TransAct Technologies Incorporated

Good day and welcome to the Transact Technologies Third Quarter 2022 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Ryan Gardella, Investor Relations. Please go ahead, sir.

Thank you. Good afternoon and welcome to Transact Technologies Third 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 Schulman and President and CFO Steve DiMartino. Today's call will include a discussion of our company's key operating strategies, the progress on those initiatives, and details on our third quarter financial results. We will 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 company, please refer to the company's SEC filings, including its reports on Forms 10-K and 10-Q. Transact undertakes no obligations 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 J. When required, a reconciliation of all non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP can be found in today's press release as well as on the company 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. Our third quarter results reflect the accumulation of many months of incredible work by the Transact team across every facet of the company. I'm incredibly proud of all of you at Transact and know every team member contributed to the success we are seeing. After a very difficult couple of years, I believe we are finally reaching an inflection point in the business and could not be more excited for the future. Last quarter, I discussed the efforts on the engineering and operations side to get production back to normal, casting our teams with solving problems related to the ongoing worldwide part shortage issue. I am thrilled that our production lines are back in full swing, and to say that we delivered a near record number of casino and point of sale printers in the third quarter, and we broke a number of company sales records. First, at a high level, on the food service technology or FST side, we set record highs in terms of sales dollars for total FST revenue, label revenue, and total recurring FST revenue, which I'll go into more detail shortly. On the casino and gaming side, we saw another double-digit percentage increase in sales on the domestic side of our business, and yet another triple-digit sales increase on the international side. Suffice to say, our R&D and operations work to ramp up production was a massive success. And barring any unforeseen issues, we believe this momentum will continue. Before I go through the market results, I also wanted to provide you an update on our cost-cutting initiatives and price increases, which I discussed in last quarter's call and was in full effect by September of the third quarter of 2022. These cost-cutting measures combined with the revenue growth resulted in a significant improvement in the flow-through of our top-line revenue to the bottom-line profitability. We were thrilled to see our gross margin increase by 540 basis points. Okay. Let me step to the side. Ryan, Mitch Sachs is texting me that he's on hold for 10 minutes, so can somebody figure that out? Let me start again. Sorry. It's modern technology. These cost-cutting measures combined with the revenue growth resulted in a significant improvement in the flow-through of our top-line revenue to the bottom-line profitability. We were thrilled to see our gross margin increase by 540 basis points while achieving both positive net income and positive adjusted EBITDA. What a great job by the Transact team to get us to this point. And sales teams, you did a fantastic job. Now let's go through our markets in more detail, starting with FST. I cannot be more pleased with our results. And as I just mentioned, we set a number of records. Our FST recurring revenue crossed over $2.5 million for the first time in a quarter, setting a new record high of nearly $2.6 million. While we saw increases across all three components of our recurring revenue, Label sales saw a particularly strong quarter and also set a new record high in terms of sales dollars. Combined with record high software sales and adding in the hardware sales in the quarter, we reached total FST revenue in the quarter of $3.7 million, which, as I already mentioned, is a record for total FST sales dollars in a quarter. While a lot of the positive momentum can be credited to our newly expanded sales force, Please keep in mind that we have said in the past that our typical sales cycle are well over a year, and the expanded team has only been in place for less than six months. Some just joined us a few weeks ago. I am really excited to see their early success, which we believe is setting the stage nicely for future performance. They have made significant inroads in the SMB vertical and have started to carve out new use cases for our industry-leading BOHA terminal systems. and workstations, particularly in the grocery market, where we see is important to the Transact brand going forward. The economics of the grocery aisle resemble very large convenience stores with heavy label usage, but with some additional software layered on top. Now let's talk about paid terminal count. In the third quarter, we added 988 paid terminals for a total of 11,929 currently in the quarter. I'm sorry, currently I'm getting text messages, Ryan, that people can't get into the call. Now let's talk about paid terminal count. In the third quarter, we added 988 paid terminals for a total of 11,929 currently in the market. We continue to be optimistic about our results for the remainder of the year. but I am optimistic for 2023 and the future due to all the new sales opportunities our new sales team have identified. And speaking of our sales pipeline, we continue to believe it is as robust or perhaps even more than ever. We are seeing great traction with a number of valuations currently