Good afternoon and welcome to our 2010 Annual Meeting. I am Charlie Hadeed, President and Chief Executive Officer of Transcat.

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2 Good afternoon and welcome to our 2010 Annual Meeting. I am Charlie Hadeed, President and Chief Executive Officer of Transcat. 2

3 Before I get started, you should know that the presentation you are about to hear contains forward looking statements. As you can read on the slide, these statements are made based on Management s knowledge and understanding di of our business and the industries we serve. However, there are risks, uncertainties and other factors that could cause our actual results to differ materially from what we discuss here today. 3

4 Before I begin my formal presentation, I would like to take a minute to introduce to you the members of our senior management team who are here today. Michael Craig, Vice President of Human Resources John Hennessy, Vice President of Sales and Marketing Rainer Stellrecht, Vice President of Laboratory Operations Jay Woychick, Vice President of Wind Energy Commercial Operations and Vendor Relations John Zimmer, Vice President of Finance and Chief Financial Officer 4

5 I m going to begin with an overview of fiscal year 2010, including how the economy has affected our business. I will then briefly review our financial performance for 2010 and our results for our first quarter of fiscal Following that, I will provide an overview of both of our operating segments products and services. Lastly, I ll discuss our growth and acquisition strategy and our outlook. 5

6 Fiscal 2010 was a year in transition. The economic climate impacted our customers and subsequently our business. However, our focus and our discipline helped us to not tjust weather a particularly l challenging economic environment, but come through h that period as a stronger company, prepared to take advantage of the opportunities that lie ahead of us. Looking at the chart, you can clearly see the impact the economy had on our business segments, particularly l in the fourth quarter of fiscal 2009 and through h the first half of Our results really began to improve in our third quarter of fiscal 2010 and since then we have performed very well, not only on a comparative but on an absolute basis as well. 6

7 Despite the challenging economic environment experienced last year, we continued to produce strong cash flows. The company generated 5.6 million dollars of operating cash flow in fiscal 2010, a 48% increase over the prior year. This enabled us to quickly pay down our debt related to the Westcon acquisition from fiscal Long-term debt decreased to $2.5 million by the end of the 2010 fiscal year, inclusive of our acquisition of United Scale in January. Our inventory increased 21% comparing FY year end levels. l However, as we reacted to the economy in the interim periods, we reduced our inventory to $4.3 million, and then proactively rebuilt those inventories as we prepared for an increase in customer demand, which we have begun to experience. 7

8 We believe that, even while operating in a tough economic cycle, we did not want to compromise our long term view and therefore, needed to maintain our strategic investments t in our people, our direct marketing, and our customers. Our people are one of our most valuable assets. While others in the industry organizationally contracted, we expanded our sales force and increased our investment in them with focused training. Additionally, we recognized the huge investment t we have made in our technical service organization and were not going to compromise that investment for shorter term gains. In 2010, we added 28 new employees and now have a total workforce of 304, including the new employees from United Scale. We did not curtail our direct marketing initiatives, iti maintaining i i close contact t with our customers, and prospecting for new ones and we then worked with those customers to meet their business needs during a challenging period. In keeping with the Company s strategy to supplement organic growth with acquisitions, iii in January, we acquired dui United dscale and dengineering, i a Wisconsin i based supplier and servicer of industrial scales and weighing systems. This opened up a new geographic location for us and is a complement to the products and services we provide. 8

9 Our financial performance for the year demonstrated the strength of our strategy and our ability to excel in the toughest of environments. Revenue increased 7.5%, gross profit increased 2.9%, while operating and net income decreased d 11% and 7%, respectively. It is worth noting that in the fourth quarter of fiscal 2010, we reported total revenue of $23.5 million, which was the highest quarter we have ever reported. This success has continued into our first quarter of fiscal Total revenue increased almost 20% year-over-year to $20.6 million, our gross profit and operating income improved and our net income was up measurably over last year s first quarter loss. 9

