TransAct Technologies Incorporated

on earnings call we are currently assembling today's audience and plan to be underway shortly we appreciate your patience please remain on the line Thank you. Thank you. Good day and welcome to the Transact Technology Second Quarter 2021 Earnings Call. Today's conference is being recorded, and at this time, I'd like to turn the conference over to Ryan Gardella. Please go ahead, sir.

Thank you. Good afternoon and welcome to Transact Technology Second Quarter 2021 Earnings Call. Today, we'll be discussing the results announced in our press release issued after market closed. Joining us from the company are Chairman and CEO Bart Sheldman 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 of the second 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. Transacts undertake no obligation to revise or update any forward-looking statements to reflect events or circumstances that occur after the call. Today's call and webcast will include non-GAAP financial measures and the meaning of SEC regulations. 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'd like to turn the call over to Bart.

Thank you, Ryan, and thank you to everyone joining us on the call today. Before I jump in some details, I wanted to take a quick moment to recognize the life and contributions of Thomas R. Schwartz, Tom was the best and a huge contributor and loved here at Transact. He was an incredible mentor to me, and he is sorely missed. We are forever grateful to the contributions he made to the company. Godspeed, Tom. I miss our talks and your steady insights and perspectives, and I miss you every day. Now onto our second quarter 2021 results. Wow. Our second quarter results continue to build on our early success in 2021 as Transact is perfectly positioned to capitalize on the domestic reopening. America's food service operators and restaurants are facing incredible challenges from ingredient inflation to food safety concerns to a major labor shortage. Our BOHA platform provides the solution to these pain points and we are seeing more operators choose us quarter after quarter as demonstrated by our positive results in the second quarter of 2021. From originally doing outbound calls during the height of the pandemic to now receiving and answering inbound calls, the reopening of the U.S. economy is having a very positive effect on our FST market. Our food service technology market experienced a record quarter with our highest ever revenue of 3.1 million, up 155% from the second quarter last year. We added 933 paid terminals in the second quarter of 2021 for a total of 7,942 in the market. Importantly, we also crossed the $2 million mark in FST recurring revenue with 2.1 million in the quarter, which is also a new record for Transact. Growth in FST recurring revenue came in at a strong 214% increase over the second quarter of 2020 and a 71% increase over the first quarter of this year. We continue to expect strong results from our industry-leading BOHA solutions and are confident in our positioning as virus-related headwinds continue to subside domestically. As Steve will discuss in detail later, Our preliminary second quarter total net revenue was $9.3 million, and we recorded an EBITDA loss of $2.5 million and an adjusted EBITDA loss of $2.1 million. Let's now discuss results by market, starting with our food service technology, or FST market. As I just mentioned, we experienced a record quarter with $3.1 million in revenue, which was up 155% over the prior year period. Our recurring FST revenue, which includes software subscription, labels and service, was also a record at $2.1 million or $8.4 million on an annualized basis. Previously, we had guided to $5.5 to $6 million in recurring revenue by the end of 2021 for the whole year. As a result of our continued success in both expanding ARPU as well as adding new terminals to our base, we are raising our guidance to at least $7 million in recurring FST revenue for all of 2021, which also includes the $1.2 million we did in the previous quarter. Speaking of ARPU, we experienced a very positive uplift, mostly due to increased usage in our currently installed terminal base. In the first quarter, our newly adjusted ARPU was $875. And I'm pleased to announce that this quarter it grew to 1,179. I will let Steve discuss the calculations in more detail. As I have mentioned on previous calls, 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. Our second quarter numbers in this regard were very solid, resulting in an additional 933 paid terminals being added to our base, bringing the total to 7,942. As a reminder, we are currently guiding to between 10,000 and 11,000 paid terminals in the market by the end of 2021. As our paid terminal base expands, our recurring revenue will also grow, fueling consistent results and a predictable stream of FST revenue. In addition, as I have said many times, I expected our ARPU numbers to increase once the U.S. economy opened, and it did. Last quarter, I called out labels as being able to drive an increase in FST recurring revenue as volume of transactions return to our customers' businesses. This quarter, I am pleased to announce that our label sales were up 273% year-over-year. As I have also mentioned, we have a strong relationship with the convenience store chain 7-Eleven, and they continue to order more terminals to be installed in their stores as they focus on expanding their fresh food initiatives. Each store requires some construction changes to add fresh food capabilities and includes the installation of the BOHA terminal. While we will not be providing a quarterly update on the penetration, we will remind you that the terminal install opportunity for 2021 is about 2,000 terminals, and the total remaining 7-11 opportunity includes more than 7,000 additional stores. In addition, however, our other convenience store customers are now expanding, adding more stores, and therefore purchasing more BOHA terminals from us. Very positive. I also wanted to touch on our small-medium business, or SMB, food service technology initiative that we highlighted in the press release in July. To address this large and growing opportunity, we have created a dedicated inside sales team to target small chains and individual operators. Between rising inflation and pressing labor shortage, this market is in dire need of our BOHA solutions to help manage these ever-increasing costs. and we have seen some early success with 16 new SMB accounts ordering 69 new terminals in the second quarter. Additionally, due to the nature of small businesses, these purchasing decisions are typically made quickly, and we are seeing a much shorter sales cycle here than in the enterprise space. With our significant marketing effort underway, which we started in April after we launched BOHA ROP at the Apple event, The amount of new SMB business opportunities in the FST market has grown exponentially. Finally, I want to provide an update on our FST pipeline. As a reminder, we only include qualified leads in our pipeline and expect to see our pipeline numbers shift as we convert opportunities into wins, remove them from the pipeline calculation, but also add the new. As we remove the wins out of our pipeline and add in the additional new prospects, our sales pipeline for the FST market now stands at over $150 million. This is calculated over a three-year period for a prospect, as almost every contract to date has been three years. In addition, Apple-related customers represents over 50 percent of that $150 million. The Apple sales team continues to bring new opportunities into our pipeline, and I could not be happier with our relationship. Now quickly moving on to our casino and gaming business, revenue in the quarter was 3.5 million, up 155% year over year, and up 21% sequentially. While this was largely due to the return of our domestic sales, our international market continues to show signs of recovery as well, and we expect that business to track upwards for the remainder of the year. In the U.S., many states have fully reopened and are allowing venues to return to 100% capacity, which is beginning to drive investment on the gaming floors. We believe there is significant pent-up demand on both the casino and guest side of the equation. We cannot be more thrilled to see the positive momentum here, and as our sales improve in this highly profitable market, we also expect to see a corresponding rise in our gross margins. We are well positioned to capitalize on the return to normalcy and leisure activities in the casino and gaming market. With that, Steve will review our second quarter 2021 results, after which I'll make some final remarks before opening the call up for questions. Steve? Thanks, Mark.