TransAct Technologies Incorporated

Ladies and gentlemen, thank you for standing by. At this time, we are assembling audience members and plan to be underway shortly. We'd like to thank you for your patience and ask that you please continue to stand by. Thank you. Please stand by. We're about to begin. Good day and welcome to the Transact Technologies first quarter 2022 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, sir.

Thank you. Good afternoon and welcome to the Transact Technologies first quarter 2022 earnings call. Today, we'll be discussing the results announced in our press release issued after market closed. Joining us from the company is CEO Bart Shulman 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 our first quarter of 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 made different 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 Forms 10-K and 10-Q. Transact takes 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 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'd now turn the call over to Bart.

Thank you, Ryan, and thank you to everyone joining us on the call today. While we are disappointed with our results in the first quarter of 2022, we believe there are highlights that give us confidence in our ability to deliver better results in the remainder of the year. I will speak about the current situation with our business and let Steve speak to the financial performance. There is no doubt the first quarter of 2022 was a quarter of have and have nots. In certain markets, we were totally sold out of product that crimped our revenue in the quarter. We could have sold many more casino gaming and point-of-sale printers, and our current backlog across our entire business of over $13 million reflects our customers' willingness to wait for our product. In our food service technology market, We faced a slowing of label sales due to serious concerns by our customers as Omicron spread and they started to see a downward shift in their business in early January. Adding to the disappointing results for FST, our largest customer, 7-Eleven, decided not to take any new terminals in the quarter. This was not due to any change in our relationship, but rather the timing of their new builds and renovations being pushed out. While this is not what we thought we'd be, you need to know that this is all starting to turn around in the second quarter and should continue to improve through the rest of the year. So let's go through the markets. In the casino and gaming market, we saw demand far outstrip supply and currently have a very healthy backlog of orders from our customers waiting for the product. As we mentioned on our last call, we're hand-to-mouth with gaming and casino printers, As soon as we build, we ship to a customer. Sadly, I call the production environment we are working in whack-a-mole. Once you resolve one electronic part issue, another surfaces. So what we did, we set up a team of engineers and operations working together to design in a different component if one is decommitted but another is available. We are working to increase our production as the forecast for casino printers continues to grow. Our casino customers, especially in the U.S., continue to call and ask for product. Any additional printers we can build already has a customer order ready for us to ship to, but we have customers waiting in place to order if we can get them the printer. The same situation exists in our POS market and with our largest customer, McDonald's. Some of you might know we attended in April their first worldwide convention since 2018. And I can personally tell you if we had thousands of POS printers in the booth, we could have sold them all right there. The good news is our production is about to begin to ramp back up as we manufacture the new processor and every printer we can build will ship to a franchisee. Now onto our FST market. Sadly, at the start of this year, we experienced a decline in terminal workstation and label orders. On the hardware side, 7-Eleven booked no orders in the first quarter of 2022. This also caused label revenue to drop as we sell boxes of labels with each terminal they buy. Other customers also decided not to purchase much more terminals, workstations, and labels. At this point in BOHA's lifecycle, it is still an early-stage business, and a few customers shifting orders a couple of weeks to the right can affect the outcome of our results on a quarterly basis, pretty substantially. The same happened with our label revenue. In the first quarter, there was a small number of larger customers who had an adverse effect on our label sales, which unfortunately caused a drop-off in the quarter. We equate this to the concern of Omicron in holding off their inventory of labels. However, right now, we have no reason to believe that this is anything other than a temporary blip caused by the timing of some large orders. Our label sales booking for the month of April were very strong, and we see that momentum continuing right now through the rest of the quarter. In addition, bookings for our terminal and workstations have increased from the first quarter of 2022, and that includes a considerable size order from 7-11. We're also working to close some new business, which we hope to announce either very shortly or during the quarter. Now, I want to address our ARPU for the quarter, which fell to $638. The main cause of this decline was the unusually low label recurring revenue, which directly impacts the calculation. While we do expect the number to normalize, there are two factors that impacted ARPU in the quarter and has the potential to impact it in the coming quarters as well. As I've told you, we're beginning to convert our existing Accudate 9,700 customers