Transcat Reports 24.4% Increase in Operating Income on 11.9% Growth in Revenue for Second Quarter 2009

Transcat, Inc. (Nasdaq: TRNS), a leading global distributor of professional grade test and measurement instruments and accredited provider of calibration, 3-D metrology and repair services, today reported financial results for its second quarter of fiscal 2009 which ended September 27, 2008. Our reported results include the results of Westcon, Inc., a privately-held test and measurement instrument distributor and calibration laboratory located in Portland, Oregon, which was acquired on August 14, 2008.

Net revenue for the second quarter of fiscal 2009 was $18.6 million, an 11.9% increase compared with net revenue of $16.6 million in the second quarter of fiscal 2008. Westcon contributed $1.1 million to total net revenue in the second quarter of fiscal 2009. Organic net revenue increased 5.4%, or $0.9 million, primarily as a result of the growth in Product segment sales.

Net sales of the Company’s Distribution Products (Product segment), which represented 70% of net revenue in the second quarter of fiscal 2009, were $13.0 million, a 15.5% increase compared with net sales of $11.2 million in the same period the prior fiscal year. Growth in sales to the Company’s core customer base, resellers and international customers and $0.9 million related to Westcon was partially offset by lower sales to Canadian customers. Organic Product segment sales were $12.1 million, a 7.6% increase over the second quarter of fiscal 2008.

Calibration Services (Service segment) revenue was $5.7 million in the second quarter of fiscal 2009, a 4.6% increase compared with revenue of $5.4 million in the second quarter of fiscal 2009. Westcon contributed $0.2 million in Service segment revenue in the second quarter of fiscal 2009. Organic Service segment revenue, which was negatively impacted by Hurricane Ike, was relatively flat compared with the same period the prior fiscal year.

Net income was $0.4 million, or $0.06 per diluted share, in the second quarter of fiscal 2009 compared with $0.2 million, or $0.03 per diluted share, in the same period the prior fiscal year.

Charles P. Hadeed, President, CEO and COO of Transcat, commented, "As with many companies, we have experienced the effects of the current economic climate and credit conditions. Our organic revenue growth rate, especially in our Service segment, did not meet our expectations. We believe, however, that for some of the markets we serve, such as the energy and pharmaceutical sectors, requirements for our products and services remained relatively stable. Through the implementation of effective cost controls, timely financial decisions, prudent investments in growth strategies and leveraging of operational efficiencies, we have continued to improve our bottom line.”

Second Quarter Fiscal 2009 Review

Gross profit was $4.6 million, or 24.6% of revenue, in the second quarter of fiscal 2009 compared with $4.2 million, or 25.5% of revenue, in the same period the prior year. The lower gross profit percentage was primarily due to the differences related to the mix of products and services, suppliers and market channels.

Selling, marketing and warehouse expenses increased to $2.1 million in the second quarter of fiscal 2009 compared with $2.0 million in the same period the prior fiscal year, but were down from $2.6 million in the trailing first quarter of fiscal 2009. Administrative expenses were $1.7 million for the second quarter of fiscal 2009, which included $0.1 million in expenses for Westcon, compared with $1.6 million for the second quarter of fiscal 2008 and $1.7 million in the trailing first quarter of fiscal 2009. Reduced expenses related to variable and stock-based compensation had a positive impact to both selling and administrative expenses compared with the trailing first quarter. Operating income for the second quarter of fiscal 2009 was $0.7 million, or 4.0% of net revenue, compared with $0.6 million, or 3.6% of net revenue, in the second quarter of fiscal 2008.

In the second quarter of fiscal 2009, other net expense decreased 86.6% to $0.03 million compared with $0.2 million in the second quarter of fiscal 2008. The decrease in other expense was due to reduced foreign currency losses. The Company has a program in place to hedge the majority of its risk to fluctuations in the value of the U.S. Dollar relative to the Canadian dollar.

The effective tax rate in the second quarter of fiscal 2009 was 39.2%. For fiscal 2009, the effective tax rate is expected to be in the 38% to 40% range.

Product and Service Segment Review

Transcat is uniquely positioned to serve the process, life science, utility and manufacturing industries by its ability to bundle a wide variety of premium test and measurement instruments with quality calibration, 3-D metrology and repair services for its customers. Transcat’s calibration capabilities and product delivery systems enable it to rapidly respond to its customers’ requirements for quick turn-around times for instrument purchases and calibration, 3-D metrology and repair services.

Product Segment

Through its Product segment, Transcat markets and distributes national and proprietary brand instruments to over 13,500 global customers. The Company’s Master Catalog offers access to more than 25,000 test and measurement instruments. The Product segment primarily uses direct marketing and the Company’s website, which has online ordering capabilities, to market to end-users, as well as to resellers.

