Q1 2020 Earnings Call
Ladies and gentlemen.
For today's transact technologies first quarter 2020 conference call at this time we are.
Participants will begin shortly thank you for patients and please continue to standalone.
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Please standby.
Good day.
Transact technologies first quarter 2020 conference call today's call is being recorded at this time I would like to turn the conference over to Mr. My recent Investor Relations. Please go ahead Sir.
Operating strategies progress on these initiatives and details on the first quarter financial results.
Then open the call to participants for questions. As a reminder, this conference call contain 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 full list of risks inherent to the business and the company. Please refer to the company's FCC filings, including its reports on form 10-K and form 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 a webcast will include non-GAAP financial measures within the meaning of VLCC regulation G. when required a reconciliation of all non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with got can be found in today's press release as wells on the company's website with that we handed over to park.
Thank you Mark.
Thank you everyone joining us on the call today.
We are all doing gets <unk> remote location. So please bear with us as we.
Slide to talk in.
Answer your questions without being able to see each other.
Between the us Stephen myself on the call.
Before we dive into what first quarter results I'd like to spend some time in the current business environment.
Well aware cobot 19 pandemic continues to create challenges to countries towns businesses and families around the world.
As we navigate this uncertain environment, we'll do our best wouldn't be thoughtful and transparent and sharing as much as we can't about what we are seeing that our business.
Finally, our thoughts and prayers lots of those families that have been impacted and I'm glad to goes out to the dedicated medical staffs and salt mine workers, helping to fight the virus. We thank you.
I know last earnings call in early March and spoke about accelerating investments, mostly an additional people to support the rollout of ball.
Since that time, the cold that 90 pandemic and the resulting stay at home border says Clos massive disruption to our customers businesses and no salad business.
And that hiring quickly came to a halt.
In addition, its trade shows what canceled the product launch need scheduled for food silvers technology market for mid May has been changed in mid September for all the right reasons.
More to say shortly.
Let me provide some insight and insight into different markets, we serve which should give you. The context aware off business is trending in Q2 and beyond.
The global Casino and gaming market is challenged to say the lease.
Breaking the market, it's a different geographical areas casinos in the Asian market, mainly be Cal assigning to open, albeit at a diminished capacity and we are evaluating the opening trends and results for window into how post cobot 19 casinos may work around the world.
There are some opportunities we're working on but at this time, we have no visibility at this time as to when and how they will move forward.
In the U.S. market casinos will close and a very small number have announced they will open this week old or will begin to open.
We're expecting a very slow recovery the market as many questions still exist as to how casinos will provide their customers and employees a safe place to go.
I would like to thank Barry Jonas of Suntrust held the Great conference call focused on the opening up casinos.
Many topics and ideas with the Scott and I believe there will be different processes widened out of likes to see what will work that.
No our casino market will rebound.
The industry working together to define the new normal.
With the opening stressed beginning this will limit the amount of business will be able to conduct.
It is our expectation that a few small projects will come through.
To remain difficult to gauge as to when they go close.
And in Europe, it's kind of similar as the U.S., it's slow to reopen.
We also do have some opportunities in the pipeline will you have no certainty when those deals might close.
I'd like to highlight that are epic central platform was created to help casinos bright more activity through real time promotions and incentives.
The customers back into casino and starts playing a real time epic central system can reward players to incentivize them to come back.
But based on what I heard drink salaries conference call. There will be marketing dollars spent to get the player to get back into the casino.
Now with the challenge to get the slot player back into the casino, we like to say once you get him to the casino ethnic central can get them back.
We're also very pleased that acres or partner, providing technology together through real time data got their geoeye approvals for the combination of their system with ours.
It is truly exciting, but we can now supply the casino industry with through real time promotions that slot machines.
Without the challenge of working with some of the casino data systems in the market today that could not.
In addition, as more casinos looked at electronic table games easy geez in order to keep with social depth dispensing practices.
Could see more machines entered the market would tick and partners.
Our epic Central platform can also be added to these types of machines.
Now want to food service technology.
March and now equal were extremely challenging months.
For all restaurants in food service companies.
Well, most restaurants turned to 100% take out in some closed entirely some convenience stores expanded their fresh food offerings.
The entire industry is coming to grips with wholesale changes to their respective business models.
Restaurants around the process of finalizing plans procedures and policies to keep their employees and customers, helping in say as they consider reopening.
