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Edited Transcript of TACT earnings conference call or presentation 10-Mar-20 9:00pm GMT

Hamden Apr 1, 2020 (Thomson StreetEvents) — Edited Transcript of TransAct Technologies Inc earnings conference call or presentation Tuesday, March 10, 2020 at 9:00:00pm GMT

* Bart C. Shuldman

* Steven A. DeMartino

* Jeffrey M. K. Bernstein

Cowen Inc. – VP

B. Riley FBR, Inc., Research Division – Senior Analyst of Discovery Group

* Marc P. Griffin

Greetings. Welcome to TransAct Technologies Fourth Quarter and Full Year 2019 Conference Call. (Operator Instructions) Please note that this conference is being recorded.

At this time, I’ll turn the conference over to Marc Griffin of Investor Relations. Please go ahead, Marc.

Marc P. Griffin, ICR, LLC – SVP [2]

Thank you. Good afternoon and welcome to TransAct Technologies Fourth Quarter and Year-end 2019 Earnings Call. Today, we’ll be discussing the results announced in our press release issued after market close. Joining us today from the company are Chairman and CEO, Bart Shuldman; and President and CFO, Steve DeMartino. Today’s call will include a discussion of the company’s key operating strategies, progress on these initiatives and details on the fourth quarter financial results. We’ll open the call to participants for questions.

As a reminder, this conference call contains statements about our 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 list of full risks inherent to the business and to the company, please refer to the company’s SEC filings, including its reports on Form 10-K and 10-Q. TransAct undertakes no obligations to revise or update these forward-looking statements to reflect events or circumstances that occur after the call.

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

With that, let me turn it over to Bart.

Bart C. Shuldman, TransAct Technologies Incorporated – Executive Chairman & CEO [3]

Thank you, Marc, and thank you to everyone for joining us on today’s call. Before I begin, I’d like to mention to our shareholders that we have engaged a new firm, ICR, as both our investor and public relations firm for 2020. I thank Rich Land and James Leahy at JCIR for their work on behalf of TransAct the last few years. Rich and Jim, thank you.

We have now moved to ICR, and we look forward to working with them as they will be coordinating both the IR and PR efforts together for TransAct. We look forward to working with Michael Bowen, Marc Griffin and Ryan Gardella on the IR side and Liz DiTrapano and Kate Ottavio Kent with our public relations. As a quick note, we have made a lot of progress in growing our visibility in the foodservice market as ICR already arranged [present of use] with national restaurant and convenience store magazines regarding our BOHA! foodservice technology. And they were extremely helpful in getting me recognized as one of the most influential restaurant CEOs in the U.S.

Now on to the business. We are pleased with our execution throughout the year and ended 2019 with strong momentum in our foodservice technology market. As Steve will discuss in detail later during this call, our preliminary fourth quarter total net revenue declined 5% year-over-year to $11.2 million. We recorded an operating loss of $1.1 million and adjusted EBITDA loss of $140,000. We’ve delivered quarterly gross profit margin of 41.2% and diluted EPS loss for the fourth quarter of $0.11 per share. Steve will have more to speak about.

In May of 2019, we launched BOHA!, our new foodservice technology ecosystem, and we are excited by the momentum BOHA! is receiving in the market. The BOHA! platform drove 58% year-over-year revenue growth in our foodservice technology or what we kind of call the FST market. More importantly, our foodservice technology recurring revenue grew sequentially and more than tripled from Q4 2018. As a reminder, recurring sales include software and service subscriptions as well as consumable label sales, and it exceeded $675,000 in Q4 or an annual recurring run rate of $2.7 million.

During the fourth quarter, we installed a record number of hardware terminals and completed many trials, which set the stage for the large number of deals we announced in the first few months of this year. As of December 31, we had 2,750 paid terminals in the market, which drove the 21% year-over-year increase in FST hardware revenue. In December, we announced an expansion deal with one of our first BOHA! customers adding 220 additional terminals to their existing network, which increased the annual recurring revenue at these stores. As of year-end, our BOHA! solutions are active in 20 different restaurant and foodservice companies. Most importantly, with the progress we made in executing the trial phase with a host of customers that led to 5 announced wins in January or February of this year. In total, we are expecting to install over 450 hardware terminals with an average recurring revenue per unit greater than $1,100.

