Market Overview

TransAct Technologies Reports 2018 Second Quarter Results

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2018 Second Quarter Net Sales Rise 8% to $14.8 Million, Reflecting
Restaurant Solutions and Casino and Gaming Strength

Higher Sales and Increased Gross Profit Drive 33% Improvement in
Diluted EPS to $0.16

TransAct Technologies Incorporated (NASDAQ:TACT) ("TransAct" or the
"Company"), a global leader in software-driven technology and printing
solutions for high-growth markets, today reported operating results for
the second quarter ended June 30, 2018.

                     
Summary of 2018 Q2 Results

(In millions, except per share and percentage data)

 
Three Months Ended
June 30,
2018   2017
Net sales $ 14.8 $ 13.6
Gross profit $ 7.0 $ 6.4
Gross margin 47.4 % 47.3 %
Operating income $ 1.6 $ 1.3
Net income $ 1.2 $ 0.9
Net income per diluted share $ 0.16 $ 0.12
 

Non-GAAP(1):

EBITDA $ 1.8 $ 1.6
Adjusted EBITDA $ 2.0 $ 1.7
 
(1)   A reconciliation of each non-GAAP financial measure to the most
comparable Generally Accepted Accounting Principles ("GAAP")
financial measure is included in this release. See "Non-GAAP
Financial Measures" below for a discussion of these metrics.
 

Bart Shuldman, Chairman and Chief Executive Officer of TransAct,
commented, "We are extremely pleased with our strong 2018 second quarter
results, as growth initiatives for our restaurant solutions and casino
and gaming operations took hold. Our restaurant solutions net sales grew
23% year over year reflecting the momentum that we are achieving with a
growing number of restaurant and food service operators as we continue
to lead the industry in product innovation. We are also thrilled with
the success that we have had taking over direct responsibility for sales
and support for our international gaming and casino customers, which
drove a 267% improvement in international casino and gaming sales for
the second quarter of 2018 as compared to the prior year period. I am
also pleased that we continued to gain market share in the domestic
casino and gaming market resulting in a 77% year-over-year increase in
overall casino and gaming revenue. Our success in these markets
continues to build a solid foundation from which we can achieve
continued growth going forward.

"In the second quarter, we gained traction with our AccuDate restaurant
solutions terminal and software offerings, as we continued rollouts of
terminals to new and existing customers while also working on many new
customer opportunities. Inclusive of sales of AccuDate labels and
maintenance and support contracts, net sales for our restaurant
solutions portfolio was approximately $1.4 million in the second quarter
of 2018, representing year-over-year growth of approximately 29%.
Shipments of AccuDate XL terminals exceeded sales of AccuDate 9700
terminals for the first time in the 2018 second quarter and as sales of
AccuDate XL terminals continue to grow, recurring revenue will increase.
We are clearly establishing a large market opportunity for TransAct that
continues to evolve and grow.

"Our successes to date indicate there is a significant opportunity for
TransAct to be a major participant and to capture large market share in
the restaurant solutions business, as restaurant and food service
companies more actively invest in both hardware and software technology
for the back of the house to transform every area of their operations.
Our product offerings remain at the forefront of innovation to address
these needs and we have a strong internal team of hardware and software
developers working on a comprehensive portfolio of solutions and
services that we believe will further position TransAct to achieve near
and long-term growth in this developing market. From the new AccuDate
XL2e terminal to the TransAct Enterprise Management System, both of
which were launched earlier this year to favorable response at the
National Restaurant Association Show in Chicago, TransAct has built a
foundation that we will further complement with innovative new offerings
to establish the company as the one-stop shop for restaurant operations
and management solutions. With the addition of more software solutions
that are all based on a SaaS model, we are building the beginning of a
potentially large recurring revenue sales model.

"We also continue to generate strong results in our casino and gaming
business reflecting growing demand for our market-leading Epic printer
solutions. Our domestic business continues to gain market share as
domestic net sales rose 30% over the prior year period, driven by an
increased preference for our solutions by casino operators in an
improving slot sales and replacement environment. The strong growth in
our international sales reflects the rapid and significant progress that
we have made in Europe following our decision to transition sales across
the continent from a distribution model to a direct sales model. With
this important transition, TransAct is better leveraging our world class
customer service and our proven solutions portfolio to grow our
business. Given our progress, we remain confident that our international
shipments will show continued strength over the balance of 2018 and that
we will continue to gain share in the domestic market."

