to fiscal year
2022. This year-over-year growth includes a combination of organic and acquisition-related revenue growth.

This year-over-year increase also reflected increased demand
from the life sciences and other highly-regulated end markets and included $9.0 million of incremental revenue from acquisitions. Excluding
acquired revenue of $9.0 million, the Service segment organic revenue increased by 11.6%.

Our fiscal years 2022 and 2021 Service revenue growth in
relation to prior fiscal year quarter comparisons, was as follows:

Within any year, while we add new customers, we also have
customers from the prior year whose service orders may not repeat for any number of factors. Among those factors are variations in the
timing of periodic calibrations

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and other services, customer capital expenditures and customer outsourcing decisions. Because the timing
of Service segment orders can vary on a quarter-to-quarter basis, we believe a trailing twelve-month trend provides a better indication
of the progress of this segment.

The growth in fiscal year 2022 and fiscal year 2021 reflected
both organic growth and acquisitions. The growth in Service segment revenue in the fourth quarter of fiscal year 2022 includes revenue
from Tangent and NEXA. The growth in Service segment revenue in the third quarter of fiscal year 2022 includes revenue from NEXA. The
growth in Service segment revenue during the third and fourth quarters of fiscal year 2021 includes revenue from BioTek and pipettes.com.
The growth in Service segment revenue during the first and second quarters of fiscal year 2021 includes revenue from the pipettes.com
acquisition.

The following table presents the trailing twelve-month Service
segment revenue for each quarter in fiscal years 2022 and 2021 as well as the trailing twelve-month revenue growth as a comparison to
that of the prior fiscal year period:

Our strategy has been to focus our investments in the core
electrical, temperature, pressure, physical/dimensional and radio frequency/microwave calibration disciplines. We expect to subcontract
approximately 13% to 15% of our Service revenue to third-party vendors for calibration beyond our chosen scope of capabilities. We continually
evaluate our outsourcing needs and make capital investments, as deemed necessary, to add more in-house capabilities and reduce the need
for third-party vendors. Capability expansion through business acquisitions is another way that we seek to reduce the need for outsourcing.
The following table presents the source of our Service revenue and the percentage of Service revenue derived from each source for each
quarter during fiscal years 2022 and 2021:

Our Distribution sales accounted for 40.5% and 41.6% of our
total revenue in fiscal years 2022 and 2021, respectively. Distribution sales increased $10.9 million, or 15.1% in fiscal year 2022 compared
to fiscal year 2021. This increase in sales was due to increased orders in fiscal year 2022 and an easier comparison to fiscal year 2021,
which was adversely impacted by the COVID-19 pandemic. The increase in sales in fiscal year 2022 were all organic. The change in fiscal
year 2021 versus fiscal year 2020 reflected both organic and acquisition sales. Our fiscal years 2022 and 2021 Distribution sales growth
(decline) in relation to prior fiscal year quarter comparisons were as follows:

Distribution sales orders include orders for instruments
that we routinely stock in our inventory, customized products, and other products ordered less frequently, which we do not stock. Backorders
are the total dollar value of orders received for which revenue has not yet been recognized. Pending product shipments are primarily backorders,
but also include products that are requested to be calibrated in our service centers prior to shipment, orders required by the customer
to be shipped complete or at a future date, and other orders awaiting final credit or

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management review prior to shipment. Management
uses pending product shipments and backorders as measures of our future business performance and financial performance within the distribution
segment.

Our total pending product shipments increased $1.5 million,
or 23.6%, at the end of fiscal year 2022 compared to the end of fiscal year 2021. Backorders at the end of fiscal year 2022 were $6.4
million, compared to $4.9 million at the end of fiscal year 2021. The year-over-year increase in pending product shipments was a result
of the COVID-19 pandemic and its disruptive impact to the supply of products in fiscal year 2022 as well as overall increased demand.

The following table presents the percentage of total pending
product shipments that were backorders at the end of each quarter in fiscal years 2021 and 2020 and our historical trend of total pending
product shipments:

Gross Profit:

Total gross profit in fiscal year 2022 was $58.4 million
compared to $46.1 million in fiscal year 2021, an increase of $12.3 million or 26.7%. As a percentage of total revenue, total gross margin
was 28.5% in fiscal year 2022 compared to 26.6% in fiscal year 2021, a 190 basis point increase.

