TransAct Technologies Incorporated

Greetings. Welcome to Transact Technologies' fourth quarter and full year 2023 earnings 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. Please note this conference is being recorded. I will now turn the conference over to Ryan Gardella, Investor Relations. Thank you. You may begin.

Good afternoon. Welcome to Transact Technologies' fourth quarter and full year 2023 earnings call. Today we will 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 DiMatteo. Today's call will include discussions of the company's key operating strategies, the progress of those initiatives, and details of the fourth quarter and full year 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 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 10-Q. Transact undertakes no obligation to revise 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 the SEC regulations. When required, reconciliation of all non-GAAP financial measures to the most directly comparable financial measures calculated in percentage and accordance with GAAP can be found on today's press release as well as on the company website. With that, I'd like to turn the call over to John.

Thank you, Ryan, and good afternoon, everyone. Thanks for joining us today. 23 has been a unique year for Transact in many regards. And I'm happy to report that we closed it out with a fair amount of good news, and we believe that we are well set to see increasing momentum in 2024. We reported $13.3 million for the fourth quarter and $72.6 million for the full year, reflecting the results of changing dynamics in both of our main lines of business, as we've been discussing in prior calls. On the FST side, that's food service technology, we saw revenue of 4.7 million. That's up about 54% year-over-year and 11% sequentially, with the recurring component of that revenue, 3.2 million, up 33% year-over-year and 2% sequentially, both to a record high. As I've discussed at length previously, FST was a major focus in our reorganization of Transact Technologies. And we believe that we now have the right pieces in the right places as we're now focusing on selling our efforts to the top thousand organizations in the US and their related operations abroad to sell BoHA, the back of the house automation platform. Additionally, we launched our new Baja Terminal and the Baja Terminal 2, we call it D2, in 23, and believe this is a high-end enterprise-grade solution which most suitably is designed for enterprise customers. And so while we expect progress to be lumpy quarter to quarter as any small business could, we believe that we're seeing the first start, the momentum to build and we sold 1,235 new BOHA terminals in the fourth quarter, bringing the annual total to 3,655 units sold during the year. We ended the year with a total of 14,514 online terminals installed in the marketplace. We count that statistic because we think that's a platform event, and it's an opportunity for cross-selling and upsizing, so the count really matters. We did see some benefit from the international QSR that we talked about, that win, and it's in our last call, and we expect U.S. orders this past month. And after almost a year instituting major changes across the SST organization, we are encouraged by our sales numbers for the quarter, but acknowledge that we have much greater goals in mind for BOHA and FST going forward. Our Terminal 2 and T2 continue to be well received by the customers that have seen it and prospects who showed it too. And we believe this new product will be crucial to growth going forward. I also wanted to provide an update on the two new metrics, which I mentioned last quarter. One of them is pipeline growth and the other one is new logos, also known as new customers. As part of my commitment to the Transat shareholders, my goal has been to increase the transparency into the business. We felt this would be important to help investors evaluate the growth and future prospects for BOHA. And candidly, I use both of these metrics to run the business myself. They really matter. And I'm trying to watch sales progress and understanding the pipeline and understanding the success against that pipeline are really important. On the FST pipeline growth side, Let me give you some historical context first. Under previous FSC leadership, there's been some sporadic reporting of the pipeline numbers. At one point, I think somebody said it was 24 million, which you might think it was not. But after turning over the sales organization, we reorganized it, moved some people around. We took a hard look at the pipeline, scrubbed it, boiled it down to a place where we felt the pipeline was really reflective of the opportunity that we had in front of us and represented guidelines for the next four quarters of possibility. And we tend to look at the pipeline quarterly, but we run a 12-month, four-quarter rolling pipeline to look at the business, and we can see opportunities out four quarters out, one quarter out, two quarters, three quarters. And this is sort of what I'm reporting here. With this process was intensive, time consuming, but I'm satisfied that the pipe and our belief in the dollars and the opportunities in it are good and represent opportunities for Transact to convert that pipe into revenue. With this in mind, I'm pleased to report that the FST pipeline increased 161% in a little more over the past two quarters. This represents a total amount that is several times larger than the current FST sales levels, so that's a good sign. And as a