Q1 2021 TransAct Technologies Inc Earnings Call

May 6, 2021

Yeah.

[music].

Good day, everyone welcome to transact technologies first quarter, she has and in 'twenty, one and earnings call.

Today's conference is being recorded at this time I would like to turn the conference over to Ryan and Gardella Investor Relations. Please go ahead.

Thank you.

Afternoon, and welcome to transact technologies first quarter 2021 earnings call.

And they will be discussing the results announced in our press release issued after market close joining us today from the company are chairman and CEO, Bart Sheldon and President and CFO, Steve Demartino. Today's call will include a discussion of the Companys key operating strategies progress on these initiatives and details on our first quarter financial results.

And then open the call to participants for questions.

As a reminder, this conference call contains statements about future events and expectations, which are forward looking and nature.

On this call may be deemed as forward looking and actual results may differ materially for a full list of risks inherent to the business and the company. Please refer to the company's SEC filings, including its reports on form 10-K, and 10-Q transact undertakes no obligation to revise or update any forward looking statements to reflect events or circumstances that occur.

After this call.

Today's call and webcast will include non-GAAP financial measures within the meaning of SEC 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 can be found in today's press release as well as on the company's website and with that I'll turn the call over to Bart.

[laughter].

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

2021 is off to a great start as the momentum from last year continued with an excellent first quarter.

Our foodservice technology collect S. T market continues to pick up considerable steam and we added over 1300, new paid terminals and the quarter for a total now of 7009 paid terminals and the market.

In addition, I'm extremely pleased that we achieved over $1 $2 million and that's S. T recurring revenue and the first quarter of 2021.

And with existing software contracts and orders already received in our second quarter of 2021 and I expect Q2 will continue to exhibit very positive growth of our recurring revenue.

Our industry, leading bolthouse solutions continued to demonstrate the unique value proposition and are driving promising results and significant opportunities as the headwinds of the global pandemic continued to subside.

And Steve will discuss in detail shortly our preliminary first quarter total net revenue was $8 3 million and we recorded an EBITDA loss of $2 5 million and an adjusted EBITDA loss of $2 2 million.

I am pleased our quarterly gross profit margin rose to 38, 4% versus 36% and the fourth quarter of 2020.

Now speaking specifically about our foodservice technology market revenue and the first quarter was $2 7 million up 100% from the same period last year.

Our recurring revenue, which includes software subscriptions labels and service was $1 2 million or if you annualize that $4 8 million on an annualized basis.

As a reminder, on our last call we guided to between five five and $6 million and recurring revenue FSP revenue by the end of 2021.

Hardware sales and the number of paid terminals and the market are the lifeblood of a recurring revenue stream and as we increase the number of terminals and the market our recurring revenue will grow exponentially.

As I mentioned, we had a tremendous first quarter in this regard with hardware sales up over 100% from the year ago period.

This equates to an additional 1321 paid terminals running on our system at the end of the first quarter of 2021.

And the total to 7009.

And our last call, we guided to between 10011 thousand paid terminals and the market by the end of fiscal 'twenty one.

As our paint terminal base expands our recurring revenue will also grow fuelling consistent results and a predictable stream of FSD revenue.

In particular I wanted to call out our label sales and the beneficiary of this effect.

As our terminals become more prolific not only will our label sales increase correspondingly, but we'll see that revenue smoothed as the impact of large orders from our big customers become less apparent on a quarter to quarter basis.

As you know we have a strong relationship with the convenience store chain 711, and this quarter was no different with more terminals being stalled and installed at 711 stores.

711 is focusing on expanding their stores fresh food capabilities and our bolthouse terminals are an important piece of that expansion.

Each store requires a new construction build to add fresh food capabilities and the installation of the Bolthouse terminal.

We estimate that 711 will convert approximately 2000 additional stores to enable fresh food in 2020 one.

As of the end of Q1 2021, we haven't sold our Bolthouse terminal and approximately 2000 and 650 stores and still have about 7350 and more to go.

I also wanted to quickly call out our press release from April seven and which we announced a large existing golar customer and customer would be adding another software module, our bolthouse temp app to over 1000 locations by the end of fiscal 'twenty two.

With a total contract value of over $450000. This upgrade deal demonstrates the growing land and expand opportunity afforded to us by increased penetration of our bolthouse systems and the reason we focus on getting as many paid terminals and the market as quickly as we can.

Cross selling additional apps to existing customers is a classic SaaS sales motion and provides a significant runway to grow our revenue with existing customers.

We believe this will generate long term value to the company and is a vital step and our growth strategy.

In addition, I wanted to talk a little about our relationship with Apple and the sales effort there.

First I would encourage each and every shareholder to watch both videos on our transact website homepage.

And one video as a customer testimonial regarding their use of Bolthouse R. O P restaurant operations platform.

We'll hear from the share and also and executive the restaurant company speak to the value that <unk> brings to the restaurant back of house operations.

The second video is an interview with Ray Walsh, our vice President of global sales and Chris loss, and who heads up the Apple sales and strategy team for the restaurant vertical.

As you will listen Ray explained once our bolthouse systems are in place customers experienced a 56% declined and food safety incidents and about 16 hours of labor savings per location per month.

And as Chris from Apple mentions what Apple values. The most is our combination and seamless integration of hardware and software.

In order to quantify this or that there are about 100 salespeople on the restaurant and 100 and Apple salespeople on the restaurant sales team, who can promote Baja Boe hop to the market under and.

This is a powerful testimonial about the important work we are doing and the partnership we have with Apple and shows they are behind our mission of improving food safety streamlining restaurant back of house operations saving labor hours and empowering back of house employees to do their best.

Now and looking at our pipeline of opportunities, which we value over three years, which is the typical length of contracts we sign.

We have over $140 million and our pipeline right now with Apple related customers being approximately 50% of that pipeline.