Mr. Shuldman concluded, "Our near and long-term success will be driven
by the major opportunities that we are building for ourselves in the
restaurant solutions marketplace and our expectation that we will
continue to grow our world-wide casino and gaming business. We are
actively investing in technology and hardware that will allow us to
continue to monetize the evolving restaurant solutions opportunity and
believe that we are ideally positioned to help restaurant operators
enhance their back-of-house processes, reduce operating costs, protect
their brands and customers and implement technology to grow their
businesses. In addition, we expect our casino and gaming business will
continue to be a strong driver of growth for the Company as we extend
our industry leadership in both the domestic and international markets.
The future is bright for TransAct and we look forward to continuing to
deliver on our promise to create value for our shareholders in the
coming quarters and years."

Review of Balance Sheet and Capital Return Initiatives

At June 30, 2018, TransAct had approximately $3.8 million of cash and
cash equivalents and no debt. During the 2018 second quarter, the
Company repurchased approximately 34,000 shares of its common stock and
paid a dividend to common shareholders of $0.09 per share, resulting in
a total return of capital of approximately $1.1 million for the quarter.
TransAct has $3.0 million remaining under its existing $5.0 million
share repurchase authorization.

Steve DeMartino, President and Chief Financial Officer of TransAct,
added, "We continue to benefit from the evolution of our business
towards technology-driven solutions which has allowed us to expand our
gross margin and create a recurring sales opportunity that we expect to
grow over time. Importantly, our efforts to evolve TransAct are built on
a strong balance sheet with $3.8 million of cash and no debt, which
allows us to return capital to our shareholders through quarterly
dividends and share repurchases. We expect that our financial strength
and flexibility will allow us to continue to return capital to
shareholders going forward even as we further invest in our technology
development capabilities to support the long-term growth opportunities
that we see in the casino and gaming and restaurant solutions markets."

Summary of 2018 Second Quarter Operating Results

TransAct generated 2018 second quarter net sales of $14.8 million
compared with 2017 second quarter net sales of $13.6 million. Restaurant
solutions net sales were $1.3 million in the 2018 second quarter
compared to $1.0 million in the 2017 second quarter, with the increase
driven by shipments of AccuDate XL terminals to two large corporate
customers in support of multi-quarter rollouts. The Company also
recorded approximately $0.1 million in label sales related to prior
AccuDate terminal sales in its TransAct Services Group sales unit. POS
automation and banking net sales increased $0.2 million year over year
to $2.3 million in the 2018 second quarter as sales of the Ithaca 9000
POS printer returned to record levels. Casino and gaming net sales in
the 2018 second quarter were $7.1 million compared to $4.0 million in
the prior year period, reflecting a 30% increase in domestic casino and
gaming sales and a 267% increase in international casino and gaming
sales. Lottery printer net sales were $0.5 million in the 2018 second
quarter compared to $2.8 million in the 2017 second quarter as the
Company shifted its focus away from this market. Printrex net sales were
$336 thousand in the 2018 second quarter compared to $282 thousand in
the 2017 second quarter, while the Company's TransAct Services Group
generated net sales of $3.4 million in the 2018 second quarter compared
to $3.5 million in the 2017 second quarter.

The Company recorded gross margin of 47.4% in the 2018 second quarter
compared to gross margin of 47.3% in the 2017 second quarter. The gross
margin in the 2018 second quarter remained strong reflecting the shift
in sales mix towards higher-value, technology-driven solutions. Gross
profit in the 2018 second quarter was $7.0 million compared to $6.4
million in the year-ago period on an 8% increase in net sales.

Total operating expenses in the 2018 second quarter increased 5% to $5.4
million compared to $5.1 million in the 2017 second quarter. The
increase largely reflects higher engineering expenses related to ongoing
product development initiatives, including the addition of new hardware
and software engineers, for the Company's restaurant solutions and
casino and gaming markets. Total operating expenses as a percentage of
sales in the 2018 second quarter declined 130 basis points from the
prior-year period.

TransAct generated operating income of $1.6 million, or 11.0% of net
sales, in the 2018 second quarter compared to $1.3 million, or 9.6% of
net sales, for the 2017 second quarter. Net income in the 2018 second
quarter was $1.2 million, or $0.16 per diluted share, compared to net
income of $867 thousand, or $0.12 per diluted share, in the prior year
period.

