Transcend Services: New Business Makes This a Buy

Transcend Services, based in Atlanta GA, provides accurate, reliable, and timely medical transcription services to medical professionals, hospitals, and clinics throughout the U.S. It has developed Beyond TXT, an Internet-based speech recognition and editing system that substantially boosts the productivity (and profitability) of its transcriptionists, nearly all of whom work from home. The company also utilizes third-party transcriptionists located in India, which provide lower labor cost and 24/7 workflow capability.

Transcend Services Inc. (TRCR) Q4:08 diluted EPS of $0.17 was $0.02 short of our estimate due to acquisition costs while revenue of $12.8 million trailed our estimate by $800,000. New business wins position TRCR for a solid 2009. Raising price target; reiterate BUY rating.

Q4:08 RESULTS

• Revenues of $12.8 million were up 18% versus last year although $800,000 short of our estimate (5.9%). Seven new customers were signed in the quarter, bringing the total annual run rate of new business won in FY:08 to $10 million – $11 million.
• Gross margin of 37% was below our 37.8% estimate while operating expenses of roughly $2.2 million were level with our expectations.
• TRCR expensed $143,000 of costs related to the DeVenture acquisition in the quarter leading to the $0.02 difference between diluted EPS of $0.17 and our $0.19 estimate.
• Management noted that FY:09 revenue growth should exceed 25% if retention remains high.
• We are raising our price target.

RISKS

• The company must continue to provide excellent customer service to retain customers.

TRCR’s Q4:08 results were shy of our estimates but provided a solid finish to a successful year. New business was won steadily over the course of the year and represented an aggregate run rate of $11 million – $12 million, positioning TRCR to deliver strong revenue growth in FY:09. Retention was very strong, at 98%. Management indicated that if TRCR is able to maintain this retention rate, FY:09 revenue growth should exceed 25%. A key factor that enabled TRCR to continue its momentum is its 2008 Best in KLAS ranking, which is a powerful tool in securing and retaining business. We continue to believe TRCR offers an attractive investment opportunity as the company continues to perform well and competes in a recession-resistant industry.

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Good post about Transcend Services...
Regards,

SBL Business Transcription

Feb 11 12:44 AM