Our understanding from talking to customers is that openings will be slow with limited seating and lower revenue.
That said, we are working with our customers to implement new menus and water for them to be ready for expanded sales when the time comps.
Again, we are working up projects and opportunities with a variety of customers do not have the visibility into when they will close.
As we think about the SSD market there now, but what can help we are beginning to marketing program, we called be ready.
Well I can support all then use would technology that can add to the restaurants processes and procedures as many people have limited staff once they open.
Technology can add to their safety and cleaning processes and it's one customer told us just yesterday.
Oh, it's all about efficiency inaccuracy, simplifying operations and freeing up labor for different tasks in restaurants that are under pressure, but a lot is a perfect system to alleviate some of that.
Clearly the use of words, we'd love to hear and lead.
Despite the fall off we experienced in March and keeping with our decision to share with you our installations of ball, we install 380, new terminals in the first quarter of 2020.
Also give you more color as to what is happening continues to happen in RFS T. market. We installed an additional 156 terminals and April demonstrating the value a moment and the momentum of our box solutions platform. Even in these lost a couple times.
As we looked at the remainder of 2020 M. beyond developing new technology is paramount to enhancing our position in the food service technology market.
We had been working on it he bought product watch, which was originally expected to be released today.
But with a slow market and the opportunity to add some additional technology. It's an already great new product, we were delayed or launch to September one we believe more customers will be able to think about spending and the eplus the market.
We believe the new technology and features will drive even more momentum in the velocity loosen.
And now just quickly on our first quarter results.
I'll briefly touch on the results before turning it over to Steve will discuss our financials and liquidity position in detail.
Our team's execution was strong through January and February remember, we announced five deals.
And in January February alone for FSP, and there was no doubt we felt the negative stacking pulpit 19, starting in March.
Our preliminary first quarter total net revenue declined 11% year over year to 10.2 million and we recorded an operating loss of 1.3 billion and negative adjusted EBITDA of 1 billion.
We do Liberty quarterly gross profit margin of 48% in diluted EPS for the first quarter was a net loss at 13 cents per share.
I bought watch and continue to gain traction and dropped 13% year over year revenue growth.
More importantly, our foodservice technology recurring revenue only declined 10% sequentially. It was more than doubled over a year ago basis.
To remind the record recurring sales include software and service subscriptions as well as consumable label sales were 616000 in Q1 2020 or an annual recurring revenue rate of 2.5 million.
As of March 31st we had 3130 paid terminals in the market and in April that takes that we installed an additional 156 terminals.
Moving onto our market, leading casino and gaming printer business revenue during the quarter was down 10% year over year at 4.9 billion and lower U.S. ALS related to the cold crisis.
However, we continue to be pleased with the strike casino business, particularly on the international side.
With that Steve will now review, our preliminary first quarter, 2020 result, and more importantly, our liquidity position after which I will make some summer summary remarks before opening the call to questions and answers Steve.
Thanks, Mark good afternoon, everyone.
Before I get into the details of our first quarter results I'd like to highlight the steps we took to decrease our operating expenses and manage our liquidity during this call that 18 crisis.
As we announced on March 24th we took a number of austerity measures to reduce spending by estimated 1.75 million.
I'm proud of our ability to pivot quickly, which enabled us to lower our Q1 operating expenses by over $500000 in manufacturing overhead expenses by approximately $200000 or 700000 total the levels, we projected internally for Q1.
As you May recall, we plan to significantly increase investment spending to accelerate growth of our baja solution than 2020, including hiring new sales and marketing staff and grazing.
Moving on marketing.
As a result, we internally projector operating expenses the increase substantially beginning in Q1.
However, when called it begins to hit as hard in March we quickly put the brakes that all the new planned spending.
We then that as an executive team comb through our departmental expenses and put a detailed plan in place to reduce spending in every area we could.
The measures we took included furloughing over 10% of our workforce instituting a 10% across the board salary reduction for all salaries on because they should employees.
Reducing sales commissions for all conditions employees.
Reducing the cash retainer fees, we pay to all non employee directors by 10%.
Reducing our inventory purchases as is the latest tariffs on those purchases from China.
And eliminating all discretionary spending such as trade shows marketing and promotional activities traveled entertainment expenses training et cetera, we're ever we could.
In addition to the 700000 of savings we achieved in Q1. We believe these measures will result in further reduction of another 1.1 billion in Q2 compared to our Q1 run rate.