10 Looking at the first quarter of fiscal 2011, product segment net sales were up 15% to $13.0 million, from the economically depressed levels of the prior year period. Revenue growth was also aided d by the United Scale acquisition iti which h contributed t $0.5 million during the period. Wind energy sales were down this past quarter, year over year, accounting for 3.3% of total product segment sales, primarily due to the timing of projects. In comparison, first quarter fiscal 2010 wind energy sales amounted to 10.6% of the segment total. We do expect sales to wind energy customers to strengthen in the second half of fiscal Product segment gross profit and margin improved over the first quarter of fiscal 2010, as we were able to reduce product discounting, earn manufacturer rebates, and collect additional cooperative advertising income to support our collaborative marketing initiatives. As a result, our product segment operating income doubled d over last year s first quarter. 10

11 Service segment net revenue increased 28.8% to $7.7 million in the first quarter of fiscal 2011 when compared with the prior year s first quarter. We successfully gained market share from our existing customer base and generated additional sales to wind energy customers. Those wind energy customers represented almost 10% of total service revenue for the first quarter of fiscal 2011, compared with 3.6% in the same prior year period. Additionally, the first quarter was positively impacted by $0.4 million in incremental revenue as a result of the United Scale acquisition. Fiscal 2011 first quarter service segment gross profit was up 50% from the first quarter of fiscal This is indicative of the margin expansion opportunities within the Service segment as many of the costs within this segment are fixed. The higher h revenue and improved margins helped cut our operating loss in half. 11

12 In our product segment we are a worldwide distributor of handheld test and measurement instruments. For over 25 years, we have established a solid reputation as the source for the leading brands, technical expertise, excellent customer service and the inventory to support those customers. Our product business segment provides a strong customer and financial foundation for the company to drive our growth initiatives. 12

13 In our product segment, we compete in an estimated $700 million North American market, the majority of which manufacturers go to market through distributors. Manufacturer distribution models range from selective, partnership based relationships to anyone with a checkbook. Our competition encompasses full line distributors, who service MRO requirements (maintenance, repair, operations) of an industrial customer, specialty distributors, who service targeted needs such as handheld test and measurement instruments, and an increasing i number of internet harvesters who market on price and provide little value-add to customers. This segment provides us leverage for pursuing growth in our calibration services business. Many customers who buy our products, also need calibration services, not only for the products they purchased, but also for the other test and measurement instruments they own. As a result, they are excellent prospects for growing our calibration services. 13

14 Our customers rely on us to be the experts and expect the most up-to-date, innovative offerings, in a manner that works for their business. With a growing staff of well-trained, knowledgeable, and experienced industry specialists, we understand our customers needs and are experts on our products. We provide, and stock, the leading brands of handheld test and measurement instruments, especially the items that have the greatest demand, so our customers can get what they want when they need it. In addition, our catalog and website offer customers flexibility in searching and for purchasing our products. Our approach with our customers is for them to be able to choose the method of interacting with us that works best for them; call us, us, fax us or purchase on- line. 14

15 Transcat has a select group of manufacturers that we designate strategic partners. Our objective is for that group of manufacturers to represent an increasing percentage of our product business. Strategic partners - Have products that are excellent matches for our customer base - Are market leaders - Collaboratively invest with Transcat to achieve mutual growth objectives and, Transcat is a leading distributor for their products 15

16 About three quarters of our product sales are to end users. To those customers we market directly, focus our sales force initiatives and command higher gross margins. Resellers source select products and often have long standing, relationship-based ties with a select group of customers. The form of that relationship can exist as an integrated supplier or as a preferred vendor, both of which we are not able to cost effectively penetrate. We do not proactively market to resellers and correspondingly earn lower gross margins selling to that t channel. 16

17 Transcat s objective is to continue to be where customers and/or prospects look first to find new handheld test and measurement products or new product lines to complement our existing portfolio. In fiscal 2010, 37% of our product sales came from products we did not sell 4 years ago, aided by our expansion into the wind energy industry. In addition, 20% of products in our just-released FY 2011 master catalog are new products. 17

