TransAct Technologies Incorporated

Good day, everyone. Welcome to the Transact Technologies' fourth quarter 2020 earnings call. Today's conference is being recorded. At this time, I'd like to turn things over to Mr. Mark Griffin, Investor Relations. Please go ahead, sir.

Thank you. Good afternoon, and welcome to Transact Technologies' fourth quarter and year-end 2020 earnings call. Today, we'll be discussing the results announced on our question list issued after the market closed. Joining us today from the company are Chairman and CEO, Mark Sheldon. and President and CFO, Steve DiMartino. Today's call will include a discussion of the company's key operating strategies, progress in these initiatives, and details on our fourth quarter financial results. Then we will open up the call to participants for questions. As a reminder, this conference call contains statements about our future events and expectations, which are forward-looking in nature. Statements on this call may be deemed as forward-looking and actual results may be different material. For a full list of risks inherent to the business and the company, please refer to the company's SEC filing including its reports on Form 10-Q and 10-K. Transact undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances that occur after this call. Today's call and webcast will include non-GAAP financial measures within the meaning of SEC Regulation G. One required reconciliation of all non-GAAP measures to the most directly comparable financial measure calculated and presented in accordance with GAAP can be found in today's press release as well as on the company's website. And with that, let me turn the call over to Bart.

