Q4 2020 TransAct Technologies Inc Earnings Call
Good day, everyone welcome to the transact technologies fourth quarter 2020 earnings call. Today's conference is being recorded at this time I would like to turn things over to Mr. Marc Griffin and Investor Relations. Please go ahead Sir.
Thank you good afternoon, and welcome to transact and all of these.
Fourth quarter and year end of 2020 earnings call.
And they will be discussing the results announced on our press release issued after the market close joining us today from the company of chairman and CEO of our children.
And the president and CFO, Steve do much of that.
And he's calling and quota discussion of the company's key operating strategies and progress on these initiatives and details on our fourth quarter of financial results that were all about the pulse.
The questions as of Monday of this conference call feature and statements about our future events and expectations, which are full.
All of the feed and nature.
Payments on the call maybe deemed as forward looking and Nashville as of May be different true.
For the full list of Western parents of the business and the company. Please refer to the company adjusted to it.
Putting its reports on forms 10-Q and 10-K.
Transact undertakes no obligation to revise or update any forward looking statements to reflect the events or circumstances that occur after the call.
Today's call and webcast on food non-GAAP financial measures within the meaning of the SEC regulation G on it.
The reconciliation of all non-GAAP measures.
The most directly comparable financial measures calculated presented in accordance with GAAP can be found in today's press release as well on the front page.
And with that let me turn the call over to book.
No.
Thank you Mark and thank you and everyone joining us on this call today.
And you are all aware the global pandemic remains of persistent but we are beginning to see improvement and our key markets as customers of calling again and answering our calls.
And you sense, a change and the environment and all markets with the vaccination process accelerating comps.
Accomplishments and our business and markets are starting to grow well.
While we have all experienced difficulties associated with the global pandemic, we're becoming more optimistic about the future of that lies ahead.
We are pleased with our execution throughout this challenging year and we ended 2020 on the better note with an improved quarter.
We are particularly pleased with the strong momentum and our foodservice technology market.
So on accelerating growth throughout the year.
If I if I had said to many investors many times, it's all about the installation of hardware terminals and workstations for transact.
And the good news we ended the year with 5688 paid terminals installed in the market a growth of over 100 per cent compared to how we ended our fiscal 2019.
And Steve will discuss in detail later during this call our preliminary fourth quarter total net revenue declined 30% year over year. The seven 8 million in line with our guidance of seven $5 million to $8 million and.
And we recorded an EBITDA loss of two of $2 million and adjusted EBITDA loss of $1 $7 billion.
We delivered quarterly gross profit margin of 36% and diluted EPS loss of the coordinates 22 cents a share.
Joining the good news about the terminal of installations and fiscal 2020.
I would say service technology and recurring revenue continued its growth and we ended fiscal 2020 up 96% versus FY 2019.
Now, let's remember the impact on the stores and restaurants being closed early in the year and.
And the significant slowdown we experienced during the Christmas time and the.
Iris and pandemic the expanded once again, but we were still up on our recurring revenue by almost 100%.
Total of foodservice technology market revenue in the fourth quarter was $2 8 million of 55% from the same period last year and 20% sequentially.
Hardware sales of terminals of the lifeblood of on recurring revenue stream and as we increase the number of terminals and workstations and the market.
<unk> revenue will grow exponentially.
During the fourth quarter hardware revenues led the way and where.
Our extremely strong up 65% from the year ago period, and almost half of the hardware revenue and all of fiscal 2020.
This equates to an additional 1875 eight terminals and the market for a total of 5000 and 688 paid go on terminals running on our system by the end of fiscal year 2020.
Sure things I need to know about our fourth quarter of 2020.
First we shipped and installed almost 12 on the terminals that went toward and sushi customer.
However, the installation of occurred at the very end of December. So we did not receive a lot of weibo's sales from those installations.
Led to a lot more terminals and the market, but not the corresponding recurring revenue we would expect.
We expect these terminals to drive the solid about of recurring revenue in 2021.
Second due to the unfortunate spread of the COVID-19 virus, starting in October and laughing months and the winter and then.
The of our customers experienced declines again in transaction volumes.
Our large convenience store customer who purchased a lot of labels and the third quarter of 2020 realized they had overbought and sort of.
Customer visits started really slow and the fourth quarter. So they chose not the purchase any labels and the fourth quarter, causing some fluctuation and our recurring revenue.
While we cannot do anything about spreading virus and the impact it has on our customers customer we have started and see it see new label the orders come in from this large convenience store customer during the first quarter of this year.
And as the ship more terminals and workstations in 2020, one and the economy continues to improve and the and vaccination rate increases we accept label sales to pick up nicely once again.
Our new restaurant operations platform, we're seeing some good progress as well as.