Now let’s review some of the more recent notable wins. A regional office of a national convenience store chain with 72 locations, our BOHA! solution will allow this customer to manage its new fresh food offering. We believe that if the fresh food program is expanded to new regions, we’ll be able to expand the BOHA! solution to an additional 2,000 stores. A national contract foodservice management company will use the BOHA! solution at up to 100 locations with 50 starting in 2020. This customer will use the BOHA! solution at a variety of locations for grab ‘n go labeling, date code labeling and to digitize and host the standard operating procedures using the BOHA! media library. This customer is also evaluating 2 additional BOHA! applications, BOHA! Sense and BOHA! Temp, to manage their equipment temperature monitoring and to improve their food safety temperature taking compliance.

A regional convenience store chain will use the BOHA! ecosystem to support their fresh food program at 100 locations. A specialty food contractor, which operates independent kiosks throughout their regional grocery store chain, expects to deploy the BOHA! system into most of the 130 of their locations by the end of the year. And a regional convenience store chain will use the BOHA! ecosystem to support their fresh food program at 100 locations this year and the remaining 130 locations in 2021.

Finally, we secured the first expansion agreement at the corporate level to begin selling additional BOHA! solutions to more than 1,000 Canadian fast food franchise locations. The additional hardware and apps form the basis of our digital temperature taking and monitoring solution, which includes the BOHA! Temp app, BOHA! Sense app and BOHA! Timer app, plus the required hardware, which includes BOHA! Gateway and BOHA! Sensors. With over 90 franchisees already using the BOHA! labeling SaaS-based app and TEMS, alongside the BOHA! Terminal, we are excited about the opportunity to cross-sell additional apps to these and other franchise locations.

Now moving on to our market-leading casino and gaming printer business. Revenue in the quarter was flat at $5.3 million and ended the year at $21.5 million, down 19% year-over-year. As a reminder, in 2018, we benefited from 2 significant onetime shipments of replacement printers to a large domestic casino operator and a customer in Europe, which created a tough comparison in 2019. That said, we are pleased with the continued strength of the casino business, particularly on the international side. We continue to invest in this important segment of our business. And at ICE London in February this year, we launched Epicentral 4.0 into the European market. The global gaming and casino market remain a steady component of our overall business and provides the necessary support to ramp our BOHA! foodservice technology business.

With that, Steve will review our preliminary fourth quarter and full year 2019 results, after which I’ll make some summary remarks before opening the call to questions and answers. Steve?

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Steven A. DeMartino, TransAct Technologies Incorporated – President, CFO, Treasurer & Secretary [4]

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Thanks, Bart. Good afternoon, everyone. We’re pleased with the progress TransAct has made in our most recent quarter. Just a quick note, in light of our ongoing internal controls remediation that we discussed with you last quarter, we’re again presenting our fourth quarter results and preliminary form as PwC completes their year-end audit procedures. We expect to report our final operating results for the fourth quarter ’19 when we file our 2019 Form 10-K.

Overall, our fourth quarter ’19 net sales were $11.2 million, down 5% from $11.8 million in the fourth quarter last year. Looking at our fourth quarter sales by market, our foodservice technology market or FST, formerly referred to as restaurant solutions, was up 58% to $1.8 million from $1.2 million in the fourth quarter of last year. As a reminder, beginning last quarter, we now include BOHA! Service and BOHA! label sales in FST. Previously, we included those sales in TSG. FST hardware sales were up 21% to $1.1 million from $938,000 in the fourth quarter of ’18, and we ended the quarter with 2,750 paid terminals. Our recurring sales, including software and service subscriptions as well as consumable label sales, reached $686,000 in Q4, which has more than tripled the $212,000 we reported in the year ago period. The large increase in our recurring revenue demonstrates that BOHA! initiatives have begun to gain traction and are driving incremental sales with customers who already use our terminals.

Casino and gaming sales were $5.3 million, which was flat from the fourth quarter of ’18. Breaking this down a little further, our domestic revenues were down 4% from the prior year. Our U.S. casino ticket printer sales increased 5%, which was more than offset by a decline in Epicentral software sales, as we didn’t have any new installations in the fourth quarter of ’19. Our international casino gaming revenues were up 8%, due largely to international gaming printer sales due at least in part to a large order in Spain, based on strong demand from sports betting applications as well as higher demand from an Asian OEM.

POS automation and banking sales were down 4% to $1.3 million in the fourth quarter ’19. We continue to experience slowing sales of the Ithaca 9000 POS printer for McDonald’s, including the ongoing impact of a decision by one of McDonald’s large POS system vendors to repair versus replace their printers. As we’ve noted before, while this decision reduces new printer sales, it has driven an increase in service revenue, which shows up in our TSG sales unit. We had no banking sales in the fourth quarter ’19 as we exited this market at the end of ’18.

