Q3 2022 TransAct Technologies Inc Earnings Call
Good day and welcome to the transact technologies third quarter 2022 earnings conference call.
Today's conference is being recorded at this time I would like to turn the conference over to Mr. Ryan Gardella Investor Relations. Please go ahead Sir.
Thank you good afternoon, and welcome to transact Technologies' third quarter 2022 earnings call today, we'll be discussing the results announced in our press release issued after market close joining us from the company is CEO , Bart Sheldon President and CFO , Steve Demartino.
Today's call will include a discussion of our company's key operating strategies progress on those initiatives and details on our third quarter financial results. We will then open the call to participants for questions. As a reminder, this conference call contains forward looking statements about future events and expectations, which are forward looking in nature statements on this call may be deemed as forward looking and actual results may differ materially.
For a full list of risks inherent to the business. The company. Please refer to the company's SEC filings, including its reports.
On forms 10-K, and thank you transact undertakes no obligations to revise or update any forward looking statements to reflect events or circumstances that occur. After the call today's call and webcast will include non-GAAP financial measures within the meaning of SEC regulation G. When required a reconciliation of all non-GAAP financial measures to the most directly comparable financial measures calculated and presented in a.
Gordon with GAAP can be found in today's press release as well as on the company website and with that I'd like to turn the call over to Bart.
Thank you Ryan and thank you to everyone joining us on the call today.
Our third quarter results reflect the accumulation of many months of incredible work by the transact team across every facet of the company.
I'm incredibly incredibly proud of all of you would transact and every team member contributed to the success we are seeing.
After a very difficult couple of years I believe we are finally, reaching an inflection point in the business.
Not be more excited for the future.
Last quarter I discussed the efforts on the engineering and operation side to get production back to normal casting our teams with solving problems related to the ongoing worldwide part shortage issue.
I am thrilled that our production lines are back in full swing and just say that we delivered near record number of casino and point of sale printers in the third quarter and we broke a number of company sales records.
First at a high level on the foodservice technology, our FSD side, we said record highs in terms of sales dollars for total SSD revenue label revenue and total recurring SSD revenue, which I'll go into more detail shortly.
On the casino and gaming side, we saw another double digit percentage increase in sales on the domestic side of our business and yet another triple digit sales increase on the international side.
I used to say all our R&D and operations work to ramp up production was a massive success and barring any unforeseen issues. We believe this momentum will continue.
Before I go through the market results I also wanted to provide you an update on our cost cutting initiatives and price increases, which I discussed in last quarter's call and was in full effect by September of the third quarter of 2022.
These cost cutting measures combined with the revenue growth resulted in a significant improvement in the flow through of our topline revenue to the bottom line profitability.
We were thrilled to see our gross margin increased by 540 basis points.
Ah Okay.
Yeah.
Let me step to decide.
Brian Mitts faxes texting.
He is on hold for 10 minutes, so can somebody can figure that out.
So let me start again sorry.
It's modern technology. These cost cutting measures combined with the revenue growth resulted in a significant improvement in the flow through of our top line revenue to the bottom line profitability.
We were thrilled to see our gross margin increased by 540 basis points, while achieving both positive net income and positive adjusted EBITDA, what a great job by the transact team to get us to this point.
Sales teams did a fantastic job.
Now, let's go through our markets in more detail starting with that first state.
I cannot be more pleased with our results and as I just mentioned, we set a number of records.
Our FSP recurring revenue crossed over $2 $5 billion for the first time in a quarter setting a new record high of nearly $2 6 million.
While we saw increases across all three components of our recurring revenue label sales saw a particularly strong quarter and also set a new record high in terms of sales dollars.
Combined with record high software sales and adding in the hardware sales in the quarter. We reached total FSP revenue in the quarter of $3 7 million.
Which as I already mentioned is a record for total SSD sales dollars in a quarter.
Well a lot of the positive momentum can be credited to our newly expanded sales force. Please keep in mind that we have said in the past that our typical sales cycle of well over a year and the expanded team has only been in place for less than six months. So I'm just joined US a few weeks ago.