As a reminder, and September we announced the all new iOS need of restaurant operations, Blackboard, which provides restaurant operating operators with the single digitized platform to manage and track food safety procedures and back of house operational processes built using the iPad.
Late in the quarter of restaurant operations platform was officially offered to customers and we started the book our first sale and in the first quarter of 2021.
And now after the market close today, we announced the first restaurant and purchase of a bowl of restaurant operations platform.
Yes. The order it's the 13 restaurants that are part of the multi concept full service restaurant company we.
We're really pleased to see our first restaurant order for both of our O P.
Now Apple has been a phenomenal partner, so far and their lead generation has been incredible.
We currently have more than a hundreds of millions of potential revenue and our sales pipeline and the Apple was involved and brought roughly half of those potential deals.
As you know Apple is very focused on building our business and the restaurant market and here is some really good news.
Apple has decided to expand our relationship the other markets around the world.
We are very excited to be joining apple to expand with them around the globe.
So let's review some of our more recent notable wins this quarter.
Our regional convenience store chain with 250 locations will upgrade to a full bore ecosystem from an earlier generation of labeling system of.
The regional convenience store chains will use chain, we use the boa ecosystem to support the privately branded and third party fresh food offerings at over 40 locations.
And then the national convenience store chain, we use the boss system to support their fresh food program at 350 locations and will eventually expense over 650 locations across the U S and Canada.
Yeah.
Despite the significant impact of our business and especially in the foodservice market by COVID-19, and you can see why we continue to be very excited about the opportunities in front of us.
Moving on to our casino and gaming printer business and epic Central revenue and the quarter was $2 7 million down 50% year over year.
The global Casino and gaming markets remain challenged during the quarter, but we are starting to see of mild recovery as casinos, we focus their spending on the gaming floor.
Our international Casino markets remain more challenged and the U S is large gaming localities required more travel which has been limited due to the pandemic.
Europe experienced extensive shutdowns and the first part of 2020 per it's out of 2020.
And then sort of moderate recovery and the second half of the challenges clearly remain the.
As you know throughout the eastern market continues to reopen but limited capacity gets curtailed volumes.
And the U S. We are starting to see casinos reopen, albeit with limited capacity and most non gaming attractions remaining closed.
We are receiving a slight benefit and bites at the casinos, we focus on the gaming activity and accordingly, our domestic revenue improved 14% from the third quarter in 2020 to the fourth quarter, and 2020, but remained down 46% and Q4 from last year.
However, we are cautiously optimistic the the gaming floor of Capex, there and we'll continue to prove improve throughout 2021.
After of hitting our sales Lopez from the pandemic and the second quarter of 2020 thereafter of revenue increase sequentially every quarter, and 2020, and while Q4 experienced and stagnation of the pandemic rearing its head and the winter we feel that conditions will continue to improve and.
And new projects will be begin coming back faster and stronger than before.
As a testament to our industry, leading gaming technology transact, what's the elected by the on all New Circle resort and casino in Las Vegas and supports the opening of the new gaming floor Circuit resort and casino has chosen both transact winters the industry, leading epic 950, and epic edge for use of it all the 1300.
And so the slot machines the.
Circuit the circuit resort and casino is the first of all new casino opening and downtown Las Vegas, and it's 1980 and it's the third Las Vegas properties, Derek Stevens CEO of circa sports.
Honored to work with Eric and the entire circuit team as we aim to provide the GAAP to this cutting edge casino the best experience possible through our products.
We are excited about our position and the gaming industry and even though good evening activity is now worldwide. We know we're well positioned the benefit once the increase and activity of travel resumes.
Before I turn the call over to Steve I want to welcome the Randall Friedman score board of directors.
Randos extensive knowledge of restaurants, and the foodservice industry and his deep experience and business the business marketing and the restaurant market will be a huge asset as we grow and scale of our bolthouse sales and marketing activities.
Additionally, I want to thank Tom Schwartz, whereas the extensive guidance. He has given me and the company of which 24 years of dedicated service on our board.
And we'll truly messes wisdom and his humor greatly and I wish com all of the best during this retirement.
With that Steve will review, our fourth quarter and full year, 2020 results after which I'll make some summary remarks before opening the call up to questions.
And the answers Steve.
Thanks Mark.
Good afternoon, everyone.
We're pleased with the progress transact has made and the fourth quarter and throughout the challenging year of 2020.
Turning to our fourth quarter results net sales were $7 8 million, which was down 30% from $11 2 million from the fourth quarter of last year, but up 6% sequentially compared to Q3.
Net sales of our foodservice technology market or F. S. T was up 55 per cent $2 8 million from $1 $8 million and the fourth quarter of last year.
Our FSD hardware sales increased 65%, the one 8 million from $1 1 million and a year ago period and we.
