TransAct Technologies Incorporated

Greetings and welcome to the Transact Technologies first quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. A brief 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. It is now my pleasure to introduce our host, Ryan Gardella, Investor Relations. Thank you, sir. You may begin.

Thank you, Kyle. Good afternoon and welcome to Transact Technologies' first quarter 2023 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 John Dillon and President and CFO Steve DiMartino. Today's call will include a discussion of the company's key operating strategies, the progress in these initiatives, and the details on our first quarter financial results. We'll then open the call to participants for questions. As a reminder, this conference call contains statements about future events and expectations for forward-looking in nature. Statements on this call may be deemed as forward-looking and actual results made different materially. For full lists of risks inherent to the business and the company, please refer to the company's SEC filings, including its reports in Forms 10-K and 10-Q. Transact undertakes no obligation to revise or update any forward-looking statements or 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 the SEC regulation sheet. 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 website. And with that, I'd like to turn the call over to John. John?

Thanks, Ryan. This is John Dillon, and it's good afternoon to all of you, and thanks for joining us today. And this is my first earnings call as chief executive at Transact. And for those of you don't know me, again, my name's John Dillon. Before becoming the CEO here, I've been on the board for about a decade, so I know something about the company. And you can look me up on LinkedIn, but I've been a tech individual for a long time, places like Oracle, Salesforce, Hyperion Solutions, and the like. So I feel like I can bring a fair amount of guidance and experience to the job. So I've only been here for about a month, but I want to share some of my first impressions with you and highlight some of the things that I think we're doing well and where we have some opportunity to do better. First of all, I feel confident that stating that Transact has a great number of strengths and some fundamental goodness for a company of our size, and we're not big. I also... would be remiss if I didn't thank Bart Schulman for his dedication to Transact. I mean, his ability to navigate three years of remarkably unprecedented business and logistics challenges, which we all know because of the virus, war in Europe, inflation, and potential recession. Without his leadership and through the lockdowns and COVID-related challenges, the company would not be nearly as well positioned as it is today. So for me, I just wanted to shout out a thank you to Bart for everything he's done to get us where we are. So first, let me say that we have a number of core competencies that I think differentiate us from our competition and that I believe we can leverage effectively to build competitive moats around some of our businesses. I mean, for example, the printing products and manufacturing processes and logistic capability are industry standard. and have allowed us to, in the past two quarters, demonstrate we're capable of delivering product when others cannot, and winning share in printing markets around the world, and frankly, it builds trust with our customers. I believe this is an advantage that we should lean into, and I intend to double down on these strengths and go where we can win, in essence, penetrate customer opportunities and markets first with a winning strategy, And usually, if you're smart, you lead with your long suit, and we can do that. And second, the BOHA platform is differentiated. It's a well-designed product, and with our recent relaunch of the BOHA Terminal 2, I think the product strength only improves. And frankly, the need for technology solutions in the back of the house where operational challenges are only increasing Companies in the food service industry are dealing with food wastage, spillage, labor, and cost every day. And I believe there's a challenge of the FDA-approved labeling only continuing to grow every day. And frankly, I think Transact's ability to be the product that wins that market is real. I also believe that adjustments to our product positioning and sales strategies will result in positive changes. to how customers and prospects see our BOHA platform. And I believe in the end, we can gain widespread adoption of these terminals in the food service establishments that we serve. In a short time since I've been the CEO, I've had an opportunity to move quickly to enact some early changes implemented relative to sales motion and go-to-market strategy. And I believe this is an iterative process. These things aren't things that will have a massive impact immediately, but I believe that we all in all can improve the GTM, the go-to-market strategy relative to FST, food safety technology, food service technology, and that we can increase the number of new terminals we sell, and I believe we should treat that as the most important indicator where we have success and traction for BOHA. I'm already making moves to prioritize this objective. And third, and perhaps most importantly, Our customers have learned to trust us and rely on Transact and our products. The relationships we have are the lifeblood of any business, as you probably all know. And through our years of service and innovation and collaboration with our customers, we've built, I'd say, a very high degree of customer intimacy that any business