I am really excited to see their early success, which we believe is setting the stage nicely for future performance.
We have made significant inroads in the SMB vertical and have started to carve out new use cases for our industry, leading bolthouse terminal and workstations, particularly in the grocery market, where we see as important to the transact brand going forward.
The economics of the grocery aisle resemble very large convenience stores with heavy label usage, but with some additional software layer.
Layered on top.
Now, let's talk about paid terminal count.
In the third quarter, we added 988 paid terminals for a total of 11929 currently in the quarter.
I'm, sorry, currently I'm getting text messages right and that people can get into the call.
Now, let's talk about paid terminal count in the third quarter. We added 988 eight terminals for a total of 11929 currently in the market.
We continue to be optimistic about our results for the remainder of the year, but I am optimistic for 2023 in the future due to all the new sales opportunities our new sales team have identified and speaking of our sales pipeline. We continue to believe it is it is it is has robust or half or perhaps even more than.
Ever.
We are seeing great traction with a number of evaluations currently underway across some well known international brands and our sales team is in high gear working to close deals.
Well it will take time to close some of the opportunities in the pipeline. There is a real need for our technology and we believe we will see positive momentum carry on throughout the end of the year and into 2023.
With that in mind, we are reiterating our recurring FSD revenue guidance for the full year of $8 million to $10 million.
Now I would like to speak about one large opportunity that should become a great success story for transact.
We have been given the approval to go into a final test with a very large <unk> and the goal between our two organizations is to begin the sales process with their franchise organization in July of 2023.
This is a very large opportunity for transact and we just have to finish some final design work and then the final field tests.
We believe this will be the largest sales opportunity in the company's history for a bolt on technology.
Before moving on I wanted to touch on our RPM for the quarter, which came in at $936 versus 861 sequentially.
Our record FSP recurring revenue helped fuel this gain particularly with the strong performance from our label business.
As a reminder, our target RP continues to be $1200 per year.
However, we are now selling a number of bolt terminals that will replace our old 9700, <unk> food safety terminal.
Will not generate any recurring revenue from the beginning.
While these units are included in our RPI calculation and dragged down the number of debt. The purchase price of these will be higher than our typical bulk terminal or workstation sale, which will fall under hardware rather than recurring revenue.
The bullet terminals and workstations will also get our customers onto our portal based system and gives us the opportunity to upsell each to our different app offerings.
Now, let's talk about the gaming and casino market.
Once again, we could have sold more product, but the incredible demand is outstripping supply.
And as we ramp production up significantly.
For the third quarter Casino and gaming sales were $7 6 million, which is up almost 92% year over year.
I mentioned, we saw a solid double digit gain in our domestic sales and yet another triple digit gains in our international markets.
Our international success was achieved without much sales into the Macao market, which is still affected by the Chinese Covid Lockdown policy.
As many people know our competitor in the casino market appears to have production issue and we took on the task of wrapping production as quickly as possible. Despite the product shortages in the marketplace to help our slot manufacturers with their sales to the casinos.
One slot manufacturer personally told me Bart we build them out.
There is no doubt the word is out that transact is supply and new customers are coming in from across the globe to buy our epic line of printers.
We continue to actively work on ways to increase our production to meet this record demand.
Plan on increasing production, even more in the fourth quarter of 2022.
And we should experience higher sales as we ship more printers in the fourth quarter than we did in the third quarter in.
In addition, we are planning to increase production even more in the first quarter of 2023 to meet the demand we are experiencing from our customers around the world.
We learned you heard a lot at the <unk> show this year in Las Vegas, and working hard to produce more printers.
I would like to thank everyone, we met at <unk> for coming out and seeing our booth and product demonstrations.
We had both hot in the Booth and pleased to see casinos wanting to learn more about our back of the house technology.
We generated sales leads at G. Two week for bolt and have added this markets who are focused less it.
It is fantastic to be back out at trade shows like G. Two week interacting with all our customers and prospects and showing them the power of our technology solutions all in one place.
Now, let's move on to our POS automation market. We are also the beneficiary of the competitor's inability to supply the market here as we sold and shipped the huge amount of our risk at 9000 printers to our key customer.
