TransAct Technologies Incorporated

Good day, ladies and gentlemen, and welcome to the Transact Technologies first quarter of 2024 Earnings Call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press Start Zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to Ryan Gargello of Investor Relations. You may begin. Good morning.

Welcome to Transact Technologies' first quarter 2024 earnings call. Today, we'll be discussing the results announced in our press release issued before market open. Joining us from the company is CEO John Dillon, President and CFO Steve DiMartino. Today's call will include a discussion of the company's key operating strategies, the progress on those initiatives, and 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, 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 filings, including its reports on Forms 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 may include non-GAAP financial measures within the meaning of SEC Regulation G. When required, reconciliation of all non-GAAP financial measures and 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 John.

John? Thank you, Ryan, and good morning, everyone, or evening, as the case may be, and thank you for joining us today. At a high level, the quarter came in mostly as expected. Total sales were 10.7 million, which is down as expected 52% year over year, mostly due to the dynamics that we discussed at the last call relative to casino and gaming. FST, that's food service technology, recurring revenue increased to 2.4 million versus a year ago period. fst was a bit lighter than expected because two of the larger expected transactions slipped into q2 and have been or will be closed shortly further we are seeing strong demand for our fst technology from our large qsr client worldwide usa north america europe and even in middle east and africa are placing orders on a less positive note one of our large a convenience store client is moving to a smartphone application deployment model, single smartphone, and it will replace a considerable amount of our label sales revenue from the ARPU calculations. And while we enjoy the revenue from label sales, it's not an important revenue stream for us. Nonetheless, it will impact our numbers going forward. Before we go any deeper into the financials, I wanted to take a step back and talk a little bit about Transact as a business and discuss where we stand today as well as what we have in store for the future. It's been just barely over a year since I took over as chief executive. And since then, I believe we've made considerable progress operationally by refocusing and retraining a new sales team, cutting expenses and spending. rolling out and winning important approvals for our new Baja T2 product and introducing a couple of new metrics for investors to help us track our progress. While I'm encouraged by what the team has accomplished so far, I want to spend some time talking today about the future for Transact rather than the past. I think we have a great organization at Transact. It has core strengths, fundamental goodness, and I believe there's still considerable room for us to explore untapped potential and better define ourselves as an agile, industry-agnostic transaction validation platform that delivers tailored business solutions to our clients. And while our products like casino and gaming printers and our BOHA platform might appear as serving two very separate markets with disparate goals, the reality is that both are industry-based solutions that leverage both hardware and software to validate transactions in the moment, at the point of occurrence. And for a number of reasons, casino and gaming and restaurants back of the house are at two different stages in their transaction validation lifecycle. I mean, we recognize that. For casinos, there will always be a need for transaction validation, even if many players eventually switch from paper to an electronic form of validation. We're also well-positioned to do that. I mean, this is a question I get frequently, and while we believe there will always be a place for paper receipts in gaming environments, Transact is moving with the market, introducing cutting-edge technology to clients and providing custom solutions such that many transaction validation capabilities are possible. For example, sports betting is now the fastest-growing gaming segment at many casinos, which is why we introduced a purpose-built printer called the Epic 880, and soon... This will be replaced by the TR80, which is the next generation for this exact application, and working with our OAN clients to design and optimize printers for kiosks. Competitor solutions typically involve hastily redesigned existing products that put it in a position where it's either difficult to service, prone to error, hard to operate, or both. And on the BOHA side, an example we've talked about in the past few months has been our entry into assisted living communities where our technology is used to monitor temperatures in refrigerators and freezers for controlled medicinals in their storage areas. And medication storage has not traditionally been a service we advertise, but that doesn't mean we aren't more than equipped to take it on. We work diligently with this client to ensure we could provide a custom solution utilizing the BOHA platform. to meet their unique particular requirements. I mean, FST is simply one market that can be one with our BOHA platform, and we believe we have the ability to enter other markets with the same solution as well. So these small steps towards entering new verticals and applying our technology and strengths in new ways in existing verticals are symbolic of all the opportunity there is for our services to grow and expand. We believe there are opportunities like these across a range of spaces, from places we've already previously been like lottery and banking to totally new white space opportunities that may not even know yet they can benefit from our technology. As an example, and those of you who have been with us for a long time remember, we used to have a substantial market segment back in the 2000s. up until about 2017, was our banking business. Specifically, if you recall, our bank jet inkjet printers were used at bank teller stations all over the United States. It was a great market for us, but obviously banking has changed. But the point is that we have been in many other vertical markets, and we do a good job of it. With updated products and a revised go-to-market strategy, we believe there's a lot of possibilities here for us. After all, Transact is a company with a legacy of design wins in multiple verticals spanning multiple decades, and that ability has not disappeared. We have those roots. It's part of our DNA, and I think we have the opportunity to find more and new ways to win in different markets as a leading transaction validation and verification platform. We've already identified a few opportunities to explore. Don't worry. We're staying very focused on the markets we're serving today, but the