TRANSACT TECHNOLOGIES INC Q3 FY2024 earnings call

Management Statement and Operational Highlights

• FST Progress: Strong sales in FST with 1,355 units sold in Q3, expecting quarterly terminal placements to continue. Terminal 2 rollout to large QSR client going as planned, with positive feedback. Added 12 new BOHA! clients, with new business pipeline strong.
• Casino and Gaming: Normalization of the market with one major OEM still in oversupply, working to reconfigure inventory. Positive on Epicentral product via partnership with CasinoTrac, showing potential in casino market.
• Strategic Review: Ongoing strategic review process, with efforts to drive toward optimal outcome for stakeholders, but no immediate news to report.
• Financial Outlook: Revised revenue outlook to $43M-$45M due to casino and gaming demand lag, but adjusted EBITDA range remains unchanged due to cost discipline.

Segment Performance

• FST foodservice technology: Revenue was $4.3 million, up 2% year-over-year and 3% sequentially. Recurring revenue was $2.9 million, down 8% year-over-year but up 3% sequentially. Hardware sales up 30% year-over-year. In Q3, 1,355 units sold, with 2,800 units sold in the last six months.
• Casino and gaming: Revenue was $4.5 million, down 50% year-over-year due to one remaining large OEM customer with oversupply issues. All other large OEMs resumed buying in Q3, but casino activity slowed due to macroeconomic factors.
• POS automation: Sales were $1.1 million, down 30% year-over-year due to difficult comps and normalized competition.
• TransAct Services Group (TSG): Sales were $864,000, down 62% year-over-year due to unusual prior-year sales of legacy lottery spare parts.

Guidance

• Revised revenue outlook to a range of between $43 million and $45 million.
• Adjusted EBITDA range remains the same as previously disciplined on cost side.
• Expect ARPU to rise to around $800 once certain terminal changes occur in Q4.

Risks

• Casino and gaming market demand lag longer than anticipated, impacting sales.
• Competitive environment in POS automation returning to normalized, requiring pricing adjustments.
• Unusual prior-year sales of legacy lottery spare parts affecting TSG sales, leading to lower current run rate.

Question and Answer

Q: On the casino and gaming side, can you elaborate on the one OEM in oversupply and the competitive environment?

A: The OEM has printers with oversupply, and reconfigurations like adding accessories or firmware for different markets are being done. In competitive environment, other players are back, with competition in new casinos and construction projects, but working to maintain market share via reliability and cost-effectiveness.

Q: On FST, how is average client size trending and initial order attachment rate?

A: Focus is on companies/organizations that can buy at least 50-100 units. With land-and-expand strategy, early orders may be small but lead to expansion. Sales team is refining go-to-market with tracking funnels and nurture tracks, improving close rates.

Q: When will casino and gaming return to normal patterns?

A: It's hard to pinpoint, but market opportunity is long-term. Headwinds from overbuying during pandemic and supply chain issues are subsiding, expected to normalize in 2025.