The additional supply allowed us to begin fulfilling backlog orders as well and together. This resulted in sales of over $5 2 million, which was over 300% above our Pos automation.
<unk> in the prior year.
It is important for us to continue our Pos printer line and get to a constant level of production as this leads us to dive further into the Pos customers to cross sell our Beaumont system.
In closing I want to quickly recap, what I believe to the cause.
The highlights of the quarter.
We're seeing fantastic momentum in certain markets and feel confident in our growing pipeline going forward.
We experienced record highs in our SSD revenue.
Casino and gaming we were actively taking share in every geographic market, we serve across the board due to the incredible success of our <unk> teams to ramp up production with all the operations R&D and sales work we did.
Our international sales were real highlight and we continued to see demand from these customers.
Price increases and cost reduction program, resulting in positive net income and adjusted EBITDA in the very first quarter they were fully implemented.
And we entered the fourth quarter of 2022 with $19 million of backlog.
Taken together, it's hard to imagine a better quarter for transact as a whole.
With that I'd like to hand, the call over to Steve to go over the numbers.
Before I do I do hope people finally got through I don't know why they were having problems getting through on this call and I can only apologize this has happened.
Okay, I'd like to hand over the call to Steve to go over the numbers Steve.
Thanks Bart.
And thanks to everyone for joining us this afternoon.
Let's turn to our third quarter 2022 results in more detail.
Total net sales for the third quarter were $17 9 million, which was up 68% from $10 6 million in the third quarter of 2001.
Sales from our foodservice technology market, our <unk> were up 14% to a record $3 7 million compared to the third quarter of 'twenty one.
Hardware sales decreased by 6% to $1 $2 million largely on lower sales of our first generation accurate data 9700 terminals to Mcdonald's while sales of our <unk> terminals of workstations remained relatively flat.
We added 988 terminals during the third quarter 2022, and finished with a total of 11929 in the market.
Our recurring FSD sales, which include software and service subscriptions as well as consumable label sales were $2 6 million also a record high and up 27% from the $2 million in the prior year period and up 18% sequentially.
This improvement was due to a record label in software sales in the quarter as well as higher service revenue.
Our <unk> for the third quarter of 22 was $936, which was up sequentially from 861 in the second quarter of 2022.
The continued <unk> recovery is due to higher <unk> recurring revenue, which we've seen accelerated over the past two quarters.
Our casino and gaming sales were $7 7 million, which was up 92% from the third quarter of 'twenty, one and 19% sequentially from the second quarter 2002.
International sales were up almost 190% year over year and it continues to be very strong as we are as we are actively picking up market share, especially in Europe due to competitive dynamics.
Domestic sales were also very strong up 42% year over year.
And we're also implementing we also implemented our second price increase late in the third quarter, which began to positively impact our top line.
As we mentioned last quarter, we're continuing to see record demand and although we've been able to increase production substantially even in the face of the worldwide supply shortages, we still sold out of casino and gaming printers in the quarter.
We are ramping up production, even more in the fourth quarter, but still expect to be supply limited against all that demand we're experiencing.
POS automation sales more than quadrupled in the third quarter 'twenty to increase from 340% from the prior year to $5 2 million.
This jump resulted from significantly higher sales of our Ithaca 9000 printer to Mcdonald's due to additional competitive dynamics with another key supplier of being unable to deliver product in the quarter.
Additionally, our successful production ramp allowed us to begin to fulfill our backlog of orders, which we were unable to fulfill sooner due to the ongoing chip shortage.
Moving to transact services group or <unk> sales.
<unk> sales were down 42% to $1 1 million.
This decrease was largely due to unusually high spare part sales to our customer for our legacy lottery printers. During the third quarter of last year that didn't repeat to the same extent this quarter.
As a reminder, the <unk> market is no longer a focus for us and we expect sales to gradually wind down over time.
Moving down the income statement, our third quarter gross margin was 45, 9% compared to 45% in the prior year quarter.
Gross margin was positively impacted by 68% higher sales, especially in the casino and gaming market as well as two rounds of price increases we instituted late in Q1 and again in September 2022.