Product segment net sales increased 15.5% to $13.0 million in the second quarter of fiscal 2009 compared with $11.2 million in the same period the prior fiscal year. Organic Product segment sales growth was 7.6%. Average Product segment sales per day, including Westcon, were $206 thousand in the second quarter of fiscal 2009 compared with $178 thousand in the same period the prior fiscal year. Sales of the Company’s products over its website increased 12.1% to $718 thousand in the second quarter of fiscal 2009 compared with the same period the prior fiscal year.

Gross margin for the Product segment is a function of a number of factors including market channel mix, product mix and discounts to customers. Product segment gross profit in the second quarter of fiscal 2009 was $3.4 million, or 26.1% of net sales, compared with $3.1 million, or 27.9% of net sales, in the second quarter of fiscal 2008. The reduction in gross margin was attributable to higher international and reseller sales, which have lower margin potential, combined with lower sales to Canadian customers which typically have higher margins.

Product segment operating income was $1.1 million, or 8.2% of net product sales, in the second quarter of fiscal 2009 compared with $0.9 million, or 8.1% of net product sales, in the same period of the prior fiscal year.

Mr. Hadeed noted, "We are reasonably pleased with our Product segment sales growth and resulting margins, with increases in all of our markets except Canada, where volatile fluctuations in exchange rates have hampered our growth. Our acquisition of Westcon should allow us to expand our ability to support and grow our customer base on the West coast and further penetrate the wind energy industry.”

Service Segment

Transcat’s customers purchase calibration services for the purpose of measurably reducing their risk of product or process failures that can be caused by inaccurate measurements. Transcat annually performs more than 140,000 calibrations at its 12 Calibration Centers of Excellence, located throughout the United States, Canada and Puerto Rico, or at its customers’ locations.

Service segment revenue was $5.7 million in the second quarter of fiscal 2009, a 4.6% increase compared with $5.4 million in the same period the prior fiscal year. The timing of calibration orders and segment expenses can vary on a quarter-to-quarter basis based on the nature of a customers’ business and calibration requirements. In general, a trailing twelve month trend provides a better indication of the progress of this segment. Service segment revenue for the trailing twelve months that ended September 27, 2008 were $23.4 million, up 7.7% when compared with $21.8 million for the trailing twelve month period that ended September 29, 2007.

Hurricane Ike negatively impacted Service segment revenue in the second quarter of fiscal 2009. In addition to the forced two week shutdown of the Company’s largest calibration laboratory and repair center in Houston during the storm and its aftermath, many of the Company’s customers in that area postponed or cancelled expected calibration service requests. Additionally, repair service requests, which can be unpredictable quarter-to-quarter, were down 12.3% year-over-year.

Within the calibration industry, there is a broad array of measurement disciplines making it costly and inefficient for any one provider to invest the needed capital for facilities, equipment and uniquely trained personnel necessary to perform all calibrations in-house. The Company’s strategy has been to focus its investments in the core electrical, temperature, pressure and dimensional disciplines, and it has historically subcontracted 15% to 20% of its customers’ equipment to outside vendors. In the second quarters of both fiscal 2009 and 2008, approximately 81% of Service segment revenue was generated by the Company’s staff of technicians while 19% was subcontracted to outside vendors.

Service segment gross profit in the second quarter of fiscal 2009 was $1.2 million, or 21.0% of revenue, compared with $1.1 million, or 20.6% of revenue, in the same period the prior fiscal year. Tight cost control measures were implemented in the quarter to compensate for the lower than expected revenue growth, resulting in relatively flat gross profit. Service segment operating loss was $0.3 million in the second quarters of fiscal 2009 and 2008.

Mr. Hadeed continued, "Our Service segment growth was significantly challenged by a number of factors, including economic decisions by our customers to postpone or curtail service needs and Hurricane Ike, which made landfall in Houston, the location of our largest calibration laboratory and repair center.”

Six-Month Review

Revenue for the first six months of fiscal 2009 was $36.5 million, up 11.1% compared with revenue of $32.8 million in the first six months of fiscal 2008. Product segment net sales were $25.3 million in the first half of fiscal 2009, up 14.1% compared with $22.1 million in the same period the prior fiscal year. In the first six months of fiscal 2009, Organic Product segment net sales were $24.4 million, a 10.1% increase compared with net sales of $22.1 million in the first six months of fiscal 2008.

Service segment revenue was $11.2 million in fiscal 2009, up 5% compared with revenue of $10.7 million in the first six months of fiscal 2008. The tables at the end of the first half of the release reflect segment sales trends for the six-month period.

