Q3 2025 TransAct Technologies Inc Earnings Call

In my presentation.

If anyone should require operator assistance. Please press star zero on your telephone keypad.

And as a reminder, this conference is being recorded.

My pleasure to introduce Ryan Gardella of Investor Relations. Please go ahead.

Steven DeMartino: Our ARPU for Q3 improved versus prior year as a result of strong growth in label sales. Our casino and gaming sales were $7.1 million, which was down 7% sequentially, but up 58% year-over-year, reflecting the market rebound John discussed. Results were further driven by a new OEM win for use in non-casino charitable gaming applications, combined with normalized buying from just about all our major OEMs. As John mentioned, we expect our Q4 casino and gaming sales to be sequentially lower due to dynamics in the domestic casino market. POS automation sales for Q3 declined sequentially by 32% and also declined 65% from the comparable prior year period to $399,000. As we discussed in the past, we believe that Ithaca 9000 printer sales have now reached a new normalized level based on competitive dynamics.

Thank you good afternoon, and welcome to the transact technologies third quarter 2025 earnings call today, we'll be discussing the results announced in our press release issued after market close.

That's when the company is CEO, John Doyle, our president and CFO, Steve Demartino.

Today's call will include discussion of the Companys key operating strategies the progress on those initiatives and details on the third quarter financial results.

Well 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.

On this call may be deemed as forward looking and actual results may differ 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-Q, and 10-K transact undertakes no obligation to revise or update any forward looking statements to reflect events or circumstances that occur after the call.

Today's call and webcast will include non-GAAP financial measures within the meaning of SEC regulation G.

Steven DeMartino: As a result, we expect sales for POS automation to remain in about the $400,000 to $500,000 range per quarter for the foreseeable future. Moving to TransAct Services Group, or TSG, for Q3, TSG sales were down 8% year-over-year to $792,000. This decrease was due to lower demand for legacy spare parts on a year-over-year basis, somewhat offset by higher shipping revenue. We expect TSG sales to remain at about this quarterly run rate going forward, consistent with normalized demand. Moving down the income statement now, our Q3 gross margin was 49.8%, which was up from 48.1% in the prior year period, and up 160 basis points sequentially. Our margin performance reflects higher sales, as well as a higher mix of casino and gaming sales compared to the prior year, somewhat tempered by modest cost headwinds from overhead, inflation, and tariffs.

When required reconciliation of all non-GAAP financial measures to the most directly comparable financial measures calculated and presented to the court and.

And presented in accordance with GAAP can be found in today's press release as well as on the company web site.

I'd like to turn the call over to John.

Thanks, Ryan and good afternoon, everyone and thank you for joining us today.

I'm delighted to report that transact delivered another solid quarter in Q3.

Continuing momentum we built throughout 2025.

Speaker #1: Greetings and welcome to the TransAct Technologies 3rd Quarter 2025 earnings call. At this time, all participants are in the listen-only mode. A question-and-answer session will follow the formal presentation.

For the quarter, we sold 1591 Baja terminals.

Bringing the year to date total to 5883 units and that's up 58% from the 3732 units sold through the first nine months of 2024.

Speaker #1: If anyone should require operator assistance, please press star zero on your telephone keypad. And as a reminder, this conference is being recorded. It is now my pleasure to introduce Ryan Gardella of Investor Relations.

I am pleased with this increase in believe it shows clear progress against the initiatives.

Speaker #1: Please go ahead.

Speaker #2: Thank you. Good afternoon. Welcome to the TransAct Technologies 3rd Quarter 2025 earnings call. Today we'll be discussing the results announced in our press release issued after market close.

As I mentioned in the past unit saw remain the best indicator of success of our sales organization.

Steven DeMartino: We expect gross margin to remain in the mid to high 40% range for the remainder of 2025. I also wanted to give a brief update on our tariff situation. During Q3, we implemented a second small price increase to the original tariff surcharge we implemented earlier in 2025 on applicable imported items. We did this to cover incrementally higher tariff and air freight charges we're incurring. To date, we haven't experienced any significant pushback from customers and don't believe this has had any negative impact on our sales performance for the quarter. While we don't have any further price increases planned at this time, this is a fluid situation that we'll continue to closely monitor and update you all as needed. Our total operating expenses for Q3 increased by 8% from the prior year Q3 to $6.5 million.

And when I first joined as CEO I laid out a clear land and expand strategy and clearly that expand motion is working well.

Speaker #2: Earnings from the company is CEO John Dillon and President and CFO Steven DeMartino. Today's call will include discussion of the company's key operating strategies, the progress in those initiatives, and details on the 3rd Quarter financial results.

The improving results for foodservice technology call. It F S T.

That business highlights the effectiveness of the go to market improvements and we believe this trajectory sets us up for ongoing progress and continuing improvement as we move into 2026.

Speaker #2: We'll 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.

Our goal is to build the business with repeatable execution, while leaning into the competitive advantages that make transact unique and allowed us to win in the market.

Speaker #2: 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 and the company, please refer to the company's SEC filings, including its reports in Forms 10-Q and 10-K.

And before diving into the results, let me provide an update on our acquisition of the perpetual license to the Bolthouse source code, which we announced back in August as a reminder, we acquired this royalty free license for $2 $5 5 million.

Speaker #2: TransAct undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances that occur after the call. Today's call and webcast will include non-GAAP financial measures in accordance with SEC Regulation G.