We are extremely pleased with how the relationship with Apple is going and the opportunities. They bring continues to grow.

And the global economic recovery continues it is easy to see why we would transact are incredibly optimistic about the FSP opportunities in front of house and front of US both this year and the long term.

Now moving onto our casino and gaming market revenue and the quarter was $2 9 million down 42% year over year, but up 7% sequentially.

The international market continues to be challenging.

However, the domestic rebound is beginning to pick up some steam.

We continue to expect progress and the recovery of the worldwide casino market over the course of 2021.

And the U S. We continue to see casinos reopen as well as the capacity limits were already open casinos inching upwards.

As guests return, we're seeing a slight acceleration investment I'll make on the GAAP gambling floor and we are cautiously optimistic the gambling poor capex spend will continue to accrue improve throughout 2021.

After hitting a horrible sales slope and the pandemic and the second quarter of 2020, our revenue has increased sequentially every quarter thereafter.

And while we experienced some stagnation and from the virus winter onset, we're seeing conditions gradually improve and new projects beginning to gain momentum.

Transact is well positioned to capitalize on the recovery trend and the gaming and casino market.

With that Steve will review, our first quarter 2021 results after which I will make some summary remarks before opening the call to questions and answers Steve.

Thanks, Bart and good afternoon, everyone.

Let's turn to our first quarter's results.

Total net sales for Q1 were $8 3 million, which was down 19% from $10 2 million and the first quarter of 2020.

However, sales from our foodservice technology market or F. S. T. We're up 100% to $2 7 million from $1 4 million and the first quarter of 2020.

Our FSD hardware sales increased 104% to $1 5 million from 755000, and a year ago period and as Bart discussed we ended the first quarter 'twenty, one with 7009 paid terminals and the market, which was an increase of 1321 units during the quarter.

Our recurring FSD sales, which include software and service subscriptions as well as consumable label sales came in at $1 2 million, which was up 96% from the 616000, we reported and a year ago period.

Last quarter, we discussed the 1200 terminals, we shipped right at the end of December from our large sushi chain customer.

Now that those terminals are all operational we expect label sales and recurring revenue to rise accordingly.

As Bart mentioned, our recurring revenue is a function of how many paid terminals, we have and service and as those numbers continue to climb so while our label sales and other recurring revenue.

Our <unk> or annualized recurring revenue per terminal for the first quarter of 'twenty one was $688.

Given that we're still in the early stages of building our installed base of terminals are our approval likely fluctuate quarter to quarter based on the size of individuals' software label and service orders and the timing of terminal shipped.

In addition, we believe our ARPA is still being negatively impacted by reduced transactional volume at our at our customers' businesses, resulting from the pandemic.

As the effects of the pandemic subsides and our customers' transactional volume returns to pre pandemic levels, we expect our <unk> to rise over time and reach $1000 plus.

One other item to note related to our <unk> calculation.

When a terminal shifts towards the end of a quarter.

Get a full quarters worth of recurring revenue from that terminal, while we still include that terminal and our <unk> calculation.

These linked quarter deployed terminals have a real impact on our pool.

And as a way of filtering out this impact we could alternatively use the number of paid terminals and the market at the end of December the prior quarter to calculate the <unk> for the first quarter as those terminals have been producing revenue for the entire first quarter from January one through the end of March.

Using this method or are approved would be $847.

Turning to casino to casino and gaming or casino and gaming sales were $2 9 million a decline of 42% from the first quarter of 2020.

As mentioned previously the speed of recovery domestically is proving to be dramatically quicker than overseas.

Domestic sales were down only 23% and year over year versus 62% for international sales all due to the pandemic.

We expect both domestic and international sales to continue to recover as casinos reopen and conditions improve throughout 2021.

POS automation sales were down 25% to $1 2 million from $1 6 million and the prior year period.

Decline was mostly due to lower sales of our ethicon and 9000 printers to mcdonalds due to the continued COVID-19 impact on their business.

Moving on to printer ex oil and gas printers sales were up 36% to 159000 from 117000 and prior year periods. So.

So we continue to deemphasize contract 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 <unk> sales were down 40% to $1 4 million from $2 3 million and the prior year period.

This decline resulted from lower sales of aftermarket items from our for our legacy products, including spare parts for our legacy lottery printers consumable products, such as inkjet cartridges and cartridges and Pls paper Rolls and service contracts and our legacy banking printers.

Since we're no longer focusing on the products and this market, we expect our <unk> revenue to continue to decline over time.

Moving down the income statement, our first quarter gross margin was 38, 4% compared to 48% year over year, but up sequentially from 36% and the fourth quarter 2020.

Our gross margin and the quarter was negatively impacted by the 19% overall sales decline as well as increased both hardware sales and lower casino and gaming printer sales.

As a reminder, we have decided to reduce our margin and Baja hardware products and an effort to accelerate the growth of our installed base of terminals to drive more lucrative FSD recurring revenue such as software subscriptions.

Service and labels.

So this may have a short term impact on our gross margin as we build out our installed base of terminals, we should see a favorable impact on gross margin over the longer term as higher margin recurring revenue growth to become a larger percentage of our overall sales.

Total operating expenses for the first quarter of 'twenty ones were $5 9 million, which was a decrease of 358000 or 6% from the year ago period.

This decrease was largely due to a drop and our selling and marketing expenses, which fell 35% to $1 4 million from $2 2 million as travel and promotional marketing expenses remained very low and trade shows continued to be either postponed or canceled.

Our first quarter of 2020 reflected a pre pandemic level of spending.

And then we expect a gradual ramp up of selling and marketing expenses as we move through 'twenty one.

We continue to invest our engineering design and product development, which was up 30% to $1 8 million from one 4 million and the prior year period.

This increase was mostly attributable to additional outside software development for our new iOS native Baja restaurant operations platform and the all new Baja workstation with iPad.

