Transcend Services Q4 Earnings Call Transcript

Transcend Services Inc. (TRCR)

Q4 2007 Earnings Call

January 28, 2008 11:00 am ET

Executives

Larry Gerdes - Chairman of the Board, President and CEO

Lance Cornell - CFO

Su McGrogan - COO

Jeff McKee - Sr. VP of Sales and Marketing

Analysts

Gary Holdsworth - Singular Research

Lenny Dunn - Freedom Investors

Stephanie Haggerty - Register & Akers

Wayne Comasar- Private Investor

Simon Borosch - Private Investor

Presentation

Operator

Good morning. My name is Julian, and I will be your conference operator today. At this time, I would like to welcome everyone to the fourth quarter 2007 Transcend earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question-and-answer session. (Operator Instructions).

Thank you. Mr. Gerdes, you may begin your conference.

Larry Gerdes

Thank you, Julian. Good morning. My name is Larry Gerdes. I am Chairman of the Board, President and Chief Executive Officer of Transcend Services, Incorporated. Joining me today for this conference call is Lance Cornell, Transcend's Chief Financial Officer, Sue McGrogan, our Chief Operating Officer, and Jeff McKee, our Senior Vice President of Sales and Marketing, who will join us for the question-and-answer period. This investor call is regarding Transcend's consolidated operating results for the quarter and year ended December 31, 2007.

The agenda for this conference call is as follows; first, the disclaimer regarding forward-looking statements, followed by introductory remarks, then, we'll have a financial analysis and operational analysis, concluding remarks, and then a question-and-answer period.

Now, I will ask Lance to state our disclaimer.

Lance Cornell

Good morning. I would like to ensure that everyone understands that our commentary in responses during conference call may contain forward-looking statements dealing with topics such as our business strategy, anticipated future results, service offerings, relationships with other companies or customers, and/or our ultimate role in the market. There is a risk that these forward-looking statements or predictions may differ materially from results because of factors such as company decisions, market conditions, business relationships and/or performance of various third parties associated with Transcend, including but not limited to their access to capital and their financial conditions. Please realize that we will not necessarily provide updates to any such statements other than is required by law. Finally, more information about potential risk factors is included in the fourth quarter press release and the periodic reports that the company files from time-to-time with the Securities and Exchange Commission, including the company's Form 10-K for the year ended December 31, 2006.

Having said that, I'd like to turn the call back over to Larry.

Larry Gerdes

Thanks Lance. I am extremely pleased to report that the company once again generated record earnings per share of $0.21 in the fourth quarter excluding two unusual items on revenue of $10.9 million. I'll explain one of those items now and Lance will explain the other. We filed an 8-K last Wednesday reporting that we had reached to settlement in a lawsuit filed in 2001 by our former customer. The settlement amount was $130,000, which was recorded in the fourth quarter.

I am pleased to begin 2008 with no outstanding legal issues pending against the company and we were pleased to settle since the trial would have been far more expensive. I will characterize 2007, as a year in which our plans matured and were approved. We increased revenue 29% by delivering excellent customer service, which drove high customer retention and also made selling easier.

We improved gross margins by 8 points through increased utilization of speech recognition technology and offshore resources among other things. We outlined in our operating expenses, and the bottom line growth followed. Our customer and employee satisfaction is high, and I believe; we are well positioned for the future. We will expand on these thoughts by going into the financial and operational analysis in more detail.

Now, I'll turn the call back over to Lance to discuss our financial results.

Lance Cornell

Thanks, Larry. I'll start with the discussion of fourth quarter results, followed by a brief recap of the year and a few balance sheet highlight. Revenue for the fourth quarter increased 22% or $1.9 million to $10.9 million compared to $9 million in the fourth quarter of 2006. Growth in revenue from existing customers contributed $1.1 million, and revenue from new customers contributed $0.7 million.

Revenue from the January 2007 acquisition of OTP Technologies contributed $0.4 million. Revenue loss due to customer terminations was $0.2 million from customers, who terminated in late 2006 and earlier in 2007. I would like to point out that the fourth quarter and first quarters are typically stronger than the second and third quarters because we have a concentration of Florida customers, who typically see volume increases, when retirees clocks out for the winter. For some reason, the snowbirds were late in coming south this year, so we didn't see a very noticeable up tick in volume, until after the holidays.

Our gross profit increased 51% or $1.3 million to $3.7 million in the fourth quarter of 2007 from $2.4 million in the fourth quarter of last year. Gross profit, as a percentage of revenue increased 7 points to 34% in the fourth quarter of 2007 compared to 27% in the fourth quarter of 2006.

Key to our gross profit margin improvement, is the ongoing rollout of speech recognition technology on our BeyondTXT platform. Approximately 24% of the company's total production volume was edited using speech recognition technology in the fourth quarter compared to 20% in the fourth quarter of last year. By the end of 2009, we hope to have grown that figure to somewhere in the 40% range.