Service gross profit increased $8.2 million, or 26.8%, from
fiscal year 2021 to fiscal year 2022. Our annual and quarterly Service segment gross margins are a function of several factors. Our organic
Service revenue growth provides some incremental gross margin growth by leveraging certain fixed costs of this segment. The mix of services
provided to customers may also affect gross margins in any given period. Service gross margin increased by 160 basis points in fiscal
year 2022 versus fiscal year 2021. This increase in service gross margin in fiscal year 2022 was primarily due to operating leverage on
our fixed cost base, accretive margins from recent acquisitions and continued strong technician productivity.

The following table presents the quarterly historical trend
of our Service gross margin as a percent of Service revenue:

Our Distribution gross margin includes net sales less the
direct cost of inventory sold and the direct costs of equipment rental revenues, primarily depreciation expense for the fixed assets in
our rental equipment pool, as well as the impact of rebates and cooperative advertising income we receive from vendors, freight billed
to customers, freight expenses and direct shipping costs. During fiscal year 2022, our Distribution sales were high enough that we saw
an increase in the rebates offered by our vendors. These rebates had been cut significantly in fiscal year 2021 as our vendors implemented
cost cutting measures in response to the COVID-19 pandemic. We recorded vendor rebates of $1.0 million and $0.7 million in fiscal years
2022 and 2021, respectively, as a reduction of cost of Distribution sales. In general, our Distribution gross margin can vary based upon
the mix of products sold, price discounting, the timing of periodic vendor rebates offered and cooperative advertising programs from suppliers.

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The following table reflects the quarterly historical trend
of our Distribution gross margin as a percent of Distribution sales:

Distribution segment gross margin increased 210 basis points
in fiscal year 2022 compared to fiscal year 2021. The increase in segment gross margin was primarily due to a favorable mix of products
sold, strong demand for our higher-margin rentals business and an increase in cooperative advertising and rebate programs.

Operating Expenses:

Total operating expenses were $44.3 million in fiscal year
2022 compared to $35.0 million in fiscal year 2021. This represented an increase of $9.3 million, or 26.4%, compared to fiscal year 2021.
As a percentage of total revenue, operating expenses increased 140 basis points from 20.2% in fiscal year 2021 to 21.6% in fiscal year
2022. The year-over-year increase in selling, marketing and warehouse expenses is due to higher performance-based sales incentives and
direct marketing costs. The year-over-year increase in general and administrative expenses is due to incremental expenses from acquired
businesses (including stock expense), increased intangibles amortization expense, investments in technology and our employee base to support
future growth and one-time transaction expenses related to acquisitions that closed in the fiscal year.

Provision for Income Taxes:

Our effective tax rates
for fiscal years 2022 and 2021 were 13.7% and 21.9%, respectively. The decrease in tax rate is due to the higher discrete tax benefits
from share-based compensation activity. Our provision for income taxes is affected by discrete items that may occur in any given period
but are not consistent from year to year. The discrete benefits related to share-based compensation activity in fiscal years 2022 and
2021 were $1.4 million and $0.3 million, respectively. We continue to evaluate our tax provision on a quarterly basis and adjust, as deemed
necessary, our effective tax rate given changes in facts and circumstances expected in the future.

We expect to receive certain federal, state, Canadian and
Irish tax credits in future years. We also expect to receive discrete tax benefits related to share-based compensation awards in fiscal
year 2023. As such, we expect our effective tax rate in fiscal year 2023 to be between 22.0% and 24.0%.

Net Income:

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Net income for fiscal year 2022 increased by $3.6 million
or 46.1% compared to fiscal year 2021. As a percentage of revenue, net income was 5.6% in fiscal year 2022, up from 4.5% in fiscal year
2021. This year-over-year change reflects higher operating income discussed and a lower provision for income taxes.

Adjusted EBITDA:

In addition to reporting net income, a GAAP measure, we
present Adjusted EBITDA (earnings before interest, income taxes, depreciation and amortization, non-cash stock compensation expense, acquisition
related transaction expenses, non-cash loss on sale of building, and restructuring expense), which is a non-GAAP measure. Our management
believes Adjusted EBITDA is an important measure of our operating performance because it allows management, investors and others to evaluate
and compare the performance of our core operations from period to period by removing the impact of the capital structure (interest), tangible
and intangible asset base (depreciation and amortization), taxes, stock-based compensation expense and other items, which is not always
commensurate with the reporting period in which it is included. As such, our management uses Adjusted EBITDA as a measure of performance
when evaluating our business segments and as a basis for planning and forecasting. Adjusted EBITDA is also commonly used by rating agencies,
lenders and other parties to evaluate our credit worthiness.