Printrex product sales were flat at $243,000 compared to the prior year fourth quarter. While we’re no longer focused on this market, we expect to continue to receive orders during 2020 as we continue to service our legacy customers. And finally, TSG sales were down 12% year-over-year to $2.1 million, as the increase in service and spare parts from McDonald’s large POS vendor was not enough to offset a decline in sales of legacy consumables such as HP inkjet cartridges and POS paper rolls.

Moving down the income statement. Our fourth quarter gross margin was 41.2% compared to 50.1% in the prior year. Our gross margin was negatively impacted in the fourth quarter ’19 by a $400,000 write-off of tooling due to a product design change as well as approximately $200,000 of incremental expense from additional Chinese tariffs. Absent these 2 items, our gross margin would have been about 46.6% in the quarter.

Giving a little color on the tooling write-off. We had started the development of a new product over a year ago for foodservice technology. And in response to market feedback, our product team conceived a different product that has even more applications and benefits to the market. As a result, we decided to abandon the original design and go in a different direction. Though we can’t disclose the details yet, we’re really excited about the new design, and we expect to launch this new BOHA! product in the next month or 2.

In terms of the Chinese tariff, we do expect to continue to be impacted by the tariff during 2020, as 1 of our 2 main contract manufacturers is located in China. However, we’ve already begun the process of transitioning production from this CM to our other CM, who’s located outside of China, so the impact should diminish as we move through the latter part of 2020 and into ’21.

Total operating expenses for the fourth quarter of ’19 were $5.7 million, which was up 17% year-over-year. Selling and marketing expenses were up $390,000 or 22%, as we continued to build out and increase our spend on outside and inside sales, technical sales and marketing staff to support the growth of our FST market. G&A expenses were up $452,000 or 23% on higher legal, accounting and other professional service fees as well as increased recruiting expenses for new hires and severance incurred during the quarter. Engineering, design and product development expenses were flat on a year-over-year basis.

We incurred an operating loss for the fourth quarter of ’19 of $1.1 million or 9.5% of net sales, which compares to operating income of $1.1 million or 9.1% of net sales in the year ago quarter. On the bottom line, we recorded a net loss of $800,000 or $0.11 per diluted share in the fourth quarter ’19 compared to net income of $962,000 or $0.12 per diluted share in the year ago period. Our adjusted EBITDA for the fourth quarter ’19 was a loss of $140,000, which compares to $1.3 million in the fourth quarter of last year.

And finally, turning to the balance sheet. We ended ’19 with $4.2 million in cash and no debt. We also returned about $700,000 of capital to shareholders in the fourth quarter through our previous quarterly cash dividend of $0.09 per share. Subsequent to the quarter, we ended our quarterly dividend to accelerate the company’s investments in the sales and marketing and continued product development of BOHA!.

Before my closing remarks, I want to provide a brief update on the remediation plan for the internal controls issues we spoke about last quarter. We believe we developed a solid remediation plan to address the internal controls issues, and we’re in the process of implementing it. We are making good progress so far, and our team is working diligently to complete the remediation as quickly as we can.

During 2020, given the significant growth opportunity we see in the FST market, we plan to accelerate investment spending to support the rollout of BOHA!. Existing sales and trial activity should generate increased annual recurring revenue in the coming quarters, as we have added staff and will continue to add more staff to exploit this opportunity. This will ensure we have the right team and infrastructure in place to support our customers as they introduce BOHA! into their day-to-day operations.

The growth in recurring sales, which includes software and service subscriptions as well as consumable label sales, was very strong in the fourth quarter and highlights the benefits of our ongoing investments. We believe this affirms that our business model transformation to SaaS-based software subscriptions and related label sales is beginning to take hold, and our expanding installed base of hardware will be a driver of these recurring revenue offerings going forward. We believe that TransAct remains on track to benefit from BOHA! and the long-term growth potential of this exciting market opportunity.

And at this point, I would like to give the call back to Bart for some closing remarks.

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Bart C. Shuldman, TransAct Technologies Incorporated – Executive Chairman & CEO [5]

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Thanks, Steve. As always, great job. As we look towards 2020, we remain confident that BOHA! is on pace to become our largest ever revenue-generating opportunity at TransAct. Our focus is on driving the success for BOHA!, as we have determined to leverage our position in this emerging market to grow our business and create significant long-term value for our shareholders while at the same time focusing on our casino and gaming business with a world class-leading printers and Epicentral software system.

Now normally, I’d be looking forward to meeting some of you at the Roth Capital Conference next week. Unfortunately, we are going through a strange time right now with the coronavirus. And therefore, the Roth Capital Conference was postponed, as I’ve been told about an hour ago, but also that they’d be trying to do something called a virtual one-on-one meeting. I have no details on how that’s going to work. So I can’t share that with you. But unfortunately, we won’t have the chance to meet and then talk about the company and the years ahead.