We ended the quarter with 5006 hundred and ADP terminals on the market.
During the quarter, we increased our <unk> terminal comp of 1875 units, which included shipments of approximately $12 of bolthouse terminals to the sushi operator, we announced in July.
On a recurring FSD sales, which include software and service subscriptions as well as consumable label sales came in the 942000 and the fourth quarter, which was up 37% from the 686000, we reported in the year ago period.
As stated last quarter Q3 benefited from a large stocking order from our largest convenience store customer.
And as Brian explained this customer's transaction of volume was negatively impacted by and uptake of COVID-19 during the fourth quarter that affected their business. So they didn't purchase any labor during the fourth quarter.
However, the good news is that they have begun placing label orders again in 2020 one.
We believe that this customer's orders for Q3 really covered both the Q3 and Q4 demand <unk>.
The average and this large Q3 label stock in the quarter over two quarters. We believe total recurring FSP revenue would have averaged about $1 million to $5 million for both Q3 and Q4.
We believe our FSP recurring revenue will increase over time and demonstrates the cumulative and advancing the effect of having increasing number of both how hardware terminals of the market.
That said the annualized recurring revenue per terminal can fluctuate from quarter to quarter based on the size of individual software labels and service orders as well as the timing of terminals shift and placed and serviced by our customers.
For Q4, our ARPA was impacted by two factors.
First the impact from the large label stock and water we shipped in Q3 the ability current Q4.
Yes.
Right near the end of Q4, so we were only able to recognize a small amount of recurring revenue related to this customer and.
And the fourth quarter.
As a result annualized recurring revenue could turn on of all was approximately $660 for Q4.
Using the normalize the amount of recurring revenue of $1 million to $5 million for the fourth quarter.
Which average as the large Q3 label stocking order over two quarters or ARPA of one of them easily $80 per ton of lift for the fourth quarter.
Casino and gaming sales were $2 7 million of decline of 50% from the fourth quarter and 19, but of 33% improvement sequentially from the third quarter of casinos begin to reopen, albeit with much lower volume of activity than pre COVID-19 times.
Breaking this down further our domestic revenues were down 46% from the prior year and our international revenues were down 55% of both just the worldwide pandemic.
Give us the automation of the banking sales was down 25% the 989000 and the fourth quarter of 2020, but up 33% sequentially from the third quarter of <unk>.
Typically and lower sales of our Ithaca, 9000, and Pls periods of Mcdonalds due to the impact of COVID-19, and other business.
Looking at print tract sales revenues were down 72% to 68000 compared to the prior year period.
But we continue to deemphasize print trek sales, we still expect to receive additional orders from our legacy customers as the industry recovers from the impact of COVID-19.
And finally transact services group or PSG sales were down 41% and year over year, the $1 2 million as we continued to experience declines and sales of the legacy of spare parts and legacy consumable products, such as HP inkjet cartridges and paper Rolls and service contracts on our legacy banking printers.
Since we're no longer focusing on the products and this market, we expect our TSP revenue.
To continue to decline over time.
Moving.
So compared to 41, 2% and the prior year period.
Our gross margin from the fourth quarter was negatively impacted by the 30% overall sales decline as well as the $300000 tooling write off and the lower margin on the large terminal of order that we shipped in the quarter.
Total operating expenses from the fourth quarter of 2020 were $5 million and increase of 205000 or 4% sequentially from the third quarter of 2020, and down 621000 or 11% year over year.
As we outlined earlier and the year, we took a number of steps to lower our expense structure from our Q1 run rate due to the COVID-19, pandemic and and maintain those cost controls throughout 2020.
Selling and marketing expenses were down 884000, or 41 per cent year over year to $1 3 million.
The sharp decline was partly attributed to the elimination of a significant portion of all tradeshows and the other planned marketing programs as well as the travel ban reduced sales commissions and employee terminations of April all due to the ongoing COVID-19 pandemic.
As we head into 2021, we plan to begin making significant investments and sales and marketing and support our recent partnership with Apple and the growth opportunity, we see for our Bolthouse solutions.
Despite the pandemic, we continue to invest in the engineering design and product development. During 2020, mainly for the launch of Bahar RFP and the growing relationship with Apple and <unk>.
Accordingly, those expenses were up 441000, or 41% year over year to $1 5 million.
And Q4, we incurred additional outside software development expenses for specific functionality needed for the large sushi operator.
And general development expenditures over the past year have been centered on our recently announced native iOS Baja restaurant operations platform and the all new ball, how workstations with Ipass.
G&A expenses were down $178000 or 7% year over year to $2 3 million.
Legal accounting and other professional fees declined during the quarter as well as reductions and other discretionary expenses due to COVID-19.
We incurred an operating loss for the fourth quarter of 2020 of $2 7 million or 34, 3% of on net sales compared to the operating loss of $1 1 million or nine 5% net sales and the year ago period.