Adjusted EBITDA is not a measure of financial performance
under GAAP and is not calculated through the application of GAAP. As such, it should not be considered as a substitute or alternative
for the GAAP measure of net income and, therefore, should not be used in isolation of, but in conjunction with, the GAAP measure. Adjusted
EBITDA, as presented, may produce results that vary from the GAAP measure and may not be comparable to a similarly defined non-GAAP measure
used by other companies.

During fiscal year 2022, Adjusted EBITDA was $26.3 million,
an increase of $5.7 million or 27.9% compared to fiscal year 2021. As a percentage of revenue, Adjusted EBITDA was 12.8% during fiscal
year 2022 versus 11.9% during fiscal year 2021, a 90 basis point increase. The increase in Adjusted EBITDA during fiscal year 2022 is
primarily driven by the increase in net income, depreciation and amortization expense, non-cash stock compensation expense and acquisition
transaction expenses.

Adjusted Diluted Earnings Per Share:

In addition to reporting Diluted Earnings Per Share, a GAAP
measure, we present Adjusted Diluted Earnings Per Share (net income plus acquisition related amortization expense, acquisition related
transaction expenses, acquisition related stock-based compensation, acquisition amortization of backlog and restructuring expense, on
a diluted per share basis), which is a non-GAAP measure. Our management believes Adjusted Diluted Earnings Per Share is an important measure
of our operating performance because it provides a basis for comparison of our business operations between current, past and future periods
by excluding items that we do not believe are indicative of our core operating performance.

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Adjusted Diluted Earnings Per Share is not a measure of financial
performance under GAAP and is not calculated through the application of GAAP. As such, it should not be considered as a substitute or
alternative for the GAAP measure of Diluted Earnings Per Share and, therefore, should not be used in isolation of, but in conjunction
with, the GAAP measure. Adjusted Diluted Earnings Per Share, as presented, may produce results that vary from the GAAP measure and may
not be comparable to a similarly defined non-GAAP measure used by other companies.

LIQUIDITY AND CAPITAL RESOURCES

We expect that foreseeable liquidity and capital resource
requirements will be met through anticipated cash flows from operations and borrowings from our Revolving Credit Facility (as defined
below).

On July 7, 2021, we entered into the Second Amended and Restated
Credit Facility Agreement (the “2021 Credit Agreement”) with Manufacturers and Traders Trust Company (“M&T”),
that amended and restated in its entirety the Company’s Amended and Restated Credit Facility Agreement dated as of October 30, 2017,
as amended by Amended and Restated Credit Facility Agreement Amendment 1 dated December 10, 2018 and Amended and Restated Credit Facility
Agreement Amendment 2 (“Amendment Two”) dated May 18, 2020 (as amended, the “Prior Credit Agreement”).

The 2021 Credit Agreement increased the revolving credit commitment
(the “Revolving Credit Commitment”) from $40.0 million to $80.0 million, with a letter of credit subfacility increased from
$2.0 million to $10.0 million, and extended the term of the Revolving Credit Commitment to June 2026. The 2021 Credit Agreement amended
the definition of Applicable Margin (formerly Applicable Rate under the Prior Credit Agreement), which is based upon the Company’s
then current leverage ratio and is used to determine interest charges on outstanding and unused borrowings under the revolving credit
facility; the amendments reduced the Applicable Margins payable at the two highest leverage ratio levels. The 2021 Credit Agreement also
amended the definition of Permitted Acquisitions, that is, acquisitions which are permitted under, and may be financed with proceeds of,
the revolving credit facility, including increasing the aggregate purchase price for acquisitions consummated in any fiscal year from
$1.0 million to $65.0 million during the current fiscal year and $50.0 million during any subsequent fiscal year, and adding an aggregate
purchase price of $40.0 million for acquisitions consummated at any time during the term of the 2021 Credit Agreement related to businesses
with a principal place of business located in the United Kingdom or the European Union.

In addition, the 2021 Credit Agreement provides that, assuming
no event of default, restricted payments up to $25.0 million (increased from $10.0 million in the Prior Credit Agreement) in the aggregate
and $10.0 million (increased from $3.0 million in the Prior Credit Agreement) in any single fiscal year may be used by us to repurchase
our shares and pay dividends. The 2021 Credit Agreement modified the leverage ratio and fixed charge coverage ratio covenants with which
we are required to comply. The 2021 Credit Agreement also reduced the LIBOR floor from 1.0% to 0.25% and included a mechanism for adoption
of a different benchmark rate upon the discontinuation of

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LIBOR. The 2021 Credit Agreement also reduced the fixed interest rate on our
term loan in the amount of $15.0 million (the “2018 Term Loan”) from 4.15% to 3.90%.