18 Turning our attention to the Service segment we provide accredited calibration and repair services through our twelve Calibration Centers of Excellence in the United States, t Canada and Puerto Rico. 18

19 We estimate the market for companies that require third party calibrations at about a third of the total market or about $500 million. Fundamental to our strategy, and to repeat what I have said before, we segment that market into three customer categories. The first understands and cares about the quality and integrity of the calibration services that they are receiving. These customers tend to be in highly regulated industries such as energy and pharmaceutical. The second category of customers understand the importance of their measurements, but haven t been able to discern the importance of a quality calibration. We focus on education and communicating the value of our experience, knowledge and valueadded services to capture this category of our prospective markets. The first two categories of customers are where we believe we have the greatest opportunity to capture market share. The third category are those that choose services solely based on price. Because our strategy is to be the quality provider with value-added services, we don t actively pursue this type of customer. 19

20 Transcat is among the largest independent calibration service providers in the U.S. We consistently execute the complex processes and documentation necessary, so that our customers can trust t the accuracy and reliability of our services, each and every time. Our broad network of laboratories, our highly-skilled lab technicians and our selective subcontracting relationships, combined with CalTrak -- our convenient, online tracking and inventory system, enable us to provide rapid service and reliable delivery for our customers. 20

21 As I have mentioned, we target customers who value quality, and who operate in regulated environments. A significant, consistent portion of our business has been concentrated t with the pharma and dfda-regulated industries. i Industrial manufacturing, which has been hit particularly hard during the recent recession, has contracted. One area where we have seen considerable growth is within the energy and utilities industry. We will continue to actively pursue growth industries, though our focus may shift between them, based on market demand. 21

22 As I alluded to earlier, our service segment has a high ratio of fixed cost to variable costs. Therefore, as revenue increases our gross margins and operating margins expand. With the revenue growth that we achieved during fiscal 2010, we saw our margins increase and achieved operating profitability in this segment for the first time in several years. With additional organic growth, we should continue to realize increasing margins and profitability. 22

23 I would now like to take just a few more minutes to summarize what is driving our initiatives and our directional outlook. 23

24 Our product strategy is to: - Increase the number of our strategic partners - Increase their share of our product business - Be the first place customers look for new handheld test and measurement instrumentation - Provide value added technical application assistance to our customers, and - Have the on-hand inventory to meet our customer needs We believe we can sustain low to mid single digit annual growth, increasing profitability and strong cash flows in this segment. 24

25 Our services strategy is to: - Further penetrate existing customers - Grow our share through new customer development - Acquire high quality cal lab operations - Target customers and industries that demand high-quality services, including wind energy customers, and - Leverage our wealth of data and other CalTrak applications to provide value add to our customers We believe we can sustain a low double digit annual growth, sustain profitability and utilize the product segment cash flows to invest in service segment growth. We will continue to pursue strategic acquisitions in our services segment that will increase our growth rate. 25

26 For our acquisition strategy, we have developed a set of criteria that we use to assess potential targets. We are primarily focused on expanding our calibration business. First and foremost among our criteria, we only consider quality-oriented calibration services organizations that demonstrate the highest degree of integrity. Because this is a trust business, relationships are critical, and we want to retain the existing management team to ensure continuity for the acquired company s customer base. We also consider how a business will provide expansion of our customer base, geographic locations and calibration capabilities. 26

27 To conclude, we are focused on growing our sales and earnings through continued expansion of our wide breadth of products and services and by leveraging our capabilities, our nationally known brand name and our reputation ti for integrity it and reliability. We are proud of our achievements last year in that we validated our strategy, our operating model and had success in light of economic conditions. I believe we have the people, the plan and resources, as well as the scale and scope to continue to be a leader for the long term. 27

28 Thank you for your attention and interest in Transcat. At this time, I would be happy to answer your questions. QUESTION AND ANSWER SESSION 28