And on the bottom line, we recorded the net loss of $1 9 million or <unk> 22 per share and the fourth quarter 2020, compared to a net loss of 800000 or 11 cents per share in the year ago period.
Adjusted EBITDA for the fourth quarter 2020 was negative $1 7 million compared to negative 140000, and the fourth quarter of last year.
And finally, turning to the balance sheet. The end of the December quarters of $10 4 million and cash and $2 2 million of debt under the PPP loan.
As a reminder, and October 2020, and completed an underwritten public offering of 138 million shares, including the exercise of the full of the over allotment option at $7 10 per share the.
The offering generated net proceeds after expenses of approximately $8 7 million.
And at this point I'd like to get the claw back of the Bart for some closing remarks Bert.
The great job.
As we look forward towards our 2021.
We are optimistic about the momentum, we're seeing and the restaurant and convenience store markets and remain confident that bolus on paid on.
Right on pace.
Some of our largest ever revenue generating opportunity.
Our focus is on driving the successful bolt on as we are determined to leverage our position and in this emerging market to grow our business and create significant long term value for shareholders remember, it's all about the terminals.
Finally, we will be participating in the 30 <unk> annual Roth conference on March 15th and 16th.
Please see of Roth the associate for more information, if you'd like to participate clearly I'll be there.
At this point I'd like to turn the call over to questions and answers too to our listeners on.
Operator.
Thank you at this time and could you have a question that will be star one once again star one for questions. We'll hear first today from Jeff Martin with Roth Capital Partners.
Thanks, Good afternoon, and button and stayed healthy Buster and well.
And as the LPTA.
But I wanted to start with Apple.
The $50 million of of potential revenue and the pipeline.
And could you explain what that means in terms of the definition of pipeline is that we've made first contact with the prospective customer or is it is a defined of something differently and secondly.
Are you in the pilot stage with any of those prospects and and.
Any idea of when you might cause you first of all other.
Yes, so the way so we have the sales force program that we use and over this last year, we kind of revamped it a little and what we only want in in our sales pipeline numbers.
All of the 10.
And so on.
Orders.
That we're working on for instance, if you look at arc of the deepwater and convenience store customer, while we've shipped and somebody thousands of terminals and still have many thousands to go that's not and the sales pipeline number that's a closed the order and that goes into a different spreadsheet. What we're following is all of the new potential.
Orders that could be coming to transact and the all the way they make our list.
Is not that we contacted them and they answer the phone call and that was it they have to show true interest and moving forward.
And with the discussion and then it's different phase gigs.
The the.
B of multiple team meeting between us and now on.
And then it comes down to Okay. Do we will have the sign a non index.
On the disclosure, so and there's different phase gates, and then there's and evaluation and then there could be of pilot and then of close.
The and <unk>.
Of the opportunities that we have the fact that the shoot right here.
They range from.
And they've made it grew qualification all the meetings have been set the.
This number is where they have given us their menu items and their data that means that we're working on putting together.
All of their menu items and data into our system and getting ready for a test of now it could be of pilot or it could be of valuation.
And then of course goes the close so we're you know.
Very excited that.
With the help of Apple we've identified that margin business that will work with truly working on it doesn't mean, it's going to close.
And some of it is long term.
And as some pretty big customers in the pipeline and they tend to move a little slower than somebody that's got 20 restaurants of 30 restaurants.
But we're very excited.
And where we are.
I would expect.
A few of the closed this year.
They might not be and the bigger category that might be and the small to medium category.
But the income the conversations that we're having and the test of that are going on I would expect some of the close this year.
Okay, Great and then you mentioned the.
Apples interest in expanding the relationship to other markets and just curious what markets they're looking at.
The rest of the world. So we're working we're working with them and Asia right now on and opportunity and we're working with them and Europe on and opportunity.
So they've introduced transact to the global sales team. So they of the sales team in Europe, and the sales team and Asia.
And together, we're identifying certain customers debt would be right for this type of of.
The technology.
So we're very excited I can tell you the Apple is holding the restaurants seminar.
In April.
And the plan is to invite.
And somewhere between around 200 restaurant companies to attend.
And there's only three of us present with.
And we've actually been on a seven minute video for them.
And then we'll be presenting to the many.
Restaurant executives that are attending the meeting.
Sometimes it's interesting Jeff sometimes you get involved with the Big company and they promise of the World and then some new boss comes in and are they set of different direction. All of sudden you you look and say what just happened and I thought we were going on in this direction together.
I won't say at this point and it could change, but at this point and the relationship with Apple.
They have state of amazingly focused on growing of our restaurant business.
