TransAct Technologies Incorporated (NASDAQ:TACT) Q4 2024 Earnings Call Transcript

TransAct Technologies Incorporated (NASDAQ:TACT) Q4 2024 Earnings Call Transcript March 13, 2025

TransAct Technologies Incorporated beats earnings expectations. Reported EPS is $-0.06, expectations were $-0.09.

Operator: Greetings, and welcome to the TransAct Technologies Fourth Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ryan Gardella, Investor Relations. Thank you. You may begin. Thank you, Tasha.

Ryan Gardella: Thank you. Good afternoon. Welcome to the TransAct Technologies fourth quarter and full year 2024 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, John Dillon and President and CFO, Steve DeMartino. Today’s call will include a discussion of the company’s key operating strategies, the progress on these initiatives and details on our fourth quarter and full year financial results. 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. 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 on 10-Ks and 10-Q forms. TransAct Technologies Incorporated 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 the meaning of SEC regulation G. When required, reconciliations of all non-GAAP financial measures 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 with that, I’d like to turn the call over to John.

John Dillon: Thank you, Ryan. And good afternoon, everyone, and thank you for joining us. So I’m pleased to announce what I consider a relatively strong year at the end, particularly for FST. Total revenue for the fourth quarter was $10.2 million, highlighted by the sale of 1,639 Baja terminals. It’s the highest quarterly number we’ve recorded since 2020. And in fact, I did some math, and over the last eight quarters beginning in Q1, two years ago, 2023, we’ve seen a 42% combined annual growth rate in our quarterly Baja terminal placements. That’s compounded. And this demonstrates, in my opinion, the improvements we’ve made in our go-to-market, the GTM strategies and our internal sales motions. They are in fact working well to improve the business.

We are also pleased that the momentum is here and we believe that terminal placements will continue to trend upward throughout 2025. So let’s review some of the other fourth quarter and full year results. For the fourth quarter, we generated total FST revenue, that’s food service technology, $4.3 million. It’s approximately flat sequentially and down about 8% to 9% year over year and recurring FSC revenue of $2.7 million down almost 15% sequentially and 5% year over year. For the full year, we recorded FST revenue of $16.1 million and FST recurring revenue for the year was $10.8 million down about 1% and 2.9% respectively from the prior year. As a reminder, we stopped receiving recurring revenue and additional hardware sales in previously discussed from a large client in the third quarter of 2024.

Meaning that much of our third and all of our fourth quarter recurring revenue results include only a de minimis contribution from that client but our year over year comparisons do. So that’s why it’s down a little bit. However, we believe that our improving results ultimately will offset the loss from that one client unexpected as it was. I’m not happy about it, but, you know, it is what it is. It happens occasionally to any company. So we’re working our way past that, and the numbers, I think, show that. The growing success in FSP markets to direct results as I pointed out the reorganization refocusing the FSP sales team and marketing teams during the past 18 months. We acknowledge and understand that there’s still work to be done. This isn’t a recurring and improving process.

You know, constant improvement. But I’m pleased with the progress so far and the growing momentum in the FSP side of our business. It’s still gonna be lumpy. But we expect overall the trends will be upward and to the right. Is where you want them to be. We’re also seeing a good conversion stream coming from the existing customers who are using either our AccuDate terminal or earlier terminals that we provided in the past, to the new Baja terminal two. And this is including from our large QSR customer, who refuses to let us use their name. However, they’re continuing to roll out the terminal two as planned. In addition, to our large QSR and a large sushi customer, this is Heso, we have a major convenience store chain customer that has begun to upgrade about 1,400 of their old workstations to the new Baja terminal.

As a reminder, we discontinued our prior generation Accudate 9,700 at the end of 2023, which also makes the Accudate and saw base of about 40,000 units a potential target for upgrades to the terminal two. And we’re gradually targeting that and finding a successful opportunity there. For the quarter, we landed six new accounts, not a lot, but it’s good. And, however, I’ll point out that these six accounts represent future potential opportunity for about 6,000 units over time. We tend to use a bit of a land and expand strategy. It’s easier to get the first bite of the apple as it were. And then the goal is to get the rest of the camel’s nose not just the nose, but the rest of the camel into the tent. And that’s usually what happens with us. So Landon expands the strategy and the six new accounts are an excellent opportunity for us in the future.

