Q3 2020 TransAct Technologies Inc Earnings Call

[music].

Good.

<unk>.

<unk>.

<unk>.

Hi.

Yeah.

Thank you good afternoon, and welcome to transact technologies third quarter two each in anyway.

They will be discussing the results, especially especially after the market closed.

Turning it back to the company are chairman and CEO, our children and present it can't be much either.

It's called it a discussion of the Companys key operating strategies progress on these initiatives.

Details on our third quarter financial results well open the call to participants for questions.

Margaret Kaczor spoken to statements about future events and expectations, which are forward looking in nature.

Isn't it on this call may be deemed as forward looking and actual results may differ materially.

For a full list of yesterday's parents to the business and the company. Please refer to the company's that'd be fine, including its reports on form 10-K and 10-Q.

Transact undertakes no obligation to revise or update any forward looking statements reflect.

Venture circumstances that occurred after the call.

This call webcast will include non-GAAP financial measures within the meaning of ft regulation G. when required a reconciliation of all non-GAAP financial measures to the most directly comparable financial measure calculated and presented in accordance with GAAP to try to say, especially as well as on the company's website and with that let me turn it over to Bart.

Thank you Mark and thank you to everyone joining us on the call today.

We are pleased with direct infusion than the third quarter.

N E P F walk through the third quarter with the 11th censorship.

Of course people go into details later in Nepal.

Total foodservice technology market Red you was $2.35 million up 20% from the same period last year.

But more importantly F S T.

What's up almost 100% from our second quarter and 2020.

And while the industry restaurant is still recovering in dealing with different prescription around the country.

Bold solutions have the email meant a into mark.

Are you a revenue came in at $771000 I Hope this includes Bernard second quarter, but well below the ear upholstery.

During the third quarter, we installed an additional 312 paid terminal and now have a total of 3813 pain turbos running on our system today.

Hardware terminals are the lifeblood of a recurring revenue screen and actually increase the number of channels in the market a recurring revenue will grow exponentially.

An accumulation of terminals in the market as of today is like the third quarter recurring revenue of $1.6 million.

157 per cent increase year over year, and well ahead of our expectations of greater than a million dollars.

As a reminder, recurring revenue for.

Service technology market includes software fees service contract and labor and stuff.

An annualized basis, a recurring revenue is now about $6 million and we will continue to grow as we sell more bold hot terminals and workstation in the marketplace.

As we continue to bring back in house technology can food service market.

We were excited to continue our leadership by providing technology efficiencies to our customers who are partnership with S. F research.

For nearly 40 years actually I had been recognized at the foodservice industry's top choice nutritional analysis recipe development and regulatory compliance.

With this integration will help customers will now be able to create all depressed I'm Ricky recipe with ashes Genesis oranges software calculate the nutritional analysis and print F. D. A mandated nutritional label all for Nicola terminal.

And one of the great benefit the customer includes the ability for a chef to create a daily special and generate the much needed nutritional label that day at the point of production.

This provides a food service customers with create a capability to assemble new food item without any delay or hassle of getting the nutritional label ready.

As challenging as 2020 has been we've been continually focus on enhancing art technology in developing our next generation terminal and software Street.

As part of this technology development, we made the decision to accelerate the market adoption, a boa with a dedicated solution just for restaurant.

So how it works and.

And the accompanying restaurant operations platform or what we call. It R. O pig was developed so we could package and spell a software solution using a single portal that would address in many aspects of food production.

As we were finalize a solution in getting ready for launch Apple contacted us regarding pairing are both hot software sleep with their iPad as a package for restaurant.

And a new Beau how workstation uses the tablet instead of a fixed terminal so the opportunity for Apple and transact was present.

As we started the speed can work with Apple we became very excited about the box and made the decision necessary and made the necessary adjustments to our boathouse software applications there'd be Iowa, Iowa Native and designed her new Beau how workstation the pair with Apple's ical.

I am very happy to report the relationship is in full motion and we just finished training or Apple partners in the records system.

Boathouse restaurant operations Black woman, the new workstation.

We now expect general availability in sales ramped up at this exciting new product starting in January.

And we're in the process of building out additional sales and marketing resources to support.

The new leaf and accelerate outgrown.

We are often rock.

Now not to get too much in the way.

But our new software platforms O R O P.

Blue so.

Oh, how hardware as well as the full suite of software application, which provides restaurant operators with a single digitize black one can manage and track food safety procedures and back out operational processes that would become even more critical today's safety challenges.

The new bar restaurant platform includes the both have control center.

A web portal, allowing restaurant operators from Madison updates through a bullhorn native idea with applications from a single location.

So how control center is the first single vented solution vendor solution to combine all applications for food safety labeling rather than go label employee wellness.

China's checklist and task management as well as tempt, taking a 10 cent them all in one integrated platform.

And all of these applications can be downloaded and installed directly from the Apple business apps for.

And one of the best features with a bowl Huh R. O T is the business intelligence.

The enterprise restaurant company can extract from our system.

Moving on to our market, leading casino gaming furniture business revenue.

Revenue in the quarter was $2 million down 60% year over year.