Steven DeMartino: Our engineering and R&D expenses for Q3 were essentially flat at $1.65 million. Our selling and marketing expenses were up 11% to $2.1 million, and our G&A expenses were up 10% to $2.8 million. The increase in G&A was due largely to higher incentive and share-based compensation expense from our improved financial results. For Q3, we had positive operating income of $14,000, or one-tenth of 1% of net sales, compared to an operating loss of $837,000, or negative 7.7% of net sales in the prior year period. On the bottom line, we recorded net income of $15,000, or zero or break-even EPS, compared to a net loss of $551,000, or negative $0.06 per share in the year-ago period. Our adjusted EBITDA for the quarter remained positive at $669,000, which was up from an adjusted EBITDA loss of $204,000 in the prior year period.

Speaker #2: When required, reconciliation of all non-GAAP financial measures in the most directly comparable financial measures calculated and presented in accordance with GAAP can be found in today's press release as well as on the company website.

And it gives us full control to use host market sublicense distribute copy and modify the code the.

The implementation and standup process have gotten off to a good start and.

Speaker #2: And with that, I'd like to turn the call over to John.

And we're encouraged by this by what we know mean to transact in our Bohai business great.

Speaker #3: Thanks, Ryan. And good afternoon, everyone. Thank you for joining us today. I'm delighted to report that TransAct delivered another solid quarter in Q3, continuing the momentum we've built throughout 2025.

Greater operational freedom, the ability to enhance the software without constraint and long term value creation for shareholders and employees, we expect to fully operational.

And supported version to launch in early 2027, and already see tangible progress towards that goal.

Speaker #3: For the quarter, we sold 1,591 Boha terminals, bringing the year-to-date total to 5,883 units. That’s up 58% from the 3,732 units sold through the first nine months of 2024.

Now, let me dive into our FSP highlights for the quarter.

Total FSP net sales rose to $4 8 million up 13% year over year, driven by hardware sales and growing recurring revenue.

Including a partially strong quarter for labels.

Recurring FSP revenue climbed to $3 3 million generating a modest uptick in arpus.

Steven DeMartino: Lastly, turning to our balance sheet, as John mentioned, we crossed $20 million in cash and cash equivalents on our balance sheet at the end of Q3. This was mostly the result of success from a proactive inventory reduction program we put in place at the beginning of 2025. Since the start of the year, through a combination of selling off remaining stock of older products, and more tightly controlling stock of other products, we've been able to reduce our inventory levels by over $4 million. However, we expect inventories to tick up some beginning in Q4 and into 2026 as we restock new products in anticipation of growing future demand. In terms of our debt, we continue to maintain $3 million of required minimum borrowings under our $10 million credit facility at the end of Q3.

$2 $792 per unit from 700 in the prior year quarter.

Speaker #3: CEO, I laid out a clear plan and expand strategy and clearly that expand motion is working well. The improving results for food service technology, we call it FST, that business highlights the effectiveness of the go-to-market improvements and we believe this trajectory sets us up for ongoing progress and continuing improvement as we move into 2026.

The main takeaway on the FSP side of the business is that we're executing against our priorities and moving the needle meaningfully we see good momentum and our GTS changes are yielding positive results.

The rollout from prior quarters are progressing as planned and our existing base of approximately 40000 activate 9700 units plus first generation Bohai terminals remains a ripe opportunity for upgrades and expansion with.

Speaker #3: Our goal is to build the business with repeatable execution while leaning into the competitive advantages that make TransAct unique and allow us to win in the market.

We're focusing on that opportunity alongside new clients and customer growth.

Speaker #3: And before diving into the results, let me provide an update on our acquisition of the perpetual license to the Boha source code, which we announced back in August.

We continue driving conversions and expansions with key customers in the third quarter, including further upgrades across multiple tier one accounts. This includes additional rollouts with our major <unk> customer and multiple C store chains, where the terminal two is delivering real value to customers in the form of increased.

Speaker #3: As a reminder, we acquired this royalty-free license for $2.55 million and it gives us full control to use, host, market, sub-license, distribute, copy, and modify the code.

Steven DeMartino: Before we close, as we discussed last quarter, we believe the purchase of a copy of our source code will largely be a balance sheet event until we go live with our hosted version, which we anticipate to occur in early 2027. To that end, we expect to capitalize the $3.55 million of consideration to be paid, plus any additional costs we incur related to in-housing the source code through the go-live date in early 2027. These costs will appear as an intangible asset on our balance sheet. At the go-live point, we'll begin to amortize the total amount of those capitalized costs to cost of sales on our income statement over a five to seven-year period.

<unk> reduced weights and ultimately higher margins for them, we added two new logos in the quarter, which while lower than we expected was more than offset by expansion with our existing customer base.

Speaker #3: The implementation and stand-up process have gotten off to a good start and we're encouraged by this by what we will mean to TransAct and our Boha business.

Speaker #3: Greater operational freedom, the ability to enhance the software without constraint, and long-term value creation for shareholders and employees. We expect the fully operational and supported version to launch in early 2027 and already see tangible progress towards that goal.

In line with this and we're excited about two recent customer wins that demonstrate the appeal of our <unk> platform.

First in September we secured a rollout with one of the nation's largest sushi franchise operators, which has over 2100 locations. They placed initial orders for 596 units with these or terminal to LTE, which means they work with cellular phone lines.