over, excuse me, to our Bohar terminal workstation. We have a very large population of the 9,700 in the field, and they're getting long in the tooth. These deals with large corporate chains will start with us selling our Bohar hardware without any recurring revenue attached. Naturally, Bohart terminals or workstations in the marketplace with no dollars of ARPU will, and already have, begin to drag the number down. However, there's a lot of potential here beyond the hardware sales. As we begin to penetrate these corporate customers' installed terminals, we'll also have opportunities to bid and compete for the labeling contracts, as well as the ability to upsell them on the different software apps. We will generate additional recurring revenue. It's our goal to get these terminals in the marketplace. With that said, we still think that ARPU of $1,000 to $1,200 a year is correct way to think about the range in the future, which includes reviewing the potential orders we are working on right now. In addition, the reason why label sales were down sequentially was due to 7-Eleven, who is a large customer who took zero terminals in the quarter. which also impacted our label sales as new terminals shipped with a number of labels as well. To clarify, we sell labels with every new BOHA terminal, and we also sell labels for the existing install base. The lack of new terminal orders negatively impacted total 711 label sales. This is not due to any change in our agreement with the company, but due to a pause in the renovation of 711 stores. Next, I want to talk about our terminal install base. In the first quarter, we added 309 additional paid terminals for a total of 10,127 paid terminals in the marketplace at the end of the first quarter. Obviously, this was well beneath our expectations and far below our average over the past year. As I mentioned earlier, BOHA is still an early-stage business, so changes in the timing of contracts can have an outsized effect on our results. When pursuing large corporate deals, Testing and approval can take a long time, and in the current environment, they are subject to potential additional delays. However, like our label sales, we saw strong April bookings on the BOHA terminal and workstation side, with more units booked in the month of April than for the whole quarter. Let me say that again. We saw strong April bookings on the BOHA terminal and workstation side, with more units booked in the month of April for the second quarter than we sold in the entire first quarter of 2022. We believe the second quarter will see a return to a more normalized run rate. Taken together, we believe it's now prudent to revise our guidance metrics. We now expect to install between 5,500 and 6,500 new paid BHA terminals or workstations in the full year 2022. We also now expect to generate recurring FST revenue between $8 and $10 million. While the first quarter was disappointing, we believe that we can execute and deliver better results for the rest of the year. Before I move on, I do want to note that our special project with McDonald's, which involves sales of our Ithaca 9000 POS printer, is going along as planned. We continue to expect these sales to continue to push our POS automation segment higher throughout the course of the year. If all the production happens, we should more than double the POS printer sales in the second half of 2022 versus the first half. Now let's focus on the production side of our business. Even with our production challenges, our gaming and casino market revenue was $4.8 million, up 66% from the year prior period. We could have sold more if we had the components and produced more printers. Our casino and gaming domestic market recovery continues with sales up 42% year-over-year, and our international market sales posted triple-digit gains up 119% year-over-year. In addition, our POS market, despite running out of printers to sell, was up over 12% from Q1 2021. Again, we could have sold more. While we are, of course, encouraged by these results, unfortunately the same commentary we gave last quarter continues to apply to this one. Parts are in short supply across the board, especially chips and other components, and we continue to be hand-to-mouth. We established a team of engineers and operation purchasing managers who are working together to search for the parts we need. where we can find different parts that meet the design criteria the engineers designed in the new component to keep and eventually increase our production levels. Our existing and now potential new customers need product and we're going to work our hardest to get our production up and meet the higher demand. Finally, I also want to mention that our price increases are now fully in place across the board and will be reflected in our second quarter results. Many of the increases not take effect until March 1st or April 1st, so we did not get a full quarter of the price increase benefit. This should help to increase our gross margins from Q1 2022. From where we are today, the world isn't much different than just a few months ago. COVID-19 still can impact our markets and our customers. There's now a war in the Ukraine and inflation is here. One of these alone would be a lot on the business. We have three, plus the component shortage issue. I want to emphasize that our pipeline remains strong. We have a large backlog of orders to ship, and I believe we have all the pieces in place to execute on our plan for the remainder of the year. I want to thank the tireless work of our whole Transact team and look forward to updating the investment community on our next conference call. With that, I'd like to pass it over to our President and CFO, Steve DiMartino, for more detailed review of the financials. Steve?