G&A expenses were essentially flat year over year at $2 6 million for the first quarter of 'twenty one.

Lower travel expenses were offset by higher legal and professional fees, resulting and the drop of less than 1% year over year.

We incurred an operating loss of $2 7 million for the first quarter of 'twenty, one or 32, one percentage of net sales compared to an operating loss of $1 3 million or 12, 6% net sales and a year ago period.

And on the bottom line, we recorded a net loss of $2 2 million or <unk> 25 per share and the first quarter of 'twenty, one which compares to a net loss of $1 million or 13.

And the year ago period.

Adjusted EBITDA for the first quarter 'twenty, one was a negative $2 3 million compared to negative $1 million and the year ago period.

And lastly, looking at our balance sheet. We ended March 'twenty, one with $8 7 million and cash and $2 $2 million and long term debt all from the PPP loans that we expect to be forgiven.

At this point I'd like to give the call back to Bart for some closing remarks Bert.

Thanks, Jonathan Thanks, Steven and what a great job.

And one way it's hard to believe where were we were just a year ago when the worldwide pandemic hit.

And here, we are almost 14 months later.

And exciting future ahead of us.

I wanted to thank the transact employees for their commitment through the most challenging time and the company's history.

I also want to thank our shareholders for your loyal support.

<unk>.

At this time, operator, I'd like to open the call to questions.

Thank you, ladies and gentlemen, if you wish to ask a question at this time, please signal by pressing star one on your telephone keypad.

Please ensure that the mute function on your telephone is switched off cloud and Sigma to reach our equipment again. Please press star one to ask a question.

Our first question today comes from.

Chris Howe of Barrington Research.

Yeah.

Hello.

Hello can you hear me.

Yeah, Chris how are you.

Hi, Chris and Steve.

First off fantastic quarter.

And youre, making my job much easier.

With these results.

I have many questions here.

I'll start first off the.

The restaurant.

Order that we announced in conjunction with the previous quarter's results can you talk about the progression there as to your rollout is that still on schedule for year end.

Yes.

Okay. Okay.

Next question is just you highlighted the the upgrade opportunity and module expansion can you provide some more color on this.

I know the Rollouts continue to happen, but I wanted to focus on.

And your existing customer base and it seems like.

It could be a good opportunity for you moving forward.

Yes.

Great question, Chris. Thank you if you look at our early sales our early sales were terminal and label software.

And the way, we presented both hot and to all the customers at that point was you have all these other apps that you could add to the system to do temperature, taking temperature monitoring task list check list.

Timers and things like that.

So.

The base of customers that we have today that are using what's called the bowl Hot terminal.

Our all right are all in the market they are all opportunities for us.

And additional apps a lot of them are looking at.

Temperature, taking and temperature sensing.

If you look at our new technology that we're putting into the marketplace, which is both RFP with a workstation there we sell the bundle.

So the software sales will be higher because.

Because they buy the whole bundle and they get all the apps in a single portal type arrangement, but all the original sales that we did were all on the terminal and are all day.

And selling them and additional apps. The one that we closed in the first quarter is a really interesting story because they are not only doing temperature, taking but they're actually doing other things regarding monitoring of their food.

And this gave us an opportunity to do some customized software for them, which we charge them for.

And then we'll roll it out so that was an exciting opportunity because not only did we did temperature taken but we did and additional function for them.

And.

Once all of that software is done we will begin to rollout.

And that software and the nice thing about it is it's just it's just software sales. So once they are ready to go you just start downloading the software over what we called over the air.

Oh, Ta and everything that goes over the year to each one of their terminals and and the new software it gets loaded onto their terminal.

That's great that's very helpful and.

And I'll ask one more and then I'll hop back in the queue.

Your terminal growth is outstanding you placed over 1500 terminals in the quarter.

And I assume that will continue, especially well here, we're doing a full reopening.

On a domestic basis, it seems and things are rapidly returning to normal quicker than other geographies as we look at that.

A different economic scenarios that are in front of us now.

How should we think about.

Your capital allocation.

To the business.

Oh, Okay yeah.

So clearly look.

And my opening remarks, we have over $140 million of opportunities in front of us some of them are very large opportunities.

There is no doubt that the restaurant market has woken up to the fact that the pandemic is a bit behind us now openings are occurring and there is a real issue facing the restaurants, which is labor.

And we could all get into the discussion of the labor issues that restaurants and people like Uber and Lyft are facing but this is a real issue as restaurants try to reopen and open up their dining rooms and have to bring and more people and struggled to find people and that's where the back of the house, where our software will save on labels and make training.

A lot easier.

So we are seeing a pretty dramatic increase in opportunities that had been presented to us both through our relationship with Apple, which really covers the restaurant industry, but also on the foodservice side of our business, we're actually with one large customer very large customer and Apple has been.

And a great partner and.

They knew the customer also.

And we got to remember that once we get involved with the customer. It does take time, theres, a whole lot and boarding process and a trial and evaluation and all that.

But our pipeline is is literally sitting at over $140 million of opportunities right now and that has grown considerably since the pandemic started to subside, a little and restaurants start thinking about opening again.

Okay.

Yeah definitely some positive optics ahead of us I'll hop back in the queue.

Thanks, Bart Thanks, Chris Yeah. Thank you. Thank you very much.

Sure.

Our next question comes from Mitchell sacks of Grand Slam asset management.

Hey, guys, congrats on a nice growth and units per quarter.

Thank you, thanks, Matt and thanks, Matt and <unk>.

And your prepared remarks, you were talking about the 711 installations and I thought I heard you say that they have another.

2000 stores on tap for this year.

Is that correct.

Aye.

Based on what we see in front of US we're going to do 2000 for the year.

And I don't break out how many we did and the first quarter versus but we have plenty more to go this year and plenty more to go.

<unk>.

In 2022, and probably 2023.

Based on their construction schedule and so so for the.