So at this time, I’ll open up the call to questions and answers. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Kara Anderson with B. Riley FBR.

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Kara Lyn Anderson, B. Riley FBR, Inc., Research Division – Senior Analyst of Discovery Group [2]

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Kind of on the last point, Bart, just wondering if you can discuss the implications that coronavirus may be having or could have on your business. I know you contract manufacture in China, and you are quite exposed in the casino and gaming industry in Asia. Just curious if you have some thoughts there that you could provide.

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Bart C. Shuldman, TransAct Technologies Incorporated – Executive Chairman & CEO [3]

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Sure. Sure. I’ve got a couple of thoughts. First of all, unfortunately, we’ve had the cancellation of the Roth Capital Conference, and we’ve also had the cancellation of the McDonald’s worldwide. One was a selling opportunity for me to potential and existing shareholders, and one was a potential for the company to sell to the McDonald’s franchisees. As Steve spoke about, we are launching a new product shortly, and it would have been — given us a great opportunity to showcase that product at the McDonald’s worldwide. We’re staying very close to the industries that we’re in.

I can say that I am very worried about what the American Gaming Association is doing. We have a trade show in Macau, China, out of all places. And while it was postponed for May, they’re telling us that they’re going to try and hold it in July. And I think that’s very dangerous for our employees. I would ask my friends in the casino industry to join me and ask the AGA and Reed Exhibition to postpone it further and maybe even combine it with the Macau Gaming Show in November so we don’t have to put our employees in harm’s way. Just today, the Governor of Connecticut announced a state of emergency here. So we’re dealing with reality of what’s going on.

As for our supply chain, clearly, it was affected. But the wonderful news is if you looked at our balance sheet, our inventory is up and up a lot, as we prepared for our shipments of BOHA! Terminals into our — the market for our customers. And we’ll be able to meet the demand as we see it today. And we have enough gaming and casino printers to meet the current demand that we see. And we actually — have actually seen an opportunity to sell some more casino printers, as our competitors struggle to meet the demand as their supply chain is in worse shape and they don’t have inventory. However, we have to remember, Kara, that our businesses are consumer-facing. Casinos and restaurants are — is the market that we serve, and we face the consumer. And it’s too early to call.

We were off to a good start this year, just so you know. Our business was off to a nice start. Europe was looking better in our casino market. And clearly, we closed 5 deals for our FST business in January and February. But unfortunately, the world has changed, and it’s not a hoax. It’s real. New York, New Rochelle was just shut down as a city. So we just don’t know. March is a very big month for us and for our casino customers, especially our slot manufacturers, and we will see how it develops over the course of this month and next month. We have to wait and see. We are having meetings here in Connecticut on the expense side of the business to monitor our expenses as this develops further.

But on one positive side, I’d just like to give you an example of how we see BOHA! helping. Starbucks announced that they will, every 8 minutes, clean the store. And if you think about that, if you use BOHA! Checklist and BOHA! Timer, you can set the Checklist of what needs to be cleaned and the Timer to say every 8 minutes clean whatever you need to clean. So we will start to market BOHA! as a help to restaurants and foodservice providers as they look at how they’re going to manage their restaurants in regards to making sure it’s clean and virus-free. So we think that BOHA! is a great solution to help our foodservice customers deal with the virus and the potential of its spreading.

So Kara, it’s too early to call. It’s very fluid. I don’t think anybody is going to deny that this thing is not moving very quickly in regards to what’s going on in the marketplace. Like I said, we were off to a pretty good start this year. But — and that’s all in the rearview mirror. We are looking forward. We’re talking to our customers, and we’ll see how the next couple of months rollout.

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Kara Lyn Anderson, B. Riley FBR, Inc., Research Division – Senior Analyst of Discovery Group [4]

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That’s very helpful. Just one follow-up on the supply chain. Are your contract manufacturers up and running at this point?

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Steven A. DeMartino, TransAct Technologies Incorporated – President, CFO, Treasurer & Secretary [5]

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They’re — the Chinese manufacturers are coming back from Chinese New Year, and it’s been a slower start than it typically — in a typical year, Kara, obviously, because of the virus. But they are coming back on line. So it’s been slow, but they are coming.

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Bart C. Shuldman, TransAct Technologies Incorporated – Executive Chairman & CEO [6]

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Yes. We really just have 1 product left in China. It’s a terminal. I think we can say that it’s a terminal that we manufacture there. Its life is short in regards to when we look out at BOHA! over the next many years. So it made no sense to move it because it’s very expensive. We are selling it, though. So we need it. We do have inventory, and that’s hence why you saw the charge in the fourth quarter for $200,000 for tariff. Sorry, China didn’t pay for those tariffs. TransAct paid for those tariffs. But the rest of everything, Steve, if I’m not mistaken, has been moved to Thailand.