To mitigate higher product and shipping costs related to the chip and parts shortages.
While we originally anticipated gross margins to dip in the third quarter the leverage from additional sales was more than enough to overcome this.
As a result, our gross margin actually rose sequentially by 290 basis points from the second quarter.
Our operating expenses for the third quarter increased $1 9 million or 32% from the significantly lower cope COVID-19 impacted spending levels of the prior period.
However, sequentially expenses were down 7% to $7 8 million as a result of our cost savings initiatives.
Breaking this down a little bit our engineering and R&D expenses increased 6% to $2 million largely due to the impacts from hiring additional software developers in late 2021 for the continued development of Bolthouse software.
On a sequential basis, our engineering and R&D expenses were down 9% due to our cost reduction initiatives.
Our selling and marketing expenses increased 45% to $2 7 million due to additional investment in marketing programs.
Turn of trade show and travel spending to pre COVID-19 spending levels and the further expansion of sales and customer support staff to support our bahar products.
However, sequentially, our selling and marketing expenses were down 17% again due to our cost reduction initiatives.
Lastly, our G&A expenses increased 43% to $3 1 million.
This increase included an across the board salary increase the hiring of additional accounting and finance staff.
Creating fees higher professional fees as well as expenses related to the rollout of our new ERP system.
Turning to operating income, we generated operating income of $387000 or two 2% of net sales in the third quarter of 2002, which compares to an operating loss of $1 6 million in the prior year period.
The bottom line, we recorded net income of $528000 or <unk> <unk> per diluted share compared to net income of $901000 or <unk> <unk> per diluted share in the year ago period.
However, our EPS of <unk> for the prior year third quarter included a $2 $2 million gain on the forgiveness of the PPP loan from the SBA under the cares Act.
After removing this gain we incurred an adjusted net loss during the third quarter of 21 of $1 3 million or <unk> 13 loss per share.
And finally as Bart mentioned I am pleased to report that we generated positive adjusted EBITDA of $1 2 million in the third quarter of 2022 compared to negative $1 2 million in the prior year period.
In terms of liquidity, we finished the quarter with $6 $4 million of cash and $2 $25 million of debt outstanding under our newly amended credit facility.
Based on our internal projections, we believe we have sufficient cash on hand, and borrowing capacity under our senior credit facility to fund our business through at least the end of 'twenty three.
And with that said I'd like to turn the call back over to Bart for any closing remarks Mark.
Thanks, Steve once again, a great job.
Before I open the call to questions I wanted to let our shareholders know that I'll be in New York City next week attending two investor conferences.
Hopefully I will see many of you and we'd gladly meet you at the conferences or if necessary for coffee drinks or dinner. After just let me know.
With that operator, please open the call to questions.
Thank you.
I'd like to ask a question. Please signal by pressing star one on your telephone keypad. If you are are you seeing the speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Again press Star one to ask a question.
We will take our first question from the line of Jeff.
Jeff Martin with Roth Capital Partners.
Steve Hope you're doing well.
I apologize I was one of those that had a tough time getting on the call.
But you mentioned a large Q S. R R.
And your customer in the pipeline.
Just curious how how long you've been.
Working with them and what stage that is currently and you gave us a timeline of.
Mid year, 2003, and what needs to happen between now and then be helpful. Yeah. So we've been working with them for quite a while.
And they had some requirements that we worked on.
And that will just about finishing up so we went in and demonstrated the final product to them.
And got the thumbs up said based on the response, we got.
We checked off all the boxes as to how they put it.
And so we will finish that up now that they approved it and.
Start our test our final field tests as.
As we get to the end of the spring and the two organizations both things that we could start a rollout July early July of 2023, It's a franchise organization. So we get the license to sell.
All of which.
We think we.
We're going to get great support from corporate but will begin ourselves to the franchisees right around the beginning of July of 2023.
Okay and care to disclose how many franchisees they have.
Well actually how many franchisees they have I know that they have the addressable market that we're going after.
Between all the different geographic areas.
Is probably going to approach 20000.
Stores.