I'm also encouraged that we are currently converting a number of clients from their older platforms on to BeyondTXT, which we believe will enable us to increase our editing volume substantially over the next six months. About 63% of our total volume was processed on our BeyondTXT platform in the fourth quarter, which is up from about 55% in the fourth quarter of last year.

The second factor positively impacting the gross profit margins, is the increase in our offshore volume. We processed approximately 15% of our work offshore in the fourth quarter, which is up from 7% at the end of 2006. We expect the offshore volume to grow steadily over the next several years. Sue just returned from a trip to India, where they were able to meet existing and potential partners and get a better feel for production capacity.

We are excited about continuing to build strong partnerships there, and we will work to closely monitor quality, as volume increases. Offshore work is an important component of our service offering for several reasons, cost is certainly one factor, but just as important is the fact that our offshore partners help us to stay within our turnaround time commitment by working primarily when most of us are asleep. We don't expect our offshore production to displace our U.S. workforce at all.

Still, using offshore partners does help to combat the challenges of the tight labor force for domestic transcriptionists. We are working hard to maintain, and in some cases reduce our offshore prices, but exchange rates and other factors could cause prices to rise in the longer term, reducing the savings we can realize, but still utilizing offshore partners will remain a viable alternative for us in a key part of our strategy to improve profitability and service.

Finally gross profit as a percentage of revenue is improved, because we have been able to grow revenue without comparable increases in our operations management and support infrastructure, which means that most of the direct gross profit that is the revenue left the direct cost of the transcription from additional revenue drops through to the bottom-line.

Operating expenses increased 12%, and were 16% of revenue in the fourth quarter, excluding the impact of the $130,000 legal supplement that Larry mentioned, down 1 point from 17% of revenue in the fourth quarter of 2006. While many of our operating expenses are fairly fixed in nature, employee benefits costs vary in relation to the size of our employee base and healthcare cost generally grow at a faster pace than other expenses. We also incurred significant cost to comply with the Sarbanes-Oxley Act in 2007. We still believe there is some leverage in our fixed operating expenses, as we continue to grow.

The January 16th acquisition of OTP Technologies had a positive impact on our results. As I already mentioned, OTP customers contributed $0.4 million of revenue in the fourth quarter of 2007. Without the addition of OTP, our revenue increased 17%. OTP contributed approximately 1 penny to our earnings per share of $0.21.

Operating income excluding the legal settlement was $2.0 million or 18% of revenue in the fourth quarter of 2007, compared to $0.9 million or 10% of revenue in the fourth quarter of 2006. Our team was excited to see EBITDA excluding the legal settlement, rise to 20% of revenue in the fourth quarter and we think that's a very important milestone for the company. I am sure that if you have reviewed our results, you couldn't help noticing income tax expense. So let me take a few minutes to explain what's going in this area.

We had $13.3 million of net operating losses or NOL carry forwards at the end of 2007, that can be applied against future earnings for tax purposes. We had established a 100% valuation allowance against the $5.4 million of deferred tax assets, which relate primarily to these NOL carry forwards. The valuation allowance was necessary in the past because our ability to utilize the NOL carry forwards was highly uncertain.

With two years of increasingly profitable results behind us, we completed a thorough analysis of the reliability of the NOL carry forwards, as part of our recent strategic planning process. We concluded that it was more likely than not that we would be able to utilize all of the NOL carry forwards before they begin to expire in 2011. Therefore, the valuation allowance should be in less reversed.

This resulted in a one-time non-cash credit to income tax expense of $5.4 million in the fourth quarter. So, what does that mean going forward? It means that our pre-tax income will be fully taxed in 2008., It's very important to note however, that the income tax expense that we book each quarter, will be almost entirely a non-cash expense. Then we still have NOL carry forwards. At current utilization rate the NOL carry forwards will not be fully utilized until well after 2008.

As I stated in our press release, I believe that our ability to eliminate the valuation allowance is an expression of confidence in our future. I think it's important to look at net income and earnings per share in several ways, due to the two unusual items that we have discussed. Reported net income was $7.2 million or $0.80 per share for the fourth quarter.

Excluding the legal settlement, and elimination of the deferred tax valuation allowance, net income was $1.9 million or $0.21 per share, compared to $0.8 million or $0.10 per share in the fourth quarter of 2006. If fourth quarter pre-tax income have been fully taxed at 39% tax rate, and excluding the two unusual items, net income would have been $1.2 million or $0.13 per share.

Let me briefly highlight our results for the full year. All of these figures exclude the two unusual fourth quarter items for comparability purposes. Revenue for 2007 was $42.5 million, up 29% from $32.9 million in 2006. Gross profit was 32% of revenue compared to 24% of revenue in 2006.

Operating expenses were 17% of revenue in 2007 compared to 18% of revenue 2006. Operating income was $6.6 million or 16% of revenue, an increase of $4.6 million or 223% compared to $2 million or 6% of revenue in 2006. Net income was $6.2 million or $0.71 per share compared to $1.5 million or $0.18 per share in 2006.