And the unit guide of 10% to 11711 is going to get you.

Good part of the way there.

And there'll be a proper way to look at it correct.

Look there were.

And quite conservative and our terminal count for this year.

You know what we don't want to do is get ahead of ourselves because it.

And if I haven't kind of an interest in company that they work with us and what their construction schedule is but they don't place and water for the year.

So I don't want to get ahead of ourselves because should for some reason they decided and the fourth quarter not to do something in that quarter. It could go into the first quarter next year.

I can say, though that.

The forecast.

Could be could be on spot or it could be quite low based on some of the projects. We're working on right now some of the projects are quite large niche.

Okay, and then Steve talked a little bit about the average recurring revenue per terminal.

Yes, I mean, you used the fourth quarter of 847, and it was 688 actual due to the I guess the timing of <unk>.

Rollout do you guys.

[noise] track, what you expect.

Average revenue per unit <unk> to be per terminal.

Based on the average contract or.

And just really waiting to see how actual usage kind of runs because there's some variability and there.

Well, if you divide the business into two kind of sub businesses right you've got the foodservice technology side.

As a big labeling.

Market right, we have one customer Mitch that uses it to buy 12 label.

So as long as that business keeps picking up the label sales are going to be wonderful because it's a very expensive label and they use a lot of them.

And we're counting and all 12 weeks.

So eventually where the incremental terminals, let's say, we get the 30 or 40000 and terminals. If we had 1300 and a quarter, it's not gonna matter that much. It's just if you think about it and it's we went from call at 56 5700 terminals at the end of the queue for the 7000.

And Q1 two.

Twenty-five percent increase but a lot of those terminals didn't go in January 1st right.

No. It's it's just a function of timing and what we were trying to do what Steve was trying to do and saying look if we just look at at the end of the queue for those terminals will have been and full service for Q1, and we did 1.2 million and recurring revenue and Bam, There's your $847 and recurring revenue.

So you know and.

The base of terminals grow the incremental won't have as big and effect on our our too because of this issue of time of when when the unit goes into the market and when we start collecting our software our service and the old labels, it's pretty simple.

Okay. Thanks, a lot I appreciate it.

You got image.

As a reminder, please press star one to ask a question.

Our next question comes from a Jeff Martin of Roth Capital Park.

And do you have hi, Steve I guess doing.

And just wonderful and how about you.

And it made my friend and transfer payments.

Made my first I should have to Vegas to see what's going on out there it was pretty interesting.

Oh, how was it.

Tubs, and there's no over drivers and there's no lift drivers.

And would be tough very tough so bark congratulations on the pipeline bill of $240 million is a nice number obviously and it and a ballpark and he was.

And send the ballpark, how many terminals that would translate too.

What our backlog net are backwards, but our pipeline your pipeline Yep Yep.

And pipeline.

What went out and know how many million dollars and.

And my plane and translate into terminals.

I I do like.

I'll give that out.

But I can tell you that some some and the pipeline are quite large.

But yeah, we don't break out like.

You know like how many animals idea.

And my favorite number that's that's that's what I'm doing it okay could you hear Louisiana and a good thing.

The good thing about what we see though and.

And I've got I've got it in front of me is <unk>.

Most of that pipeline a restaurant.

One of them is food service.

Not the top seven that I'm looking at.

To them a restaurant.

And that software.

So that's where this whole change the business, where food service is more labels and restaurants more software.

Six out of the seven large opportunities in front of us a restaurant.

Restaurant and company, that's great Great day here.

Any idea of when pilots and they're gonna start from from from and you know Apple sales force do you have any visibility or last night on that relative to starting and basically starting the process.

I think in January and February of this year, it's still pretty early but just just wondering if you have any line and type huh.

We do I would say more than 30% of those opportunities are are and path.

Great.

And then I I think you had your first R. O P sale last quarter or you and at least disgusted on your.

Yeah, and your last earnings call. It was curious if the if.

And at that time, you've secured additional R O P customers.

[noise] well.

Yes, we we we've actually want some very small customers that we didn't put out press releases and things of restaurants would for change of three chains or to change you know, we we we won't we won't put out a press release for that but.

And we'll put out a press release for every customer that you know you would like to see.

So no there was not I mean, there were very small and.

Dish and two are.

Companies or a restaurant companies that are using our system, but not enough for us to put out a press release it but yeah, we will put out a press release once we close one that you would want to know about.

Right right Okay.

And then just curious on on the inventory level and components supply chain and is obviously.

Shortages of certain components I would imagine just curious if you give us an update there and I ordering.

You know to be prepared for that.

Oh, Yeah, I could take that would fun and yeah.

Yeah. Good thank you.

Yeah, So Jeff we've been able to stave off a lot of the problems because we've had pretty large inventory levels and we did that on purpose to make sure we had enough on hand and.

So we've been able to kind of avoid the issues and many companies are facing or have have face recently I think it will it will or could cause us a small problem coming up because we can't avoid what everybody else is avoiding right everybody's going after the same circuits and passive components and their shortages of raw materials like copper and metals is it.

All starting so I don't think we'll be able to avoid everything but we've been we've done a good job. So far I think it could begin to have a small impact and the next quarter or two.

And we put we put our orders out uhm well ahead of time. So most of our orders we'd go out typically at least six months anyways. So it's not like we're just in time sort of place and we we we have contract manufacturers. So we were forced to put the orders out ahead of time, which actually helps us and the scenario.

Okay do you feel comfortable and she can get the 10 or 11000 units out without.

For this year without any and a supply constraints that because that fur.

I think it's well, it's relatively low risk on the FSD site Yep, yeah, yeah, Okay, especially on the bow Hot sauce, especially on the bowl outside yes.

Well it certainly sounds like the R. O P is getting a lot of and interest happy to see it and wish you luck during the quarter and and and down for Ya.

Thanks, Jeff.

Okay and please press one password question.