Consisting of savings of about 700000 operating expenses and 400000 manufacturing overhead expenses.
Combining the Q1 savings of 700000 in Q2 expected savings of 1.1 billion. We think we'll achieve a total savings of 1.8 million, which would be slightly ahead of the 1.75 billion estimate we provided about a month ago.
You should also note that the Q2 estimated savings are calculated after adding back the payroll costs for our furloughed employees.
We're happy to be able to return to work. This week as a result of receiving the proceeds from the Paycheck protection program. The minister by the S. P. Eight.
Our original savings estimate of 1.7 billion, including those for low cost so easily exceeded our savings goal.
We received about 2.2 million of P.P.P. bus earlier, this week that well used to pay payroll costs and helped fund their operations for the next day. Thanks.
This does not intended use the loan proceeds we expect a substantial portion of the loans will be forget them.
We also secured a new revolving credit facility, which provides for up to 10 million to filings subject to a borrowing base calculation.
This additional capital combined with the PPP loan will help ensure we have the liquidity to and during these challenging times.
No. We traditionally have not given financial guidance in the spirit of transparency you want to provide investors with an understanding of where the business is trending in Q2.
Our sales expectation for the remainder of the year.
And some insight into our projected liquidity.
Our total sales for April were approximately 1.6 million.
And based on their average daily bookings so far we expect this run rate to continue for the remainder of Q2.
This would bring our estimated Q2 sales to around $4.5 million to $5 million.
It's very difficult if not impossible to predict what the market conditions will be like beyond Q2.
Let's see with our two largest markets casino and gaming and foodservice being to the hardest hit.
As a result, we're taking a very conservative approach to our assumptions.
We believe it could be a year before we get back to the sales levels. We saw at the beginning of 2020.
Therefore, we are projecting very modest quarterly sequential increases in sales as we move to each quarter 2020 and into 2021.
Starting with Q2 as the base quarter, a 4.5 to 5 million and slowly building back up to the Q1 2020 level sales of around 10 billion, but fourth quarter 2021.
Importantly, using these depressed forecasted levels of sales, we believed that the liquidity measures we.
I will provide us with enough runway for at least the next 12 months.
Of course, we hope or was it were being too conservative in our assumptions.
But in my CFO World, It's always better to hope for the best playing for the worst.
Now turning to the first quarter results.
Net sales were 10.2 million down 11% from 11.6 billion in the first quarter of last year.
As Bob noted the business was trending very well in January February before slowing dramatically in the last few weeks at the quarter.
In fact, beginning in mid March our sales began to be negatively impacted by order push out some cancellations due to the spread of the pandemic. So it's difficult to say what our quarter could that then if the crisis didnt happen.
Looking at our first quarter sales by market Foodservice technology sales were up 13% to 1.4 billion from 1.2 million in the first quarter of last year.
FSP hardware sales declined 13% to 755000, and we ended the quarter with 3130 pay terminals.
Hardware revenues were down largely due to the impact of Covance 18.
Customers.
As Bart mentioned, we continued to see momentum building in FSP, even in light of the cobot crisis with 156, new terminal installations in the month of April.
Hi, recurring FSP sales, which include software and service subscriptions as well as consumable label sales came in at 616000, Q1, which is almost doubled the 310000, we reported a year ago Perry.
The large increase in our recurring revenue demonstrates that our boeheim initiatives have begun to gain traction and are building a recurring revenue stream stream as our installed base terminals gross.
Casino and gaming sales were 4.9 billion a decline of 10% from the first quarter of 19.
Let me just down further our domestic revenues were down 25% from the prior here as we begin to experienced the impact of casino closures from Covance 18, and our customers because he was ticket printer purchases in March.
However, our international Casino games revenues were up 15% due largely to international give me printer sales, including a large order in Spain based on strong demand and sports betting applications, which offset lower demand from Asian Oems.
[noise] Pos automation the bakery sales were up 22% to 1.6 billion first quarter 2020 stronger sales of our Ithaca 9000, Pos printer for Mcdonald's.
Continues to operate in most of it stores through this crisis via tried to and take out.
Printrex products have declined sharply to 117000 compared to the prior year first quarter on a collapse in oil prices cost at least partially by reduced demand and oversupply of oil from the cobot crisis.
Well, we're no longer focused on this market.
Back to receive additional orders during 2020 as we continue to service our legacy customers.
