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Initiation of Research Coverage: Transcend Services, Inc.

CHICAGO, January 6, 2010 - William Blair & Company initiated research coverage of Transcend Services, Inc. (TRCR $20.38), the third-largest medical transcription outsourcing company in the United States, with an Outperform rating and Core Growth company profile.

Analyst Ryan Daniels estimated the company, which provides medical transcription and editing services to more than 250 hospitals and health systems across the country, would generate earnings of $0.80 per share in 2009 and $0.92 per share in 2010.

“Transcend Services participates in a large and important market with significant opportunities for both share gains and growth through acquisitions,” Daniels said. “In our estimation, the U.S. market for medical transcription and editing services is $12 billion to $15 billion in annual sales. At present, the industry has several thousand operators, and Transcend Services—as an industry leader—captures only 3% share in its $2.5 billion target market. As such, we believe Transcend’s opportunities for both organic growth and consolidation are strong. This large growth opportunity, combined with client retention in the mid- to high-90% range, should make Transcend one of the strongest growth stories in our coverage universe over the coming years.”

Daniels continued, “In addition to a superior growth outlook, the recurring-revenue nature and cash-based-payment structure of the company’s business model also make TRCR shares an attractive investment alternative to traditional healthcare services stocks, in our opinion. We also believe Transcend has several opportunities to drive gross margin expansion, as voice recognition technologies and overseas transcription services lower direct costs. Combined with SG&A expense leverage and consistent top-line growth, this margin expansion should allow the company to maintain a low-20% EPS growth profile over the coming three to five years, in our estimation. These strong fundamentals, combined with what we view as an attractive valuation, underlie our positive stance on the stock.”

William Blair & Company, L.L.C. is a global investment firm offering investment banking, asset management, equity research, institutional and private brokerage, and private capital to individual, institutional, and issuing clients. Since 1935, we have been committed to helping clients achieve their financial objectives. As an independent, employee-owned firm, our philosophy is to serve our clients' interests first and foremost. We place a high value on the enduring nature of our client relationships, the quality of our products and services, and the continuity and integrity of our people. William Blair & Company is based in Chicago, with office locations including Boston, London, New York, San Francisco, Shanghai, Tokyo, and Zurich. For more information, please visit www.williamblair.com.

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Current Ratings Distribution (as of 12/31/09)

Coverage Universe
Outperform (Buy): 64%
Market Perform (Hold): 36%
Underperform (Sell): 0%

Inv. Banking Relationships*
Outperform (Buy): 4%
Market Perform (Hold): 0%
Underperform (Sell): 0%

* Percentage of companies in each rating category that are investment banking clients, defined as companies for which William Blair has received compensation for investment banking services within the past 12 months.

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