TransAct Technologies Incorporated (NASDAQ:TACT) is a global leader in developing and selling software-driven technology and printing solutions for high-growth markets. The company's world-class products are designed from the ground up based on market and customer requirements and are sold under the BOHA!™, AccuDate™, Epic, EPICENTRAL®, and Ithaca® brand names.

Business Overview

TransAct operates in one reportable segment: the design, development, and marketing of software-driven technology and printing solutions for high growth markets, and the provision of related services, supplies, and spare parts. The company's primary offerings include its line of BOHA! products for the food service technology (FST) market, thermal ticket printers for the casino and gaming market, and POS automation printers.

In the FST market, TransAct's BOHA! products combine the latest generation terminal and workstation, which include one or two printers, with BOHA! labeling, timers, and media software. Customers can also purchase cloud-based software applications that connect to a mobile device to automate back-of-house operations in restaurants, convenience stores, and other food service operations. The BOHA! Terminal, Terminal 2, and WorkStation are equipped with the TransAct Enterprise Management System to ensure approved touchscreen functions and allow over-the-air updates.

In the casino and gaming market, TransAct's revenue includes sales of thermal ticket printers used in slot machines, video lottery terminals, and other gaming machines, as well as sales of thermal roll-fed printers used in the international off-premise gaming market. The company also generates revenue from its EPICENTRAL print system, a software solution that enables casino operators to create promotional coupons and marketing messages and print them in real time at the slot machine.

TransAct's POS automation products, such as the Ithaca 9000 printer, are used primarily by McDonald's and other quick-service restaurants at the checkout counter, grill station, or within self-service kiosks to print receipts for consumers or print on linerless labels.

Financials

For the full year 2023, TransAct reported annual net income of $4.75 million, annual revenue of $72.63 million, annual operating cash flow of $5.51 million, and annual free cash flow of $4.61 million.

In the first quarter of 2024, the company reported net sales of $10.7 million, down 52% from the prior year period. This decrease was primarily driven by a 64% decline in casino and gaming sales and a 64% decline in POS automation sales, partially offset by a 3% increase in FST software, labels, and other recurring revenue.

Gross profit for the first quarter of 2024 was $5.6 million, down 54% from the prior year period, with gross margin decreasing 240 basis points to 52.6%. The company expects gross margin to be in the mid-to-high 40% range for the remainder of 2024 due to the continued slowdown in order rates from many of its casino and gaming and POS customers.

Operating expenses decreased 18% year-over-year in the first quarter of 2024 to $6.9 million, primarily due to cost reduction initiatives implemented in late 2023. The company estimates these actions will produce $3 million in annualized savings.

TransAct reported a net loss of $1.0 million, or $0.10 per diluted share, for the first quarter of 2024, compared to net income of $3.1 million, or $0.31 per diluted share, in the prior year period. Adjusted EBITDA for the quarter was negative $701,000, compared to positive $4.5 million in the first quarter of 2023.

Liquidity

As of March 31, 2024, TransAct had $10.6 million in cash and cash equivalents, with only $2.25 million of outstanding borrowings under its $10 million revolving credit facility. The company believes its cash on hand, expected cash flows from operations, and available borrowings will provide sufficient liquidity to fund its operations for at least the next 12 months.

Geographic Breakdown

In the first quarter of 2024, TransAct generated 72.7% of its revenue from the United States and 27.3% from international markets. Domestic sales decreased 56% year-over-year, while international sales declined 37.5%.

Segment Performance

Food Service Technology (FST):

FST revenue was $3.3 million in the first quarter of 2024, down 4.6% year-over-year. Recurring revenue from software, labels, and other services increased 3.4% to $2.4 million, while hardware sales decreased 21%. The company delivered 901 BOHA! terminals during the quarter, resulting in 856 new installations, and ended the period with 15,370 online terminals in service.

POS Automation:

POS automation revenue declined 63.8% year-over-year to $651,000 in the first quarter of 2024, primarily due to a 64% decrease in domestic sales as customers worked through excess inventory built up during supply chain constraints in 2023.

Casino and Gaming:

Casino and gaming revenue plummeted 64% to $5.7 million in the first quarter of 2024, as customers worked through high inventory levels and the company faced increased competition and pricing pressure.

TransAct Services Group (TSG):

TSG revenue decreased 13.6% year-over-year to $1.0 million in the first quarter of 2024, largely due to 31% lower sales of legacy replacement parts for lottery printers, partially offset by a 32% increase in service revenue.

Outlook

For the full year 2024, TransAct now expects revenue to be between $45 million and $50 million and adjusted EBITDA to be between negative $2.5 million and negative $3.5 million. This revised guidance reflects the changing dynamics in the FST and casino and gaming markets, including the loss of a large convenience store customer and the continued slowdown in order rates from many of the company's customers as they work through excess inventory.

Risks and Challenges

TransAct faces several risks and challenges, including the adverse effects of current economic conditions, difficulties or delays in manufacturing or delivery of inventory or other supply chain disruptions, inflationary pressures, and the Russia/Ukraine and Middle East conflicts. The company also relies on an unrelated third party to develop, maintain, and host certain web-based food service application software and selected components of its downloadable software applications, and any interruptions in this relationship could materially impair its ability to provide services to its FST customers.

Additionally, TransAct operates in highly competitive markets, and it must successfully develop new products that garner customer acceptance and generate sales, both domestically and internationally, in the face of substantial competition. The company's success also depends on its ability to recruit and retain quality employees, as well as its dependence on third parties for sales outside the United States.

Conclusion

TransAct is a global leader in developing and selling software-driven technology and printing solutions for high-growth markets. While the company has faced challenges in its casino and gaming and POS automation segments, it continues to see strong demand for its BOHA! products in the FST market. With a focus on cost reduction, a solid balance sheet, and a pipeline of new opportunities, TransAct is well-positioned to navigate the current economic environment and capitalize on long-term growth prospects in its key markets and beyond.