Additionally, the new pipeline remains solid. New business pipeline with quarter over quarter difference in the rolling four quarter pipeline numbers remaining consistent and constant. The pipeline’s holding up good. I’ll point out that when I took over, the pipeline discipline was pretty weak. Discipline around setting the pipeline and making sure you know what’s in it and what’s gonna close and what’s not gonna close has improved significantly. Since we began the GTM overhaul. Last year. Moving on to casino and gaming, we recorded revenue in the fourth quarter of $4.8 million, up 13.5% to 14% year over year and approximately 5% sequentially. We’re pleased to see the continued normalization of this market as we predicted. There is evidence of improvement in the demand side of the market, with our first quarter this year trending a bit stronger than the fourth quarter last year.

So far. And on the inventory side, we believe we now have all of our major domestic OEM partners back in buying positions. After working with them and in some cases to reconfigure existing inventory they had so they could sell it in other markets. So that’s worked out well. I’d also like to highlight two pieces of news that we think will be important for 2025, and that’s first, we have completed the rollout of our epic TR80 thermal roll printer. This printer is used in sports betting kiosks, some video lottery terminals, and other non-casino games. And it’s gonna be something that’s gonna complement some of the other systems that we already sell in casino and gaming, so we’re happy about that. We expect it to fuel additional sales more or less throughout the year.

And second, we are again encouraged by the increased sales traction we’ve seen with Epic Central due to our new relationship with CasinoTrack. CasinoTrack sells Epic Central as part of their slot suite product offering. On a subscription basis. So we received if you will, recurring revenue per month per unit per basically, per slot going forward. And this basically helps encourage players to expand their play, play longer, improves the average daily play. So this is exciting. They’ve got a really nice solution with SlotSuite, and we’re a component of that. Which helps us as well. We believe that 2025 will be a positive year over year casino and gaming sales. However, it’s incumbent upon me to add that that business, we call it CNG, but casino and gaming, it’s still recovering from the pandemic.

And the exuberant post-pandemic rebound, and now it’s in a bit of a hangover, I mean, everybody came back to the casinos, and everyone went crazy when the pandemic was over. And now the casinos are sitting there figuring out, well, what’s steady state gonna look like? However, all in all, we see no systemic problems in the midterm for our CNG business. But our clients are still dealing with some amount of day-to-day market uncertainties. But again, we feel that the industry is back, and it’s gonna be in good shape. I know some of the casino stocks are down a little bit. And some of them have posted down results. But we don’t see any slowdown on the in the long term or the midterm relative to those industries. Next, I wanna provide you with an update on our strategic review process.

We began that only just a year ago. We started it. We announced we were gonna do it in Q4 of 2023. We began in earnest in 2024. The process is active. And it’s ongoing. Our management team and our board of directors are focused on the process. Believe me, and collectively, we’ve determined to consider any and all options that increase and or deliver shareholder value. We don’t have further updates right now. But the process when the company determines that a disclosure is appropriate or required, you will hear about it immediately from us. Many of our shareholders have said, well, seems like it’s taking a long time. Believe me, the process is way more complex than you might.

Ryan Gardella: Might suspect.

John Dillon: From the outside but we’re working very hard at it. You can trust me on that. We’re not turning away any opportunities that might come our way. We’re looking at everything, and I believe that the process is doing the things that most investors would us to do. Finally, before I turn the call over to Steve, let me provide our 2025 financial outlook. For total revenue, we’re expecting a range of between $47 million and $52 million in top line revenue. And for adjusted EBITDA, we’re expecting a range of zero, which is breakeven, to about a negative $2 million in EBITDA. These ranges assume we see continued recovery in casino and gaming, throughout the year with no disruptions in either supply chain or demand. While we believe this will be the case, we felt it was important to provide additional color commentary.

Ryan Gardella: Overall,

John Dillon: we are pleased with our momentum on ASSPEED side of the business, including the 40% plus compound annual growth rate in terminal units placed in the last two years. We got a strong balance sheet. We got enough working capital to weather a potential downturn in the economy, which we don’t expect. However, we’re prepared as needed. And our casino and gaming business is recovering. While we’re continuing to press forward to grow our success in FSP, we also simultaneously will vigorously pursue our strategic review focused on maximizing the returning value to shareholders. And with that, I’d like to turn the call over to Steve for a more detailed review of the financials. Steve?

Steve DeMartino: Thank you, John. And thanks everyone for joining us today. Let’s take a look at our fourth quarter and full year 2024 results in a little more detail. Total net sales for the fourth quarter were $10.2 million which was down 23% compared to $13.3 million in the fourth quarter of 2023. For the full year 2024, our net sales were $43.4 million which was down 40% compared to $72.6 million in 2023. And within our revised outlook range for the year provided on our third quarter earnings call. Sales from our food service technology market or FST for fourth quarter were $4.3 million which was about flat sequentially and down 9% compared to $4.7 million in the prior year period. For the full year, FSD sales were $16.1 million.

