TransAct Technologies Incorporated

Good day and welcome to the Transact Technology First Quarter 2021 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ryan Gardella, Investor Relations. Please go ahead.

Thank you. Good afternoon and welcome to Transact Technology's First Quarter 2021 Earnings Call. Today, we'll be discussing the results announced in our press release issued after market close. Joining us today from the company, our Chairman and CEO, Bart Schuldman. and President and CFO Steve DiMartino. Today's call will include a discussion of the company's key operating strategies, progress on these initiatives, and details on the first quarter financial results. We will then open the call to participants for questions. As a reminder, this conference call contains statements about future events and expectations which are forward-looking in nature. Statements on this call may be deemed as forward-looking and actual results may differ materially. For a full list of risks inherent to the business and the company, please refer to the company's SEC filings, including its reports on Form 10-K and 10-Q. 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. When required, a reconciliation of all non-GAAP financial 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, I'll turn the call over to Bart.

Thank you, Ryan, and thank you to everyone joining us on the call today. 2021 is off to a great start, as the momentum from last year continued with an excellent first quarter. Our food service technology, called FST Market, continues to pick up considerable steam, and we added over 1,300 new paid terminals in the quarter for a total now of 7,009 paid terminals in the market. In addition, I'm extremely pleased that we achieved over $1.2 million in FST recurring revenue in the first quarter of 2021. With existing software contracts and orders already received in our second quarter of 2021, I expect Q2 will continue to exhibit very positive growth of our recurring revenue. Our industry-leading BOHA solutions continue to demonstrate their unique value proposition and are driving promising results and significant opportunities as the headwinds of the global pandemic continue to subside. As Steve will discuss in detail shortly, our preliminary first quarter total net revenue was 8.3 million, and we recorded an EBITDA loss of 2.5 million and adjusted EBITDA loss of 2.2 million. I am pleased our quarterly gross profit margin rose to 38.4% versus 30.6% in the fourth quarter of 2020. Now, speaking specifically about our food service technology market, revenue in the first quarter was 2.7 million, up 100% from the same period last year. Our recurring FST revenue, which includes software, subscriptions, labels, and service, was 1.2 million, or if you annualize that, 4.8 million on an annualized basis. As a reminder, on our last call, we got it to between $5.5 and $6 million in recurring revenue, FST revenue, by the end of 2021. Hardware sales and the number of paid terminals in the market are the lifeblood of our recurring revenue stream. And as we increase the number of terminals in the market, our recurring revenue will grow exponentially. As I mentioned, we had a tremendous first quarter in this regard, with hardware sales up over 100% from the year-ago period. This equates to an additional 1,321 paid terminals running on our system at the end of the first quarter of 2021, bringing the total to 7,009. On our last call, we got it to between 10,000 and 11,000 paid terminals in the markets, by the end of fiscal 21. As our paid terminal base expands, our recurring revenue will also grow, fueling consistent results in a predictable stream of FST revenue. In particular, I want to call out our label sales as a beneficiary of this effect. As our terminals become more prolific, not only will our label sales increase correspondingly, but we'll see that revenue smooth as the impact of large orders from our big customers become less apparent on a quarter-to-quarter basis. As you know, we have a strong relationship with the convenience store chain 7-Eleven, and this quarter was no different, with more terminals being installed at 7-Eleven stores. 7-Eleven is focusing on expanding their store's fresh food capabilities, and our BOHA terminals are an important piece of that expansion. Each store requires a new construction bill to add fresh food capabilities and the installation of the BOHA terminal. We estimate that 7-Eleven will convert approximately 2,000 additional stores to enable fresh food in 2021. As of the end of Q1 2021, we have installed our BOHA terminal in approximately 2,650 stores and still have about 7,350 more to go. I also wanted to quickly call out our press release from April 7th in which we announced a large existing BOHA customer would be adding another software module, our BOHA Temp App, to over 1,000 locations by the end of fiscal 22. With a total contract value of over $450,000, this upgrade deal demonstrates the growing land and expand opportunity afforded to us by increased penetration of our BOHA systems and the reason we focus on getting as many paid terminals in the market as quickly as we can. Cross-selling additional apps to existing customers is a classic SaaS sales motion and provides a significant runway to grow our revenue with existing customers. We believe this will generate long-term value for the company and is a vital step in our growth strategy. In addition, I wanted to talk a little about our relationship with Apple and the sales effort there. First, I would encourage each and every shareholder to watch both videos on our Transact website homepage. One video is a customer testimonial regarding their use of BOHA ROP, Restaurant Operations Platform. You will hear from the chef and also an executive of the restaurant company speak to the value that BOHA ROP brings to the restaurant back-of-house operations. The second video is an interview with Ray Walsh, our vice president of global sales, and Chris Lawson, who heads up the Apple sales and strategy team for the restaurant vertical. As you will listen, Ray explains, once our BOHA systems are in place, customers experience a 56% decline in food safety incidents and about 16 hours of labor savings per location per month. And as Chris from Apple mentions, What Apple values the most is our combination and seamless integration of hardware and software. In order to quantify this a bit, there are about 100 Apple salespeople on the restaurant sales team who can promote BOHA to the market on their end. This is a powerful testimonial about the important work we are doing and the partnership we have with Apple and shows they are behind our mission of improving food safety and streamlining restaurant back-of-house operations, saving labor hours, and empowering back-of-house employees to do their best. Now, in looking at our pipeline of opportunities, which we value over three years, which is the typical length of contracts we sign, we have over $140 million in our pipeline right now, with Apple-related customers being approximately 50% of that pipeline. We are extremely pleased with how the relationship with Apple is going, and the opportunities they bring continues to grow. As the global economic recovery continues, it is easy to see why we at Transact are incredibly optimistic about the FST opportunities in front of us, both this year and the long term. Now moving on to our casino and gaming market, revenue in the quarter was $2.9 million, down 42% year over year, but up 7% sequentially. The international market continues to be challenging. However, the domestic rebound is beginning to pick up some steam. We continue to expect progress in the recovery of the worldwide casino market over the course of 2021. In the U.S., we continue to see casinos reopen, as well as the capacity limits for already open casinos inching upwards. As guests return, we are seeing a slight acceleration in investment on the gambling floor, and we are cautiously optimistic that gambling floor capex spend will continue to improve throughout 2021. After hitting a horrible sales low from the pandemic in the second quarter of 2020, our revenue has increased sequentially every quarter thereafter. And while we experienced some stagnation from the virus winter onset, we are seeing conditions gradually improve and new projects beginning to gain momentum. Transact is well positioned to capitalize on the recovery trend in the gaming and casino market. With that, Steve will review our first quarter 2021 results, after which I will make some summary remarks before opening the call to questions and answers. Steve?