Yes, yes, okay, great and then you may have touched on this in your prepared remarks, but just in terms of pipeline development.
You know what kind of progress did you see in the quarter are we starting to get to the point where yes.
A larger restaurant organizations are less focused on labor issues and.
Put inflate.
Inflation cost.
Yes.
Im curious if youre seeing any kind of undamaged of the sales process with respect to a back of the house.
Purchase decision.
Yes, so if you could kind of break up our our FSP business into three markets right, you've got you've got the convenience store market and Thats.
That's all about getting into fresh food and the growth of fresh food at convenience stores I think we all understand that we've got.
A bunch more that that were working with.
And all.
That business continues to move forward the grocery aisle is another area that we're focused.
Again that has to do with fresh food and the demands of the FDA on labeling and that also has a couple of large opportunities in there.
We'll add a fourth now the casino market.
Clearly the response, we got in <unk> was very positive.
Casinos run basically restaurants, so it's kind of a no brainer.
Different it can be a different operation they do a lot with.
With kitchens and things like that commentaries.
But the need for the things that we can provide or they are so we'll move that forward and then the last one Jeff has been restaurants and thats been the hardest market. There is no doubt that our friends in the restaurant market have had ups and awful lot over the last couple of years first the pandemic and closing and just dealing with trying to sell as much.
Because they could online and pick up.
Course, once they open labor shortages and high inflation on both labor and food.
But I think the good news is we implemented our sales team we brought on the new sales team, mostly they are in the restaurant market and we're starting to see some real traction with some very large customers. One in particular I was able to mention because that one we've been given the okay. It's just that we got to finish up some work for them.
And then go out and sell to the franchisees, but theres quite a few restaurants in the pipeline that are moving forward. So we are seeing that the restaurants.
While still focused on their labor shortages and their high end inflation there inflationary issues.
Are receptive to us coming in demonstrating the technology and moving forward.
<unk>.
Trials evaluation units in their location at the headquarters and then and then potentially doing field trials. So we are we are starting to see that turn Jeff where restaurants are opening up to our technology.
Okay, and then I may have missed it did you give an updated terminal installations guidance for the year I know you reiterated the.
Recurring revenue, we did but.
No we didn't.
We're running at about a thousand a quarter on turn ons and bar.
Barring.
It's because we have so many opportunities that are coming into the pipeline.
We're just we're just going to keep going forward and work with some of these large opportunities and let them happen when they happen.
Okay great.
Yield I'll come back with some additional questions.
We will take our next question from the line of George Sutton with Craig Hallum.
Thank you Bart congratulations on the great numbers so.
Relative to your discussion around the traditional sales cycle over a year and the fact that you brought on a lot of new salespeople over the past six months I think the suggestion was.
We are in front of even better news because those folks have not yet really become productive as am I hearing that correctly or was there anything that has accelerated the sales cycle, we should be aware of.
It's kind of both look our salespeople are coming up to speed, but also the restaurants werent ready. So I think you've got a combination of both.
But you also have some people that are walking into the grocery store market for instance that need labeling for their fresh food offerings, where we've got a bunch of trials going on right now the casino market just opened up to us as we showed the technology at the <unk> show and there is a couple of exciting casinos in that mix. So it's kind of.
A combination.
Being the fact that we've got this larger sales force.
That pipeline is just going to grow right at the funnel is just going to get wider and wider which is what we need to see and then you start seeing the close come down at the bottom. The other thing that's been very healthy for us as our SMB market.
We now have three people.
In what we call digital sales.
Because those those close very quickly there you have the shaft the CEO owner all in the same position and.
Once they get a demonstration of the technology they get it they get the savings they get how it can be helpful for them and.
So those those tend to close quicker so there we see that.
Sales cycle much quicker than the bigger people.
And we've said that all along.
So.
When we talk about.
Sort of the takeaways from the G. TUI show you.
You, obviously had that very valuable sign that said printers available.
Can you talk about.
What that has meant for your printer business and can you also talk about you know.
Understanding you have standardized on a chip.
How much supply you're actually getting versus the demand side of the equation.
Yes, great question George.