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Steven A. DeMartino, TransAct Technologies Incorporated – President, CFO, Treasurer & Secretary [7]

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Yes. It was dual sourced, at least.

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Bart C. Shuldman, TransAct Technologies Incorporated – Executive Chairman & CEO [8]

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Yes. So we should be — when we met as a team last week and went over our forecast and what — at the time — actually, before — I mean, this week has really been a real change to the market. And we don’t see any impact to shipping product to our customers this year based on our large amount of inventory that we have. We even — like I said, we even picked up an extra order because one of our competitors could not ship, and we had it in stock. So we’re able to fulfill that order.

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Kara Lyn Anderson, B. Riley FBR, Inc., Research Division – Senior Analyst of Discovery Group [9]

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Got it. And then on the — I think you called it out as $1.1 million in hardware sales for FST in the quarter. Is any part of that reflecting older versions like the AccuDate?

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Bart C. Shuldman, TransAct Technologies Incorporated – Executive Chairman & CEO [10]

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Yes. We continue to sell the AccuDate 9700. Remember, McDonald’s franchisees use that terminal for their food safety labeling. So — and we have a couple of other customers that continue to use it just for food safety labeling. But McDonald’s is our biggest customer that uses it. Hence, why we’re a little — not little, I’d say we’re very disappointed that we weren’t able to attend the worldwide to show them something new.

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Kara Lyn Anderson, B. Riley FBR, Inc., Research Division – Senior Analyst of Discovery Group [11]

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Right. And then on the customer that you’ve talked about in the past with the potential 10,000 locations, just wondering if there’s any update there on the progress with that.

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Bart C. Shuldman, TransAct Technologies Incorporated – Executive Chairman & CEO [12]

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No. No. Kind of steady as she goes. Clearly, we’re trying to stay in touch with them over the coronavirus issue. It’s going to — they’ve got their schedule. Their construction schedule will follow their construction schedule and the shipments. It’s — we’re really — it’ll ramp up this year because they’ve got a pretty big construction schedule. We do believe it’s going to be somewhere around 2,000 terminals this year, probably a little more in the back half than the first half of the year, I would say almost definitely a little more in the back half than the first half. But from what we can see, what they’ve shown us in regards to their construction schedule and the different things because it’s not just one kind of venue that they’re doing, one item that they’re doing, they’re doing multiple different items that they’re adding to different stores, each one of those stores needs a BOHA! solution. So other than them shutting down or deciding to wait to get through the coronavirus, we feel very positive that 2,000 terminals will leave this year.

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Kara Lyn Anderson, B. Riley FBR, Inc., Research Division – Senior Analyst of Discovery Group [13]

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And then one last question for me, just housekeeping, and I’m sorry if I missed it. Did you call out the current recurring revenue run rate?

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Bart C. Shuldman, TransAct Technologies Incorporated – Executive Chairman & CEO [14]

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Yes. Yes. Actually, I said it was more than $675,000. And Steve gave the exact number of $686,000.

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Steven A. DeMartino, TransAct Technologies Incorporated – President, CFO, Treasurer & Secretary [15]

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Yes. $686,000 was the quarter’s. If you annualize that, it’s around $2.7 million annualized.

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Bart C. Shuldman, TransAct Technologies Incorporated – Executive Chairman & CEO [16]

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And just so you know, those numbers have been pulled out at TSG. So anybody looking at TSG, realize that those numbers are no longer inside of TSG. We’re going to put that into the foodservice — the FST market. But we’re running a little over — if you look at what we’ve presented today, Kara, 2,750 terminals in the marketplace that are paying, we do have more because of trials and all that, recurring revenue above $2.7 million, so we’re averaging almost $1,000 a terminal in recurring revenue once they’re out there, recurring revenue — annual recurring revenue per year. So we’re very pleased with those numbers.

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Operator [17]

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Our next question is from the line of Mitchell Sacks with Grand Slam Asset Management.

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Mitchell Lester Sacks, Grand Slam Asset Management, LLC – CEO [18]

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Sure. Just a follow-up in terms of what you were just talking about with respect to understanding the recurring revenue. So just to make sure I understand this correctly, the 2,750 paid terminals are — I would use $1,000 a year in recurring revenue?