underway across some well-known international brands, and our sales team is in high gear working to close deals. Well, it will take time to close some of the opportunities in the pipeline. There is a real need for our technology, and we believe we will see positive momentum carry on throughout the end of the year and into 2023. With that in mind, we are reiterating our recurring FSD revenue guidance for the full year of $8 to $10 million. Now I would like to speak about one large opportunity that should become a great success story for Transact. We have been given the approval to go into a final test with a very large QSR, and the goal between our two organizations is to begin the sales process with their franchise organization in July of 2023. This is a very large opportunity for Transact, and we just have to finish some final design work and then the final field test. We believe this will be the largest sales opportunity in the company's history for our BOHA technology. Before moving on, I wanted to touch on our ARPU for the quarter, which came in at $936 versus $861 sequentially. Our record FST recurring revenue helped fuel this gain, particularly with the strong performance from our label business. As a reminder, our target ARPU continues to be $1,000 to $1,200 per year, However, we are now selling a number of BOHA terminals that will replace our old 9700 AccuDate food safety terminal, which will not generate any recurring revenue from the beginning. While these units are included in our RPU calculation and drag down the number a bit, the purchase price of these will be higher than our typical BOHA terminal or workstation sale, which will fall under hardware rather than recurring revenue. The BOHA terminals and workstations will also get our customers onto our portal-based system and gives us the opportunity to upsell each to our different app offerings. Now let's talk about the gaming and casino market. Once again, we could have sold more product, but the incredible demand is outstripping our supply, even as we ramp production up significantly. For the third quarter, casino and gaming sales were 7.6 million, which is up almost 92% year over year. As I mentioned, We saw a solid double-digit gain in our domestic sales and yet another triple-digit gain in our international markets. And our international success was achieved without much sales into the Macau market, which is still affected by the Chinese COVID lockdown policy. As many people know, our competitor in the casino market appears to have a production issue, and we took on the task of wrapping production as quickly as possible despite the product shortages in the marketplace. to help our slot manufacturers with their sales to the casinos. One slot manufacturer personally told me, Bart, we bailed them out. There is no doubt the word is out that Transact has supply, and new customers are coming in from across the globe to buy our epic line of printers. We continue to actively work on ways to increase our production to meet this record demand. We plan on increasing production even more in the fourth quarter of 2022. And we should experience higher sales as we ship more printers in the fourth quarter than we did in the third quarter. In addition, we are planning to increase production even more in the first quarter of 2023 to meet the demand we are experiencing from our customers around the world. We learned and heard a lot at the G2E show this year in Las Vegas. and working hard to produce more printers. I'd like to thank everyone we met at G2E for coming out and seeing our booth and product demonstrations. We had BOHA in the booth and pleased to see casinos wanting to learn more about our back-of-the-house technology. We generated sales leads at G2E for BOHA and have added this market to our focus list. It is fantastic to be back out at trade shows like G2E, interacting with all our customers and prospects. and showing them the power of our technology solutions all in one place. Now let's move on to our POS automation market. We were also the beneficiary of a competitor's inability to supply the market here, as we sold and shipped a huge amount of our Ithaca 9000 printers to our key customer. The additional supply allowed us to begin fulfilling backlog orders as well, and together this resulted in sales of over 5.2 million. which was over 300% above our POS automation sales from the prior year. It is important for us to continue our POS printer line and get to a constant level of production as this leads us to dive further into the POS customers to cross-sell our BOHA system. In closing, I want to quickly recap what I believe to be the highlights of the quarter. In SST, we're seeing fantastic momentum in certain markets and feel confident in our growing pipeline going forward. We experienced record highs in our FST revenue. In casino and gaming, we were actively taking share in every geographic market we served across the board due to the incredible success of our teams to ramp up production with all the operations, R&D, and sales work we did. Our international sales were a real highlight, and we continued to see demand from these customers. Our price increases and cost reduction program resulted in positive net income and adjusted EBITDA in the very first quarter they were fully implemented. And we entered the fourth quarter of 2022 with $19 million of backlog. Taken together, it's hard to imagine a better quarter for Transact as a whole. With that, I'd like to hand the call over to Steve to go over the numbers. But before I do, I do hope people finally got through. I don't know why they're having problems getting through on this call, and I can only apologize. This is happening. Okay. I'd like to hand over the call to Steve to go over the numbers.