Thank you, Mark, and thank you to everyone joining us on this call today. As you are all aware, the global pandemic remains persistent, but we are beginning to see improvement in our key markets as customers are calling again and answering our calls. We do sense a change in the environment in our markets with the vaccination process accelerating. Confidence in our business and markets is starting to grow. While we have all experienced difficulties associated with the global pandemic, we're becoming more optimistic about the future that lies ahead. We are pleased with our execution throughout this challenging year, and we ended 2020 on a better note with an improved quarter. We are particularly pleased with the strong momentum in our food service technology market, which saw accelerating growth throughout the year. As I have said to many investors many times, it's all about the installation of hardware terminals and workstations for Transact. And the good news, we ended the year with 5,688 paid terminals installed in the market, a growth of over 100% compared to how we ended our fiscal 2019. As Steve will discuss in detail later during this call, Our preliminary fourth quarter total net revenue declined 30% year over year to $7.8 million, in line with our guidance of $7.5 to $8 million. And we recorded an EBITDA loss of $2 million and adjusted EBITDA loss of $1.7 million. We delivered quarterly gross profit margin of 30.6% and diluted EPF loss for the quarter to $0.22 a share. Joining the good news about the terminal installations in fiscal 2020, our food service technology recurring revenue continued its growth, and we ended fiscal 2020 up 96% versus FY 2019. Now, let's remember the impact on the stores and restaurants being closed early in the year and the significant slowdown we experienced during the Christmas time as the virus and pandemic expanded once again, but we were still up on our recurring revenue by almost 100%. Total food service technology market revenue in the fourth quarter was 2.8 million, up 55% from the same period last year and 20% sequentially. Hardware sales at terminals have a lifeblood of our recurring revenue stream, and as we increase the number of terminals and workstations in the market, our recurring revenue will grow exponentially. During the fourth quarter, hardware revenues led the way and were extremely strong, up 65% from the year-ago period, and almost half of our hardware revenue in all of fiscal 2020. This equates to an additional 1,875 paid terminals in the market for a total of 5,688 paid BOAD terminals running on our system by the end of fiscal year 2020. Two things I need to note about our fourth quarter of 2020. First, we shipped and installed almost 1,200 terminals that went to our new SUSHI customer. However, the installation occurred at the very end of December, so we did not receive a lot of label sales from those installations. This led to a lot more terminals in the market, but not the corresponding recurring revenue we would expect. We expect these terminals to drive a solid amount of recurring revenue in 2021. Second, due to the unfortunate spread of the COVID-19 virus starting in October and lasting months in the winter, many of our customers experienced declines again in transaction volumes. Our large convenience store customer who purchased a lot of labels in the third quarter of 2020, realized that they had overbought as their customer visits started to really slow in the fourth quarter, so they chose not to purchase any labels in the fourth quarter, causing some fluctuation in our recurring revenue. While we cannot do anything about spreading virus and the impact it has on our customer's customer, we have started to see new label orders come in from this large convenience store customer during the first quarter of this year. And as we ship more terminals and workstations in 2021 and the economy continues to improve and the vaccination rate increases, we accept label sales to pick up nicely once again. Our new restaurant operations platform is seeing some good progress as well. As a reminder, In September, we announced our all-new iOS-native restaurant operations platform, which provides restaurant operators with a single digitized platform to manage and track food safety procedures and back-of-house operational processes built using an iPad. Late in the quarter, our restaurant operations platform was officially offered to customers, and we started to book our first sale in the first quarter of 2021. Now, after the market closed today, we announced our first restaurant purchase of our BOJA Restaurant Operations Platform. This order is for 13 restaurants that are part of a multi-concept, full-service restaurant company. We're really pleased to see our first restaurant order for BOJA ROP. Now, Apple has been a phenomenal partner so far, and their lead generation has been incredible. We currently have more than $100 million in potential revenue in our sales pipeline, and Apple is involved in roughly half of those potential deals. As you know, Apple is very focused on building our business in the restaurant market, and here is some really good news. Apple has decided to expand our relationship to other markets around the world. We are very excited to be joining Apple to expand with them around the globe. So let's review some of our more recent notable wins this quarter. A regional convenience store chain with 250 locations will upgrade to our full BOHA ecosystem from an earlier generation of labeling system. A regional convenience store chain will use the BOHA ecosystem to support the privately branded and third party fresh food offerings at over 40 locations. An international convenience store chain will use the BOHA system support their fresh food program at 350 locations and will eventually expand to over 650 locations across the US and Canada. Despite the significant impact to our business and especially in the food service market by COVID-19, you can see why we continue to be very excited about the opportunities in front of us. Moving on to our casino and gaming printer business and Epic Central, Revenue in the quarter was $2.7 million, down 50% year over year. The global casino and gaming markets remain challenged during the quarter, but we are starting to see a mild recovery as casinos refocus their spending on the gaming floor. Our international casino markets remain more challenged than the U.S. as large gaming localities require more travel, which has been limited due to the pandemic. Europe experienced extensive shutdowns in the first part of 2020, first half of 2020. And toward moderate recovery in the second half, the challenges clearly remain. Casinos throughout the Asian market continue to reopen, but limited capacity has curtailed times. In the U.S., we are starting to see casinos reopen, albeit with limited capacity and most non-gaming attractions remaining closed. we are receiving a slight benefit in buy-ins as casinos refocus on their gaming activity. And accordingly, our domestic revenue improved 14% from the third quarter in 2020 to the fourth quarter in 2020, but remained down 46% in Q4 from last year. However, we are cautiously optimistic that the gaming floor CapEx then will continue to improve throughout 2021. After hitting a sales low from the pandemic in the second quarter of 2020, thereafter our revenue increased sequentially every quarter in 2020. And while Q4 experienced some stagnation with the pandemic rearing its head in the winter, we feel the conditions will continue to improve and new projects will begin coming back faster and stronger than before. As a testament to our industry-leading gaming technology, Transact was selected by the all-new Circuit Resort and Casino in Las Vegas to support the opening of their new gaming floor. Circuit Resort and Casino has chosen both Transact printers, the industry-leading Epic 950 and Epic Edge, for use in all their 1,350 slot machines. The Circuit Resort and Casino is the first all-new casino opening in downtown Las Vegas since 1980 and is the third Las Vegas property of Derrick Stephens. CEO of Circa Sports. We are honored to work with Derek and the entire Circa team as we aim to provide the guests of this cutting-edge casino the best experience possible through our products. We are excited about our position in the gaming industry, and even though gaming activity is down worldwide, we know we're well-positioned to benefit once the increase in activity of travel resumes. Before I turn the call over to Steve, I want to welcome Randall Friedman to our board of directors. Randall's extensive knowledge of restaurants and the food service industry and his deep experience in business-to-business marketing in the restaurant market will be a huge asset as we grow and scale our BOHA sales and marketing activities. Additionally, I want to thank Tom Schwartz for his extensive guidance he has given me and the company over 24 years of dedicated service on our board. I will truly miss his wisdom and his humor greatly, and I wish Tom all the best during his retirement. With that, Steve will review our fourth quarter and full year 2020 results, after which I'll make some summary remarks before opening the call to questions and answers. Steve?