The global gaming in the global Casino and gave me Mark which the main challenge during the quarter, but we are seeing a mild recovery.

We felt that they're spending on the gaming sport.

[noise], our international Casino markets, we named more challenge than the U S. As large gaming localities required more travel which has been limited in the pandemic.

Europe experienced extensive shutdowns in the first half of 2020, and so are bought a recovery in two three before some countries brought it to impose curfews and another lock down there it goes.

Those challenges aside we could give me the opportunity and sports betting in other areas and remain connected to our customers as they reinvent their businesses.

The soonest throughout Asia have begun to reopen but continued to run well below capacity as curtailed travelling visa restrictions I presented more activity.

That said new opportunities to spill arising and we are very excited about our partnership with a new hope [laughter] Dwana sunscreen resort in Vietnam.

The recent public offerings and completed.

On October 16th we completed underwritten public offerings of 1.380 million shares, including the exercises told on the overallotment option at $7.10 per share. The total gross proceeds of approximately nine $8 million.

As of the end of October we had cash and cash equivalents of approximately 10.3 million.

The capital reasonable allow us to invest in additional staff and infrastructure to support the extent the expanded rolled out of a fall have solutions.

Now turning to our third quarter results yet.

Net sales were seven three months down 38% from 11.71 in the third quarter of last year.

38% sequentially compared to the second quarter.

Our foodservice technology market for F. S T. It's up 20% to $2.3 million from 2 million in the third quarter last year.

R. F. S. T hardware sales declined 42% of 771000 and the end of the quarter with 3813 paid terminals in the market.

And the quarter experienced lawnsdale's with both are all hot terminals in their 9700 terminals would you believe will bolt impacted by reduced customer purchases due to Colgate.

Despite the lower hardware sales a recurring FSP sales, which includes software and service subscriptions as well as consumable label sales came in at a record 1.6 million in Q3, which was up 150, 157% from the 613000 reported in here we go period.

During the third quarter and benefited from both a growing installed base of terminals and increasing label usage as our customers began to slowly recover.

In addition, we benefited from a large stocking water from our largest convenience store customer.

The increase in a recurring revenue demonstrates accumulative and ramping effect of having the increasing number of Beau how hardware terminals in the market.

With each terminal currently currently January over $6100 and Neutrals Avenue per year on average.

Casino gaming sales were $2 million of the kind of 60% from the third quarter's 19, but a.

48% improvement sequentially from the second quarter.

Cause he was began to reopen albeit with much lower volume of activity then pre COVID-19 times.

Breaking this down further our domestic revenues were down 46% from the prior year and our international revenues were down 79% all due to the worldwide pandemic.

Pls Obtundation banking shows were down 51% 742000, the third quarter of 2022.

Significantly lower sales of our etiquette 9000 P O S credit to Mcdonalds.

The impact of COVID-19 other business.

We can get print trek sales revenues were down 64% to $107000 compared to the prior year period.

Well, we continue to deemphasize Pincheck sales, we still expect to receive additional orders from her legacy oil and gas customers as the industry recovers from the impact of COVID-19.

And finally transact services group on T. S G.

Sales were down 24% year over here, the 2.1 million as we continued to experienced declines in sales of legacy spare parts and legacy consumable products, such as H P. Inkjet cartridges appeal with paper rules.

That will no longer focusing on.

Moving down the income statement or third quarter gross margin was 45.9% compared to 47.5% in the prior year period as our gross margin for the current period does negatively impacted by what we're all she has declined from the pandemic.

Total operating expenses for the third quarter of 2020, 148 million, which is down $200000 or 4% sequentially from the second quarter 2020 and.

Around 406000, or 8% from the third quarter last year.

As he outlined earlier in the year and took a number of steps to lower our expense structure from the first quarter run rate response can be affected COVID-19 pandemic on their business.

Selling and marketing expenses were down 689000, or 35% year over year for 1.3 million.

The sharp decline was primarily attributable to the elimination of a significant portion of all trade shows another plane marketing programs as well as a travel ban we do sales commissions and deploy firm wasn't terminations in April I'll do two Lanzone COVID-19 came in it.

Looking for do you plan to begin making significant investments in sales and marketing to support our recent partnership with Apple and the growth opportunity received for a bullhorn solutions.

Despite the pandemic, we continue to invest in their engineering design and product development Amy for the launch of our new Blowhard restaurant operations platform and a new relationship with Apple.

Accordingly, those expenses were up 397438% year over here to 149.

Development expenses over the past year have been centered on a recently announced David Iowa full high restaurant operations platform and we all knew bellhop workstation that will be paired with Tonight that.

Gina expenses with them 114000, or 5% year over year to 2.1 million.

Legal accounting and other professional fees declined during the quarter.

We encourage an operating loss for the third quarter of 2000 $21.5 million or 20% of net sales, which compares the operating income of 312000 of 2.7% from.

And the year ago period.

You know the bottom line recorded a net loss of 867000 or 11 cents per diluted share the third quarter of 2020 compared to net income with give me 184000 or five cents bridges, a chair and a year ago.