reminder, the BOHA sales cycle is typically pretty long and somewhat complex, but it pays dividends in the long run. For businesses that operate in a franchise fashion, which are many of the clients that are in our prospect list, we almost always need to engage both the headquarters and the individual franchisees. This makes the sales process a little more complicated, but it's typical for many of the most well-established brands. So with that in mind, as part of the sales process, let me just say that we're well on our way to getting headquarter type approvals for some of the key accounts that you would expect us to go after. We're optimistic that these approvals will begin to yield results as we move forward. The other new metric I want to provide is the FST new logos. also known as new customers, as opposed to follow-on business from within the install base. And I think that's a good metric because if you can't sell new customers, that tells you something's not right. So in the fourth quarter of 2023, we added 12 new logos, including the international QSR, which I mentioned previously. Our reconfigured and retrained sales team is now focused on the enterprise part of the market, particularly approximately the top 1,000 organizations, in the United States and then any of their operations overseas. And we will, excuse me, update you all next quarter on how each of these metrics are trending with the first quarter of 2024 under our belts and moving forward. And we'll provide these same metrics going forward every quarter. Overall, I feel we're well positioned to see some accelerating growth from FST as we move forward in 2024. I anticipate the majority of tangible progress to occur in the back half of the year. I have confidence in the team we have in place. They're well-trained. We lowered the cost structure as a result of cost-cutting measures that I discussed last quarter, so I think we're in pretty good place. On the casino and gaming side, we reported $4.2 million for the quarter, which is down an enormous 62% year-over-year, and I'm going to talk about that in a moment. and approximately 54% sequentially, and full year revenue of $41.2 million. We've been discussing the challenge of the changing dynamics in the duopoly we share in the market we serve during the past several quarters, and I want to provide more of an update on the two most important factors. First, from a competitive standpoint, we believe we're beginning to see a slightly wider scale reentry into the market from our main competitor, and expect possibly to experience some pricing competition as they attempt to regain some of their lost market share. This has not been widespread as of yet, and it's mainly confined to overseas markets. So we're watching it carefully. It's there, but it's not significant at this point, and we will keep you posted if that situation changes. Second, on the inventory side, we're now hearing from almost all of our OEM customers that they are in an oversupply position and have been slowing order rates substantially. In short, these OEM customers of ours overbought as the casino business rapidly rebounded, and at the same time, they tried to offset supply chain uncertainty by overbuying. Everybody was in a panic. They couldn't ship machines without our units, and so they would do anything they could to get them and to stockpile some of them for the future to make sure they didn't have additional shortages. This dynamic continues to be the main reason for this sequential slowdown in the quarter. As we discussed on our last call, we expect the first quarter, this current quarter that we're in of 2024 to be the peak of this oversupply effect with orders picking up as we move forward throughout the year. Ultimately, we continue to estimate that our go forward annual net sales run rate in the casino and gaming market should be about 15 to 20% higher than the historical pre-covid averages and believe that this will be the case for 2024 as a whole with sales numbers improving sequentially quarter to quarter finally i want to provide our financial outlook for 2024 we are currently expecting full year revenues between 53 and 58 million dollars and adjusted EBITDA approximately at the break-even level these ranges take into account all the points I've already discussed today. I believe we're well positioned to see acceleration in the business in 2024, after a year of rebuilding and cost cutting across the organization last year. We've got the right team in place, selling to the right customers and prospects on the FST side, and believe this should result in growing momentum as we move through the year. But keep in mind the business is still small. and results selling into the enterprise market will no doubt be somewhat lumpy. We're beginning to see orders for this new T2 terminal. It's really a platform that can run a lot of different types of software and technology, so we're excited about it. We saw orders start from our large international QSR and expect domestic orders for BOHA from this same customer in the coming months. Pipeline growth and net logo metrics were solid for the quarter, And I promise I will continue to update investors on these numbers going forward. Whether they're good or bad, I'm going to report them. The casino and gaming line is seeing some increased pressure. I think we've explained that. We have confidence in our long-term run rates for 2024 and beyond. And that's pretty much all I have for prepared remarks. And with that, I'll turn the call over to Steve DiMartino. Steve?