Product sales generated over the Company’s website were $1.6 million in the first six months of fiscal 2009, up 34.4% compared with website revenue of $1.2 million in the first half of fiscal 2008.

Gross margin was 25.0% for the first six months of fiscal 2009 compared with 25.8% in the same period of the prior fiscal year. Product segment gross margin was 26.7% and 28.0% for the first six months of fiscal 2009 and 2008, respectively. The year-over-year decrease was a result of product mix and higher net sales through lower margin channels. Service segment gross margin was 21.0% in the first half of fiscal 2009 compared with 21.4% in the same period the prior fiscal year.

Operating expenses were $8.0 million in the first six months of fiscal 2009 compared with $7.4 million in the same period the prior fiscal year. Year-over-year strategic investments in sales and marketing for the Service segment were partially offset by cost control measures. Operating margin in the first six months of fiscal 2009 was 3.1% compared with 3.2% in the first six months of fiscal 2008.

Net income was $0.7 million, or $0.09 per diluted share, for the first six months of fiscal 2009 compared with $0.4 million, or $0.06 per diluted share, for the same period the prior fiscal year

Balance Sheet and Cash Management

Cash generated from operations was $1.0 million in the first six months of fiscal 2009 compared with $2.2 million in the same period the prior year. The reduced cash flow from operations primarily reflects a greater investment in inventory in the fiscal 2009 period. Long-term debt increased to $4.3 million at September 27, 2008, up from $0.3 million at March 29, 2008 as a result of the acquisition of Westcon, Inc. in August 2008.

Capital expenditures, excluding the acquisition of Westcon, were $0.6 million in the first six months of fiscal 2009 compared with $1.0 million, in the same period the prior fiscal year and were primarily used for laboratory equipment to expand capacity and capabilities. Transcat expects capital spending for fiscal 2009 to be in the range of $2.0 to $2.3 million.

Outlook

Mr. Hadeed concluded, "As we enter what are typically our strongest sales quarters, we anticipate accelerated growth rates in both of our business segments. Our growth objectives are dependent on new product launches from our strategic partners, our direct marketing efforts including our annual Master Catalog, and investments in our sales personnel. However, we remain cautious due to the effects the economy and credit markets may have on our customers and their purchase decisions. Both operating and pre-tax earnings should exceed prior fiscal year comparisons, with net income comparisons negatively impacted by a $0.8 million benefit from the reversal of a deferred tax asset valuation allowance in last fiscal year’s third quarter. As we integrate Westcon into our business systems and processes, we believe it will expand our revenue growth opportunities during the remainder of fiscal 2009.”

ABOUT TRANSCAT

Transcat, Inc. is a leading global distributor of professional grade test and measurement instruments and accredited provider of calibration, 3-D metrology and repair services primarily for the life science, manufacturing, utility and process industries. Through its distribution products segment, Transcat markets and distributes national and proprietary brand instruments to approximately 13,500 global customers. The Company’s Master Catalog offers access to more than 25,000 test and measurement instruments. Transcat delivers precise, reliable, fast calibration, 3-D metrology and repair services across the United States, Canada and Puerto Rico through its 12 strategically located Centers of Excellence. Transcat’s calibration laboratories are all ISO-9001:2000 certified and the scope of accreditation for ISO/IEC 17025 is believed to be the broadest in the industry.

Transcat’s growth strategy is to expand both its distribution products and calibration services in markets that value product breadth and availability and rely on accredited calibration services to maintain the integrity of their processes.

More information about Transcat can be found on its website at: www.transcat.com.

Safe Harbor Statement

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks, uncertainties and assumptions and are identified by words such as "expects,” "estimates,” "projects,” "anticipates,” "believes,” "could,” and other similar words. All statements addressing operating performance, events, or developments that Transcat, Inc. expects or anticipates will occur in the future, including but not limited to statements relating to anticipated revenue, profit margins, sales operations, its strategy to build its sales representative channel, customer preferences and changes in market conditions in the industries in which Transcat operates are forward-looking statements. Because they are forward-looking, they should be evaluated in light of important risk factors and uncertainties. These risk factors and uncertainties are more fully described in Transcat’s Annual and Quarterly Reports filed with the Securities and Exchange Commission, including under the heading entitled "Risk Factors.” Should one or more of these risks or uncertainties materialize, or should any of the Company’s underlying assumptions prove incorrect, actual results may vary materially from those currently anticipated. In addition, undue reliance should not be placed on the Company’s forward-looking statements. Except as required by law, the Company disclaims any obligation to update or publicly announce any revisions to any of the forward-looking statements contained in this press release.

Note: Certain prior period balances have been reclassified to conform with the current period presentation.