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Bart C. Shuldman, TransAct Technologies Incorporated – Executive Chairman & CEO [19]

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Yes. Yes. Just a little under it, Mitch. That’s right. And remember, since we haven’t shipped as many of our — one of our customers is — we’re already kind of forecasting at 1,700, but we haven’t shipped many of those terminals into the market yet. So — but yes, it’s running a little under $1,000 per terminal.

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Mitchell Lester Sacks, Grand Slam Asset Management, LLC – CEO [20]

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Okay. And then when you were talking earlier in the presentation, you were listing some of the companies that you’ve had wins with. And I thought I heard you saying one of the companies was a 2,000-unit order. Was that correct? And if so…

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Bart C. Shuldman, TransAct Technologies Incorporated – Executive Chairman & CEO [21]

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No.

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Mitchell Lester Sacks, Grand Slam Asset Management, LLC – CEO [22]

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Can you just give me the parameters on that? Because when I was looking through my list of wins, I didn’t see anybody with that size. So I must have missed it.

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Bart C. Shuldman, TransAct Technologies Incorporated – Executive Chairman & CEO [23]

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Yes. No, no. No, Mitch. What we said was, this is a — and I’ll get it out. So maybe what I said wasn’t — so it’s a regional office. So we won a regional office of a national convenience store chain. This regional office has 72 locations, and our BOHA! solution will allow this customer to manage. As we have seen, Mitch, across the country, convenience stores are rushing into fresh food, and they have to be FDA-compliant with their labeling and kind of running to us for a solution. Now that’s just a regional part of a national convenience store. We believe as fresh food is rolled out to more regions within this national convenience store chain, that would provide an additional 2,000 locations for our BOHA! solution.

So this is just a regional chain that started with us. But as you know, we have heard some fantastic numbers about the convenience store market revenue increase. I mean there’s an article out there that talks about 30% increase in revenue. We have 1 convenience store that actually told us that they’ve seen revenue go up almost 60% because of their fresh food offering, a smaller regional firm. But you are seeing convenience stores rush to fresh food. And if you think about it, Mitch, we don’t know what the world’s going to be like the next quarter or 2. Let’s be honest, right? Do we all have to live at home for a couple weeks as states and cities and towns try to deal with the coronavirus? But at some point, you got to go get food, right? I mean now do you go to your supermarket, which might not have food, or do you go to your local convenience store and get some fresh food? So it might — it could turn into — be a windfall for convenience stores. We don’t know. But there is the likelihood that, that could happen.

There’s always winners and losers and things like this. I kind of wish we sold face masks right now because we’d be sold out. But there are winners and losers in this type of environment, and just maybe convenience stores are a winner as people go in and get different things that they need for the house instead of going to the local supermarket, big store, lots of people, they go to the local convenience store. So we’ll see. Sorry, I won’t see you next week.

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Operator [24]

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(Operator Instructions) Our next question is coming from the line of Jeff Bernstein with Cowen Prime Advisers.

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Jeffrey M. K. Bernstein, Cowen Inc. – VP [25]

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Just a quick question on the restaurant solutions breakout, $1.8 million in this quarter, $1.2 million or $1.15 million for last year. But is this apples and oranges because this year has the recurring stuff that would have previously been in the TSG piece? And can you give me the apples-to-apples number?

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Steven A. DeMartino, TransAct Technologies Incorporated – President, CFO, Treasurer & Secretary [26]

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No. We reclassified both periods, Jeff. So they’re both — they’re apples-to-apples. So this — yes, this quarter, there’s $686,000; the last quarter, [$212,000].

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Jeffrey M. K. Bernstein, Cowen Inc. – VP [27]

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Got you. Last year, I remember now as I was filling it in, it had been like $800,000 or something. So you’ve reclassified both. Got you. Okay. So that’s great. So that’s a 58% growth year-to-year, which is great. And then just the sequential, you were down slightly. What was the story sequentially? Or was that also — it should be the September would need to be restated?

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Steven A. DeMartino, TransAct Technologies Incorporated – President, CFO, Treasurer & Secretary [28]

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Yes. Well, if you’re looking at it, yes, because we haven’t — no, September, we reclassified. So September should be apples-to-apples, yes.

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Jeffrey M. K. Bernstein, Cowen Inc. – VP [29]

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So what’s the September number for restaurant solutions?

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Steven A. DeMartino, TransAct Technologies Incorporated – President, CFO, Treasurer & Secretary [30]

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I don’t think I have that in front of me, Jeff.

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Jeffrey M. K. Bernstein, Cowen Inc. – VP [31]

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Reclassified. Okay. I mean it looks like, just even before reclassification, that’s down sequentially a little bit. And I was just curious as to what drove that.