The renewal they keep telling us the window for the long haul and they have shown us nothing about the stack and they've shown us nothing to and are working hard to get us the leads and the opportunities and the marketplace.
At this time, but where I stand right now today I could not be more thrilled with the relationship.
That's good to hear things are progressing.
The at or ahead of expectation on.
Yes.
Can you give us some insight into hiring plans on the sales and and support side of things are you at the point, where you're going to need to start staffing up or do you still have.
Paucity of the service the lead.
Flow.
Well I think the international opportunities and a challenge us. So we're looking at the very closely to see what we would have to add because that's a whole another market that we haven't been analyzed yet right I mean, we'd like we like to say, there's $1.4 billion opportunity and the U S of low would you use our technology.
Allergy and we have not even started out with the rest of the world looks like but we are starting to have conversations about how to support them and as those leads come in what we're going to do the support that and we want to be there to help them out on.
Jeff The one thing that was difficult I will tell you. It was this was this winter.
And when that pandemic took off in October November December.
And we came out of September we were really excited because things were slowing down the pandemic was slowing down.
And the.
And the.
Amount of action and the marketplace was picking up and then the pandemic hit again and real and it was much larger than what it was just a year ago.
And so that kind of slowed our hiring down and said, let's slow down and again the cost let's get through this.
I'm for one extremely excited about the vaccination and better going on.
And we are starting to see states open we got all of our opinion on whether it's too early or not but we do know that now 10% of the population of the vaccinated and so many people have had the virus.
There is much brighter light at the end of the tunnel than we've ever seen.
So as we see that continuing to develop we are we are we keep talking internally about how customers are probably calling us again and how the ramps or any of our calls so as we see that continue to develop we want we will add where we need to both on the sales side.
Big on the marketing side and I think I've made this comment a couple of times that it's tough when you can't get into Somebody's office REIT, we're still doing zoom and team meetings.
All of them.
And so a lot of it is marketing so you're going to see our marketing spend really pick up next quarter.
And with apples decision to do this major of that for the restaurants and have us as one of the speakers.
And we're backing that up with a pretty good marketing spend and.
And the in the trade and the trade magazines and so you'll see our marketing spend pick up but again, we can do that without hiring more salespeople because of the leads will come in from the marketing spend on coming from the Apple event.
We will probably the people is on the installation.
And also on the software side.
Okay, and then increased marketing spend pick up the is Q1 of two two and when you say next call in the Q2 and this quarter and Q2.
I'd say, what we're going to marry up to apples.
The drove event that's going to go on in April.
Got it and I've got a couple of more questions, but I'm not the circle back around and let others step in here.
Okay.
We'll hear next from Chris Howe with Barrington Research.
Good morning, Bob and Steve.
Thanks, Brendan and search.
Well I guess first off.
The more color on this.
So restaurant sales 13 restaurants.
All of the multi concept full service restaurant company.
Perhaps and to provide some color.
Just on how this deal initially came about.
And is there the potential for more after this within this.
Full concept restaurant company.
Yes. So this is this is actually a really good story because this is a a full restaurant company that we asked if we could trial and some of our new technology at without any commitment. We said you know we'd like to come in we need a field location to test our technology with <unk>.
Really we wanted to use our bolt on.
On our LP, our new workstation and all of that.
And so we ran a test of the two locations.
And we didn't just do labeling we did a whole bunch of tech.
Solutions with them.
And the good news is when we got done with testing the system out and understanding how it was working and all of that they came to US and said look we've got a chain of restaurants, and one side of our business day.
We'd like to rollout 13 systems, there, we've got other restaurants too, but we like the start out with those 13 and were willing to sign up and actually the purchase order came and the last night. So this wasn't done on purpose and waiting for a for an earnings call of literally the purchase order came in the last night. So we were thrilled to be a.
The share of that as quickly as possible with our shareholders.
So we.
We need we need that opportunity to test and the marketplace and this restaurant company gave us that opportunity and the best part about it is they loved it so much they bought it.
And they bought a <unk> and the press release, they bought a lot and we're gonna be measurement of the temperature and the walk into the freezers and taking the temperature and doing labeling. So the fair amount of technology that we're rolling out and the 13 restaurants.
That's great and appreciate the color and.
Just going along the.
And half of that question.
Following up on Jeff's question about Apple.
And and the partnership or the scope of the two.
And to include global markets.
Europe seems to have the uneven reopening.
Asia seems to be coming back faster.
And then we have more from Erika.
How should we.
Think about.
Expectations on the geographic basis.
Things concentrate more domestically and the global markets to be.
Further out opportunity or is that not the case and this will be all hands on deck.
A global outreach for this.
Yes. So the easy answer is if somebody comes and with an opportunity in Japan for it and we're going to jump all over it and.
So.
And looking at our sales force pipeline.