Speaker #3: Now let me dive into our FST highlights for the quarter. Total FST net sales rose to $4.8 million up 13% year over year driven by hardware sales and growing recurring revenue.

Steven DeMartino: As of the end of Q3, we have made the first two installment payments, totaling $1.35 million, and capitalized these costs, which appear as an intangible asset on our balance sheet at the end of September. From a cash perspective, we expect to fund the remaining $2.2 million of the $3.55 million purchase price, plus any other related costs, from the current $20 million of cash on our balance sheet. The remaining $2.2 million is expected to be paid in installments, with approximately $200,000 to be paid in Q4 2025 and the remaining approximately $2 million to be paid during 2026. With that, I'd like to turn the call over to the operator for questions. Operator?

In other words, the wireless part and these units are part of a broader initiative to modernize their network with plans to eventually equip all the locations. The LTE version solves connectivity challenges for franchises in supermarkets or off network environments, eliminating the need for mifi devices, while enabling really.

Speaker #3: Including a partially strong quarter for labels. Recurring FST revenue climbed to $3.3 million generating a modest uptick in ARPU to $792 per unit from $700 in the prior year quarter.

Liable cloud access and remote update.

Speaker #3: The main takeaway on the FST side of the business is that we're executing against our priorities and moving the needle meaningfully. We see good momentum, and our GTM changes are yielding positive results.

This enhances food quality operational consistency and efficiency, leading to better customer experiences and improved financial margin.

As I said in the announcement this deployment reinforces the real world value of a ball off platform, reflecting its strong ROI reliability and scalability.

Speaker #3: The rollouts from prior quarters are progressing as planned and our existing base of approximately 40,000 Accu-Date 9700 units plus first-generation Boha terminals remains a ripe opportunity for upgrades and expansion.

Operator: Thank you. Ladies and gentlemen, if you'd like to ask a question, please press star 1 on your telephone keypad, and the confirmation tone will indicate your line is in the question queue. You may press star 2 if you want to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. The first question comes from the line of Jeff Martin with Roth Capital Partners. Please proceed.

Additionally in October we added another convenience store chain with 81 locations are growing ballpark customer base, they've deployed 73 BOE Hot terminal two devices for a labeling workstation and adopted Baja attempt at 47 foodservice locations to digitize back of the house operation.

Speaker #3: We're focusing on that opportunity alongside new clients and customer growth. We continue driving conversions and expansions with key customers in the 3rd Quarter including further upgrades across multiple Tier 1 accounts.

Speaker #3: This includes additional rollouts with our major QSR customer and multiple C-store chains. Where the terminal 2 is delivering real value to customers in the form of increased efficiency, reduced weight, and ultimately higher margins for them.

This integration streamlines workflows reduces manual processes and support passive compliance, while driving higher margins and operational efficiency.

Jeff Martin: Thanks. Good afternoon, John and Steve. John, could you give us an update? You mentioned on the last quarter's call that in casino and gaming, you're getting more aggressive, and you're incentivizing winning competitive deals. Just curious how that initiative is going, and could you give us an update on the competitive landscape in that market? You might be on mute.

Before moving on I wanted to mentioned that we're looking at two unique revenue opportunities in the bolthouse face.

Speaker #3: We added two new logos in the quarter, which, while lower than we expected, was more than offset by expansion with our existing customer base.

One near term focus and a second on a longer term visionary past. The first looking at near term our labels are not only an important contributor to recurring revenue, but a fundamental strength of the business. We have some prospective customers who may be interested in labels only as we are recognized as the best in class provider.

Speaker #3: In line with this, we're excited about two recent customer wins that demonstrate the appeal of our Boha platform. First, in September we secured a rollout with one of the nation's largest sushi franchise operators which has over 2,100 locations.

And importantly cost effective versus our competitors second from a longer term visionary perspective, we're evaluating the development and launch of an App store for a bowl had terminals to allow existing users to opt into new software purchases right over the hardware. This is a future project. It's on our map to consider now.

Speaker #3: They placed initial orders for 596 units, which are Terminal 2 LTE devices. This means they work with cellular phone lines—in other words, the wireless part.

Operator: Are you on mute?

John Dillon: I was on mute. Thanks for the question, Jeff. Let me just say that when you build a sales compensation plan for your sales team, you should assume that they're entirely coin-operated. In other words, they're going to do exactly what makes them the most money. What we did is we jiggered the plan so that if you close a net new customer or if you take a customer away in a competitive win, you're going to get paid more. Without being more specific, let's just say it turned up the heat, and it turned up the zeal to go after and win business.

Speaker #3: And these units are part of a broader initiative to modernize their network with plans to eventually equip all their locations. The LTE version solves connectivity challenges for franchises in supermarkets or off-network environments eliminating the need for MyFi devices while enabling reliable cloud access and remote updates.

We own the software I wanted to point that out but it is a future project, but I think it's a great idea and I'm looking forward to making progress on it for developments that are currently hardware only this can be a key driver of future software revenue and we will update you on these initiatives as they develop in coming quarters.

Speaker #3: This enhances food quality, operational consistency, and efficiency, leading to better customer experiences and improved financial margins. As I said in the announcement, this deployment reinforces the real-world value of our Boha platform, reflecting its strong ROI, reliability, and scalability.

<unk> to casino and gaming, we recorded net sales of $7 1 million.