Next, I would like to make some comments about our balance sheet and liquidity. We had $5 million of cash on hand at the end of the fourth quarter, compared to $0.2 million at the end of 2006. Our days of revenue outstanding were 43 days at end of 2007 compared to 47 days at the end of 2006.

Working capital jumped to $6.0 million and our current ratio improved to 2.4 to 1. We have $2.2 million of outstanding debt, but none of this is bank debt, and the weighted average interest rate on the outstanding debt is 3.4%. $1.3 of the debt will be repaid to note holders at the end of January, leaving a balance of only $0.9 million. We believe that cash flow from operations and availability under our credit facility is sufficient to finance operations and make capital investments in the normal course of business, as well as to make smaller strategic acquisitions.

Now, I would like to turn the call back over to Larry.

Larry Gerdes

Thanks Lance. Let me start by discussing the industry as a whole. Studies vary widely as to the size of the medical transcription industry. The latest data that we have seen estimate that the medical transcription is a $12 billion market, of which about $5 billion is currently outsourced to some 1,300 medical transcription services organizations like Transcend.

According to one report, the outsourced portion of the market is expected to grow to $8.4 billion by the year 2010, due to organizations outsourcing more of their work, greater demand for healthcare as the population ages, and the need to better document patient care for regulatory and insurance reasons.

In this environment, national providers with an excellent service reputation are well-positioned for growth. We mentioned in our last quarter's call that the August 2007 class report on medical transcription service organizations, great Transcend is the number one large transcription company based on customer surveys. Customers use the class report when making decisions, so it's an excellent marketing tool for us.

Other important dynamics impacting our industry include the adoption of speech recognition technology and retaining labor supply for U.S. based medical transcriptionist, which has accelerated the growth of the offshore medical transcription industry particularly in India. Firms, with their strong speech recognition technology and experience with offshore production are more likely to prosper in coming years in our opinion.

We also believe that the industry is right for consolidation. One of our disappointments in 2007, is that we were unsuccessful in completing any sizable acquisitions. We have an active list of prospects that we are working, but the deal is not done until it's done. We have been selective, passing on some opportunities for what we believe are the right reasons. It's important to keep our perspective. Transcend is doing well right now and the last thing, we need to do a stumble over the ill-conceived or poorly executed acquisition. We will continue to pursue these opportunities.

Next, I would like to give you an update on our sales and implementations activities. We sold new business in 2007 with estimated annual revenues of about $7 million, when fully implemented. Our implementation backlog was approximately $3 million to $3.4 million in annual revenue, as we entered 2008. We expect to implement this backlog during the first half of 2008. When making comparisons to the fourth quarter of last year it's important to note that the fourth quarter of 2006 had an unusually high volume of large implementations from sales made in the third and fourth quarter of 2006.

We sold the same amount of business in 2007, as we did in 2006. But the sales in 2007 occurred later in the year and some have slower ramp up timeframes, which increased our backlog at year end. About 60% of the annual value of new business, we closed in 2007 was on our BeyondTXT platform and 40% was another platforms, predominantly eScription.

We have two dedicated sales resources plus a telemarketing firm to drive sales. We are searching for two more sales resources to broaden our reach. Our pipeline is significantly larger than it was at this time last year and the market continues to be active. It's important to note that we could probably drive top line growth faster, if we were willing to take on more, low margin business, but, our approach continues to be to pursue business that allows us to deliver excellent service at a fair price.

Now, I would to like to spend a few minutes talking about customer service. I'm extremely pleased to report that our customer retention rate for 2007 was 98%. I feel that's the best in the industry. We lost four customers during 2007, but two of them came back after a few months, when they had poor experiences with other transcription companies.

Our team leaders and regional managers have the goal of not losing any of their customers, and they have done a fantastic job in this area. They are the ones responsible for ensuring that our customers receive accurate documents on time. But we realize that attrition will occur from time to time despite our best efforts. So, we plan for 5% to 10% attrition each year. The unplanned loss of large customers is perhaps the biggest risk in successfully executing our business plan. But if we continue to deliver excellent service, we believe there should be no reason for our customers not to continue to partner with Transcend year after year.

I'm also pleased with our progress in making Transcend the best company to work for in the industry. We have seen our employee turnover gradually decreasing all year long, and morale in the field is good. We will continue to invest time and resources in this area to help us reach our goals.

Let me conclude by reiterating, how pleased our management team is with our results for the fourth quarter in the year. We worked hard to be position, where we are right now, but we all know we have more work to do. As I said last quarter, I believe that we standout from our competitors, because of the combination of our excellent reputation for service and value, our national scope, our advanced technology and our commitment to predominantly US based production. I want to thank everyone the Transcend, who work hard to deliver these results for an outstanding quarter that concluded a great year. I look forward to working with all of you in 2008 and beyond.

