TransAct Technologies Incorporated

Good afternoon, ladies and gentlemen, and welcome to the Transact Technology Q2 2023 Earnings Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Wednesday, August 9th, 2023. I would now like to turn the conference over to Ryan Gardella, Investor Relations. Please go ahead.

Thanks, Chris. Good afternoon and welcome to Transact Technology's second 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 discussion of the company's key operating strategies, the progress in those initiatives, and details on our second quarter 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 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 will include non-GAAP financial measures within the meaning of SEC regulations. 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 John.

Thank you, Ryan. Good afternoon, everyone, and thanks for joining today. Last time I had a chance to present to you all, I was only about a month into the job as CEO for Transact, and now 127 days, I counted them up, and I've had at least a little bit more of an opportunity to roll up my sleeves and dig into some of the work in earnest. So I'm happy with the progress we've made, and I'm gonna share some of that with you today. At a high level, the results came in as expected and discussed on a last call. Net sales came in at 19.9 million. Year over year, the increase was approximately 58%, but it was a sequential decline of approximately 11% from the first quarter as we expected. And we've all tried to work hard setting the stage for success in the back half of the year, and more importantly, on into 24 and beyond. Last quarter, I talked about the fundamental goodness I found here at Transact, and as well as some of the parts of the business that were going to require some action to allow us to take advantage of the opportunities up ahead in the markets. I can say that we're almost done revamping the parts of the business where that needed to be done. We've added some new internal process where there was none before. We have moved some personnel around. We've let a few go. We've added a few. I like the progress we've made and I feel that we're fully ready to add some much needed momentum for the business. The reality is that our sales teams processes and go to market GTM strategies really required a pretty significant overhaul. And I'm really happy to say that the first phase of that is largely complete. I also feel confident that we now have the right people in the right places, and we can now turn our attention to the other parts of the equation, predominantly focusing on execution. While change takes time and shifting behaviors and habits in any business can be a long game, I'm pretty confident that we're now moving all in the right direction. Let me go over some of the results from our two markets. First, on our food service technology or FST market, FST revenue was 3.9 million, up about 14% year over year. This was led primarily by higher shipments of our Accudate 9700 product and increased label sales. We also added 743 net new ball hot terminals in the quarter, bringing the total number of our online terminals in the market up to 13,476 as of the end of the quarter, June 30th of 2023. So that's up. from 10,941 in the prior period a year ago. And honestly, I know we can improve on these numbers and that's one of the focuses that's pretty key for me. Our FST sales team is rebuilt and is refocused on the number one priority, which is selling as many of these new units as possible into the marketplace. We have implemented the personnel changes I mentioned Uh, we're needed and we're out there every day, pitching both the new and existing clients on this freshly launched, uh, Bo hot terminal too. We've also made some excellent progress revamping the sales motions and GTM strategy. And while this is an iterative process that will continue to take time, we've already been seeing begin to see promises of momentum and some pre-orders from new of the new terminal from some of our existing customers. As I mentioned, after digging in a bit, I frankly found a lot of room for improvement in this GTM and its execution. While they were far from optimal, the good news is that these things are relatively all easily fixable. It's not rocket science. We just have to do it. And that's why I took moving around a few people and creating a little bit of focus where there wasn't any. However, given the long sales cycle, it still is going to take time for the good work to manifest in results. Further, as I discussed last quarter, we are very happy with the BOHA Terminal 2. The product turned out bigger, faster, brighter, more capable, and frankly, just a lot playing better than the original. And we're happy as well with the positive reception we've gotten from those customers and clients who have trialed it so far. We believe that there's a large opportunity within the existing install customer base who are looking to upgrade their from our older Accudate 9700 product, and to some extent, our earlier original BOHA terminal as well. As a reminder, the BOHA sales cycle is long. I've already said that. And it's complex, but it pays dividends. And when the headquarters grants us a green light to engage with their franchisees, this typically is the case with most of the established franchises. And so once they say, yes, it's okay, we've authorized it, we've approved it, then that gives us an opportunity to go out to the individual franchisees and introduce them to the unit and basically hope for upsell and uptake. And that is really key. And we're well on the way to getting some of those approvals at some of our key accounts. And we're optimistic that the approvals will begin to yield results towards the back end of 2020 this year and on into 2024. Next, on the casino and gaming side, we saw a total casino and gaming revenue of $12.2 million, up 87% year over year, but down 23% sequentially from the all-time high we saw in the first quarter. There are two main reasons for that, the sequential decline. First, we had predicted, as we predicted on our last call, we did see the first signs of our major competitor reentering the market, and they did make some deliveries of their product in the last quarter, not a lot, but some. Second, the order rate and backlog additions to our books are certainly slowing, which we believe is a result of the slot OEMs having built a large inventory position of printers in the first half of 2023. And as supply chain tensions eased, Combined with the fact that some OEMs had over-ordered printers just in case supply chain problems continued, we are no longer seeing manufacturers placing orders six to nine months out as we had previously. So we were certainly at the right place at the right time with the ability to capitalize on this influx of pent-up demand during the market recovery, and we believe this benefit will benefit us beyond the short-term spike in sales and profitability that we was created earlier this year. We're not resting on our laurels, as you say. We have increased our casino and gaming sales staff and are actively going out to our new customers in an effort to retain as much of the market share gain as possible. A portion of those new customers will certainly become long-term buyers for our printers. However, we also expect to reduce pricing a little bit on these products in order to make sure that we stay competitive in the marketplace as much as possible. The price here is a new baseline sales level as a result of a permanent increase in market share. We believe we are well positioned to capture that demand going forward. And at this stage, we would estimate that our go-forward net sales run rate in the market should be about 15 to 20% higher than our pre-COVID historical average. and we would expect this new run rate to be fully reflected in the fourth quarter of this year and on into 2024. Further, we hope to see some benefit from our newest casino and gaming printer. It's called the Epic 888, which we believe will help us retain some of these new customers We expect to launch this towards the end of the year. That launch, et cetera, will happen publicly at some point, but it's a really nice looking unit and we expect it to be a nice boost to some of the gaming and casino customers. Finally, I wanted to discuss our outlook for the rest of 2023 and provide some color on how we are seeing the business progress. As I discussed, we are in fact seeing the downward trajectory of casino and gaming. that we did expect and spoke about last quarter. While we're taking strong action to retain as much of that business as possible, the reality is the return of our competitors as well as price reductions that we're talking about will continue to impact both our net sales and profitability on adjusted EBITDA. As such, we have decided the most prudent approach to our guidance is to maintain our current net sales guidance of 71.5 million to 73.5 million. and raise our adjusted EBITDA guidance to a range of $8 million to $8.5 million for the full year 2023. These ranges take into account all of the points I have mentioned today. There's still work to be done here at Transact, but I'm pleased with our results for the quarter and believe the company is now moving in the right direction as a whole. I believe the pieces are in place across the company from a personnel perspective, but again, the impact does take time. Our rebuilt FST, food service technology sales team, and newly reinforced casino and gaming sales teams are now in the best position to capitalize on opportunities in front of us. And our sales cycles, particularly for FST, take time, but the feedback we're getting early on is very encouraging for pre-orders on the BOHA Terminal 2. While as predicted, our competitive environment in casino and gaming began to normalize in the quarter, the printer sales began to decelerate with OEMs no longer stockpiling. We are hard at work to nurture these new customer relationships to retain as much of that share as possible. So that's pretty much it. And now I'd like to turn the call over to Steve for more detailed review of the numbers. Steve?