opportunity is exciting in these adjacent markets. For our technology in the long term, we believe that we can apply ourselves to a wider array of industries. So having said that, let me move on to some key points from the quarter, and then I'll pass it back to Steve for more detailed review of the financials. On the FST side, or food service technology, we saw revenues of $3.3 million, down about 5% year-over-year, with recurring revenues of $2.4 million, which was up about 3% year-over-year. We delivered 901 BOHA terminals, resulting in 856 new installations, and we ended the quarter with 15,370 online terminals in service. As the initial cohort, our BOHA terminal install base begins to hit contract renewals, we do experience a minimum amount of churn in the quarter. We don't report that yet because it's too early to get significant metrics, but it's something that I expect to report in the future. But that's the difference between the terminals we sell and then the net new installation. So sometimes we'll lose a few terminals if somebody goes out of business or whatever. And that's an important metric that eventually as we get better statistics, we'll probably begin to report. Our T2 product continues to be well received by customers and prospects as well. And I believe this new product will be crucial to our growth going forward. However, As I mentioned in the past, we expect progress to be lumpy quarter to quarter. We're a small business, and these are big purchases typically when a business or a company that's going to become a client has to change a process in the back of the house. So we expect it to be lumpy. We expect rollouts to be somewhat inconsistent, but we have a lot of optimism for the future here. The new FST pipeline growth metric, which measures the quarter-over-quarter difference in our four-quarter looking forward pipeline, That grew about 4% quarter over quarter. So it's going in the right direction. We scrub it carefully. We're paying a lot of close attention to what's in the pipeline. And as I pointed out earlier, we've added eight new customers in the last quarter with the potential to purchase as many as 10,000 terminals or more over the next 12 to 24 months. And that's adding to the 12 new customers that we added in the prior quarter. Next, I want to provide an update on the status of 7-Eleven. Occasionally, some of you ask me about it. In April, 7-Eleven Corporation informed us that they would be moving to a net new system and moving off the BOHA terminal. There in the first generation, we had obviously hoped that we would sell them the terminal too. This loss was due to a cost-cutting project where virtually all of their in-store applications are going to be run on a single cell phone. These applications include point-of-sale, They're replacing their point of sale system, their inventory system, waste management, ordering, and all the other back-of-the-house, in-front-of-the-house applications that they operate in a single store. They're all going to be moved to this in-house system by the end of the second quarter in 2024. While this is a disappointing development, we wanted to note that BOHA was not specifically targeted. It had nothing to do with the decision to make at the executive level at headquarters, and we're not taking it personally, as it were. And it's not due to any problems with our product or our services, but rather was a result of a long effort to create and institute their own technology. We really didn't have much perspective on this. We were somewhat unaware of this until the termination. Their 7-Elevens parent company, 7 and I Holdings, generates tens of billions of dollars in revenue and staffs hundreds of engineers. And even then, it allegedly took years to build and roll out this very specific one-off product. that is customized specifically for single-store 7-Eleven business. This development will impact approximately 5,400 terminals in our install base and will reduce recurring revenue at an annualized rate of approximately 3.6 million, largely label sales, and this has been reflected in the updated guidance range that we're going to provide. I also wanted to briefly mention our international QSR win that I have referenced in prior calls. The rollout has been an incredible success so far, and we have started receiving an increasing number of orders from locations around the world. We couldn't be more thrilled with the positive reception and believe this is an opportunity that could provide over 1,000 BOHA terminal sales quarter over quarter over quarter. We believe the worldwide footprint we have already will expand even wider. And then finally, moving on, I want to mention that we have a large sushi client that is converting from our original terminal to the new Baja Terminal 2, T2. We expect this will generate hundreds of additional sales of the T2 terminals over the next 12 to 18 months. Most of them will probably occur in 2024. Moving on to casino and gaming, we reported revenue of $5.7 million for the quarter. That was down 64% from the prior year, and we've been discussing the changing dynamics in this largely duopoly market for the past several quarters and wanted to update everyone on how we see it progressing. First, on the competitive side, we believe our main competitor has reentered the market, and we're seeing some of the pricing pressure we expected as this occurs. We're taking appropriate steps needed to make sure that we retain as much of the captured market share as possible. Second, on the inventory side, we continue to hear from most of our OEM customers that they are in an oversupply position still. And we expect this to continue for at least the next quarter. And this dynamic continues to be the larger reason for the sequential slowdown in sales. Previously, we expected the first quarter to be the peak of this oversupply. And now we believe that this will continue through at least the second quarter with order pickup beginning in the third quarter and then going forward from there. And finally, I wanted to provide an update to our financial outlook for 2024. Due to the changing dynamics around both FST and casino and gaming, we've decided it's most prudent to adjust our financial guidance to ensure that investors have an accurate idea of where we believe our performance will be for the remainder of the year. We now are currently estimating that our full-year revenues will be between $45 and $50 million, and adjusted EBITDA will be between a negative $2.5 million and negative $3.5 million. I'm relentlessly optimistic about the future of Transact and believe that we have the right products, the right people to win in our existing markets, as well as some new ones in the future. While I acknowledge a continuing need to execute, especially in the near term, it is also important as ever, but I have complete confidence in the strength of the organization to perform. So those are my comments this morning, and now I'd like to pass it over to Steve DiMartino for a more detailed review of the financials. Steve?