TransAct Technologies Incorporated

Greetings and welcome to Transact Technology's fourth quarter and full year earnings conference call. At this time, all participants are on 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. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ryan Cordella. Thank you. You may begin.

Thank you, Rob. Good afternoon and welcome to Transact Technologies' fourth quarter and full year 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 Schultman and President and CFO Steve DiMartino. Today's call will include a discussion of the company's key operating strategies, the progress on these initiatives, and details on our fourth quarter and full year financial results. We will then open the call to questions. As a reminder, This conference call contains statements about future events and expectations, which are forward-looking in nature. Statements on these calls 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 Form 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 within the meaning of SEC Regulation G. When required, 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 for joining us on the call today. Clearly, I cannot be more pleased with our fourth quarter results or with the trajectory of the business as we enter 2023. As always, these numbers could not have been possible without the tireless efforts of the entire Transact team. Thank you so much for your hard work and constant innovation. Before I jump into some dialogue regarding our two key markets, let me provide some highlights for the quarter and year end. Our total revenue of $18 million for the fourth quarter was up a full 61% from the year prior period. with our casino and gaming market being up an incredible 123% to nearly $11 million. Our FST recurring revenue is also up approximately 14% to $2.4 million in the quarter, reflecting strong use of labels and additional software across our installed base. For the full year, we saw our total revenue grow by almost 48% to just over $58 million, which was our highest full-year revenue number since 2015. This fantastic result was driven by an increase in our casino and gaming market of approximately 96% to $30 million for the full year, and an increase in our FST recurring revenue by approximately 18% to $8.7 million, which was within our $8 to $10 million guidance. I will now discuss more about our two key markets, FST and gaming and casino. First, our FST market. I mentioned earlier our FST recurring revenue, which, as a reminder, consists of software, label sales, and service, so its third full year of sequential increase and its third quarter straight of over $2 million in revenue. We had another very strong quarter of label sales and yet another wrecked quarter for software sales. As our terminal install base continues to grow, we will see our recurring revenue number continue to rise and smooth out in the long term. Second, we are currently working with a number of large international QSR restaurant brands on testing and implementing our labeling solution, not just nationwide, but across parts of the world. In fact, we are already expecting the large QSR to start coming online in the second half of this year, which is the large opportunity I spoke about in our last call. Our expanded sales force has seen the restaurant market open back up for us as restaurants face growing inflation with labor and food costs. So we're just starting to fill the pipeline with new restaurant opportunities. As many of our investors know, we began selling our FST terminal in 2019, right before the unfortunate events of the pandemic and lockdowns had ensued, shutting down restaurants everywhere. But with some good fortune, we found success in the grocery aisle and in C-stores, which became in many cases restaurant replacements with expanded fresh food offerings. Our BOHA terminal with our labeling-only software provided an efficient and productive way for C-stores and groceries to sell fresh food. As we grow the number of opportunities in the restaurant market, I do remind our investors that from beginning of the lead to close can take almost 18 months of work. The QSR, I mentioned, has taken over two years to convince them to convert to our cloud-based labeling technology. Third, we continue to see success in the SMB market. Our sales team has already closed at least two SMB restaurant chains so far in the first quarter, and I believe that is just the beginning. Now let me touch on our paid terminals added in the quarter and for the full year. In the fourth quarter, we added 251 paid terminals collectively. ending the year with 12,180, up 2,362 from the year end of 2021. While this number is clearly below where we thought we would end the year, we did see a certain amount of fourth quarter sales get pushed into the first and second quarters. With the opportunities in the pipeline, I have plenty of confidence in our outlook for FST's 2023 results. We continue to see great traction with the number of valuations currently underway across some well-known international brands. While it will take some time to close the opportunities in the pipeline, I believe in our ability to execute these in 2023. Now let's talk about our casino and gaming market, which continues its streak of historic success. Let me start with a little background on the business. Pre-COVID, the casino and gaming market growth opportunities were driven by casino expansions, slot replacement cycles, and new casino openings around the world. We basically operated what was essentially a two-horse race for casino printer sales worldwide. However, from what we can tell in our conversations with customers and industry contacts, this dynamic has at first slowly and now quickly changed heavily in our favor. As we discussed at length last quarter, late in the second quarter, we began to pick up market share from customers around the world due to our competitors' inability to supply customers with their printers. We began to add an additional production line in the third quarter based on slot manufacturers' demand and our ability to get the needed parts and electronics to build our printer. With the demand continuing, we then began to install a fourth production line in the fourth quarter, which is starting to manufacture printers on that line right now. Transact's casino and gaming printers have become the market. We are breaking sales, delivery, and backlog numbers for our printers at record pace, and this shows no signs of slowing in 2023. As such, we feel confident that our casino and gaming sales will continue to be strong for 2023 and clearly be bigger for the full year 2023 versus 2022. Additionally, with the increased level of production, we were hoping to finally work our way into an inventory position versus air shipping our printers directly from the point of production. As a reminder, our casino and gaming products typically have gross margins above our corporate average, which is showing up in our financial results as experienced in the fourth quarter of 2022. This is an incredible moment for our business and is the result of the hard work and dedication of our R&D and procurement teams. And let me send a huge thank you to our gaming and casino sales team that had to juggle all the new orders and demand by customers and keeping them all happy. There's been a lot of work accomplished at Transact, and we all know electronic parts shortages are an issue around the world. I cannot thank our engineering and procurement teams enough for the work they did to ramp up production to meet this market demand. You know, I can only say it has truly been crazy. With the favorable FST market and the growing gaming and casino sales, I feel it important to give some guidance to our shareholders and analysts. Please understand this guidance is based on what we know today. We are currently anticipating full year 2023 total revenues to between $70 and $72 million. Additionally, we are anticipating that as a result of our cost-cutting initiatives, which were fully implemented in the third quarter and projected revenue growth we are projecting, We're also anticipating total adjusted EBITDA between $5.2 and $5.4 million. Both of these items are based on the assumptions I have discussed. Now with that, I'd like to turn the call over to Steve to discuss our financial results in more detail. Steve?