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Bart C. Shuldman, TransAct Technologies Incorporated – Executive Chairman & CEO [32]

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Just the terminal might be. What was our terminal sales? Because our recurring revenue was up sequentially.

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Jeffrey M. K. Bernstein, Cowen Inc. – VP [33]

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Sequentially. Got you. Okay.

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Bart C. Shuldman, TransAct Technologies Incorporated – Executive Chairman & CEO [34]

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Oh, yes. Oh, yes. Oh, yes. I think sequentially, the terminals might be down a little.

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Steven A. DeMartino, TransAct Technologies Incorporated – President, CFO, Treasurer & Secretary [35]

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McDonald’s.

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Bart C. Shuldman, TransAct Technologies Incorporated – Executive Chairman & CEO [36]

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Okay. It was just McDonald’s.

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Steven A. DeMartino, TransAct Technologies Incorporated – President, CFO, Treasurer & Secretary [37]

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McDonald’s terminals, Jeff.

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Bart C. Shuldman, TransAct Technologies Incorporated – Executive Chairman & CEO [38]

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Yes. The BOHA! Terminals were up, but McDonald’s was down. And then — and look, we’re going to face that because we rolled out a lot of terminals to McDonald’s, but the BOHA! Terminals were clearly up. And the recurring revenue was up. I forget what it was in the September quarter. But…

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Steven A. DeMartino, TransAct Technologies Incorporated – President, CFO, Treasurer & Secretary [39]

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Yes. Recurring revenue was definitely up.

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Jeffrey M. K. Bernstein, Cowen Inc. – VP [40]

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So the McDonald’s is split between the POS automation and the food safety. There’s still — because you still have the food safety terminal that you sell to them, some McDonald’s revenue is in the restaurant solutions?

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Steven A. DeMartino, TransAct Technologies Incorporated – President, CFO, Treasurer & Secretary [41]

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The only thing that’s in POS, the printer that we sell to McDonald’s that’s used in the front, the one that you guys always see…

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Jeffrey M. K. Bernstein, Cowen Inc. – VP [42]

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Got you. Understood. Great. Great. So now to McDonald’s, we have year-to-year and sequential growth in restaurant solutions. That’s terrific.

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Bart C. Shuldman, TransAct Technologies Incorporated – Executive Chairman & CEO [43]

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And then if you look at BOHA! itself, Jeff, BOHA! is growing. There’s no doubt. BOHA! — recurring revenue is growing, and BOHA! Terminals is growing. It’s just our legacy, the 9700.

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Jeffrey M. K. Bernstein, Cowen Inc. – VP [44]

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I got you. And then just real quick. On the Canadian opportunity where you’ve already kind of gone back in and seen more content demand into a customer that you had already sold. I think you talked about an over 2,000-unit chain or something. What was the exact description?

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Bart C. Shuldman, TransAct Technologies Incorporated – Executive Chairman & CEO [45]

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No. Canada is about 1,000 units, and the total recurring revenue used to be like $375,000 and now up to like $850,000 based on the new software sales.

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Jeffrey M. K. Bernstein, Cowen Inc. – VP [46]

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Okay. And 1,000 units what you have won so far?

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Bart C. Shuldman, TransAct Technologies Incorporated – Executive Chairman & CEO [47]

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No, no. So in typical QSR fashion, it’s a license to sell to their franchisees. I think franchisees have already bought the BOHA! Terminal, Labeling and TEMS, based on our work — excuse me, with corporate, we were able — and really corporate requesting from us, our Timer and temp taking and temp sensing apps, they just approved it. They approved it right before their worldwide or their Canadian franchisee conference. So they had all the franchisees in, where we were able to present to them new solution, which is what we call our BOHA! food safety bundle, which includes all the software. So as we sign up more franchisees outside of the first 90, we’ll be trying to sell them the full bundle plus labels and service. And to the 90 we’ve already sold, we’re now cross-selling the new apps.

I think the good news about the whole thing was, here, we’re starting a lot with labeling, as everybody has said and everybody asked. Yes, labeling is the easiest thing to start within all that. But there is not a customer that we’re not working with that isn’t looking at temp taking or temp sensing or Checklist or Timers. These are the apps that take a little longer. There’s a whole process that you have to go through. Labeling is a lot easier. But I think the really good news is here, they were wanting it, driving it through their testing. And in a very short time, they approved it and did it in time enough for us to present it to all their franchise owners last week at their national franchise meeting.

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Jeffrey M. K. Bernstein, Cowen Inc. – VP [48]

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Got you. And just to follow up on that a little bit because I know you guys have been in some trials with some — the bigger guys. And obviously, those things take time and there’s organizational hurdles and just cultural stuff that — when you go to change people’s behavior of how their employees are going to work in a store, is that sort of part of the hurdle here, that there’s essentially policies on how people are supposed to do stuff? And before you can give them this new tool that’s going to change their workflow, they just have to kind of write a policy around it.