Finally, TSG sales were down 10% year over year to 2.3 million as we continue to experienced declines in sales of legacy spare parts and legacy similar products such as these HP inkjet cartridges and Pls paper roles that we no longer are focusing on.
Moving down the income statement I first quarter gross margin was 40% compared to 52.7% in the prior year period as our gross margin was negatively impacted by incremental expense from additional Chinese tariffs.
Total operating expenses for the first quarter 2020 were 6.2 billion, which was up 17% year over year.
Selling and marketing expenses were up 354000, or 19% Gionee was up 330000, or 14% and engineering design and product development expenses were up 220000 or 19%.
As I previously stated we plan to increase their operating expenses in 2020 to meet that demand for our Baja solutions, but unfortunately, the cold in 19 pandemic caused us to change course at a rather dramatic fashion.
The majority of these increases came early in the quarter before we were able to initiate our cost reduction measures.
We incurred an operating loss for the first quarter 2020 of 1.3 billion or 12.6% of net sales, which compares to operating income of 777000 or 6.7% of net sales in the year ago Perry.
So we don't normally speak about our tax provision we did recorded unusually high effective tax rate of 31.9% in Q1, 2020, which was well above the corporate statutory rate of 21%.
An additional provision of the cures act if companies the ability to carry backs federal net operating losses.
The Cures act allows companies to carry any net operating loss generate during 2020.
Back up to five years, and we see the cash refund based on the prior tax payments.
Well, we don't know the exact math magnitude of this yet.
We expect to incur a net operating loss in 2020.
As a result, you don't expect to pay any federal income tax during 2020, and we expect the carry back our anticipated 2020 at a well to an earlier here what do we paid a corporate tax rate of 34%.
And we see the cash refund sometime in mid 2021.
The same time they were also looking at their policies and procedures of how to keep their employees saved from their customers say and what they were going to do to make that happen.
I think we're through that process I think when I talk to you a couple of weeks ago and some of the other investors I said I think I think it's gonna be the end of April well, we start getting through that heavy lifting of what these stores were going to look like and how they're going to operate.
And in talking to some of our our technology people that help the the the convenience stores with their new labels and things like that we've got some really good stories of how we're designing some new labels for different food items that convenience stores will lots of their customers.
So those that that market as good and I look they're not expanding they're not rolling out as much technology is we would like them to capital spending is down as they you know look at their balance sheet and they look at third profitability and all that.
But we are shipping units, we ship another 156 units across many different customers in April and we expect to continue to do that.
In the grocery store market was seeing kind of the same thing we have these kiosk. These companies that one kiosk specialty food items in in grocery stores. We're seeing the same thing you know people are going to the grocery store to get food.
They're buying some special items, because they what they want you know.
Spice up kind of the food that thereby but again the first move by our grocery store <unk> customers was how they're going to get their policies and their procedures in place they keep their customers in their employees safe and that's just not something that happens in a couple of days has you know.
But with Blue that so we believe we're through that because we are working on some projects that we believe can be meaningful to tranzact. So we can't predict one, but then a close or what's gonna happen, but they they haven't stopped talking to US match. They haven't stopped talking to us about what more we can do for them.
<unk> you know, we're all encouraged by that I think it's good it's going to go month by month as we all learn what you'll hate I hate this new word the new normal.
And you know, we woke up to all of this but I am optimistic.
That as we get through a couple more months that we're going to see you know some of this business come back we had more business coming into first quarter. We close five Trust me, we have more to close.
You know we were we the reason why we wanted to hire more people because we were going to book more orders.
But you know and it happened right you know Miller it happened right I can't undo what happened, it's not <unk> M- your fault, but you know, we're we're looking forward and and add things improve and let's hope opening up the country works and we don't go backwards. You know, we think that there's going to be you know some good life at the end of this.
<unk>.
And then in terms of customers that are buying equipment are you can cheering or have you guys looked at providing some third party financing to to make it a little bit easier for them to do that.
<unk> yeah. So so look what we have <unk>. We're fortunate to have members of the board that are in the restaurant industry.
Oh, so fortunate that we speak to some some some really good people look ice U.R. is now handling.
Oh, I R. and R.P.R. and they have they gave us access to a lot of knowledgeable people in the marketplace.
We don't want to talk about the things that we're looking at to help customers that might not be able to spend capitol.
But in some of the things that we're working on the orders will be different than than what we normally do.
So clearly and if you followed us on Lincoln or anything like that well, we cut back on our true marketing stand or advertising.