Everything is domestic Oh, no that's not true because there is one of Europe that we're working on.
So I would say that the early wins are going to the domestic.
When you first get started with the customer.
And as a matter of it's domestic or international.
It takes a couple of months to have conversations back and forth. How does the technology work how does it replace what we have you know there's a lot of conversation that goes back and forth to the point that it's okay I get it but.
Let's do a test in our office. So what are the months away from that if not you know of half the year away from that.
I think the the more exciting piece to me Chris is that Apple was willing to bring less into the international markets that they felt that strong about our technology, but that's what they were willing to do.
But it's it's not a story that we'll talk about a lot. This year because of the sales cycle was easily 12 to 18 months and we're just beginning so but it does give us the rest of the world to work on the just expands our total available market for our technology.
So I kind of look at it and regards to the.
Very humbled.
Bye.
A large company like Apple, saying look we want to work with you and these other markets, we like what we're doing and the U S. We like what we see and we'd like to do that and the rest of the world. So I'm pretty humbled by that.
That sounds great and I'm looking forward to how that develops my last question.
A series of great announcements.
The store channel.
As we look at each of the recent announcements specifically.
And my eyes are focused on the international convenience store, operator that you announced with.
On the potential Rollouts of 650 total locations.
And if we look at these announcements and comparison to the rest of the convenience store portfolio.
And should we think about the cadence of Rollouts of B C.
Somewhat consistent and thought across each of the customers or has there been any indication from us.
Specific or maybe a handful of customers that they expect a rollout to be faster versus others.
Yeah. So you know we're at the Mercy of the rollout so you know.
Normally the.
They'll take let's let's talk about this one of the 650 stores they've committed to doing the $3 50, because that's what they've rolled out the fresh food initiatives.
And I would guess that over a quarter or two all $3 50, we will rollout.
And they'll take a breather as they rollout.
Rollout fresh food to the to the other stores.
And then roll and the technology after that so.
It's not going to be a very linear and you know all of them.
Predictable and it will kind of rollout of it.
Look at our large convenience store of customer I mean, that's been nothing but unpredictable.
But the good news is we've got the backlog.
And we ended last year with over 5600 of terminals.
And we.
We do believe that the it's going to grow nicely this year.
It could be we could be close to nine and 10000 terminals by the end of the year.
We also believe that the recurring revenue will eventually have to come back we witnessed good recurring revenue, we went and we witnessed the label sales when the pandemic wasn't as bad in December we did witness what it's like when it gets bad and that's what we've been going through but the other thing and that's really good as and when you look at the restaurant side.
There, it's going to be much more predictable because they buy more software than labels.
And so that side of the business will be a lot more predictable because we'll just kind of bill of every month of the software and then they'll buy some labels because it's really the software that they are using more than the labels convenience stores, our label and a lot of food and that's where we're kind of hostage to how many transactions they are doing and how many.
People are walking in the door you know one of the issues that are big convenience the accompany faces as they don't have gas stations. So when the pandemic hit on it.
Took off again in October November and.
Not a lot of people stopped and to get something but if you're going to get gas and you know you might pick up.
And coffee you might pick up of Boston or something while you're there to get GAAP. So I.
I think their business was of was more impacted than others, because they just don't have the gas station, but and there's still more convenient store of companies the quotes.
So we don't have the mall yet.
And so we'll get them all but you know, there's there's more convenience for our customers to get and there clearly.
Need of label technology, So there's more of adult.
Great and thanks for taking my questions and I'll hop back in the queue Yeah Douglas.
The next to the Mitchell sacks, with Grand Slam asset management.
Yeah. So the question with respect to the casinos.
Obviously part of the opportunity there is is dealing with.
The slot machines, but could you talk about the opportunity with your relationships on the restaurant operations and and kind of how you're attacking that.
So we have had conversations with a certain casino group about using our technology.
Hum below ground in their commissaries, and all of that where they prepare food.
And I got to say Mitch that you know we were quite successful.
And getting one casino group to really.
And as the technology, but you know during the pandemic everything shut down.
So you know I, it's hard it's hard to.
Kind of indicate you know when casinos are going to be looking for technology other than waiting for casinos to be able to open and see travel happen again and see people at the slot machines and the tables and the restaurants and seeing the volume again.
You're probably talking of 2022 story.
The restaurants of one thing you can drive down the street and go to of restaurant I mean here in Florida, and we are certain parts of Florida, where you can't get of reservation anymore. So many people have been vaccinated that the willing to go out and the restaurants are packed and that's great for us. It's another thing when you think about it gotta get the I gotta get on the plane and trap.
<unk>.
So I think I think we'll see a lag effect of the of the casinos looking at our restaurant technology, it's not likely have and introduced it to them, but I think Mitch. It's it's probably a 2022 story just because of what they've done and how much more they have to go until the back of being healthier.
