TransAct Technologies Incorporated

Hello and welcome everyone joining today's Transact Technologies second quarter 2025 earnings call. At this time, all participants are in a listen-only mode. Later, you will have an opportunity to ask questions during the question and answer session. To register to ask a question at any time, please press star one on your telephone keypad. Please note this call is being recorded. I am standing by should you need any assistance. It is now my pleasure to turn the program over to Ryan Gardella, From Investor Relations, please go ahead.

Thank you. Good afternoon. Welcome to the Transact Technologies second quarter 2025 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 on these initiatives, and details on the second 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 Form 10-K and 10-Q. Transacts under these two options provide for updating 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 from the meeting 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.

Thanks, Ryan. And good afternoon, everyone, and thank you for joining us today. I'm delighted to report that Transact delivered A solid quarter, building momentum from a good strong start to the year. We sold 1,942 bohat terminals in Q2, which is a 32% increase year over year. That brings the total sold in the first six months to 4,292. I'm really happy about this number. It shows progress for sure. The continued strength in the food service business, and we call it FST, food service technology, underscores the effectiveness of what I refer to as a GTM or go-to-market initiatives. We believe this trajectory positions us for sustainable progress and improving results. It's really just continued good process, discipline, and resolve. Really not too much more than that. There's a lot of low-hanging fruit, and we're trying to be focused as we execute. But process, good process, discipline, and resolve is probably the really key to the progress we're making. The focus is to build a business with good execution, consistent results, and with a goal to make Transact a formidable competitor in what we see as a growing, valuable, and somewhat transitional market. So before we dive into the results, let me mention today that we announced that we have acquired a perpetual license to a copy of the source code for the BOHA software for a consideration of $2.55 million, plus approximately $1 million of professional services fees in connection with the in-housing transition that we'll undertake. We see this as a very important step in the life of Transact, and frankly, a decision that should generate significant benefits for the company in the coming years. It's a pretty big deal. So first, let me talk about why this was the correct move at this time. As many of you were already aware, The BOHA software was initially developed by a small third-party software development shop, but was then acquired by a much larger company. And for many years, we have been licensing the software for use, but paying royalty fees as a percentage of the software sales. Further, since we didn't own the software and it was not operating in our environment, we had to rely on third-party support for implementing changes, bug fixes, enhancements to the code. This was, as you'd expect, time-consuming, a complex process that didn't really allow us what I would consider direct control over the results. Part of the new agreement we have is that we will now host the code in our own cloud environment, giving us full control over when and what has changed. We expect to fully be deployed on the version of the code in the first quarter of 2027. While we expect to incur some incremental costs associated with the hosting and maintenance, maintaining the code ourselves, we believe the freedom and agility to modify it and use it in perpetuity at our discretion is certainly worth the price. This agreement also gives us the ability to sub-license the code, which is an important potential benefit for the company in the future. Taken all together, we believe this move unlocks significant value for Transact and gives us an important opportunity to generate incremental revenue. Finally, let me quickly talk through the financial impact of this strategic move. First, and later, Steve will cover the balance sheet implications in more detail, but in summary, we expect to capitalize $3.55 million of the purchase price, which is the purchase and the services to get all this done, and we will capitalize that and then begin to amortize it in early 2027 when our hosted version will go live. And over that period of time, we'll also see some cost savings as we no longer will be required to pay royalties. And once our version is live, we expect to incur some additional costs in R&D beyond the royalty savings at first, as we will now be operating and modifying the code ourselves. So next, let me dive into our FST highlights for the quarter. Total FST revenue rose to 4.8 million, up 14% year over year. fueled by a mix of higher hardware sales and growing recurring revenue. Recurring FST revenue climbed to $3 million for the quarter, showing solid gains both sequentially and year over year. But we also saw a small gain in the ARPU. That's the average revenue per unit to $792, again, up on both fronts. And we feel these metrics reflect our discipline and focus on the sales process and its improvements combined with continued focus on operational efficiency, and this has resulted in our second consecutive quarter of positive adjusted EBITDA and building on our success from the last quarter. The main takeaway is that we're executing against our operational priorities and moving the needle in a meaningful way on the FST side of the business. We're seeing strong momentum, and we believe The changes we've made in the GTM, again, that's go-to-market, are yielding tangible results for the business. The rollouts we mentioned last quarter are progressing according to plan, and our existing base of approximately 40,000 Accudate 9,700 units, along with first-generation BOHA terminals, represent a ripe opportunity for us for upgrades and expansions, and we are making sure that we focus on that as well as new clients and customer expansions. We continue to drive the conversions and the