We were all over the social media pagers with with you know stuff that we're doing we ran a free promotion.
Checklist and timers, we we offered checklist and timers for free to customers that wanted to use them. If you think about it if you're going to have a cleaning.
Feature for your restaurant in every eight minutes, you're going to clean or different thing you can use our checklist in time or to do that we are for those apps for free and we actually have I think we're working with eight or nine customers that took us up on it but it kept us in front of the customers talking to them about ideas, you know about ball hot and how to use ball, though huh.
I got to tell you there's been a lot of articles written that you. If you think about as as restaurants, we open.
It's going to be what 25% or 50% or the tables are gonna be allowed things like that so revenue will be down so the amount of people working in the restaurants will be down, but if you think about it is going to be a lot of policies and procedures to make sure that the restaurants, clean and healthy and safe and what better way to make that happen.
News technology right. We can't help we can be efficient we can be productive one of our customers I read you. There are quote I ask one of our that's our cell guy to get a quote from one of our customers of how he feels what we're doing for them and what bow has doing for them as a restaurant company in these times and that was exact email that that.
That was forwarded to me.
So you know we're out they're promoting that niche, we're also doing down and the casino industry with our be ready. So we have whereabouts and roll out to be ready campaign for for the a F.S.T. market. We're rolling out to be ready campaign for a casino market to get casinos ready for when they open so yeah <unk>.
I think everything there's nothing normal right. There's nothing the same anymore. So we will do whatever it takes whatever our customers need us to do to get them that technology. So that they can reopen they can provide a clean and and a a restaurant they can prove to their customers that they're on top.
With it and that they're using technology to get there and nobody has this week of products that we do so we can bundle it all together and go to them and say Merry food labeling and marry temperature of taking and Mary check lists and timers and 10 sensing in a single package that could help.
So we're all over it much.
You know, it's gonna take time.
Okay. Thanks very much.
I'm I'm thinking ladies and gentlemen, if you'd like to signify question. Please do so by pressing.
Online again that are one.
Question.
And I'll take our next question I'm, Tim Chattered half marathon nothing.
Just ask on on gross margin. If you expect the the level from Q1 to sustain for the rest of your.
You expect to gross margin is probably gonna declined some only because of the sales level dropping as much as it's gonna drop.
You know a lot of our overhead is fixed so he can't take it away, so that which dropped the gross margin. It's only because of the sales level, though once a sales level comes back to the marginal grow grow back up to where it was.
And I Wonder if you can recap the the operating expense colors that you talked about I I think I'd got some of it but I'm I'm just trying to get a directional you're operating expense sequentially from one q.
You have any let me get better for me when I was like.
[noise] yeah. So so in the first quarter, we achieved about 700000 or 1.75 million.
Savings.
And then the the remainder of the savings will come in Q. too so that will be Q2 off of the Q1 actual.
Oh, the okay. The other 1.1.
The other one claim 1 million of savings.
The the decline from Q1 to keep too.
Portion of that will be in the operating expense on in a portion of it will be in cost themselves.
Those too.
Yeah.
Okay.
In aggregate.
1 million.
And I go grocery 1 million 1.1 at 1.1, yeah.
<unk>.
Yep.
<unk>.
Hundred and cost a sales.
Got it.
And then you also talked about the both product upgrade that you were talking about for me getting pushed in September have you talked about what what product enhancements are included in the.
<unk>.
Yeah. So no we have it and and you know we don't.
You know it's it's.
Not good for us to tell our competitors, what we're doing you know I wouldn't even call. It enhancement I think it's it I'd rather call. It a new product that was going to bring out.
And you know being the leader we have a chance to to get the early feedback on some things and just say you know what we think we got more that we can bring to the marketplace. So you know it's going to come in September.
And you know what will clearly, let you know, but it what it all is it's it's it's a it's a pretty good bundle of stuff.
Understood. Thanks.
Yeah. Thanks.
And then I'm going it has pair we have no further questions at this time I'll turn it back over to you for any additional are closing remarks.
Well I believe we really do thank you for joining us on today's cause we do wish you and your families and friends your businesses.
Health.
Safety and you know, we'll can continue to keep you updated on or quarterly calls as to where we are.
And again, we thank you for your support at <unk>.
Thank you and we'll talk to you so.
I think I'm at dusk, and Cricketers closing remarks.
You for your participation and have a wonderful day.
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