That’s down 1% compared to $16.3 million in 2023. As John said, we sold 1,639 terminals in the fourth quarter and 5,371 terminals for the full year. And we ended the year with 13,961 so just shy of 14,000 net new terminals installed in the market. Our recurring FSD sales, which includes software and service subscription that was down 15% compared to $3.2 million in the prior year period. For the full year 2024, recurring FST sales were $10.8 million that was down 3% compared to $11.1 million for the full year 2023. Our ARPU for the fourth quarter 2024 was $875. That was down 6% compared to $926 in the fourth quarter of 2023. It was up 25% sequentially from $700 in the third quarter of 2024. Our casino and gaming sales were $4.8 million that was up 14% from the fourth quarter of 2023.

Primarily due to a recovery in the demand for our printers at the major slot OEMs. For the full year, casino and gaming sales were $20.3 million. That was down 51% year over year. As John mentioned, we’ve seen the expected return of our major domestic OEM partners to buying positions after helping them reconfigure and liquidate their existing inventory. POS automation sales for the fourth quarter decreased 74% from the prior year $411,000. For the full year, POS automation sales were $3.4 million and that was down 51% from the full year 2023. The decline was largely a result of difficult comps as we experienced unusually high sales in 2023 due to our competitors’ inability to supply product. In addition, we believe the competitors in this market are now fully back online.

And we’re experiencing a more competitive environment. As a result, we’re taking steps including adjusting our pricing to respond to the new dynamics in this market. Moving to the TransAct Services Group or TSG as we call it, sales for the fourth quarter were $759,000, which was down 73% from $2.8 million in the prior year period. This was primarily due to unusually high sales from final buys of legacy lottery spare parts the prior year that didn’t repeat in 2024. For the full year 2024, TSG sales were $3.6 million and that was down 56% from the full year 2023. Moving down the income statement, our fourth quarter gross margin was 44.2%, that was down from 48% in the prior year period. Full year gross margin was 49.5%, as compared to 52.9% in the full year of 2023.

This comes as a result of lower overall sales volume and competitive price adjust as well as significantly lower casino and gaming sales. Somewhat offset by favorable overhead cost absorption. Going forward, we expect our gross margin to be in the mid to high 40% range in 2025. Our total operating expenses for the fourth quarter decreased by $1.3 million or 19% to $5.6 million compared to the fourth quarter of 2023. And for the full year 2024, operating expenses declined by $7.6 million or 23% to $25.1 million. Compared to the full year of 2023. The year over year declines came in large part as a result of savings achieved from two separate and successful rounds of cost reduction initiatives, totaling $5 million on an annualized basis. In late third quarter of 2023, we initiated our first round of broad-based cost-cutting efforts.

We estimated that this initiative will produce operating expense savings of about $3 million on an annualized basis and we experienced the full effect of these reductions throughout 2024 including the fourth quarter. We then instituted a second cost reduction initiative in June of 2024 that focused largely on further reducing headcount and other external third-party resources. We estimate that the second initiative would generate an additional $2 million of annualized cost savings over and above the $3 million of savings from the first round. We also experienced the full effects from the second round cost reductions during the fourth quarter of 2024. Now breaking down our operating expenses just a bit. Our engineering and R&D expenses for the fourth quarter were down 27% to $1.6 million year over year.

For the full year 2024, these expenses decreased by 30% to $7 million compared to 2023. Our selling and marketing expenses decreased 3% to $2 million for the fourth quarter on a year over year basis. For the full year 2024, our selling and marketing expenses were $8.2 million and that was down 18% year over year. The decrease was largely due to rightsizing changes related to our FST market made during the latter half of 2023 including reductions in headcount, trade show and overall marketing spend. As expected and noted last quarter, we saw a slight sequential increase in our marketing spend due to the timing of our two large trade shows G2E, which is for the casino and gaming market, and Max, which is for our FST market. Which both occur in the fourth quarter.

This is consistent with prior years even as we have reduced our marketing spend on all of our trade shows. Lastly, our G&A expenses decreased 26% to $2 million for the fourth quarter, largely due to lower bonus expense, share-based compensation, and lower bad debt expense. For the full year 2024, our G&A expenses were $9.9 million and that was down 25% from the full year 2023. Note that our 2023 G&A expenses included a $1.5 million severance charge related to the resignation of our former CEO. For the fourth quarter 2024, our operating loss was $1.1 million which was 10.3% of net sales. That compared to an operating loss of $522,000 or 3.9% of net sales in the prior year period. For the full year 2024, our operating loss was $3.6 million and that compared to operating income of $5.7 million in 2023.

