TransAct Technologies Incorporated

Greetings. Welcome to the Transact Technologies second quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. And please note that this conference is being recorded. I will now turn the conference over to Ryan Gardella, Senior Vice President of Investor Relations. Thank you, sir. You may begin.

Thank you, John. Good afternoon and welcome to Transact Technology's second quarter 2022 earnings call. Today, we'll be discussing the results announced in our press release issued after market close. Joining us from the company is 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 on our second quarter financial results. We'll then open the call to participants for questions. As a reminder, this conference call contains forward-looking 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's 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 the call. Today's call and webcast will include non-GAAP financial measures and the meaning of SEC regulation changes. 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. I am incredibly pleased with our execution in the quarter and could not be prouder of how the Transact team worked to navigate these difficult conditions. All the challenging work certainly paid off. Thank you, Transact team. You accomplished almost the impossible, and I'm so proud of all that you have done. Last quarter, I spoke at length about the challenges that we were facing in the supply chain, and we all know we were hardly alone in dealing with these problems. I assembled a team comprised of engineering operations and purchasing, tasked with finding more parts, redesigning product where parts weren't available, but other similar parts were, and then building and delivering the printers to meet customer demand. The team did an incredible job, as you can tell from the top line, but we have only just begun. Our production started to ramp up in May, expanded in June, and now in full motion in July and August. We delivered many thousands of printers in Q2 and were able to satisfy demand in key markets where our competition could not. namely casino and POS automation. And I'm pleased to tell our shareholders in the second half of the year, we are on track to deliver near record numbers of printers to our customers, barring any unforeseen parts issues. We are actively winning share in these markets. We are doing everything in our power to ramp production even more as the demand in the POS and casino markets continue. In addition, as I discussed last quarter, we raised prices and began to implement our cost reduction plan and expect to see these results of these savings in the current quarter Q3. The early results have been encouraging, and we believe this was the right move to streamline the organization. The core of our savings was the result of suspending a new product development project during the time when we were all asking, are we in a recession? While we intend to move forward with that project sometime in the future, we believe now is the right time to move quickly on our cost control plan and drive towards adjusted EBITDA profitability. This plan, combined with the large sales level we expect to achieve in the second half of 2022, should result in Transact moving towards adjusted EBITDA breakeven as we move through the year. Steve will clearly go over this in more detail in the financial section. Now let's turn to the markets. In the casino and gaming market, despite some fantastic work and a near record number of printers produced, we continue to see demand outstrip supply. While our backlog continues to grow, we are still hand-to-mouth on inventory. As soon as we build, we are shipping to a customer. However, we still manage to produce a large number of printers in the second quarter, and we plan to produce even more in the third and fourth quarters. approaching near record levels of production and sales in our casino market, again, barring any additional unseen supply issue. Even with the additional production, we expect to sell out all of our printers, as we've been able to take advantage of weakness and major supply issues at a direct competitor to pick up additional market share. And as I had mentioned in our last call, our first price increase went into effect in March, and as such is now fully reflected in our second quarter results. However, while sourcing many of our parts have been accomplished, we still sourced some more parts for the remainder of 2022, again, some at higher costs. Therefore, to meet the demand, we will be instituting a second round of price increases in September, specifically on our casino and gaming products. I truly dislike these price increases, and our customers know we have rarely raised our prices. But the cost of parts to meet the elevated level of production requires another round of price increases. We expect the second increase to be fully in effect starting in September, with our fourth quarter results reflecting the new pricing structure. We are also thrilled that the team we put together was so successful and able to resolve the parts issues with our casino printers. The results in Q3 and Q4 should reflect their hard work. In point of sale automation, we continue to be dealing with similar dynamics, with every printer we make being shipped out as soon as they are ready. Our team has been able to ramp production effectively, and we will be achieving near record numbers of printer shift in revenue in the second half of 2022. With our products being able to fill gaps that competitors have been unable to fill, and thus picking up market share. Our special project with McDonald's continues, and we expect the back half of the year to see a significant pickup in the number of point-of-sale printers sold, as we can effectively ramp production and deliver additional units. Now let's talk about the FST market. We saw solid results in FST, underpinned by a return to a more normalized label sales cadence which pushed our recurring revenue back over $2 million to $2.2 million. We also saw very robust demand for new hardware, which combined to result in total FST sales of $3.4 million, a huge jump up sequentially and a solid increase year over year. In the second quarter, we added 814 new paid terminals for a total of 10,941 currently in the market. While this number was slightly below our expectations for the quarter, we were optimistic about the back half of the year, as our sales team, now led by our new sales executive, who has deep experience with selling enterprise software products, is fully built out, and I could not be happier with the progress they are making. While we did reduce expenses in various parts of Transact this year, as I previously stated, On the other hand, we added more salespeople to our FST team. Our overall cost structure will be lower, and I am pleased to say we now have a full complement of salespeople across all the different verticals in the FST markets we serve. Our pipeline is as robust as ever, and we are seeing great traction with several new brands testing our BOHA products. Some of the most recognizable brands in the world are currently being counted among our pipeline, which, as a reminder, is fully vetted and does not include anyone kicking the tires. We still have more selling to do, but our pipeline has really grown since doing the NRA supermarket and C-store trade shows. Many of these potential customers are nationwide chains with units in the hundreds or if not thousands. However, timing can be uncertain. as well as initial order sizes and rollout strategy. With this in mind, it's probably best to take down the guidance of how many new BOHA terminals and workstations we will add this year. Though our sales pipeline is more robust than at the start of the year, and there is a chance that we can make our original guidance, due to the difficult first quarter of 2022, it is best that we speak about a lower number. Therefore, we have decided to take the number of new placements to 4,500 to 5,500 for 2022. However, we are maintaining our ARPU guidance for the year at $8 to $10 million. I also briefly wanted to mention that in July, we put out a press release announcing our first ever BOHA enterprise license sale. This software win is a five-year, 300-terminal and software license deal and represents a crucial step in the lifecycle of BOHA and represents the type of deal we will be actively pursuing in the future as we continue our evolution into a SaaS-based software solution provider. We sold the software enterprise license with the customer agreeing to buy the license for 300 locations, all up front. This gives us the confidence in our SAS potential revenue going forward. Lastly, I wanted to discuss our ARPU, our average revenue per unit for the quarter, which came in at $861 versus $638 sequentially. The rebound in label sales helped bring ARPU to a more normalized rate. And as a reminder, our target continues to be an ARPU of between $1,000 and $1,200. For the remainder of the year, we would expect ARPU to hover near its current levels. But please remember, we are selling BOHA terminals to replace our old AccuDate 9700s that is sold without any recurring revenue. These units are included in our ARPU calculation. In closing, I want to recap what I believe are the most important takeaways from the quarter. One, we are seeing tremendous success in navigating the exceedingly difficult supply chain issues. With the second quarter of 2022, while the second quarter of 2022 was good, we expect to deliver many more printers in the remaining two quarters of 2022, and we still expect to sell about every single unit we can produce. Two, our FSD sales team is now fully built out, and we are seeing a lot of momentum build in our pipeline. Our cost reduction plan is seeing excellent early results and was fully implemented in the third quarter. And in the fourth quarter, we will see the full effect. In addition, the price increase is flowing through and helped to offset the increase in supply chain costs we have experienced. Four, altogether, we now expect to be moving towards adjusted EBITDA breakeven by the end of 2022. I want to thank the entire team at Transact for their tireless effort. This was quite an effort. You never gave up. The results have been outstanding, and I want to thank you. And I want to thank our shareholders for the support and for your time here today. Now I will pass the call over to Steve for a more detailed review of the numbers. Steve?