would want and want to leverage to continue to grow the market opportunity ahead of them. So these things are things that I believe that we can continue to evolve and improve. with a focus on customer-centric approach, and I think that's going to be a key to our long-term success and, frankly, our differentiation. And finally, I'm getting to know and speak with members of the Transact team. I knew many of them already from my service on the board, but I'm very impressed with the quality of the people that we have in the organization. Many of them are tenured and certainly very dedicated to success here at Transact. The bench strength is good. Institutional knowledge across the company from finance and accounting, led by Steve and Bill. Our sales organization, who's now led by Tracy, who we made the chief revenue officer recently to cover both FST and to cover gaming and casino. And our technology and design teams led by Brent. I've got a solid team, and I'm delighted to work with these individuals, and I'm very confident that we can do what we need to get done. The foundation is here. and I believe Transact fundamentally is taking the right steps towards growing into a class-leading enterprise. So I've got some highlights. I'll walk through them from our two key vertical markets, FST and casino and gaming, before a brief conversation about guidance. Then I'm going to hand it off to Steve for some more detailed analysis, then we'll do some Q&A. So relative to FST, food service technology, Total FST revenue for the quarter was up about 60% to three and a half million led predominantly by an increase in the number of terminals sold to new logos, as well as higher shipments of our Accudate 9,700. As previously mentioned, the new terminal growth remains the most important element of our FST business. I intend to focus on that metric. And while we were encouraged by the 553 new terminals we added in the quarter, We're making, as I mentioned already, changes to our sales strategy to enhance the quarterly run rate. The changes will take some time. It's all iterative, as I already mentioned, and I will provide more detail around what we're doing in the coming quarters and what we expect to yield from the efforts. We entered the quarter with 12,733 terminals in the marketplace, year over year from 10,127 from the Q1 of 2022. That's a 26% year-over-year increase. That's good, but it's not as good as it should be. Next, on the casino and gaming market, we saw all-time high quarterly record revenues of $15.8 million, up nearly 250% year-over-year and almost 50% sequentially, which was our previous high in the past. So this quarter is the highest revenue bookings for casino and gaming. in the history, as far as I know. Strength across broad both domestic and international sales, triple-digit percent gains as industry-leading printers continue to pick up market share. As was mentioned last quarter, we remain the beneficiary of a competitor's inability to provide product to the market, and our stellar product production and design teams have been able to secure parts and products where the competition is not. Well, this is obviously a good result. We believe that there is a likelihood that we may see a more normalized competitive environment in the future. I mean, that really wouldn't surprise us. We thus feel it prudent to update our financial outlook ranges. So for fiscal year 2023, we're now expecting between $71.5 million and $73.5 million in revenue and between $6.5 and $7.5 million in adjusted EBITDA. So while the strength of our first quarter results demonstrate the opportunity to market for us, we believe the correct approach is to assume that the current market dynamics in the casino and gaming market may not continue. So we're currently assuming a moderation in the casino and gaming sales in the back half of the year. Additionally, while we are making changes to our sales and go-to-market strategy in FST, it will take some time, as I've mentioned several times on this call, to see the results flow through and improve sales numbers. So we are not assuming appreciable impact in the near term. From a profitability standpoint, we assume there will be a downward margin pressure from current levels due to slightly lower casino and gaming sales, which will flow through our results. So while we're not seeing our main competitor currently in the market in the second quarter, we believe these assumptions are the ones we're making now are probably the most prudent given that we have no really ability to project how a competitor is going to move back into a marketplace where they've mostly been absent. Finally, as CEO of Transact, I wanted to use the opportunity to communicate to you and the financial community what you'd expect from me. The most important objective I have here is to create value for all stakeholders. And as a shareholder myself, our objectives are completely aligned, trust me, My success as a leader of Transact's business will result and should result and deserves to result in success for all the stakeholders. In part, this will be achieved through transparency with you as shareholders and the financial community as a whole. You know, I sincerely welcome feedback, comments, criticism, and encourage any holder of our equity to reach out and let us know how we're doing or ways you would like to see us improve. And I'm very sincere about that. I can do better with good questions. If I don't have an answer, I'll get them, and you can trust me on that. So with that, those are my sort of formal comments here today, and I'd like to turn the call over to Steve DiMartino, our Chief Financial Officer.