There are no further questions at this time.

Okay, well, we thank everybody for attending the call today I do hope that you and your families and we're all safe and healthy and made getting through this.

It's horrible pandemic there are some that's the conferences that we're gonna be doing at the end of the month.

So if you need to find out about a please call our I R firm and ICR and they will help you guide you at two which which conferences were doing.

We do look forward to continuing our conversation with the shareholders and keeping you up to date and what's going on with this exciting business.

Very much. Thank you for attending and also thank you for your support, especially during what was clearly the toughest time and the company since we last year. Thank you and we'll talk to you again.

Ladies and gentlemen, and that concludes today's conference call and thank you for your participation Humana.

[music].

Good day, everyone welcome to the transact technology first quarter, she has and in 'twenty, one and earnings call.

Today's conference is being recorded.

And I would like to turn the conference over to Ryan and Gardella Investor Relations. Please go ahead.

Thank you.

Good afternoon, and welcome to transact technologies first quarter 2021 earnings call and they will be discussing.

Cussing and the results announced in our press release issued after market close.

Joining us today from the company are chairman and CEO, Bart Sheldon and President and CFO, Steve Demartino. Today's call will include a discussion of the Companys key operating strategies progress on these initiatives and details on our first quarter financial results. We will then open the call to participants for questions.

As a reminder, this conference call contains statements about future events and expectations, which are forward looking in nature and statements on this call may be deemed as forward looking and actual results may differ materially.

Full list of risks inherent to the business and the company. Please refer to the company's SEC filings, including its reports on form 10-K and 10-Q.

<unk> undertakes no obligation to revise or update any forward looking statements to reflect events or circumstances that occur after this call.

Today's call and webcast will include non-GAAP financial measures within the meaning of SEC regulation G. When required a reconciliation of all non-GAAP financial measures and the most directly comparable financial measure calculated and presented in accordance with GAAP can be found in today's press release as well as on the company's website and with that I'll turn the call over to Bart.

Okay.

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

2021 is off to a great start as the momentum from last year continued with an excellent first quarter.

Our foodservice technology called <unk> T market continues to pick up considerable steam and we added over 1300, new paid terminals and the quarter for a total now of 7009 paid terminals and the market.

In addition, I am extremely pleased that we achieved over $1 $2 million and that's S. T recurring revenue and the first quarter of 2021.

And with existing software contracts and orders already received and our second quarter of 2021, I expect Q2 will continue to exhibit very positive growth of our recurring revenue.

Our industry, leading <unk> solutions continued to demonstrate the unique value proposition and are driving promising results and significant opportunities as the headwinds of the global pandemic continued to subside.

And Steve will discuss in detail shortly our preliminary first quarter total net revenue was $8 3 million and we recorded an EBITDA loss of $2 5 million and an adjusted EBITDA loss of $2 2 million.

I am pleased our quarterly gross profit margin rose to 38, 4% versus 36% and the fourth quarter of 2020.

Now speaking specifically about our foodservice technology market revenue and the first quarter was $2 7 million up 100% from the same period last year.

Our recurring <unk> revenue, which includes software subscriptions labels and service was $1 2 million or if you annualize that $4 8 million on an annualized basis.

As a reminder, on our last call we guided to between five five and $6 million and recurring revenue FSP revenue by the end of 2021.

As I mentioned, we had a tremendous first quarter in this regard with hardware sales up over 100% from the year ago period.

This equates to an additional 1321 paid terminals running on our system at the end of the first quarter of 2021.

And the total to 7009.

And our last call, we guided to between 10011 thousand paid terminals and the market by the end of fiscal 'twenty one.

As our paint terminal base expands our recurring revenue will also grow fuelling consistent results and a predictable stream of FSD revenue.

In particular I wanted to call out our label sales and the beneficiary of this effect.

As you know we have a strong relationship with the convenience store chain 711, and this quarter was no different with more terminals being installed and installed at 711 stores.

711 is focusing on expanding their stores fresh food capabilities and our bolthouse terminals are an important piece of that expansion.

Store requires a new construction build to add fresh food capabilities and the installation of the Baja terminal.

We estimate that 711 will convert approximately 10000 additional stores to enable fresh food and 2021.

As of the end of Q1 and 2021, we haven't sold our Bohac terminal and approximately 2000 and 650 stores and.

And still have about 7350 and more to go.

I also wanted to quickly call out our press release from April 7th and <unk>.

Which we announced a large existing golar customer and customer would be adding another software module, our bolthouse temp app to over 1000 locations by the end of fiscal 'twenty two.

Cross selling additional apps to existing customers is a classic SaaS sales motion and provides a significant runway to grow our revenue with existing customers.

We believe this will generate long term value to the company and is a vital step and our growth strategy.

In addition, I wanted to talk a little about our relationship with Apple and the sales effort there.

First I would encourage each and every shareholder to watch both videos on our transact website homepage.

One video with a customer testimonial regarding their use of Boa R. O P restaurant operations platform.

You'll hear from the shelf and also and executive the restaurant company speak to the value that <unk> brings to the restaurant back of house operations.

The second video is an interview with Ray Walsh, our vice President of global sales and Chris loss, and who heads up the Apple sales and strategy team for the restaurant vertical.

As you will lessen and Ray explained once our bolthouse systems are in place customers experienced a 56% declined and food safety incidents and about 16 hours of labor savings per location per month.

And as Chris from Apple mentions what Apple values. The most is our combination and seamless integration of hardware and software.

In order to quantify this a bit there are about 100 salespeople on the 100 and Apple salespeople on the restaurant sales team, who can promote baja mohawk to the market under and.

Now and looking at our pipeline of opportunities, which we value over three years, which is the typical length of contracts we sign.

We have over $140 million and our pipeline right now with Apple related customers being approximately 50% of that pipeline.

We are extremely pleased with how the relationship with Apple is going and the opportunities. They bring continues to grow.