Now, I would like to ask Susan McGrogan, our Chief Operating Officer and Jeff McKee, our Senior Vice President of Sales and Marketing to join us for the question-and-answer period.

At this point, we would like to open up the lines to your questions, Julian.

Operator

Thank you. (Operator Instructions). Your first question is from the line of Gary Holdsworth with Singular Research.

Gary Holdsworth - Singular Research

Hello folks.

Larry Gerdes

Hi, Gary and how are you?

Gary Holdsworth - Singular Research

I want to ask a little bit about your big customers, you mentioned that typically being your largest risk. How many big customers approximation do you currently show on your books?

Larry Gerdes

Gary, I'll let Lance handle that.

Lance Cornell

We'll update the numbers of course in the 10-K, but we don't have any single customer that accounts for north of 10% of our revenue. And we do have one chain of hospitals that represent about 45 or so different customers. Collectively those represent probably in the range of 20% of our revenue, but they are all individual contract with individual hospitals. There is no one single master agreement.

Gary Holdsworth - Singular Research

Okay. And the implementation backlog you mentioned, I just want to make sure, I understand that, that is considered as new customers, that you are bringing on into your system and plugging in that volume over time?

Lance Cornell

That's correct.

Gary Holdsworth - Singular Research

Okay. When you talk about slower return of the snowbirds, so to speak, is that coming from your customers saying that, I'm just curious, where are you getting that kind of feedback, and then where are you seeing, back to normal at this stage in the game?

Larry Gerdes

We'll let Sue, answer that?

Sue McGrogan

Yeah, we had an unusually slow fourth quarter with our Florida customers, and we've been told that by the customers themselves, the census has been low and now it's much higher. So, it wasn't -- we have a lot of theories on that, but we are just really not sure, what it would be.

Gary Holdsworth - Singular Research

Okay. The last question, I have is, with no acquisition, at least current and stock price, we know is down, have you talked or internally how about a share buy back?

Larry Gerdes

We haven't considered share buyback. We've got about $5 million for the cash in our books, and we are generating about $2 million to $2.5 million of cash a quarter. We would still like to keep that available for acquisitions, and so that coupled with our stock and with our lines of credit, we'd rather consider it for that of stock buy back right now.

Gary Holdsworth - Singular Research

Okay, thanks. I'll let up someone ask some questions, thanks.

Larry Gerdes

Thank you, Gary.

Lance Cornell

Thank you.

Operator

Your next question is from the line of [Lenny Dunn] from Freedom Investors.

Lenny Dunn - Freedom Investors

Good morning.

Larry Gerdes

Good morning, Lenny.

Lenny Dunn - Freedom Investors

Congratulations on a good quarter. I guess my question would be for the future presentations. I don't have any problems with minor attrition, or with the tax credits in there. But I'd like to see, maybe you generate a statement that shows cash flow, because clearly the cash flows are going to be substantially higher than the reported earnings going forward, because of the tax credits which will hopefully get used up in 2008, but more likely 2009. So, presentation be made that way going forward, so we're kind of comparing apples-to-apples year-over-year?

Larry Gerdes

I think that's a good idea. Lance?

Lance Cornell

Yeah. I think that's a possibility. Another, I would point out to you that that typically, our EBITDA tracks reasonably closely to our cash flows from operations.

Lenny Dunn - Freedom Investors

I understand that. But sometimes just to make it easy for the average person to read.

Lance Cornell

Sure.

Lenny Dunn - Freedom Investors

I do understand what you have here, but to make it easy for the average investor to read, particularly since you're going to be showing year-over-year comparisons to non-taxed, showing the cash flows which give people a little easier understanding.

Lance Cornell

Yeah. I agree with you

Lenny Dunn - Freedom Investors

Okay. And otherwise, no complaints. I am frankly glad you haven't rushed into an acquisition. I hope that you can find something that fits your culture, because I understand that's the operative word there, and that you don't want to do anything that creates a diminution of the quality of work you're doing. So, with that in mind, you just make an acquisition if it make sense and if doesn't, we're building up some cash.

Lance Cornell

I couldn't agree more, Lenny. We're very excited about what we did in the fourth quarter and where we finished the year. And I would say that, Transcend's reputation is continuing to improve in the industry. As a result, we are now starting to be sort after as a partner for companies that want to take advantage of what we bring at the table.

And I will add this, there are lot of companies in this industry that are outstanding regionally based transcription companies, that happen to have the time to invest in technology or overseas capacity, led alone not just technology, speech recognition. And that's another one of the reason along with Transcend's reputation. So I agree with you.

Lenny Dunn - Freedom Investors

Yeah. And also, if we add $7 million in new businesses attract $234,000, that's better than an acquisition?

Larry Gerdes

Exactly. I agree.

Operator

Your next question is from the line of Stephanie Haggerty with Register & Akers.

Stephanie Haggerty - Register & Akers

Hi, folks. Good quarter.

Larry Gerdes

Thanks you.

Lance Cornell

Thanks, Stephanie.