2018 Second Quarter Conference Call and Webcast

TransAct is hosting a conference call and webcast today, August 2, 2018,
beginning at 4:30 p.m. ET to discuss 2018 second quarter results and
other matters. Both the call and the webcast are open to the general
public. The conference call number is 678-825-8259 and the conference ID
number is 4298257 (domestic or international). Please call five minutes
prior to the presentation to ensure that you are connected.

Interested parties may also access the conference call live on the
Internet at www.transact-tech.com
(select "Investor Relations" followed by "Events & Presentations").
Approximately two hours after the call has concluded, an archived
version of the webcast will be available for replay at the same location.

Non-GAAP Financial Measures

TransAct is providing certain non-GAAP financial measures because the
Company believes that these measures are helpful to investors and others
in assessing the ongoing nature of what the Company's management views
as TransAct's core operations. The Company believes that the non-GAAP
financial measures of EBITDA and adjusted EBITDA provide relevant and
useful information, which is widely used by analysts, investors and
competitors in the Company's markets as well as by the Company's
management in assessing the Company's performance. The Company uses the
non-GAAP financial measures internally to focus management on the
results of the Company's core business. The presentation of this
additional non-GAAP information is not considered superior to or a
substitute for, and should be read in conjunction with, the financial
information prepared in accordance with GAAP.

EBITDA is defined as net income before net interest expense, income
taxes, depreciation and amortization. A reconciliation of EBITDA to net
income, the most comparable GAAP financial measure, can be found
attached to this release.

Adjusted EBITDA is defined as net income before net interest expense,
income taxes, depreciation and amortization and is adjusted for
share-based compensation. The Company adjusts EBITDA for share-based
compensation because the Company considers share-based compensation to
be a non-cash expense similar to depreciation and amortization. A
reconciliation of adjusted EBITDA to net income, the most comparable
GAAP financial measure, can be found attached to this release.

EBITDA and adjusted EBITDA provide the Company with an understanding of
one aspect of earnings before the impact of investing and financing
charges and income taxes. EBITDA and adjusted EBITDA may be useful to an
investor in evaluating the Company's operating performance because these
measures are: (i) widely used by investors to measure a company's
operating performance without regard to non-recurring items excluded
from the calculation of such measure; (ii) used as financial
measurements by lenders and other parties to evaluate creditworthiness;
and (iii) used by the Company's management for various purposes
including strategic planning and forecasting, assessing financial
performance and paying incentive compensation.

About TransAct Technologies Incorporated

TransAct Technologies Incorporated is a global leader in developing
software-driven technology and printing solutions for high-growth
markets including restaurant solutions, POS automation, casino and
gaming, lottery, and oil and gas. The Company's solutions are designed
from the ground up based on customer requirements and are sold under the
AccuDate™, EPICENTRAL®, Epic®, Ithaca®, and Printrex® brands. TransAct
has over 3.0 million printers and terminals installed around the world
and is committed to providing world-class service, spare parts and
accessories to support its installed product base. Through the TransAct
Services Group, the Company also provides customers with a complete
range of supplies and consumable items both online at http://www.transactsupplies.com
and through its direct sales team. TransAct is headquartered in Hamden,
CT. For more information, please visit http://www.transact-tech.com
or call (203) 859-6800.

Forward-Looking Statements

Certain statements in this press release include forward-looking
statements. Forward-looking statements generally can be identified by
the use of forward-looking terminology, such as "may", "will", "expect",
"intend", "estimate", "anticipate", "believe", or "continue", or the
negative thereof, or other similar words. All forward-looking statements
involve risks and uncertainties, including, but not limited to, customer
acceptance and market share gains, both domestically and
internationally, in the face of substantial competition from competitors
that have broader lines of products and greater financial resources; our
competitors introducing new products into the marketplace; our ability
to successfully develop new products; our dependence on significant
customers; our dependence on significant vendors; our dependence on
contract manufacturers for the assembly of a large portion of our
products in Asia; our ability to protect intellectual property; our
ability to recruit and retain quality employees as the Company grows;
our dependence on third parties for sales outside the United States,
including Australia, New Zealand, Latin America and Asia; the economic
and political conditions in the United States, Australia, New Zealand,
Europe, Latin America and Asia; marketplace acceptance of new products;
risks associated with foreign operations; the availability of
third-party components at reasonable prices; price wars or other
significant pricing pressures affecting the Company's products in the
United States or abroad; risks associated with potential future
acquisitions; our line of restaurant solutions products driving
increased adoption by customers; increased product costs or reduced
customer demand for our products due to changes in U.S. policy that may
result in trade wars or tariffs; and other risk factors detailed from
time to time in TransAct's reports filed with the Securities and
Exchange Commission. Actual results may differ materially from those
discussed in, or implied by, the forward-looking statements. The
forward-looking statements speak only as of the date of this release and
the Company assumes no duty to update them to reflect new, changing or
unanticipated events or circumstances.

TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
      Three Months Ended   Six Months Ended
(In thousands, except per share amounts) June 30, June 30,
2018   2017 2018   2017
Net sales $ 14,751 $ 13,596 $ 26,994 $ 27,593
Cost of sales   7,760     7,166     14,141     15,070  
Gross profit   6,991     6,430     12,853     12,523  
 
Operating expenses:
Engineering, design and product development 1,183 1,020 2,404 2,013
Selling and marketing 2,079 2,034 3,652 3,706
General and administrative   2,111     2,070     4,323     4,082  
  5,373     5,124     10,379     9,801  
Operating income   1,618     1,306     2,474     2,722  
 
Interest and other income (expense):
Interest, net (6 ) (8 ) (14 ) (16 )
Other, net   (97 )   (2 )   (87 )   (8 )
  (103 )   (10 )   (101 )   (24 )
 
Income before income taxes 1,515 1,296 2,373 2,698
Income tax provision   305     429     483     888  
Net income $ 1,210   $ 867   $ 1,890   $ 1,810  
 
Net income per common share:
Basic $ 0.16 $ 0.12 $ 0.25 $ 0.24
Diluted $ 0.16 $ 0.12 $ 0.24 $ 0.24
 
Shares used in per share calculation:
Basic 7,401 7,408 7,467 7,402
Diluted 7,660 7,514 7,782 7,469
 
SUPPLEMENTAL INFORMATION – SALES BY SALES UNIT:
       

 

Three Months Ended Six Months Ended
(In thousands) June 30, June 30,
2018   2017 2018   2017
Restaurant solutions $ 1,259 $ 1,021 $ 2,304 $ 1,548
POS automation and banking 2,252 2,048 3,968 4,506
Casino and gaming 7,067 3,985 13,007 9,102
Lottery 481 2,787 1,116 5,768
Printrex 336 282 611 460
TransAct Services Group   3,356     3,473   5,988     6,209
Total net sales $ 14,751   $ 13,596 $ 26,994   $ 27,593
 
 
TRANSACT TECHNOLOGIES INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
       
June 30, December 31,
(In thousands) 2018 2017
Assets:
Current assets:
Cash and cash equivalents $ 3,756 $ 5,507
Accounts receivable, net 10,200 10,948
Inventories 11,382 8,875
Other current assets   710     1,031  
Total current assets   26,048     26,361  
 
Fixed assets, net 2,451 2,169
Goodwill 2,621 2,621
Deferred tax assets 2,285 2,308
Intangible assets, net 411 458
Other assets   31     33  
  7,799     7,589  
Total assets $ 33,847   $ 33,950  
 
Liabilities and Shareholders' Equity:
Current liabilities:
Accounts payable $ 5,202 $ 3,841
Accrued liabilities 3,040 3,339
Deferred revenue   243     169  
Total current liabilities   8,485     7,349  
 
Deferred revenue, net of current portion 94 69
Deferred rent, net of current portion 269 271
Other liabilities   262     247  
  625     587  
Total liabilities   9,110     7,936  
 
Shareholders' equity:
Common stock 114 114
Additional paid-in capital 31,533 31,353
Retained earnings 25,310 24,756
Accumulated other comprehensive loss, net of tax (110 ) (99 )
Treasury stock, at cost   (32,110 )   (30,110 )
Total shareholders' equity   24,737     26,014  
Total liabilities and shareholders' equity $ 33,847   $ 33,950  
 
       

TRANSACT TECHNOLOGIES INCORPORATED

RECONCILIATION OF NET INCOME TO EBITDA AND ADJUSTED EBITDA

NON-GAAP FINANCIAL MEASURES
(Unaudited)
 
Three Months Ended Six Months Ended
(In thousands) June 30, June 30,
2018   2017 2018   2017
Net income $ 1,210 $ 867 $ 1,890 $ 1,810
 
Interest expense, net 6 8 14 16
Income tax provision 305 429 483 888
Depreciation and amortization   259   289   480   602
 
EBITDA 1,780 1,593 2,867 3.316
 
Share-based compensation expense   176   150   337   296
 
Adjusted EBITDA $ 1,956 $ 1,743   3,204 $ 3,612

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