Okay and then the second question has to do it where the order that we sort of today from the restaurant chain can you just talk us through the different apps you know the <unk>.
Restaurant chain is taking and kind of contrast that with maybe the C store customers and and where theyre at and their development in terms of taking of apps.
Yeah. So that's an easy one Mitch what you see with that restaurant and order as what we should start seeing from all restaurants right.
Packaged R. O P is a package of software that the restaurants will use to do multiple things and the back of the restaurant right. So if I pull up the press release and we can look at it.
Convenience stores will not do that convenience stores are just labeling and we've said this many times that the value of the casino of the of the.
The C store customer to US is the service contract clearly we're charging a per software.
And lots of labels.
However, when you look at what we've done with this one restaurant.
You know it includes R. R O P system, which is labeling temp check with time on media manager. So that's the whole program that they get from us for one price.
And that's a lot more money than what we charge and convenience stores because of getting all of that functionality because they need all of that functionality. In addition, what you also saw with a lot of hardware sales right.
C that was solid and the workstation and you'll see that we're selling bahar sensors and you'll see that in order for the census to work, it's got to communicate to our both of our gateway. So you see that the value of the hardware sales is even higher right. We're not selling the 600, all the terminal were selling sensors and terminals and gateways and all of that.
And so you can see that all of the initial hardware reorder is much higher on that.
That should be typical for restaurants right. That's why we put this whole <unk> thing together, because I think we confuse the restaurants because they they wanted they want labeling they wanted they want and they want Jacqueline the one timer, but they were confused the okay, well I got to buy this happened and this happened in the SAP and how does it work and you're confusing day and we'd go Okay look we'll put it all together.
The one portal you go into the portal you see at all and that's what we did with our O P. Right the onto one portal and you see all the functions. So the no longer have the functions. The bolthouse labeling function of the bowl of attempt the function of bullet set of assumption about what checklist function of all of our time function.
With convenience stores all the buying of lately. So you can see the third getting less software because of less functions, but because they're selling so much food as grab and go we get a lot of label sales does that help niche yeah very much. Thank you.
That's why Mitch when we look out and you look out of couple of years and say, okay. What kind of a mixture now let's say we go to 50 50 restaurants convenient stores.
On the Weibo sales could fluctuate and let's hope, we never get into another pandemic and slowdown and all of that and what we want growth it'll be predictable because we'll see what the cadence of orders will be put on the restaurant side and then they're there they're going to they're buying software and that the monthly fee that doesn't go away.
It's not hostage to the volume of transactions that they'll do it.
Super Thanks.
Yes, thanks, so much.
Well hear next from Jeff Bernstein with Cowen.
Oh, Hey, Bart and Steve.
Nice to hear from you guys.
Just a quick question on gross margin, but I think you cut out for a minute can you just talk a little bit about gross margin and the quarter and how we should think about the.
The mix impacts there I don't know if there was anything unusual and it's and and and how to think about it sort of 'twenty one.
Yes, so about the.
Gross margin.
Okay.
But no go ahead go ahead.
Oh, I was going to say for the fourth quarter I'll answer that question, Jeff. So yeah, we did and we were impacted by a few things and the quarter I mean, obviously the sales volume itself was pretty low and we have a fixed amount of overheads of that index for the overall margin.
But we also have we wrote off some tooling of about $300000 worth of tooling and the quarter, which is an unusual charge.
And the Big order, we got for terminals was at a lower margin and I think that's probably what Barnes is going to talk about and I was kind of where we're heading with the pricing on the hardware versus the software, So where you had and Bert.
Yeah, Yeah. So so Jeff the question that comes up to US is how quickly can we get terminals into the marketplace. So that the following year, we get all of the recurring revenue.
As long as we don't lose money on the terminal on the.
Hope it to whatever negotiations we have to do and in fact in this case the customer wanted of package price, they're actually paying us monthly, but the cost the terminal goes out we actually we actually book the terminal at the sale, even though they are paying us monthly.
Jeff.
What's important to US is how do we get the 30 50000 terminals and because of the recurring revenue and.
And if we have an opportunity like we had the day Sushi company to win an order for 1200, we replaced an existing software package that wasn't working for them.
And.
It's.
I think.
We will go after it and we will not lose money on it and of course, we didn't lose money because where our gross margin was 30% and hopefully we don't write off any more tooling, but depending on the size of the order and the size of the customer and we're working with some very sizable customers and this isn't just a couple of thousand terminal with some of these.
Customers and you know should they negotiate hard but we can get all of that recurring revenue.
And don't expect that we won't close of that order because of the following year you youre going to sit there and go Oh My God look at all of this recurring revenue at the top much higher margin. So the question is and I keep telling you every investor focus on terminals and focus on how many terminals were getting into the marketplace because once they get out there and book the Sushi company got them out.