Stephanie Haggerty - Register & Akers

Getting a little confusing with a jack situation, but I hope everybody will understand you've done a great job of explaining it.

Lance Cornell

Thank you.

Stephanie Haggerty -Register & Akers

And on back to my same old question. Let's talk about marketing and sales. This $7 million new business that you uptake in the quarter, where did that come from, who brought it in, was it your people, was it eScription, how did you get it?

Larry Gerdes

I will let Jeff to respond, Stephanie.

Jeff McKee

Stephanie, we have similar mix of new business in the fourth quarter that we've experienced earlier. Some of that was our BeyondTXT technology business and some of that was third-party platform such as...

Stephanie Haggerty -Register & Akers

No, no. The BeyondTXT business that you got, who got it for you?

Jeff McKee

Who sold it? Well, we….

Stephanie Haggerty -Register & Akers

Who sold that? I mean where did it come from? I am looking at your sales and marketing line and it's gone down to a new row in the fourth quarter of this year. I wonder where it's going from here. Do we have sales people? Are we hiring sales people, and where is this business coming from?

Jeff McKee

We are hiring sales people. Stephanie, we did hire another sales person, just as, just as…

Stephanie Haggerty - Register & Akers

Another beyond who, is there someone else besides you, Jeff?

Jeff McKee

No.

Stephanie Haggerty - Register & Akers

Okay. So, you now have an additional person?

Jeff McKee

Correct, yes.

Stephanie Haggerty - Register & Akers

And that person came from where?

Jeff McKee

That person came from another national transcription company, has some good extensive experience in the industry, which again fits the profile of the person we are looking for. I certainly sold quite a bit of the business myself.

Stephanie Haggerty - Register & Akers

Congratulations. I know you do a great job.

Jeff McKee

Sue's team has been very instrumental with our regional managers in executing our relationships in selling the models, where we are being referred to good customers, who value the quality service at the fair price that Larry mentioned. With the eScription opportunities, those still have to be sold. We are one of several eScription preferred partners. So, each of those eScription opportunities, they represent a wonderful basis of new business for us, but they do have to be sold and…

Stephanie Haggerty - Register & Akers

And so, who is selling them? Is that your job?

Jeff McKee

It is, and we've really our customers are greatest sales people because we are 100% referencable, every one of our eScription and BeyondTXT clients is referencable. So, that's a great advantage for us.

Larry Gardes

And we -- Stephanie it's not lost on us, I mean, we are putting in place marketing and sales organization plans for 2008. And like we said in our comments, we are going to expand our sales force. We are increasing our strategic partnerships. Our regional operations managers have now all asked to have a quota to help sell, there are eight of them. So they are all being given a quota this year, as well.

Jeff just got back from a trip two weeks ago with one of our regional operations managers, where to his surprise, the customer brought $600,000 of new business to the table. It's actually grown since then, with other departments and other customers and their systems. So, I mean it's going to come from a lot of sources. But you are right, this year 60% to 75% of those that business was either sold by Jeff, or Sue, or our organizational referrals from our customers.

Stephanie Haggerty - Register & Akers

Tell me something about the $7 million; did this just all come in the fourth quarter?

Larry Gardes

No.

Lance Cornell

No. I think we were close to $5 million through the end of Q3.

Stephanie Haggerty - Register & Akers

Because we didn't hear that number last quarter, did we?

Larry Gardes

Yeah. We reported that. I'd have to pull up that press release. But, I think we reported that we were close to $5 million through the third quarter.

Stephanie Haggerty - Register & Akers

Yeah, I guess you did, I'm sorry. And so the implementation of that $7 million, did some of it occur in Q4?

Larry Gardes

Oh yeah. Some of it occurred during the year.

Stephanie Haggerty - Register & Akers

Yeah. But what I'm trying to get how much is leftover, and when and what intervals you would expect to book it?

Lance Cornell

Yeah, there is about $3 to $3.4 million in backlog, and the reason for the range is what we quote in terms of sales is what we have come to understand the annual volume once the customer is fully up and running, and when working with the customers on that.

So, they are estimates. The $3 million to $3.4 million in this particular case represents a larger share than is typical, I'd say of multi-site types of deals, which will be implemented over a longer period of time. As they rollout new sites on to our BeyondTXT platform or other platforms for that matter. So, that's why we said that the $3 to $3.4 would come in over the first half of '08, as suppose to saying in -- all going to be there on January 1st.

Stephanie Haggerty - Register & Akers

No, that doesn't surprise me at all and you said there is a significant pipeline?

Larry Gerdes

Yeah, absolutely pipeline is up significantly compared to last year.

Stephanie Haggerty - Register & Akers

Is any different kind of customer or similar?

Jeff McKee

Stephanie, is Jeff. It's similar profile, as we continue to look for those community hospitals that just value the service element and other relationships, and we are off to a quick start in January. We have signed several new contracts that are approximately $2 million worth of value. So, the year is off to a great start and the pipeline has never been stronger.