On the income tax expense line, we incurred a $7.3 million noncash charge in the fourth quarter of 2024. To record a full valuation allowance on our deferred tax assets. This charge was made in accordance with the applicable accounting guidance which generally requires the company to provide a full valuation when the company reports a cumulative pre-tax loss over its previous three fiscal years, which for us was 2022 through 2024. And a pretax loss in its most recent fiscal year 2024 for us. Note that the accounting rules place significant weight on past profitability, that is the three-year look-back period as a predictor of future profitability and less weight on the company’s future projections of profitability since they’re not certain.

Therefore, this charge does not necessarily indicate that we don’t expect profitability in the future. Though we have written down the value of our deferred tax assets to zero for accounting purposes on our balance sheet, we believe these assets still have monetary value to the company. A substantial portion of our deferred tax assets consist of net operating loss carry forwards, and R&D credit carry forwards, both of which have indefinite lives on recurrent tax laws. At such time when the company returns to profitability, we will be able to utilize these fully reserved assets to offset any such future pretax income, and essentially pay no cash income taxes until they’re fully utilized. Looking forward to 2025, expect to continue to provide a full tax valuation allowance until we’re able to demonstrate a consistent pattern of profitability.

As a result, expect to record no income tax expense or income tax benefit during 2025, which means our pretax income or loss will also be our net income or loss. On the bottom line, we recorded a net loss of $8 million or $0.79 per diluted share for the fourth quarter, compared to a net loss of $62,000 or $0.01 per share in the year-ago period. The full year had a net loss of $9.9 million or $0.99 per diluted share compared to net income of $4.7 million or $0.47 per diluted share in 2023. Just as a reminder, our fourth quarter and full year 2024 numbers include the $7.3 million non-cash charged income taxes. Our adjusted EBITDA for the quarter was negative $705,000 and that compared to positive $587,000 for the fourth quarter of 2023. And for the full year, our adjusted EBITDA was negative $1.5 million and that compared to positive $10 million in 2023.

Our full year 2024 adjusted EBITDA result places us at the midpoint of our 2024 outlook range that we provided on our last earnings call. And lastly, turning to our balance sheet. Still remains solid. We finished the year with $14.4 million in cash, which was up from $2.1 million at the end of 2023. And in terms of debt, we successfully renewed our credit facility with Sienna Lending during the fourth quarter, extending the term for two plus years through March of 2027. As part of that extension, our minimum required borrowing amount increased from $2.25 million to $3 million which is where our outstanding borrowing stood at the end of 2024. Believe our cash on hand, and the available borrowings under our newly extended credit facility will provide enough liquidity to fund our business for at least the next twelve months.

And that completes my presentation. So with that, I’d like to turn the call over to the operator for questions. Operator?

Q&A Session

Operator: Thank you. We will now be conducting a question and answer. The first question is from Jeff Martin from Roth Capital Partners. Please go ahead.

Jeff Martin: Thanks. Good afternoon. Wanted to get a sense, John, of in terms of the FS terminal installations in the quarter and maybe for the year, how much of that was concentrated with the large QSR customer and how much of it was replacements and how much was from new logos. I don’t know if you can get that granular. But if you could, I think it’d be helpful.

John Dillon: Sorry. A little bit of mute. We’re still dealing with the mute button. Steve can I can’t give you the breakdown on the net new clients offhand, but Steve can give you the breakdown in aggregate relative to the large QSR and the rest of the terminals?

Steve DeMartino: Yep. The large QSR was a decent chunk of the number. Jeff. It wasn’t more than half, but it was a good a good chunk.

Jeff Martin: Okay. And in terms of your outlook for and up to the right here in 2025, is that is the anticipation that you have the same relative contribution from the QSR or are there other other clients coming into the fold here?

John Dillon: Other clients. But, obviously, the large QSR is big. It’s an enormous entity as it were, and we’re gonna continue to sell into that. For the foreseeable future. But I’m more encouraged by the net new business and it’s net new business and it’s expansion into an existing customers and it’s replacement of some of our older terminals that is the most exciting for us.

Steve DeMartino: Jeff, just to be clear, we do we do expect the business with a large QSR to expand to 2025 though versus 2024. We’re going into multiple jurisdictions with them. And we get more and more approved as we go here. As you know, it’s a it’s a license to hunt, so we have to go and get them, you know, one by one. But we do expect to close more in 2025 than 2024 as we expand our presence with the QSR.