In the quarter, which was up 58% from the year. Prior however, as everyone has seen in the headlines domestically we are seeing some challenges in the demand side of the environment with Las Vegas, and broader casino performance facing headwinds our domestic OEM partners have indicated slowing demand and one large buyer from the first nine months of 2025 is now in it.

John Dillon: All of that said, we're very mindful that we have a bit of a duopoly in the marketplace in the sense that we have one major competitor, and we treat that competitor with respect, but we're not having a race to the bottom. They have their share of the market, we have ours. When a new casino is going to come online, we're right there, and we like to think that our product is sufficiently better, and that our service, support, and our field team is a better team and they can win head-to-head. We're focused on that, and the sales team knows for sure that if they're winning new deals, they're going to make more money than if they just sell more product to existing customers.

Speaker #3: Additionally, in October, we added another convenience store chain with 81 locations. Our growing Boha customer base. They've deployed 73 Boha terminal 2 devices for labeling workstations and adopted Boha temp at 47 food service locations to digitize back-of-the-house operations.

Stock position, while awaiting jurisdictional approvals on new machines. We currently believe this is a macroeconomic situation that we expect will flatten out in coming quarters. While we do expect this to impact our fourth quarter sales. We are hopeful that improving set of dynamics will emerge as we enter and move through.

Speaker #3: This integration streamlines workflows, reduces manual processes, and supports passive compliance while driving higher margins and operational efficiency. Before moving on, I wanted to mention that we're looking at two unique revenue opportunities in the Boha space.

2026, I'd note that these factors are not being seen internationally, where we had a strong quarter, both sequentially and year over year.

Jeff Martin: Okay. Steve, I don't know if you can give us a sense of the magnitude of the Q4 impact on casino and gaming.

Speaker #3: One near-term focus and a second on a longer-term visionary path. The first, looking at near-term labels, are not only an important contributor to recurring revenue but a fundamental strength of the business.

That said, we are also seeing traction with our epic T. R 80, thermo roll printer, which is used in sports betting kiosks video lottery terminals and other applications.

Steven DeMartino: Not yet, Jeff. I mean, we're not going to publicly disclose that, but the demand is we're already seeing it, right? We're into mid-November, so we have a month and a half past, so we've already seen the weakness in the demand, and we expect it to continue for at least the remainder of Q4. I think it's temporary, but we don't know when. I think when we get into 2026, I think we should see ourselves start to come out of it. For right now, it looks like Q4 is going to be weaker than Q3.

For the first nine months of 2025 had been modest, but we anticipate it being coming a larger contributor in 2026.

Speaker #3: We have some prospective customers who may be interested in labels only as we are recognized as the best-in-class provider and importantly cost-effective versus our competitors.

Before handling the call over to Steve Let me update our financial outlook for 2025.

Speaker #3: Second, from a longer-term visionary perspective, we're evaluating the development and launch of an app store for our Boha! terminals to allow existing users to opt into new software purchases right over the hardware.

Based on third quarter and year to date performance, we're maintaining our full year revenue guidance of 50 million to $53 million, reflecting continued FSP expansion and casino stability amid the anticipated fourth quarter deceleration Jessica.

Speaker #3: This is a future project. It's on our map to consider now that we own the software. I wanted to point that out but it is a future project but I think it's a great idea and I'm looking forward to making progress on it.

Jeff Martin: Right. Right. Okay. With respect to the non-charitable gaming markets, are you seeing much on the regulatory front that we could see more states open up as we head into 2026 here?

Adjusted EBITDA is expected to range from breakeven to positive $1 5 million for the full year, assuming no major disruptions in supply or demand I'd also like to call out that our balance sheet remains strong we have $20 million in cash on the balance sheet at the end of 'twenty three.

Speaker #3: For developments that are currently hardware-only, this could be a key driver of future software revenue, and we'll update you on these initiatives as they develop and come in quarters.

Operator: John, you want to take that or you want me to take it?

John Dillon: Yeah. No, it's very true. I mean, it's an opportunity for state governments to make money without having to raise taxes. It's kind of an interesting thing. It's sort of like running state lotteries, where some of the money goes to, say, education, some of the money goes to the state that they can pool and use for whatever they want, some of it goes to the player, and some of it goes to either the operator or the venue. What's interesting about that market is that it's sort of a winner-take-all.

Speaker #3: Shifting to casino and gaming, we recorded net sales of $7.1 million in the quarter which was up 58% from the year prior. However, as everyone has seen in the headlines, domestically we are seeing some challenges in the demand side of the environment with Las Vegas and broader casino performance facing headwinds.

The inventory sell down and disciplined management.

This provides us ample working capital and flexibility to navigate any headwinds while positioning us for enhanced profitability and progress in 2026.

To close out I am pleased with our third quarter results and the process across the business. We drove significant <unk> terminal sales growth year to date achieved higher FSC sales with strong recurring contribution while maintaining positive adjusted EBITDA for the third straight quarter.

Speaker #3: Our domestic-only partners have indicated slowing demand, and one large buyer from the first nine months of 2025 is now in an overstock position while awaiting jurisdictional approvals on new machines.

John Dillon: If you are in that business, you would go to a state, pick a state, and say to the state government, I think I can do this for you, you give me a contract for the entire state, and I'll roll these machines out into places like VFW centers and other places where people like to play these games of chance. It kind of feels good for the player because the player knows that they're somewhat funding a charitable event. It's very much like selling lottery tickets at the state level. When a vendor that resells our machines wins the state, that particular state, we will get 100% of the business. It's looking pretty interesting. A lot of states, as you know, tend to follow suit.