So the demand side continues.
To surprise us.
We ramped up in the third quarter in our mind you we were capacity constrained in the third quarter as we put our third production line on and got it up to speed by set.
September and then of course, the fourth quarter that that fourth line third line is going to run we've now decided to put a fourth line in that.
The demand.
Well, we have a $19 billion backlog, we actually have orders, we have not accepted yet because we can't give out delivery dates, which would drive that backlog, probably north of $30 million.
So the casino market.
<unk> to impress us with the demand.
And what we've heard from our customers is they've got a backlog of orders at <unk>.
They've had their own supply issue that they're going through.
And getting fixed and ramping up their production, we heard from one particular slot manufacturer that ramping up their production to meet the demand that they're seeing and we're just we're ramping up as quickly as possible.
It'll be clearly record sales I think the fourth quarter will be record sales for casino and then the first quarter is going to be if we can if we can get that fourth line and get all the chips in.
We.
We will have another record in the first quarter, you will see that our inventory is up a little George mostly that's part that we've bought so to get ahead of this week.
We bought a lot of our new chips, because that chip is standardized across all of our products now. So we bought a lot of those chips and we're buying where we know we've had issues before we're going out and buying.
Those chips are those electronics also.
Again the goal is to.
Get that third line up and running the fourth quarter and get the fourth line up and running in the first quarter next year to meet this demand.
What we're seeing in like I said, if we entered all this week, we have been told we're getting.
That backlog would probably exceed $30 million right now.
So I just want to make sure I distinguish that governor to your growth and your ability to ship.
Thrilled to hear you have high inventory of chips. So it is no longer a chip issue. It is now a.
Production issue that you can manage hiring and building out these.
Right.
There is no doubt that a lot of the issues that we face just three months ago had been resolved by us designing around it and also go into our new processor.
George I can tell you, 100% that we're not going to get a call tomorrow and some part that we are expecting whether it's a motor driver or a sensor.
Turns out that we.
We find ourselves now.
Not getting the volume that we thought we would get.
Right now so right now its capacity of production, but I can promise you, 100% then when we ramp up to the fourth line that all of sudden we find out that chip the.
The chips I think we're in good shape there are some other electronic that pop in and out of.
Issues in getting the parts I will say that the good news is George that the spot market tends to have those products now.
It's one way, we were able to get to the numbers in the third quarter and the numbers. We think we're going to get into the fourth quarter was because we found the chips on the spot market and we're able to buy it.
And hence why we have those price increases in place to be able to absorb that extra cost.
So I can't promise you George that we that there won't be a part out there that pops up as my operations people like to still call. It its whack a mole, but there's not as many wax we're having to make.
Last question, if I look at your what I would define as potential backlog of $30 million versus your backlog of 19.
That Delta is a number of orders that my assumption is beef.
Be fulfilled because by some of your competitors because they don't have the capacity is that a reasonable assumption. So in other words most of those potential backlog orders should ultimately be recognized.
Yes.
They're just waiting for delivery dates from us.
And we're.
We're working with we need to do is to stabilize and to get that production up.
Through the fourth quarter into the first quarter and then we will share our delivery dates with those customers but.
They're doing is they're showing less purchase orders. So then it's up to us to match those purchase orders to the production and delivery. So yes those orders.
We will get entered.
It's just getting.
A firm commitment from our from our production people that what data, we're going to ship or what we were going to ship those products.
We were very excited about it we're starting to get confident of where we are we are a bit surprised by the volume of orders and how many because we thought by putting in the third line that was enough and clearly it's not.
So we'll put the fourth line.
And we will manage through it will manage it and then take those orders in.
Begin to get those orders on our books now remember once we ship something thats out of backlog. So we will be shipping every week and all that so but we've got plenty that we have not entered onto our books yet.
Oh, here's to a fifth or sixth later next year congrats on that.
[laughter].
Uh huh.
We'll take our next question from the line of Mitchell sacks, with GE asset management.
Your line is open.
Can you hear me Mr sacks.
Can you hear me now.
Yes.
Good hey, congrats congrats on the quarter guys.
<unk>.