The 2021 Credit Agreement superseded in its entirety, the
Prior Credit Agreement. Amendment Two to the Prior Credit Agreement had previously extended the term of the revolving credit facility
to October 20, 2022 and increased the revolving credit commitment to $40 million.

Amendment Two also had modified the definition of the applicable
rate used to determine interest charges on outstanding and unused borrowings under the revolving credit facility and it amended the definition
of permitted acquisitions to amend borrowings available under the revolving credit facility for acquisitions. In addition, Amendment Two
had amended the definition of restricted payments to exclude amounts up to $2.5 million during each fiscal year used to pay certain employee
tax obligations associated with share-based payment and stock option activity, and modified certain restrictions to the Company’s
ability to repurchase its shares and pay dividends. Amendment Two also had modified the leverage ratio and fixed charge coverage ratio
covenants with which the Company was required to comply and limited capital expenditures to $5.5 million for the fiscal year 2021. Amendment
Two also had established a LIBOR floor of 1.0% and included a mechanism for adoption of a different benchmark rate in the event LIBOR
was discontinued.

As of March 26, 2022, $80.0 million was available under
the revolving credit facility, of which $39.9 million was outstanding and included in long-term debt on the Consolidated Balance Sheets.
During fiscal year 2022, we used $29.8 million for business acquisitions.

As of March 26, 2022, $8.5 million was outstanding on the
2018 Term Loan, of which $2.2 million was included in current liabilities on the Consolidated Balance Sheets with the remainder included
in long-term debt. The 2018 Term Loan requires total repayments (principal plus interest) of $0.2 million per month through December 2025.

Pursuant to the Prior Credit Agreement, we were required to
comply with a fixed charge ratio covenant and a leverage ratio covenant, which were modified by the 2021 Credit Agreement. The allowable
leverage ratio under the Prior Credit Agreement for the second, third and fourth fiscal quarter of fiscal year 2021 and the first quarter
of fiscal year 2022 was a maximum multiple of 5.0, 5.5, 7.0 and 4.0, respectively, of total debt outstanding compared to EBITDA and non-cash
stock-based compensation expense for the preceding four consecutive fiscal quarters. The Prior Credit Agreement also had provided that
the trailing twelve-month pro forma EBITDA of an acquired business was included in the allowable leverage calculation. After the first
quarter of fiscal 2022, pursuant to the 2021 Credit Agreement, the allowable leverage ratio is a maximum multiple of 3.0. We were in compliance
with all loan covenants and requirements during fiscal years 2022 and 2021. Our leverage ratio was 1.74 at March 26, 2022, as defined
in the 2021 Credit Agreement, compared with 0.94 at March 27, 2021, as defined in the Prior Credit Agreement.

Interest on the revolving credit facility continues to accrue,
at our election, at either the variable one-month LIBOR (subject to a 1% floor during the first quarter of fiscal year 2022 and a 0.25%
floor for subsequent periods) or a fixed rate for a designated period at the LIBOR corresponding to such period, in each case, plus a
margin. Interest on outstanding borrowings of the 2018 Term Loan accrued at a fixed rate of 3.90% over the term of the loan during the
fourth quarter of fiscal year 2022 with principal and interest payments made monthly. Unused fees accrued based on the average daily amount
of unused credit available under the revolving credit facility. Interest rate margins and unused fees were determined on a quarterly basis
based upon our calculated leverage ratio.

On March 27, 2020, the Coronavirus Aid, Relief and Economic
Security (“CARES”) Act was enacted. The CARES Act included a provision that allows the Company to defer the employer portion
of social security payroll tax payments that would have been paid between the enactment date and December 31, 2020, with 50% payable by
December 31, 2021 and 50% payable by December 31, 2022. During fiscal year 2021, the Company deferred $2.0 million of employer social
security payroll taxes. During fiscal year 2022, the Company repaid $1.0 million on December 31, 2021 and the other $1.0 million is recorded
in accrued compensation and other liabilities on the Consolidated Balance Sheets.

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Cash Flows: The following table is a summary of our Consolidated
Statements of Cash Flows (dollars in thousands):

Operating Activities: Net cash provided by operating
activities was $17.6 million during fiscal year 2022 compared to $23.6 million during fiscal year 2021. The year-over-year decrease in
cash provided by operations is primarily the result of changes in net working capital (defined as current assets less current liabilities).
The significant working capital fluctuations were as follows:

Our inventory balance increased $1.1 million during
fiscal year 2022. Our inventory balance decreased $2.5 million during fiscal year 2021. The year-over-year change is a result of strategic
inventory purchases during fiscal year 2022.