The <unk> platform is expanding successfully across our core sub verticals, including convenient stores health care and sushi operators with two solid wins in the recent months and we believe that our casino and gaming business remained solid despite some macro driven.

Speaker #3: We currently believe this is a macroeconomic situation that we expect will flatten out in coming quarters. While we do expect this to impact our 4th Quarter sales, we are hopeful at improving set of dynamics will emerge as we enter and move through 2026.

Economic softness that we currently experiencing and expect to continue during the fourth quarter. We continue our focus on execution operational improvements and fiscal discipline to drive shareholder value.

Speaker #3: I'd note that these factors are not being seen internationally where we had a strong quarter both sequentially and year over year. That said, we're also seeing traction with our Epic TR-80 thermal roll printer which is used in sports betting kiosks, video lottery terminals, and other applications.

With that I'll turn the call over to Steve for a detailed review of the financials Steve.

Thank you John and thanks, everyone for joining us this afternoon.

Speaker #3: Sales for the first nine months of 2025 have been modest but we anticipate it being coming a larger contributor in 2026. Before handling the call over to Steve, let me update our financial outlook for 2025.

Let's turn to our third quarter results in more detail.

John Dillon: If one state does it and it works well, they tend to do the same thing. I think this is an area that we think is going to be a very successful area for TransAct.

Total net sales for the third quarter were $13 2 million, which was down 5% sequentially, but up 21% compared to $10 9 million in the prior year period.

Speaker #3: Based on 3rd Quarter and year-to-date performance, we're maintaining our full-year revenue guidance of $50 million to $53 million, reflecting continued FST expansion and casino stability amid the anticipated 4th Quarter deceleration.

Sales from our foodservice technology market or F. S. T for the third quarter were $4 8 million that was up slightly by 2% sequentially and also up 12% compared to $4 3 million in the prior year period.

Jeff Martin: Great. My last question is on the new logo side in FST. I think you had two new logos last quarter to this quarter. You did comment that that was below your expectations. Maybe just could you help us frame how the pipeline is and how the new logo sales are developing from the pipeline perspective?

Speaker #3: Adjusted EBITDA is expected to range from break-even to positive $1.5 million for the full year, assuming no major disruptions in supply or demand. I'd also like to call out that our balance sheet remains strong.

Our recurring FSP revenue, which include software and service subscriptions as well as consumable label sales for the third quarter were $3 3 million.

That was up 10% sequentially and up 13% compared to $2 9 million in the prior year period.

John Dillon: Sure. The sales cycles are long and kind of lumpy, especially since we're targeting the largest organizations that are in the food service industry. It's a little bit like selling enterprise software. However, the two new accounts that we landed have potential to deliver a considerable amount of volume over time, and that's part of the land and expand strategy. Pipeline remains basically the same. We have enough coverage to make the numbers that we forecast internally. I'm okay with that, but we are continuing focus on the GTM, the go-to-market, the lead generation, and those other things that basically feed the top of the funnel. We're paying a lot of attention to the metrics as the opportunities go through the funnel, what's our yield at each step, and what can we do in each one of those steps to improve it.

Speaker #3: We have $20 million in cash on the balance sheet at the end of '23 thanks to inventory sell-down and discipline management. This provides us ample working capital and flexibility to navigate any headwinds while positioning us for enhanced profitability and progress in 2026.

Our <unk> for the third quarter 25 was $792, which was consistent sequentially with Q2.

<unk> up 13% year over year.

<unk> for Q3 improved versus prior year as a result of strong growth in label sales.

Speaker #3: To close out, I'm pleased with our Q3 results and the process across the business. We drove significant Boha terminal sales growth year-to-date, achieved higher FST sales with strong recurring contributions, while maintaining positive adjusted EBITDA for the third straight quarter.

Our casino and gaming sales were $7 1 million, which was down 7% sequentially, but up 58% year over year, reflecting the market rebound John discussed.

Speaker #3: The Boha platform is expanding successfully across our core sub-verticals including convenience stores, healthcare, and sushi operators with two solid wins in the recent months and we believe that our casino and gaming business remains solid despite some macro-driven economic softness that we currently experiencing expect to continue during the 4th Quarter.

We're further driven by a new OEM win for use in non casino terrible gaming applications combined with normalized buying from just about all of our major Oems.

As John mentioned, we expect our fourth quarter casino and gaming sales to be sequentially lower due to dynamics in the domestic casino market.

John Dillon: I'm comfortable with the performance. Obviously, more new accounts is better, but the accounts that we landed in this quarter will be accounts that sustain us in the future. I do focus on that pretty extensively, and we're not taking our eye off that ball.

POS automation sales for the third quarter declined sequentially by 32% and also declined 65% from the comparable prior year period to $399000.

As we discussed in the past, we believe that epic at 9000 printer sales have now reached a new normalized level based on competitive dynamics.

Jeff Martin: Very helpful. Thank you. Thank you. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. There are no further questions at this time. I'd like to turn the call back to John Dillon for closing remarks.

As a result, we expect sales for Pos automation to remain in about the 400 to $500000 range per quarter for the foreseeable future.

Moving to transact services group or PSG.

Third quarter, <unk> sales were down 8% year over year to $792000.

This decrease was due to lower demand for legacy spare parts on a year over year basis.