First question is around the backlog.
So with respect to the $19 million.
When would you expect that $19 million in the filled over what period of time.
Most of it is for the fourth quarter and some for the first quarter.
Yes, I would say the majority of it over the next six months Mitch.
Okay.
And then in terms of the additional orders that you're holding off on.
Just kind of if you could just talk through a little bit in terms of.
Are the gating factors now or are those production lines as opposed to.
Parts.
Assuming that you have a third production lineup.
What does that just is it a step change in terms of capacity or is it just particularly at another third is basically increased capacity by the third effectively.
It's just getting that production lineup again.
I cannot 100% say to you that we won't run into a part issue out there that will surprise us, but right now its capacity of aligned to what we're trying to ramp up really quick.
Yes.
It just takes time to get all the plastic parts all the metal parts.
Everybody to ramp their production up so it's not just electronics all the pieces that go into that printer.
And we're getting more and more confident as we got through Q3 and unable to hit some good numbers in Q3.
That will hit our numbers in Q4, knowing what our customers are asking us for Q1, which will be more than what we will do.
Potentially more than what we'll do in Q4, because they're asking for it.
<unk>.
It's up to us to supply them.
Great and in terms of the <unk> opportunity is that is that purely a franchise organization or do they also have corporate stores, where you're testing me.
Product the board yes.
Both but they're they're mainly franchise operation.
They have some corporate stores.
So you'd be billing then the franchisees not.
Not corporate for.
Recurring revenue for the equipment.
That's right that's right.
Okay Cool and then on the rollout.
The rollout will start.
The agreement that we have is that we can start selling into the franchisees in July .
I can tell you is that going to be a quick ramp up of slow ramp up that we don't know.
But.
From a need standpoint, they need the technology. So it's just going to be a matter of how quickly the franchisees decide to buy the equipment.
But it's definitely meeting a need of theirs.
And are you in conversations with a large franchise groups, who is pushing this has it been pushed bottom up or where top down or you're coming at it from both directions.
[laughter], so it was pushed bottom up and top down.
There were some real needs in the marketplace and through our friends in the in the franchise world.
They ended up doing some testing on RV have really loved what we could what we could do for them.
While we have been talking to the corporate office for well over a year.
So it was a combination it was it was it was really needed so I can't get into more details than that but they really needed. It is just a matter of time, given all that mcdonalds.
All of that the customer is doing.
Sure.
That.
Yeah.
Yeah.
Among medications for my back so.
Sorry to say.
It is what it is.
Okay great.
Great. Thanks, a lot part.
You got it.
Our next question comes from the line of Jeff Martin with Roth Capital Partners. Please go ahead.
Thanks.
I wanted to see if theres any insight onto.
711, and their integration of Speedway are we at growing closer to potential in knowing whether their rollout the labeling terminal to their speedway and then it was also cannot.
No no I'll give us Illinois.
Yeah go ahead I'm, sorry go ahead I'm sorry.
Just.
Also curious on an update in general with 711, I know it had a sluggish start to the year, partly because of the integration focus.
So anything you can update us on that would be helpful.
Yes, the second half of this year is has been there a big focus in integrating speedway Theres no doubt bunch of layoffs I think 900 people got laid off even some of the people that we work with got laid off.
So we're in a holding steady mode with them and we'll see what they do with speedway.
I don't think its unknown that the fresh food program has been very successful for them, but what their ideas of speedway theyre very tight lipped about that.
And whether the rollout.
The fresh food program to those stores yet.
Okay, and then I was just curious if you could give us some relative perspective on label sales in the quarter. When you had a good recurring revenue quarter for F. S T.
Are we at a level, where you think we're at a fairly predictable and sustainable level label sales or was there some catch up in the quarter.
No. Good question. Thank you Jeff.
It's become a predictable now.
One is we don't get hit and I hate to say it this way, but as long as we don't get hit with a major flu outbreak a major COVID-19 outbreak.
Look at the first quarter, we were dealing with that and that causes you know transactions to go down and therefore our customers.
Pull back on the amount of labels they buy because they are doing less transactions now we're in full swing right I mean theres been no.