Now moving onto our casino and gaming market revenue and the quarter was $2 9 million down 42% year over year, but up 7% sequentially.

The international market continues to be challenging however, the domestic rebound is beginning to pick up some steam.

We continue to expect progress and the recovery of the worldwide casino market over the course of 2021.

And the U S. We continue to see casinos reopen as well as the capacity limits were already open casinos inching upwards.

And as guests return, we're seeing a slight acceleration in investment on the on the GAAP gambling floor and we are cautiously optimistic that gambling poor capex spend will continue to approve improve throughout 2021.

After hitting a horrible sales slope and the pandemic and the second quarter of 2020, our revenue has increased sequentially every quarter thereafter.

And while we experienced some stagnation and from the virus winter onset, we're seeing conditions gradually improve and new projects beginning to gain momentum.

Transact is well positioned to capitalize on the recovery trend and the gaming and casino market.

With that Steve will review, our first quarter 2021 results after which I will make some summary remarks before opening the call to questions and answers Steve.

Thanks, Bart and good afternoon, everyone.

Let's turn to our first quarter's results.

Total net sales for Q1 were $8 3 million, which was down 19% from $10 2 million and the first quarter of 2020.

However, sales from our foodservice technology market our S. T. We're up 100% to $2 7 million from $1 4 million and in the first quarter of 2020.

Our FSD hardware sales increased 104% to $1 5 million from 755000, and a year ago period and.

As Bart discussed we ended the first quarter 'twenty, one with 7009, <unk> terminals and the market, which was an increase of 1321 units during the quarter.

Last quarter, we discussed the 1200 terminals, we shipped right at the end of December from our large sushi chain customer now.

Now that those terminals are all operational we expect label sales and recurring revenue to rise accordingly.

Bart mentioned, our recurring revenue is a function of how many paid terminals, we have and service and as those numbers continue to climb so while our label sales and other recurring revenue.

Our <unk> or annualized recurring revenue per terminal for the first quarter of 'twenty one was $688.

In addition, we believe our ARPA is still being negatively impacted by reduced transaction volume at our at our customers' businesses, resulting from the pandemic.

As the effects of the pandemic subsides and our customers' transactional volume returns to pre pandemic levels, we expect our our pud arise over time and reached $1000 plus.

One other item to note related to our <unk> calculation.

When a terminal shifts towards the end of a quarter, we don't get a full quarters worth of recurring revenue from that terminal. While we still include that terminal and our <unk> calculation.

And these late quarter deployed terminals have a real impact on our our pool.

As a way of filtering out this impact we could alternatively use the number of paid terminals and the market at the end of December the prior quarter to calculate the <unk> for the first quarter as those terminals have been producing revenue for the entire first quarter from January one through the end of March.

Using this method or are approved would be $847.

Turning to casino to casino and gaming or casino and gaming sales were $2 9 million a decline of 42% from the first quarter of 2020.

As mentioned previously the speed of recovery domestically is proving to be dramatically quicker than overseas as domestic sales were down only 23% and year over year versus 62% for international sales all due to the pandemic.

We expect both domestic and international sales to continue to recover as casinos reopen and conditions improve throughout 2021.

POS automation and sales were down 25% to $1 2 million from $1 6 million and the prior year period.

The decline was mostly due to lower sales of our ethicon and 9000 printers to mcdonalds due to the continued COVID-19 impact on their business.

Moving on to printer ex oil and gas printers sales were up 36% to 159000 from 117000 and the prior year period.

So we continue to deemphasize <unk> 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, our <unk> sales were down 40% to $1 4 million from $2 3 million and the prior year period.

We're no longer focusing on the products and this market, we expect our <unk> revenue to continue to decline over time.

Moving down the income statement, our first quarter gross margin was 38, 4% compared to 48% year over year, but up sequentially from 36% and the fourth quarter 2020.

Our gross margin and the quarter was negatively impacted by the 19% overall sales decline as well as increased both hardware sales and lower casino and gaming printer sales.

While this may have a short term impact on our gross margin as we build out our installed base of terminals, we should see a favorable impact on gross margin over the longer term as higher margin recurring revenue growth to become a larger percentage of our overall sales.

Total operating expenses for the first quarter of 'twenty, one were $5 9 million, which was a decrease of 358000 or 6% from the year ago period.

Our first quarter of 2020 reflected a pre pandemic level of spending and.

And we expect a gradual ramp up of selling and marketing expenses as we move through 'twenty one.

We continue to invest our engineering design and product development, which was up 30% to $1 8 million from $1 4 million and the prior year period.

This increase was mostly attributable to additional outside software development for our new iOS Native Bohai restaurant operations platform and the all new Baja workstation with iPad.

G&A expenses were essentially flat year over year at $2 6 million for the first quarter of 'twenty one.

Lower travel expenses were offset by higher legal and professional fees, resulting and the drop of less than 1% year over year.

And on the bottom line and recorded a net loss of $2 2 million or <unk> 25 per share and the first quarter of 'twenty, one which compares to a net loss of $1 million or 13.

And the year ago period.

Adjusted EBITDA for the first quarter 'twenty, one that was a negative $2 3 million compared to negative $1 million and the year ago period.

And lastly, looking at our balance sheet. We ended March 'twenty, one with $8 7 million and cash and $2 2 million and long term debt off from the PPP loans that we expect to be forgiven.

At this point I'd like to give the call back to Bart for some closing remarks Bert.

Thanks, John Thanks, Steven and what a great job.

And one way it's hard to believe where were we were just a year ago when the worldwide pandemic hit.

Here, we are almost 14 months later.

And exciting future ahead of us.

I wanted to thank the transact employees for their commitment through the most challenging time and the company's history.

I also want to thank our shareholders for your loyal support.

<unk>.

At this time, operator, I'd like to open the call to questions.