Stephanie Haggerty - Register & Akers

Okay. Is that $2 million is an addition to the $7 million, you talked about?

Jeff McKee

Yes.

Sue McGrogan

That's right.

Stephanie Haggerty - Register & Akers

Okay. Well, keep up the good work. It's you are building an impressive days of business.

Larry Gerdes

Thank you.

Sue McGrogan

Thank you.

Operator

To our next question is from the line of [Wayne Comasar] a private investor.

Wayne Comasar- Private Investor

I have the question for Larry.

Larry Gerdes

Yes, Wayne.

Wayne Comasar - Private Investor

And good morning.

Larry Gerdes

Good morning.

Wayne Comasar - Private Investor

I want to preference my question Larry, by saying that I don't always hear exactly what people say, it's a creative defect of mine. But what I thought I heard you say, 6 months ago in the conference call, was that you anticipated revenue growth going forward of about 25%, but when I look at the press release this morning Jeff McKee is reporting that sales for '07 equal sales for '06. So, I may not have heard what I thought I heard you say, but what you foresee as revenue growth going forward for 2008?

Larry Gerdes

Good question, and you didn’t hear me wrong. We don't typically give out forecasted numbers, but what we have said time and time again is that, in this industry organic top line growth can equate to something like 15% to 25%. And in the recurring revenue business like ours, a lot of that is impacted significantly by customer attrition or lack there of. So, the geometric dimension of having backlogs of recurring revenue and revenue run rates, sometimes can impact those numbers.

For example, this year, we had 29% revenue growth, not counting our acquisition. Lance, was at about 22 for the year. It seems to me it was around 22 and it was 29 with the acquisition. So, we have always felt that organically was 24.

Lance Cornell

Yeah. Okay.

Larry Gerdes

But you're right. I mean the level of sales was equal to the year before. Now, some of that has to do with the timing of when it gets installed, and the timing of when new sales come on. For example, the $2 million that Jeff and Lance just mentioned that, we've sold in January of this year, while that will be installed for most of the year. So, that has a different impact, and something we saw in the third and fourth quarter.

So, we've always felt like organically, we should grow 15% to 25%, that will bounce around a little bit and again it will be impacted a little bit about by customer attrition and growth within our customers.

Wayne Comasar - Private Investor

I guess the second question that I might have is, would there be any plans to institute even a small dividend to support the share price, which as you guys know, has dropped from a high at $25, down to about $10 at this point, you're sitting on $5 million cash and this is a growth story. So if the sales don't keep increasing, share price doesn't go up.

Lance Cornell

Yeah. Your question is well taken. Other people have asked us that question. And I guess our response would be, if we paid dividend, we would obviously be indicating. We have no other use for our cash. Two, we'll never be a dividend stock because we're growth stock, and we won't trade of the dividend yields. Three, I would say that we have a better use for the cash we think, and can bring to our shareholder's a greater return, by having use of that cash in growing our business, rather than in distributing in the form of dividends.

So we have given no considerations to dividends. But like we told you, we are still keenly interested in making acquisitions. So I am hoping that we're going to be happy, we've that cash on hand.

Wayne Comasar - Private Investor

Okay.

Lance Cornell

Thank you.

Operator

(Operator Instructions). Your next question is from the line of Gary Holdsworth with Singular Research.

Gary Holdsworth - Singular Research

Hi, guys. A quick follow-up. You've done an excellent job on raising the profitability of this company. I know you mentioned the one-two of kind of BeyondTXT plus the offshoring, but now when we're going to next year, where you're going to be fully taxed on earnings, it's going to be tough bogie for considered to growth stock. So would you accelerate either or could you, if you wanted to, the BeyondTXT penetration or the offshore penetration of your volume to help those operating margins keep growing in a nice pace?

Larry Gerdes

Well, first of all, you are right. About three quarters ago, we were educating the marketplace. But the good news is eventually we're going to use up our NOLs. Because we knew -- three years ago, people asked if we never used them. Now, it's just a matter of time and we knew we had to look at our valuation reserves.

That part of it doesn't have anything to do with growth. But you are right; it's the optics in many cases. We are continuing to move people through the speech recognition platforms as quickly as we can and as Lance mentioned in his comments, we hope to get to 40% this year. That we will push.

But two things, I had mention on the overseas. One, we only wanted to do it, in a way that helps us deliver superior service and maintain our quality. Two, I wanted not to be lost on anyone that we still need our entire domestic workforce and we still need to recruit as many people as we can in the United States to handle our growth. Our overseas will never replace that, however, overseas will continue to grow only because our workforce domestically is diminishing and it's tougher to recruit.

So we will continue to grow that and we haven't given any of you, a specific guidance and I'll let Lance respond to it too. But we hope to continue to improve margins. Now, the improvement we've had over the last two years, to me, is tremendous. If you would ask me, two years ago and Lance for that matter too, we would have never expected to get past 15% EBITDA margins in this business. And as we've reported we just hit 20% and we think that's a tremendous milestone. We still think there is improvement to grow. Lance, would you add anything to that.