No virus no no major issue out there its been steady Eddie for their business and you got to think every time, we put out a 1000 terminals and let's say 800 of them are recurring revenue terminals because some go out where we're just replacing the 9700, yes.
We are going to get a bunch of revenue from those.
And that's adding to the the baseline revenue that we got last quarter. So we added another as we said 900 plus terminals into the marketplace. Some of them have label sales and those label those terminals that have label sales with it drove our label business up can be the same thing in the fourth quarter.
So it's getting those incremental units out the door getting them in place getting them online and then the follow through of the software revenue. The service revenue should they buy a service contract and without a doubt the label business will grow that recurring revenue.
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Okay, Great and then I think you mentioned the accurate date.
Didn't ship a lot of terminals. This this quarter does that mean, we might see.
Significant hardware uptick in F S T and in the ensuing quarter or two related to the hockey date replacement cycle.
Steve I think we shipped a lot of 97 hundreds in the quarter.
97 homes were down in the quarter compared to last year.
Compared to last year, okay, Okay great.
Yeah.
Look at it.
It is an existing product of that.
It's running out of it.
It's.
The technology is old.
And there are thriving.
Sure.
I was referring to the Doha terminal, that's essentially replacing the aggregate 9700 or am I misunderstanding that.
Oh, yes, so what's the question.
I just wanted to clarify if you had mentioned that you didn't have a lot of those terminals that replace the accurate in the quarter.
And if there is some.
The potential for some significant FSD hardware sales in the next couple of quarters as a result of some pent up demand.
Well a lot of cases, we're not we're not selling the 9700 anymore.
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The product Thats.
10 years old in and what we're doing is we're working with.
There are different restaurant companies that bought the 9700 switching them to the terminal of the workstation.
So there is that pent up demand once they make that decision.
You got to remember that when a restaurant is running a franchisee let's call. It is running the 9700.
They've got to go to each machine to update the menu items right. They go with a jump drive they stick it in the machine.
The 97 hundreds updated with the latest menu and then they go to the next door. The next door. The next door and with the terminal or the portal solution. You go to your computer and say update here's the menu item and update all the terminals in the field impressive button in 10 seconds later, all the terminals.
Our updated so the question that we have jobs is when we talk to these customers that are starting to look at the terminal to replace the 9700, where they'd replace it on a onesie twosies or.
They just say this is just such a better technology and I can update all my terminals at one time not have to send somebody off road and make sure. All the terminals are updated will they roll it out even quicker we don't know that answer yet.
Okay. The reason I ask the question is I believe on the last quarter call. We met we talked about tens of thousands of potential replacements. So but just curious if there was there are.
There are actions to date and if if there's any visibility in the next couple of quarters, where that might become cigna.
Significant volume for you and therefore translate into.
Significant F. S. T hardware revenue that was really what I was getting at Oh, Yeah, No Jeff you're on the right track Youre on the right track exactly exactly.
Exactly.
No that's that's.
What we're working on it.
Xactly, what we're working on and as they move over to the terminal it's going to drive significant.
I mean, this one opportunity I talked about on the call.
It's over 10000.
It's just a matter of time to get that done and then turn them over to modern technology from the 2012 technology. So it will.
Okay, great. That's it for me thanks.
And that does conclude today's question and answer session. At this time I will turn the conference back to you gentlemen for any additional or closing remarks.
Yes, So let me apologize once again for whatever problems people, having getting on the call will clearly dive into it and find out how well it doesn't happen again do really thank all of our shareholders for their support there is no doubt that 2000 22021, we're not one years for us and then.
When we came out of it we had a deal with them.
Significant part shortage issues that the world is dealing with.
And then.
Thank my team at transact for getting us through it and getting us back to profitability and then getting things like the casino business to understand that we have product in and now buying a lot of it. So I think our shareholders I. Thank you for the support.
Thank the transact team what a job they did.
And look forward to talking to you again on our next quarter call and also for those that will be in New York City next week I hope to see at Cielo. So thanks everybody.
This concludes today's call. Thank you for your participation and you may now disconnect.
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