Accounts payable increased $1.9 million during fiscal
year 2022. Accounts payable increased by $0.3 million during fiscal year 2021. The variance is largely due to the timing of inventory
and capital expenditure purchases and other payments in the respective periods.

During fiscal year 2022, accrued compensation and other
liabilities increased by $1.0 million, inclusive of $0.5 million of accrued compensation and other liabilities acquired as part of three
acquisitions completed during the period. During fiscal year 2021, accrued compensation and other liabilities increased by $3.5 million,
due primarily to increased accrued incentives and payroll related expense

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and $1.0 million of deferred employer portion of social security
payroll tax payments as part of the CARES Act.

Investing Activities: During fiscal year 2022,
we invested $10.2 million in capital expenditures that was used primarily for customer-driven expansion of Service segment capabilities
and capacity and our rental business.

During fiscal year 2021, we invested $6.6 million in
capital expenditures that was used primarily for customer-driven expansion of Service segment capabilities and our rental business.

During fiscal year 2022, we used $29.8 million for business
acquisitions. During fiscal year 2021, we used $3.6 million for a business acquisition.

During each of fiscal year 2022 and fiscal year 2021,
no contingent consideration or other holdback amounts were paid related to a business acquisition.

Financing Activities:
During fiscal year 2022, $31.0 million was borrowed from our revolving line of credit and $1.5 million in
cash was generated from the issuance of common stock. In addition, we used $2.1 million for scheduled repayments of our term loan and
$6.7 million for the “net” awarding of certain share awards to cover employee tax-withholding obligations for share award
and stock option activity in fiscal year 2022, which is shown as a repurchase of shares of our common stock on our Consolidated Statements
of Cash Flows.

During fiscal year 2021, $1.2 million in cash was generated
from the issuance of our common stock. In addition, we repaid $8.8 million of our Revolving Credit Facility, we used $2.0 million for
scheduled repayments of our term loan, and used $3.0 million for the “net” award of certain share awards to cover tax-withholding
obligations for share award activity in the period which are shown as a repurchase of shares of our common stock on our Consolidated Statements
of Cash Flows.

Recent Events

On 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 total purchase price paid for
the assets of Alliance was approximately $4.5 million in cash and an amount of the Company’s common stock, par value $0.50 per share
(“Common Stock”), with a value equal to $157,500, or 2,284 shares of Common Stock. Pursuant to the asset purchase agreement,
the Company will hold back $500,000 of the purchase price for certain potential post-closing adjustments, and the purchase price will
be subject to reduction by $500,000 if a key customer relationship is not retained.

OUTLOOK

We are proud of our dedicated team, which successfully executed
through the challenges of the past year and consistently delivered excellent results. As we look ahead into fiscal year 2023 and beyond,
we believe we are well positioned for profitable growth and we expect the strength of our value proposition to continue to increase. We
have demonstrated our ability to drive growth through various economic cycles as can be seen over the past 10 years and we are confident
and expect that will continue. The business continues to benefit from a predominately life science-oriented market, driven by regulation
and recurring revenue streams. Strong organic Service growth remains a centerpiece of our strategy. In the year ahead we expect organic
Service growth in the high-single digit range. Volume increase is an important component to driving the inherent operating leverage in
the Transcat Service model.

Acquisitions that strengthen our fundamental value proposition
will continue to be an important component of our go-forward strategy. We will identify and pursue opportunities to expand our addressable
markets like we did with

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NEXA and our pipettes business. The NEXA and pipettes acquisitions, along with our recent acquisition of Tangent
and the bolt-on Upstate Metrology acquisition, represent a gain in value which raises the ceiling and trajectory of the business.

Additionally, Transcat has made significant investments
in the quality of our team, including leaders that maintain expertise relating to continuous process improvement and automation. We have
generated sustainable margin improvement over the past several years and we believe the improvement will continue. Automation of our calibration
processes and overall process improvement are designed to foster future margin gains. Relating to selling, general and administrative
expenses, we anticipate demonstrating more leverage in the years ahead.

We believe Transcat has substantial runway ahead for Service
revenue growth and margin expansion. We have a long history that demonstrates that we know how to succeed on both fronts. We continue
to focus on generating sustainable long-term value for our shareholders and providing a dynamic, rewarding workplace for our team.

We expect to receive certain federal, state, Canadian and
Irish tax credits in future years. We also expect to receive discrete tax benefits related to share-based compensation awards in fiscal
year 2023. As such, we expect our effective tax rate in fiscal year 2023 to be between 22.0% and 24.0%.