Lance Cornell

Yeah. I'd just add specifically that I think first on the offshore front, we need to build the capacity carefully with our partners, because the last thing we want them to have happene, is for poor quality. And if our partners grow too quickly, they are going to be hiring transcriptionists that have less training, and it's going to take them awhile to get up to speed. So, we need to monitor that carefully and we were going to be pushing at and growing as fastest as we can but not at the expense of quality.

Second on the speech recognition front, I'd just add specifically that the -- we do have a number of customers, who are on an old tired platform that's basically being mothballed, and those are converting over to BeyondTXT. And once they convert to BeyondTXT, then we have the opportunity to build the speech profiles, and run all of that through speech recognition technology. So, that's an important transition of customer base for which speech recognition technology was not formally available and now it is.

Gary Holdsworth - Singular Research

Okay. Very good, that's good answer. On the recruiting side, you mentioned, still difficult to find trained people. Do you have a plan or intent to, or do you did this already work with like local colleges, vocational schools or anything to kind of jump start the careers and the communities you are serving?

Larry Gardes

Yes. We've had a program for two and a half years or so in Abilene, Texas, and we've got some great partnerships not only with the development authority of Abilene, who has been tremendously supportive, but also three junior colleges there. And so, we provide them a ready outlook for opportunities to come to work for Transcend and that works well.

But typically, when we are out across the country recruiting, we try to recruit people with at least three to five years of experience, because it just seems that until they get to that point, the production levels and their ability to work in the production environment is an optimal, so we do both.

Lance Cornell

Another important dynamic to being able to hire and retain transcriptionists, is that with speech recognition technology, the average person's productivity goes up significantly. So, you need fewer people to get the job done, which doesn't in anyway mean that we'd reduce our domestic workforce, it just means that through normal attrition and as we grow we need to hire fewer people than we otherwise would have.

Gary Holdsworth - Singular Research

Thank you very much.

Larry Gerdes

Thank you.

Operator

Your next question is from the line of [Lenny Dunn] from Freedom Investors.

Lenny Dunn - Freedom Investors

Yeah. Hi, just a follow-up question this Abilene situation, you have $674,000 in promissory notes payable, how much of that is the zero interest forgivable loan that Abilene has given you that to me in my opinion is really a loan it's just because you are going to keep giving it as your higher transcriptionist?

Lance Cornell

Yeah. The entire $600,000 plus balance is exactly that, it's the interest free loan and we earn credits to pay down that balance as we hire and retain people in the Abilene area.

Larry Gerdes

Okay. I just wanted to clarify that I didn't know if there was any of it, 674 is that.

Lenny Dunn - Freedom Investors

Thank you.

Larry Gerdes

Yep.

Operator

Your next question is from the line of [Wayne Comasar] a Private Investor.

Wayne Comasar - Private Investor

Larry and Sue, I have one follow-up question. Larry you had mentioned that to acquire another good company, another good transcription company in this environment, you might have to pay upwards of three-times revenues. The Transcend's stock is no longer trading for three-times revenues. Would there be any possibility from you and Sue and I guess Walter Huff, the major shareholders to actually entertain an offer for Transcend?

Larry Gerdes

Very good questions, I will take more of the time, and I'll let Sue add too. If I ever said three-times revenue I made a mistake, Wayne. We have had one sale in our industry that was at three or four times revenue a couple years ago, maybe year and half ago, that the strategic element to that sale probably distorted that.

We are in this industry on the private side, probably seeing a multiples of one to one and half times revenue, more importantly probably five times projected EBITDA, which in some cases might be eight to tens times trailing EBITDA. I won’t say that there are hard situations, where somebody would rather get two-times revenue and we can't make the numbers work.

But don't ever think that we are at a position, and we want to pay three-times revenue, you have to have a public model driven off of multiples to even a approach that. And like you said, today, that's one of the reasons we feel Transcend is undervalued, because our market gap is about two-times revenue with 20% EBITDA margins.

Now, your second question, I'll give you the textbook answer, but it is the answer. We have an obligation to our shareholders to entertain any overtures that are legitimate for Transcend. Would we like to sell Transcend? No. Are we excited about our future? Absolutely. Do we think we have the best year to come, we absolutely believe that.

And so, we would not like to sell the company today, but I will be the first one to tell you that, we have an obligation to shareholders, that we have to get out any overture like that. And that Sue, I hold off, if there is anything you can add to that.

Sue McGrogan

I just want to say that, you really can't overestimate the importance of a cultural fit with an acquisition. We don't want to lose, what we built, which is we are very customer focused. We have a 100% responsible customers and that in this industry is, that is excellent. And we also have happy employees and we don't want to ruin that.

So, we have looked carefully at every acquisition in terms of cultural fit as well. And in terms of selling any -- we are having a lot of funds, I mean we know what we can do. And stock price has been a little bit depressing, but we are not concerned at all. I mean we know what we can do, we know our worth, we know what we are going to do and we are fine.