Somewhat offset by higher shipping revenue.

We expect <unk> sales to remain at about this quarterly run rate going forward consistent with normalized demand.

John Dillon: Thank you very much, all of you, for your time and attention. We're happy to talk about the quarterly performance with any of you that feel inclined to schedule a meeting with us. You can get to us through Ryan Gardella, he's our IR representative. Again, thank you, and good wishes.

Moving down the income statement now our third quarter gross margin was 49, 8%, which was up from 48, 1% in the prior year period, and up 160 basis points sequentially.

Our margin performance reflects higher sales as well as a higher mix of casino and gaming sales compared to the prior year.

Jeff Martin: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Somewhat tempered by modest cost headwinds from overhead inflation and tariffs.

We expect gross margin to remain in the mid to high 40% range for the remainder of 'twenty five.

I also want to give a brief update on our tariff situations during.

During the third quarter, we implemented a second small price increase to the original tariff surcharge, we implemented earlier in 'twenty five on applicable imported items we.

We did this to cover incrementally higher tariff in airfreight charges, we are incurring.

To date, we haven't experienced any significant pushback from customers and don't believe this has had any negative impact on our sales performance for the quarter.

While we don't have any further price increases planned at this time. This is a fluid situation that we'll continue to closely monitor and update you all as needed.

Our total operating expenses for the third quarter increased by 8% from the prior year third quarter to $6 $5 million.

Our engineering and R&D expenses for the third quarter were essentially flat at $1 $65 million, our selling and marketing expenses were up 11% to $2 1 million and our G&A expenses were up 10% to $2 8 million.

The increase in G&A was due largely to higher incentive and share based compensation expense from our improved financial results.

For the third quarter, we had positive operating income of $14000 or 110th of 1% of net sales compared to an operating loss of $837000 or negative seven 7% of net sales in the prior year period.

On the bottom line, we recorded net income of $15000 or zero or breakeven EPS compared to a net loss of $551000 or negative <unk> <unk> per share in the year ago period.

Our adjusted EBITDA for the quarter remained positive at 669000, which was up from an adjusted EBITDA loss of 204000 in the prior year period.

Lastly, turning to our balance sheet as John mentioned, we cross $20 million in cash and cash equivalents on our balance sheet at the end of the third quarter.

This was mostly the result of success from our proactive inventory reduction program, we put in place at the beginning of 'twenty five.

Since the start of the year through a combination of selling off remaining stock of older products and more tightly controlling stock of other products, we've been able to reduce our inventory levels by over $4 million.

However, we expect inventories to tick up some beginning in the fourth quarter and into 2006, as we restock new products in anticipation of growing future demand.

In terms of our debt, we continue to maintain $3 million of required minimum borrowings under our $10 million credit facility at the end of the third quarter.

Our total operating expenses for the third quarter increased by 8% from the prior year, reaching $6.5 million.

And before we close before I close as we discussed last quarter.

We believe the purchase of a copy of our source code will largely be a balance sheet event until we go live with our hosted version, which we anticipate to occur in early 2007.

Our engineering and R&D expenses for the third quarter were essentially flat at 1.65 million. Our selling and marketing expenses were up 11% to 2.1 million and our G&A expenses were up 10% to 2.8 million.

To that end, we expect to capitalize the $355 million of consideration to be paid plus any additional cost we incurred related to in housing the source code through the go live date in early 2007.

The increase in GNA was due largely to higher incentive and share-based compensation expense from our improved financial results.

These costs will appear as an intangible asset on our balance sheet.

At the goal line point will begin to amortize the total amount of those capitalized costs to cost of sales on our income statement over a five to seven year period.

For the third quarter, we had positive operating income of $14,000, or 0.1% of net sales, compared to an operating loss of $837,000, or negative 7.7% of net sales in the prior year period.

As of the end of Q3, we have made the first two installment payments totaling one $3 $5 million and capitalize these costs, which appear as an intangible asset on our balance sheet at the end of September.

On the bottom line, we recorded net income of 15,000 or 0 or break, even EPS compared to a net loss of 551,000, or negative 6 cents per share in the year ago, period.

From a cash perspective, we expect to fund the remaining $2 2 million of the $355 million purchase price plus any other related costs from the current $20 million of cash on our balance sheet.

Our adjusted EPA for the quarter remained positive at 669,000, which was up from the adjusted, EBA loss of 204,000 in the prior year period.

The remaining $2 2 million is expected to be paid in installments with approximately 200000 to be paid in the fourth quarter of 'twenty five and the remaining approximately $2 million to be paid during 2026.

Lastly turning to our balance sheet. As John mentioned, we crossed 20 million in cash and cash equivalents on our balance sheet at the end of the third quarter.

This was mostly the result of success from a proactive inventory, Reduction Program we put in place at the beginning of 25.

And with that I'd like to turn the call over to the operator for questions.

Great.

Thank you.

Ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad under confirmation tone will indicate your line is in the question queue.

Since the start of the Year through a combination of selling off, remaining stock of older products and more tightly controlling stock of other products. We've been able to reduce our inventory Levels by over 4 million dollars.

You May press Star two if you want to remove your question from the queue.

however, we expect inventories to tick up some beginning in the fourth quarter and into 26, as we restock new products in anticipation of growing future, demand

For participants using speaker equipment may be necessary to pick up your handset before pressing the star keys.

in terms of our debt, we continue to maintain 3 million of required minimum borrowings under our 10 million credit facility at the end of the third quarter,

And our first question comes from the line of Jeff Martin with Roth Capital Partners. Please proceed.