expansions with key customers in the second quarter, including further upgrades across multiple T1 key accounts. These include additional rollouts with a major quick service restaurant and convenience store chains, and where the Terminal 2 is being recognized for its value in enhancing food safety, labeling, and improving overall efficiency. We're getting really good traction with a lot of our clients, and they see the value here, and that's great news. Feedback's positive, reinforcing our optimism for ongoing adoption. The sales team has refined its processes for lead tracking and nurturing leads, and that has maintained a solid and sufficient well-scrubbed pipeline that basically holds steady quarter over quarter, even though we close deals from the pipeline, and then we add more back in. And that's been yielding improving revenue results. In Q2, we closed two new logos, but we also focused on expansion from the land and expand strategy that we use, and that seems to be working well. We'd like to get the initial, if you will, bite of the apple, and then adding more product over time is easier than trying to land a huge deal up front, and that's a much more strategic yet tactical way to approach new client additions. Shifting over to casino and gaming, we're still experiencing the rebound we anticipated. We expect these positive results to persist at around current levels throughout the rest of the year. Total casino and gaming revenue reached $7.6 million, up 42% year-over-year and 14% sequentially from $6.7 million in the first quarter. These results were primarily driven by improved market demand, as we highlighted in the last call, with all of our major U.S. OEM partners remaining in buying positions after we worked with them to resolve the prior inventory oversupply. We also benefited from sales to a new OEM for non-casino, that's what we call it, non-casino charitable gaming applications. It's a segment of the gaming market that we believe may present a sizable growth opportunity as states move to regulate this previously unregulated portion of the market. These are opportunities where there's a charity that basically, sort of like if you think about... state lottery systems where some of the money goes to the lottery system provider, some of it goes to the lottery player, and some of it goes to the state. There are charitable gaming systems where it could be in an Elks Lodge, it could be in a VFW home, and they have essentially gaming systems in there. And the market, as previously, was unregulated. Now states are getting into the mix, and we've had some good wins there, and it's making a difference for us. We're also seeing good initial results from our Epic TR80, the thermal roll printer, which fully entered the market last quarter and is gaining traction in sports betting kiosks, video lottery terminals, and other applications. And those sales in the TR80 were modest in the second quarter. We expect sales to ramp in the second quarter or second half of 2025 and be a larger contributor to our overall casino and gaming markets over time. Also, I'll add that our partnership with Casino Track also continues to thrive with Epicentral integrated into their slot suite offering to drive player engagement and generate steady subscription income. We're going to stay vigilant about the broader economic factors surrounding casino and gaming. That industry is going through a bit of a bumpy time right now, but we don't see any long-term or mid-term concerns about the market. I think everybody kind of recovered from the pandemic. Then they had a little bit of a hangover, and I think things are stabilizing out, but it's kind of been up and down. But we're still seeing good sourcing from the casinos and demand from the casino slot manufacturers. Clearly, we are excited about the consistent improving results here, but for both FSG and casino and gaming, it speaks to the streamlining and improved processes that we've been putting in place throughout the business. The board and management remain committed as you would hope, to maximizing shareholder value and prioritizing incremental initiatives, disciplined investments, and execution of our corporate plan. We'll revisit strategic options if conditions improve or compelling opportunities emerge, but for now, we believe our internal momentum is the best path to building long-term shareholder value. And before handing the call over to Steve, let me update our financial outlook for 2025. Based on the strong first half, we're raising our full-year guidance to between $49 million and $53 million in revenue, reflecting confidence in continuing FST expansion and casino stability. Adjusted EBITDA is now expected to range from zero, also known as break-even, to a positive $1.5 million, which is an improvement from last quarter's guidance, assuming no major disruptions in supplier demand, Our robust balance sheet with ample working capital provides flexibility and are proven cost-disciplined positions to deliver enhanced profitability, so we're in pretty good shape there. In summary, we're delighted with the second quarter results and the progress across the business. We drove significant bohat terminal sales growth, achieved higher FST revenue with strong recurring contributions, and maintained positive adjusted EBITDA. The BOHA platform is expanding successfully in convenience stores, healthcare, and beyond fueled by our land and expand strategy. The casino and gaming rebound is delivering as expected with key wins from OEM partners and momentum in products like the Epic TR80. We continue our focus on execution, operational improvements, and fiscal discipline to drive shareholder value. And I'll tell you, I'm very excited about the transaction of acquiring the actual source code and software for the BOHA suite of products. That's going to give us a huge amount of additional momentum, and I'm very excited about the potential that we now have our hands around. So, summing it up, I'm very proud of the team's performance, optimistic about the second half of 2025 and into 2026 to streamline the business and anticipate beginning to produce more consistent growth across all markets. And with that, I'll turn the call over to Steve for a detailed review of the financials. Steve?