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Bart C. Shuldman, TransAct Technologies Incorporated – Executive Chairman & CEO [49]

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Yes. I mean what we’re doing is we’re actually shortening their policies, right, because if you look at temp taking, you’ve got a whole book that you’ve got to go through. And then you’ve got some sheets you got to fill out. So really — the really heavy lifting, if you think about temp taking, you have to get into the operation, and you have to get into the corporate headquarters. And you got to list every food that gets temp taking. How do they temp take it? When do they temp take it? Where do they temp take it? And that takes months to go through every item because it’s in a huge book in the back of the restaurant. There is procedures for the first of the day when they first fire up the grill. They lay out a bunch of stuff then they temp take it. Is the grill hot enough? So that’s the heavy lifting. The labeling was so easy because everybody labels, and this is just such an easy thing to do. But there is a lot of work to getting their procedures into the cloud on our system. So that’s what takes a little longer.

The thing that’s got our attention, look, we launched it in May. We started working with new customers in June. And in January, February this year, we closed 5 new customers. We had 1 QSR that we’re working with from the beginning that expanded the relationship. Clearly, the convenience store market is running very fast, and that — we’re going after the low-hanging fruit, so convenience stores. These kiosks in supermarkets is another area where fresh food labeling is critical and controlled and demanded by the FDA. So we’re in numerous conversations on some other — and other customers that supply types of food in kiosk-type operations in supermarkets. And restaurant companies will take longer because not only do we — we’ve got to get into their operation. We got to get all that into the cloud. We got to get it tested in their lab and tested in a couple of stores, then tested in a couple more stores and then write an agreement around it. So I believe that sales process is still about 18 months for those types of restaurants.

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Jeffrey M. K. Bernstein, Cowen Inc. – VP [50]

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Got you. Got you. So — but the positive part of that, right, is, no pun intended, this is going to be very sticky. Once you get in there and you’re the guy that they rewrote all the procedures around and they started throwing away books, it’s kind of hard for somebody else to come in and say, “Oh, you should allow your franchisees to buy this one, too. And nobody wants to go back and kind of redo all that work.”

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Bart C. Shuldman, TransAct Technologies Incorporated – Executive Chairman & CEO [51]

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There’s no doubt that this is a very sticky business. We are in — and that’s why, Jeff, we’re focused on operations. Because, as you know, once you’re in the operations, and they’re doing their procedures with your technology and your cloud and you’ve done all the work, right, it’s not just handing them an app and saying, “Make it work.” We’re in there using our app and, for better words, customizing, putting their way of taking temperature and what their temperature taking has got to be and what their temperature is and all that. We’re in there doing that customization for them. Yes, we are then part of their operation, and the cost is not that dramatic to them because of the savings. We’ve had one CEO tell us that he thinks his food quality is up using our technology. The temperature is right. They’re turning their food quicker in the walk-in. They’re not using old food that was in the walk-in. So they’re turning — they’re using that food quicker. So yes, it’s going to be — it’s very sticky. And we expect that our — the churn rate, how many times we redo the contract, to be pretty high, considering we’re so involved inside their restaurant. You’ve got it.

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Operator [52]

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We’ve reached the end of our question-and-answer session. I’ll turn the call back to Bart Shuldman for closing remarks.

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Bart C. Shuldman, TransAct Technologies Incorporated – Executive Chairman & CEO [53]

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Well, we thank everybody for joining us on today’s call. We’ve had the question about the coronavirus. And clearly, it’s on our minds. We do send our thoughts to all of our shareholders and your families and your loved ones in regards to staying safe and healthy. We’ve been through this before. We’ve been through SARS. We’ve been through the Great Recession. It is a large bump in the road, but we are going to stay very, very focused on this very large sales opportunity for us. As Jeff said, it’s very sticky. It’s recurring revenue. We’re starting to feed you more data and what it looks like. Right now, we’re a little under $1,000 a terminal in recurring — annual recurring revenue per year. That looks very good to us. And remember, a lot of that is still just [one] now. So as our customers go to 2, 3 and 4 apps, we believe that number is going to grow.

We thank you for your thoughts. We thank you for your support of the company. Hopefully, whether it’s the next conference call or the conference call after that, we won’t have to talk about coronavirus anymore. We do send our best wishes to everybody’s family and your loved ones in regards to staying healthy, and we’ll talk to you again. Thank you.

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Operator [54]

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

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