And at the end of December we didn't have much recurring revenue and as we get into the middle of this year when they're on and full motion with that terminal the isn't it and see Oh.
Lot of recurring revenue off of that and.
And that's at higher margin and so.
The goal is to get terminals into the marketplace.
That's correct and so there's a large shareholder we're happy with that model.
There you go out three four years, it's fantastic.
Great guys. Thanks.
Thanks, Jeff.
Welcome.
Well go back to Jeff Martin with Roth Capital Partners.
But once again a sense one of the switchover to the C store pipeline I wanted to get a sense of.
And one of your sales expense was with C stores, and Q4 and and what you've seen so far of quarter to date and Q1.
So you know, we we wanted and we bought a fair amount of them and we wanted the big one.
The.
What.
What drives us towards the C store is known and Theyre doing fresh food and grab and go.
You know once you get past the top seven or eight C stores.
And as much as of 140000 in the country you get down to C stores that have 50, 35 75 stores.
So what we're focusing on is two things first are they doing fresh food or some type of the grab and go where they need per label.
And then the size of the opportunity. So we have a couple of debt that we were working with right now that are sizable and you know, we're working with them to try and close them on our technology.
And the like I said the interesting thing about the marketplace is once you get past the top seven the rate they get kind of small.
And now as we get into the restaurant industry, where we're starting to talk to some very large restaurant companies you know what.
Trying to.
Hunt and and and farm, where there's really good size opportunities.
And so because every opportunity takes time.
So but at the same store markets and good for US a lot of it came directly to us.
So we've got a couple of on our list that we're working with and.
And as you see it I think we close the deal.
Two this quarter. So we'll continue to try and close the remaining ones that are right now and our sales pipeline.
Okay, and then I've got one more if I may.
The first is the two part question the first part of with respect to 711 and the.
The rollout plan of the giving you.
A clear picture for this year or even this year and that's true.
And then secondly.
If you were to get to the nine and 10000 terminals by the end of the year on how.
And how much of that would come from sales still and how much of that would come from a P.
Wow.
So wow, considering we closed the bunch of C stores and we've got a.
The vote for 711, and that's of Great question, I would say has C stores and have restaurants.
Okay, and then with respect of seven Elevens planned rollout for this year and next year, but given the much indication we have a clear day.
Our visibility on this awesome.
And they they actually don't give us a purchase order right. They don't smoke and mirrors, what we're buying in 2020, one, but they do give us and indication and I think it's going to be steady as she goes we've always told everybody gets kind of rollout over a couple of years three four years.
There's no doubt and 2020, we fell behind and they fell behind.
Just because of the pandemic the stores being closed and all of that but they are back up and running to where they we thought they would be.
And so you know we've got a couple of more years to go to keep rolling it out.
All of them and they seem to be very happy with it. So you know it's kind of be business every year.
And as they get to the goal of 10000.
And then the question will be have the speedway. So they know that we don't know Jeff would.
Hmm.
And we're waiting to hear from them will they increase the 10000 to include so many speedways, we have not heard yet.
Okay, Great and good luck with the Apple similar on April It sounds like you go to the yes, yes, and yes. The team did a great job of beautiful video and.
Some of it will be on our websites and so you will see a customer testimonials on the website and you'll see a demonstration of the technology on the website. So once we get really of the Apple event and you.
And we'll start putting stuff up you're starting to see a change to our web site.
We're kind of stuck and old server.
Which will take us probably another three four months the change, but if you go to our corporate website right now you'll see that it's been changed.
You can click on the different sections of our foods service technology and can look you can click on and C stores and quick serve restaurants, and casual and all of that.
And then eventually you'll start seeing some customer testimonials on there too so we will be quite excited when the.
Couple of dynamics and to be we'll post it all up on the website.
Great looking forward to seeing that picks of the time of our yep.
Thanks, Joe.
And gentlemen at this time I would like to turn things back to you of off for closing remarks.
Yeah, eight well it's been of Great call just about an hour of really appreciate it all of them again for those that have the opportunity to join Us Monday and Tuesday next week at the Roth capital the only thing.
And I can say is I'm gonna Miss being and southern California, I think the rough capital people have.
Throw one of the best parties and that's the conferences the risk and one day will hopefully be together and be able to do that again, but the really appreciate everybody's support you can see the excitement that we see in front of us.
Despite the one horrible horrible you know March and April and May.
Through the beginning of this pandemic I think we came out of it as strong if not stronger.
And we're just excited about the future. So look forward of talking to everybody in the next conference call if not I'll talk to you at the Roth Conference. Thanks, everybody.
And that does conclude today's conference again, thank you all for joining us.
Okay.
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