Thank you, ladies and gentlemen, if you wish to ask a question at this time, please signal by pressing star one on your telephone keypad.

Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment again. Please press star one to ask a question.

Our first question today comes from.

Chris.

Of Barrington research.

Yeah.

Hello.

Hello can you hear me.

Yeah, Chris how are you.

Chris and Steve.

First off fantastic quarter.

And Youre, making my job much easier with these results.

I have many questions here.

I'll start first off the.

And the restaurant.

Order that we announced in conjunction with the previous quarter's results can you talk about the progression there as to your rollout is that still on schedule for year end.

Yes.

Okay. Okay.

Next question is just you highlighted the the upgrade opportunity and module expansion can you provide some more color on this.

And I know the Rollouts continue to happen, but I wanted to focus on.

And your existing customer base and it seems like.

It could be a good opportunity for you moving forward.

Yes.

Great question, Chris. Thank you if you look at our early sales our early sales were terminal and label software and.

And the way, we presented both hot and all the customers at that point.

You have all these other apps that you could add to the system to do temperature, taking temperature monitoring task list check list.

Timers things like that.

No.

The base of customers that we have today that are using what's called the bow Hot terminal or.

Our all right are all in the market they are all opportunities for us.

And additional apps a lot of them are looking at.

Temperature, taking and temperature sensing.

If you look at our new technology that we're putting into the marketplace, which is both our op.

With our workstation there we sell the bundle.

So the software sales will be higher because.

Because they buy the whole bundle and they get all the apps in a single portal type arrangement.

But all the original sales that we did were all on the terminal and are all day.

Selling them and then additional apps the one that we closed in the first quarter is a really interesting story because they are not only doing temperature, taking but they're actually doing other things regarding monitoring of their food.

And this gave us an opportunity to do some customized software for them, which we charge them for.

And then we'll roll it out so that was an exciting opportunity because not only did we did temperature taken but we did and additional function for them.

And once all that software is done will begin to rollout.

That software and the nice thing about it is it's just it's just software sales. So once they are ready to go you just start downloading the software over what we called over the air.

Oh Ta and everything just goes over the year to each one of their terminals and and the new software gets loaded onto their terminal.

That's great that's very helpful and.

And I'll ask one more and then I'll hop back in the queue.

Terminal growth is outstanding equates to over <unk> hundred terminals in the quarter.

And I assume that will continue, especially well here, we're doing a full reopening.

On a domestic basis.

Seems and things are rapidly returning to normal quicker than other geographies as we look at that day.

And the different economic scenarios that are in front of us now.

How should we think about.

Your capital allocation.

To the business.

Oh, Okay yeah.

So clearly look.

And my opening remarks, we have over $140 million of opportunities in front of us some of them are very large opportunities.

There is no doubt that the restaurant market has woken up to the fact that depend damages a bit behind us now openings are occurring and there is a real issue facing the restaurants, which is labor.

And we could all get into the discussion of the labor issues that restaurants and people like Uber and Lyft are facing but this is a real issue with restaurants try to reopen and open up their dining rooms and have to bring and more people and struggled to find people and that's where the back of the house, where our software will save on labels and make training.

Lot easier.

So we are seeing a pretty dramatic increase and opportunities that had been presented to us both through our relationship with Apple, which really covers the restaurant industry, but also on the foodservice side of our business, we're actually with one large customer very large customer and Apple has been.

A great partner.

They knew the customer also.

And if we got to remember that once we get involved with the customer. It does take time, theres, a whole lot and boarding process and a trial and evaluation and all that.

Okay.

Yeah definitely some positive optics ahead of us I'll hop back in the queue.

Thanks, Bart Thanks, Chris Yeah. Thank you. Thank you very much.

And.

Our next question comes from Mitchell sacks of Grand Slam asset management.

Hey, guys, congrats on a nice growth and units per quarter.

Thank you, thanks, Matt and thanks, Matt and you and you.

Your prepared remarks, you were talking about the 711 and installations and I thought I heard you say that there are another.

2000 stores on tap for this year.

Is that correct.

Aye.

Based on what we see in front of US we're going to do 2000 for the year.

And I don't break out how many we did and the first quarter versus but we have plenty more to go this year and plenty more to go.

Sure.

And 2022 and probably 2023.

Based on their construction schedule and so.

And the unit guide of 10% to 11000.

And 11 is going to get you there.

The good part of the way there.

That'd be a proper way to look at and correct.

Look there were.

Being quite conservative and our terminal count for this year.

What we don't want to do is get ahead of ourselves because seven.

And that's been kind of and interesting company that they.

Work with us and what their construction schedule is but they don't place and water for the year.

So I don't want to get ahead of ourselves because should for some reason they decided and the fourth quarter not to do something in that quarter. It could go into the first quarter next year.

I can say, though that.

The forecast.

Could be could be on spot or it could be quite low based on some of the projects. We're working on right now some of the projects are quite large niche.

And then Steve talked a little bit about the average recurring revenue per terminal as.

Yes, so we could use the fourth quarter of <unk> 47, and it was 688 actual due to the I guess the timing of <unk>.

Of rollout do you guys.

[noise] track, what you expect is that what I'll call average revenue per unit <unk> to be per terminal.

Just on the average contract or.

Just really waiting to see how actually usage kind of runs because there is some variability and there.

Well, if you divide the business into two kind of sub businesses right you've got the foodservice technology side.

<unk> is a big labeling.

Market right, we have one customer Mitch that uses it to buy 12 label.

So as long as that business keeps picking up the label sales are going to be wonderful because it's a very expensive label and they use a lot of them.

And on the restaurant side, Mitch as we close more restaurants.

They are the label sales will be left with the software will be higher so it will be a lot more predictable because they'll get it by contract. They will subscribe to a 345 year contract with US. So there is a software it's going to be a lot easier to predict project, because we'll have that by contract the only.