Uh, and before we close, before I close, as we discussed last quarter.

Thanks, Good afternoon, John and Steve.

John could you give us an update you mentioned on the last quarter call that in casino and gaming and you're getting more aggressive and incentivizing.

We believe the purchase of a copy of our source code will largely be a balance sheet event until we go live with our hosted version, which we anticipate to occur in early 27.

<unk>.

You know winning competitive deals.

Just curious how that initiative is going and can you give us an update on the competitive landscape in that market.

To that end, we expect to capitalize the 3.555 million of a consideration to be paid plus any additional cost we incur related to in-housing The Source Code through the go live date in early 27th.

These costs will appear as an intangible asset on our balance sheet.

Okay.

At the Go life point, we'll begin to advertise the total amount of those capitalized costs to cost of sales on our income statement over a 5 to 7 year period.

He might be on mute.

Are you on mute.

Okay.

I was on mute thanks for the question Jeff.

Let me just say that you know when you build a sales compensation plan for your sales team you should assume that they are entirely coin operated in other words theyre going to do exactly what makes them the most money.

As of the end of Q3, we have made the first 2 installment, payments, totaling 1.35 million in capitalize. These costs which appear as an intangible asset on our balance sheet, at the end of September.

And so what we did is we Jacob plan. So that if you close a net new customer or if you take a customer away and highly competitive when we are going to get paid more and without being more specific let's just say it turned up the heat and it turned up the zeal to go after and win big.

From a cash perspective, we expect to fund the remaining $2.2 million of the $3.55 million purchase price, plus any other related costs, from the current $20 million of cash on our balance sheet.

All of that said, though we're very mindful that we have a bit of a duopoly in the marketplace in the sense that we have one major competitor.

The remaining 2.2 million is expected to be paid in installments with approximately 200,000 to be paid in the fourth quarter of 25 and the remaining approximately million dollars to be paid during 2026.

And with that, I'd like to turn the call over to the operator for a question operator.

Thank you.

And we treat that competitor with respect.

But we're not having a race to the bottom.

Have their share of the market, we have ours, but when a new casino is going to come online. We're right there and we like to think that our product is sufficiently better than that our services support and our field team is a better team and they can win head to head. So we're focused on that but the sales team knows for sure that if they are winning new deals are going to make more money.

Ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypad and the confirmation table, indicate your line is in the question Cube.

You may press *2 if you want to remove your question from the queue.

For participants using speaker equipment and maybe necessary to pick up your handset before pressing the star keys.

Do you sell more product to existing customers.

And the first question comes from the line of Jeff Martin with Roth Capital Partners, please proceed.

Thanks, good afternoon, John and Steve. Um,

Okay and then.

Dave I don't know if you can give us a sense of the magnitude is of the fourth quarter impact on casino gaming.

Okay.

John, could you give us an update? You mentioned on the last quarter of this call that in casino and gaming? You're getting more aggressive and you're incentivizing, um,

Not yet Jeff I mean, we're not going to publicly disclose that but it's.

The demand is.

Where are you seeing anybody so we're into mid November so we have a month and a half past. So we've already seen the weakness in the demand and we expect it to continue for at least the remainder of the fourth quarter I think it's temporary.

Uh, you know, winning competitive deals, uh, just curious how that initiative is going and do you give us an update on the competitive landscape in that market?

But we don't know when I think when we get into 'twenty six I think we should see ourselves start to come out of it for buffer right now it looks like the fourth quarter is is going to be weaker than the third quarter.

You might be on mute, how do you unmute?

Right right.

And then with respect to the non charitable gaming markets are you seeing much on the regulatory front.

We can see more states open up as we head into 2026 here.

Let me just say that, you know, when you build a sales compensation plan for your sales team, you should assume that they're entirely coin-operated. In other words, they're going to do exactly what makes them the most money.

John you want to take that you want me to take it yeah, no. It's very true I mean, it's a it's an opportunity for state governments to make money without having to raise taxes.

It's kind of an interesting thing, it's sort of like revenue state lotteries, where some of the money goes to say education. Some of the money goes to the state that they can call and use for whatever they want some of that goes to the player and some of it goes to either the operator or the venue and.

And so, what we did is we jiggled the plan. So that if you close a net new, uh, customer or if you take a customer away and a competitive win, you're going to get paid more and without being more specific, let's just say it turned up the heat and it turned up the Zeal to go after and win.

What's interesting about that market is that it's sort of a winner take all if you are in that business you would go through escape.

And you just pick a state and you would say to the state government I think I can do this for you and I will give you give me a contract for the entire state and I'll roll. These machines out into places like DFW centers and other places where people like to play these games of chance and it kind of feels good for the player because.

Have a bit of a duopoly in the marketplace in the sense that we have 1, major competitor, um, and we treat that competitor with respect. Um, but we're not having a race to the bottom. They have their share of the market we have ours but when a new casino is going to come online, we're right there and we like to think that our product is sufficiently better and that our service and support and our field team is a better team and they can win head-to-head. So we're focused on that but the sales team knows for sure that if they're winning new deals they're going to make more money than if they just sell more product to existing customers.

The player knows that there's somewhat funding.

No.

A charitable event, it's very much like selling lottery tickets at the state level.