Wayne Comasar - Private Investor

Okay. I appreciate the answer to the question.

Larry Gerdes

You are welcome.

Sue McGrogan

You are welcome.

Operator

Your next question is from the line of [Simon Borosch], a Private Investor.

Simon Borosch - Private Investor

Good morning. You mentioned this "snowbird" issue, can you tell about how much of the company's revenues are associated with Florida? And I have some follow-ups.

Larry Gerdes

Lance?

Lance Cornell

I don't know the exact percentage of the total revenue that comes out of Florida. I can tell you that "snowbird" effective is probably about a 2 to 3 swing in the top line growth from the slow quarters to the heavier quarters?

Simon Borosch - Private Investor

When you say, two to three swings, I am not sure I understand what you mean?

Larry Gerdes

Is that percent?

Lance Cornell

2% to 3%, I am sorry of quarterly revenues, summer versus winter.

Simon Borosch - Private Investor

Okay. And also, the $2 million of new business that you said you sold this January. Is that something that can possibly repeat month-to-month or is it very lumpy? Was there one large amount of new business you sold?

Lance Cornell

Well, first, I said that we sold $7 million last year, so that's running at more in the range of just under $2 million per quarter. We'd clearly like to do better than that and we are off to a good start. As far as this quarter in particular, I'll let Jeff comment on the particular size of the deals. It is lumpy, exactly when they close within a given quarter is very difficult for us to control and whether they are big ones or small ones, it's just every quarter is unique.

Larry Gerdes

How many, Jeff, would you say comprise the $2 million?

Jeff McKee

Yeah. Those were four agreements. One of them was of fairly significant in size and the other three were of more small to average. And that's the large where it will take some time to fully implement. So I would just agree with everything else Lance said about the quarter-to-quarter view.

Simon Borosch - Private Investor

Okay. Thank you very much. Keep up the good work.

Larry Gerdes

Thank you

Operator

Your next question is from the line of Stephanie Haggerty with Register & Akers.

Stephanie Haggerty - Register & Akers

Hey, I just wanted to follow-up a little bit on the acquisition. I know in the past that we've talked about the ideal acquisition would be $5 million or $6 million of revenues and so forth. I am wondering what you are seeing out there, how big are these deals, what has been hang up and getting any of them done?

And I agree with you all that, better to do none than to do one that's lousy. I just wondered if you could give us some idea of the composition and maybe also whether geography is an issue here.

Larry Gerdes

I'm glad you asked the question, Stephanie. We think that we ought to make bigger acquisitions. Before we said $5 million to $6 million and that still works, but we'd like to look at bigger ones. We think we've got the capacity to integrate them. We've got the technology and scalability and it has a much more profound impact on the overall operations.

I don't think geographic that is nearly as important in this industry as the cultural fit. There is an advantage for good geographic fit, only if it's a region in which their growth rate might be significantly faster than ours. So I won't discount it and say that it's not good to go to a geography that's got a heavy healthcare population and take advantage of growth.

And there is one in particular I can pick -- well, two actually, I can pick up last year, but we have done that. They have real nice growth rates, real nice relationships in a particular geography. But I do also want to emphasize the fact that I think Transcend now has grown to the point where we can certainly consider a larger acquisitions. Now, there aren't a lot of those out there as you know it's a very fragmented.

Stephanie Haggerty - Register & Akers

Well, I was going to ask you where are -- I don't remember finding many in that size category, but I mean I certainly had been now they are beating your business either. I can show you out.

Larry Gerdes

Yeah. There are few, Stephanie. So that opportunity exists.

Stephanie Haggerty - Register & Akers

Well, great good luck with that.

Larry Gerdes

Thank you.

Operator

There are no further questions at this time. Mr. Gerdes, do you have any closing remarks?

Larry Gerdes

Yes, thank you Julian. I can't emphasize enough the effort that our teams put forth for the year 2007. I also can’t emphasize enough how optimistic we are about the future for Transcend, and what we've accomplished and the momentum we've gained, that credit goes to our employees and our management team, who have done a tremendous job of positioning this company.

I think, we are going through a little bit of a difficult transition, as people are starting to get use to the fact that we are going to be tax affected our earnings and no matter how much preparation goes into that I think people have to apply their multiples to a different level of earnings. We are disappointed where our stock price is now, but we are not managing this company for the stock price, we are really managing for our opportunities and to make ourselves a meaningful company.

I will add that we feel to be a meaningful company, we need to continue to grow in size and as a result, we will continue to be aggressive with acquisitions. Also, we want to continue as we have in the past to thank our investors for the support they provided the company. We look forward to do our next earnings call and we promise to share any significant information along the way with our investor community. So, thanks again, we appreciate it. We'll talk to you for the next earnings call.

Operator

Thank you for participating in today's fourth quarter 2007 Transcend earnings release conference call. You may now disconnect.

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