John Dillon: Actually, Jeff, let me add to what Steve just said. We are winning new business in we didn’t have business before. Overseas and other venues where you know, we just did didn’t have a presence, and we’re winning that presence now. That’s really great. We almost treat it like a new account. From an excitement standpoint, because this might be a country or a region that we just didn’t have a a presence and now we have we’re getting it now.

Jeff Martin: Got it. Could could we switch over to casino and gaming? Just wanna confirm that I understood you correctly expect a growth year for this segment over 2024 during 2025? And then if you could also you know, give give an update on the international side of of that market.

John Dillon: Steve, you wanna speak to that? You closer to that than I am.

Steve DeMartino: Yeah. You know, all the all the domestic OEMs Jeff, are back to buying, so that’s a that’s a good sign. There was one that was a laggard from last year, they’re now back as well, so everybody’s back to buying. So that’s good news on the domestic side. The international side, there’s still a couple of OEMs that are still working through inventory, but the the others are all back to buying. So I think it’s good news on both fronts. We expect both, even those even both of those OEMs that are currently still working inventory I think they’re gonna come back to buying too, but probably in the latter half of 2025. We do expect to have a stronger year in 2025 overall, both domestic and internationally.

Jeff Martin: Great. I’ll pass it on. Thanks.

Operator: The next question is from George Sutton from Craig Hallum. Please go ahead.

George Sutton: Thank you. Steve, if I took out the revenues from your c store customer that, exited from the numbers in 2024. How how much in revenues would that have been?

Steve DeMartino: Yeah. We, yeah, we previously disclosed, George, I believe, that it was about $3 to $4 million, annualized in a year. So about half of that was in the 2024. They they finished up about halfway through the year. So about about half of that. Is what fell off.

George Sutton: Gotcha. Okay. John, you mentioned the processes way more complex than we may think. I understand you’re selling two you’re effectively selling two different businesses. Is it what else would be complex about this that we might not be thinking about?

John Dillon: Well, two businesses is part of it because somebody want would partner with us or be a strategic event a strategic interest to us. They look at each business relative to the markets they might serve. So that’s a complexity. And then internally, I mean, we’re not a large company. So we operate the two businesses very much as if it’s one, it just has two verticals. And so the ability to take a close look at the economics relative to each is complicated, you can’t just hit a button and get a spreadsheet that says, here’s the P&L, here’s the people that work here and there, and so in terms of a conversation we might have with someone relative to resources we might apply to a strategic opportunity, is complicated. It takes more time.

And so that’s a degree of complexity that you know, occurs. And then the two businesses are very different. We’ve got Buchanan. You know this. We have the casino and gaming business, which is steady state, it grows. It’s in a relatively small TAM, total of available market, but we’re in a duopoly. It’s profitable. And then we have a more rapidly growing opportunity over in FSP where the TAM is well over a billion dollars. It’s an underserved market at this point, and we’re still early days. And the opportunity is great, but that’s not the part of the business that’s contributing to the bottom line from a positive and constructive standpoint. So you know, it it makes for complexity if you’re talking to somebody about how do we wanna work together with you.

And so, I mean, all those things basically come into play. And I’m not trying to make an excuse. I’m just saying, it’s more complex than probably most people from the outside might presume.

George Sutton: One other question on the EPIC TR80. Can you just talk about what the size of that market opportunity is? That would be an expanding new part of the market for you.

John Dillon: Steve, you you wanna tackle that one? You’re closer to the TR80. Then that’s the replacement for the 880.

Steve DeMartino: Yeah. That’s that’s our roll pad printer. So that’s really attacking the sports betting market, George. Which is is large and growing, especially in Europe. It’s it’s got a it’s got a large market potential for it. We were in the market with a previous product called our 880, but we have we’ve been out of the market for a couple years. So now it’s a matter of just reestablishing our relationships and getting our product back out there. We’ve had good interest so far since we have got it back out in earnest, really, in the last quarter of last year. Probably the first quarter where we’re really going back at the market hard. And we’re starting to get good interest for it again. I think that’s got I think it’s got a lot of potential.

George Sutton: Okay. Thanks, guys. That’s it for me.

Operator: There are no further questions at this time. I would like to turn the floor back over to John Dillon for closing comments.

John Dillon: Yes. Well, thanks everybody for joining. Appreciate your time and attention. I’m always willing to take a call personally. And I want to point out that we didn’t do this call today, Thursday, because we’re in a hurry. It’s because I’m gonna be at the ROTH conference on Monday. And for any of you that are gonna be there, I’m happy to take a one on one meeting or an after-hours chitchat, if that’s appropriate. So anyway, thanks very much for being here. I look forward to seeing you at the conference.

Operator: This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.