Okay. And then Steve I don't know if you can give us a sense of the magnitude of of the fourth quarter impact on casino and gaming.

So when a when a vendor that resells our machines wins state.

Interstate we will get 100% of the business. So it's looking pretty interesting in a lot of states as you know that they tend to follow suit in one state desert that works well they tend to do the same thing and I think this is an area that we think is going to be a very successful area for a trip for transact.

Uh, not yet, Jeff. I mean, we're not going to publicly disclose that, but it, you know, it's, uh, the demand is.

We we're we're already seeing it right? So we're into the mid November so we have a month and a half pass. So we've already seen that weakness in the demand and we expect it to continue for at least the remainder of the the fourth quarter. I think it's temporary.

Great and then my last question is on the new logo side an S. S T.

And I think you had two new logos last quarter to this quarter.

But we don't know when I I think when we get into 26 I think we should see ourselves start to come out of it for. But for right now it looks like the fourth quarter is is going to be weaker than the third quarter.

You did comment that that was.

Below your expectations, maybe just could you help us.

Frame, how the pipeline is and how the new logo sales are developing from yeah from a pipeline perspective.

Right, right, okay. And then with respect to the non-charitable gaming markets, are you seeing much on the regulatory front that we could see more States open up as we head into 2026 here.

Sure.

Sales cycles are long and kind of lumpy, especially since we're targeting the largest.

Organizations that are in the foodservice industry, so it's a little bit like enterprise selling enterprise software.

However, the two.

New accounts that we landed have potential to deliver.

A considerable amount of volume over time, and that's part of our land and expand strategy.

Pipeline remains basically the same we have enough coverage to make the numbers that we.

Forecast internally, so I'm, okay with that but we are focused continuing to focus on the GTA and the go to market and lead generation those those other things that basic.

John you want to take that, you want me to take it? Yeah. No, it it's very true. I mean, it's a, it's an opportunity for state governments to make money, uh, without having to raise taxes. Um, it's kind of an interesting thing. It's sort of like, running your state lottery, where, you know, some of the money goes to say education, some of the money goes to the state that they can pull and use for whatever they want. Some of it goes to the player and some of it goes to either the operator or the venue. And um what's interesting about that market is that it's sort of a winner take all if you are in that business you would go through a state.

Basically speed the top of the funnel and then we pay a lot of attention to the metrics.

The opportunities go through the funnel, what's a yield at each step and what can we do in each one of those steps to improve it so I am comfortable with the performance obviously more new accounts is better but the accounts that we landed in this quarter will be accounts it sustain us in the future and I do focus on that pretty extensively in.

And you just pick a state and you'd say to the state government, I think I can do this for you and I will give you give me a contract for the entire State and I'll roll these machines out into places like BFW centers and other places where people like, to play these games of chance. And it kind of feels good for the player because, um, the player knows that they're somewhat funding, you know, uh, a charitable event. It's very much.

Were not taken our eye off that ball.

Very helpful. Thank you.

Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad.

Like selling lottery tickets at the state level. And so when a, when a vendor that resells our machines wins the state that particular State, we will get a 100% of the business. So it's looking pretty interesting in a lot of States, as you know, that they tend to follow suit if 1 State doesn't and it works. Well, they tend to do the same thing and I think um this is an area that we think is going to be a very successful area for for transact.

Okay. And the last question is on the new logo side and FST?

There are no further questions at this time I would like to turn the call back to John <unk> for closing remarks.

And I think you had two new logos last quarter and this quarter. You did comment that that was...

Thank you very much all of you for your time and attention. We're happy to talk about the quarterly performance with any of you feel inclined to schedule a meeting with US you can get to us through Ryan.

You know, below your expectations, maybe just could you help us?

Frame, you know how the pipeline is. And, and you know how the new logo sales are are developing from, you know, from the pipeline perspective.

Brian Cardello ease our IR representative and again, thank you and.

Good wishes.

Sure, um, the sales cycles are long and kind of lumpy, especially since we're targeting the largest uh.

This concludes today's conference you may disconnect your lines at this time and thank you for your participation.

Organizations that are in the food service industry. So it's a little bit like interselling enterprise software. However, the two new accounts that we landed have the potential to deliver, you know, a considerable amount of volume over time, and that's part of the land-and-expand strategy. The pipeline remains basically the same. We have enough coverage to make the numbers that we forecast internally, so I'm okay with that. But we are focused on continuing to focus.

On, uh, the GTM to go to market the lead generation and those those other things that basically feed the top of the funnel and then we pay in a lot of attention to the metrics as the opportunities. Go through the funnel. What's a yield that each step and where? What can we do in each 1 of those steps to include it. So I'm comfortable with the performance. I obviously more new accounts is better, uh, but the accounts that we landed in this quarter will be accounts that sustain us in the future. And uh, I do focus on that pretty extensively and uh, we're not taking our eye off that ball.

Very helpful. Thank you.

Question. Please. Press star 1 on your telephone keypad,

There are no further questions at this time. I'd like to turn the call back to John Dillon for closing remarks.

Thank you very much, all of you for your time and attention. Uh, we're happy to talk about, uh, the quarterly performance, with any of you that feel inclined to schedule a meeting with us. Uh, you can get to us through, uh, Ryan Gardella. He's our IR representative and, uh, again, thank you and, uh,

good wishes.

This concludes today's conference. You may disconnect your lines at this time, and thank you for your participation.