The real issue that we faced in 2020.

Was the ups and downs of the economy as things opened up and the summer and then kind of crashed in the winter. We saw the label sales kind of a firewall that kind of pattern.

Now what we're seeing niches we've had up.

We've had a very good software quarter, we've had a very good label quarter and I can tell you that Q2 is starting out much stronger than Q1.

And if that continues we will have a very good Q2 and now what Steve was trying to explain about the terminals is even if we put a terminal out.

February 15th we have the accounts that whole terminal in net annual revenue.

Yes, it's going to give us.

Six weeks of software revenue and six weeks the label, even though we're counting in all 12 weeks.

So eventually where the incremental terminals, let's say, we get the 30% to 40000 terminals, if we add <unk> hundred and a quarter, it's not going to matter that much. Its just if you think about it and if we went from call. It 56 5700 terminals at the end of Q4 to 7000.

And in Q1.

25% increase but a lot of those terminals didn't go in January 1st right. So.

It's just a function of timing.

And what we were trying to do what Steve was trying to do and saying look if we just look at at the end of Q4, those terminals will have been and full service for Q1, and we did $1 2 million and recurring revenue and Bam, There's your $847 and recurring revenue.

So.

And.

The base of terminals grow the incremental won't have as big and effect on our <unk> because of this issue of timing of when when the unit goes into the market and when we start collecting our software or service and old labels, it's pretty simple.

Okay. Thanks, a lot I appreciate it.

You Gotta image.

And as a reminder, please press star one to ask a question.

Our next question comes from Jeff Martin of Roth Capital Partners.

Thank you Hi, Bob Hi, Steve I guess doing.

Hey, Jeff and I Wonder how are you.

And made my day.

Yes.

I made my first trip to Vegas, what's going on out there was pretty interesting.

How was it.

Tom There's no other drivers there's no lyft drivers.

And would be tough very tough.

So Bart congratulations on the pipeline Bill $240 million is a nice number obviously.

Ballpark.

Can you give us a sense of ballpark, how many terminals that would translate to.

What our backlog I mean, net our backlog, but our pipeline your pipeline.

And the pipeline.

But what I don't know how many.

Pipeline and translate into terminals.

I do we don't give that out.

But I can tell you that some some and the pipeline are quite large.

But yeah, we don't break out like.

And like how many terminals that day.

And my favorite number.

What I'm getting at Okay.

Is that a good thing and the.

Good day, the good thing about what we see though and I've got I've got it in front of me is <unk>.

Most of that pipeline or restaurants.

One of them is foodservice.

Not the top seven that I'm looking at.

Two of them are restaurant companies and that software.

So that's where this whole change the business, where foodservice is more labels and restaurants more software fix out of the seven large opportunities in front of us our restaurants.

Restaurant companies and that's great great to hear.

Any idea of when pilots are going to start from.

And from the Apple sales force they have and.

And visibility and insight on that relative to starting and basically starting the process.

I think in January and February of this year, it's still pretty early but just wondering if you have and your line of sight Tech.

We do I would say more than 30% of those opportunities are in path.

Great.

And then I think you had your first sale.

Sale last quarter or at least discussed it on your.

And your last earnings call I was curious if that.

Since that time.

Additional <unk> customers.

Well.

Yes, we've actually won some very small customers that we didn't put out press releases and things of restaurants would for change of three chains or to change.

We won't.

And we won't put out a press release.

That but.

We'll put out a press release for every customer.

You know you would like to see so no. There was not I mean, there were very small additions to our.

Companies or a restaurant companies that are using our system.

But not enough for us to put out a press release it but.

And we will put out a press release once we close one that you would want to know about.

Right right Okay.

And then just curious on the inventory level.

And supply chain and there's obviously share.

Georgia.

Ponant I would imagine just curious if you give us an update there and how you're ordering.

Yeah to be prepared for that.

Oh, Yeah, I can take that with.

Yeah. Good thank you.

Yes, so Jeff we've been able to stave off a lot of the problems because we've had pretty large inventory levels and we did that on purpose to make sure we had enough on hand and so.

And so we've been able to kind of avoid the issues that many companies are facing have faced recently I think it will it will or could cause us a small problem coming up because we can't avoid with everybody else and avoiding where everybody is going after the same circuits and the passive components and there are shortages on raw materials like copper and metals.

All starting so I don't think we will be able to avoid.

Everything, but we've been we've done a good job so far I think it could begin to have a small impact and the next quarter or two.

But we put we put our orders out well ahead of time. So most of our orders we would go out typically at least six months anyways. So it's not like we're just in time sort of place and that we have contract manufacturers. So we were forced to put the orders out ahead of time, which actually helps us and this scenario.

Okay, and you feel comfortable that you can get the 10 or 11000 units out without <unk>.

For this year without any and any supply constraints that is that fair.

I think it's well, it's relatively low risk on the SSD side, yeah, yeah, yeah, Okay, especially on the BOE Hot side, especially on the Bolthouse side, yes.

Well it certainly sounds like the RFP was getting a lot of interest happy to see it unless you luck during the quarter and and the balance of the year.

Thanks, Jeff.

And Ken Please press star one to ask a question.

And there are no further questions at this time.

Okay, well, we thank everybody for attending the call today.

I do hope that you and your families are all safe and healthy and.

Getting through this.

And this horrible pandemic there are some that's the conferences that we're going to be doing at the end of the month.

If you need to find out about it please call our IR firm and ICR and they'll help you guide, you and to which which conferences we're doing.

We do look forward to continuing our conversation with the shareholders and keeping you up to date and what's going on with this exciting business.

And I very much. Thank you for attending and also thank you for your support, especially during what was clearly the toughest time in the company's history last year. Thank you and we'll talk to you again.

Ladies and gentlemen that concludes today's conference call and thank you for your participation.

Q1 2021 TransAct Technologies Inc Earnings Call

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