Adjusted EBITDA for the third quarter of 2020 with a negative 869000 <unk>.

Here's the positive 673003rd quarter of last year.

And finally, turning to the balance sheet. We ended the September quarter with just under $1 million in cash and two <unk> 2 million of that under the P. P O.

I could've done for the past two quarters that we traditionally have not given financial guidance and the spirit of continued transparency given the pandemic.

Wanted to provide investors with understanding where the business is trying to get in the fourth quarter.

<unk> and accelerating the wave of Covid cases and shutdowns.

Believe our customers businesses will will gradually improve as the impact from club diminishes overtime.

So we're estimating our fourth quarter sales to be around $758 million and you expect to have between five and 6000 paid terminals in the market by year end.

Well, Bob with the completion of the training of the Apple sales force on on the Ohio restaurant operations platform I was curious if you could share some.

Some anecdotes about their reactions to it and and what you know what what happens now.

Yeah. So you know.

One one reaction that weve heard which which has been wonderful is.

That.

Yes, when you sell Baja yourself go how workstation normal he has to come with an eye.

To go.

Go full deployment and in three years time frame.

Yeah I agree.

Jeff I would think so you know there.

You'll get her back in buying mode again.

And I you know I went through one of our shareholders and seems to like to follow them. You know, we can track what they're saying in the marketplace, which has been great and I really think our shareholder for sharing some of that information.

And yeah, I would think that and then we got it I mean, you've got to think about speedway I think they just announced that they're going to divest some stores due to the speedway, but I think it probably added another 3000 to 10000, we believe it's going to be so there's nothing that I know that says that there.

Not going to complete that in about three years.

Okay, Great and then last question in terms of the sales pipeline for both our general.

How is that.

Come together, how has that changed over the course of the third quarter, especially if at all.

Yes. So you know we've been we've been successful in the C store market, Jeff as you know and that continues to present opportunities to US you know not every store is doing the fresh food clearly it appears that a lot of them want to get into it. So.

They are that continues to develop nicely for us with opportunities.

In the food service market, we're seeing some activity in regards to other people doing kind of kiosk operations at supermarkets, and they're they've got to do the labeling.

So we see some action there.

Which is kinda knew which is nice.

Clearly you know we we the goal is to rollout 1200 terminals by the end of the year to our food service provider.

Provider to two supermarkets were also seeing on on the on the food service side, where where companies that deal with office buildings and things like that we're starting to hear from them that they are starting to think about okay. When office buildings open up again, how are we going.

To sell food right the old days of waiting on line and saying are by this and I'll buy that make the sandwich with that man, which is probably not going to happen again, so I.

C O O C N N and and the and the numerous stores that they have out there and what <unk>. What information can can close to that C. O L or that food safety director I think that story needs to be told even better than what we've done so I'm very excited about it and in fact I think we're gonna.

Do something with you, Jeff where we're gonna have a investor day, where we're gonna try and show the investors what the solution works and some of the business intelligence that we can provide.

I I think I I think getting that story out is now going to be important to US now we've got a couple more weeks of development to finish.

And we'll be able to you know show will be investors you know I'm in the mid November timeframe.

So they are you know, it's how do we get it.

How do we get it out there as quick as we can and you know this work we have to do we got to get to understand all of the food items and get the nutritional label information indicates of what I talked about on the call with ESRD, There's things that we can do to quicken now.

On the longer side I think it's it's restaurants and there that's just the cost.

Yes, but we don't break out the individual cells and I don't think we will but I think what will happen.

Because we're selling a software package, which will.

Which is a lot more than just selling.

Both white labeling.

Sense, Thank you and.

Okay. So last one more here.

Label usage it seems to be in your room, it's from realizing the full potential that this could add to the reoccurring revenue stream.

Is there a way to quantify it put terminal per year is kind of a wide range of what you see is potential on the high end as well as on the Lowdown what else can you expect for labor usage.

Well you know, we we haven't been able to do that yet because every customer so different Chris and worst you know in the early innings.

So it's a great question, we you know what we do is.

And in our on boarding process, we have we're working with him on what would a labeling what labels they need from US you know.

We we have to make what the label usage is gonna be and in some cases, we've been surprised that the low side.

We'll try to get to some average and that's what will probably say.

That's where you of course I think maybe.

Yeah, I'm looking at the extreme I would say like you know the <unk>.

The lowest and we've seen has been something around like $400 recurring revenue and the highest has been over 2000.

Wow, Okay and everything in between you heard me say on the call or averaging right now around 1600.

Forward.

There's some intrinsic unrecognized value as you gain more data.

Yeah. These are yes.

There's more enhancements I don't think you'd ever and spread it it's not like mechanical device like our printers were okay. We did our 950 and then we waited to do our epic edge 10 years. Later I you know there's always upgrade there there's still this 13.1 this 13.2 there.

13.3, there's always stuff that you can do enhancements improvements.

I'm sure we'll run into a positive.

It's an odd shopping and buying right because most in person sales are not happening across all industries.

We've done more PR in the last three months than the companies probably ever done.

[music].

[music].

[music].

[music].