Ryan Gardella; Investor Relations; TransAct Technologies Inc
John Dillon; Chief Executive Officer, Director; TransAct Technologies Inc
Steve DeMartino; President and Chief Financial Officer; TransAct Technologies Inc
Jeffrey Martin; Analyst; ROTH Capital Partners LLC
George Sutton; Analyst; Craig-Hallum Capital Group LLC
Operator
Greetings and welcome to the TransAct Technologies' fourth-quarter 2024 earnings call.
(Operator Instructions) 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.
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-K and 10-Q forms.
TransAct 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, within the meaning of SEC Regulation G. When required, reconciliation of all non-GAAP financial measures, the 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. Good afternoon, everyone. Thank you for joining us.
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 $10.2 million, highlighted by the sale of 1,639 BOHA! terminals, the highest quarterly number we've recorded since 2020. And, in fact, I did some math, over the last eight quarters, beginning in Q1, two years ago, 2023, we've seen a 42% combined annual growth rate in our quarterly BOHA! terminal placements that's compounded.
This demonstrates, in my opinion, the improvements we've made in our go-to-market, the GTM strategies, and our internal sales motions. They are, in fact, working well to improve the business. We are also pleased that the momentum is here and we believe that terminal placements will continue to trend upward, throughout 2025.
Let's review some of the other fourth-quarter and full-year results.
For the fourth quarter, we generated total FST revenue, that's Food Service Technology,$ 4.3 million, approximately flat sequentially and down about 8% to 9% year over year; and recurring FST 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, as 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 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 the FST markets [suggest] direct results, as I pointed out, of the reorganization refocusing the FST sales team and marketing teams, during the past 18 months. We acknowledge and understand that there's still work to be done.
This is a recurring and improving process, 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 going to be lumpy. But we expect, overall, the trends will be upward and to the right, which 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've provided in the past to the new BOHA! Terminal 2.
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 2, as planned. In addition to our large QSR and a large sushi customer, this is Hissho, we have a major convenience store chain customer that has begun to upgrade about 1,400 of their old workstations to the new BOHA! terminal.
As a reminder, we discontinued our prior-generation AccuDate 9,700, at the end of 23. Which also makes the AccuDate install base of about 4 40,000 units a potential target for upgrades to the Terminal 2. 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. However, I'll point out that these six accounts represent future potential opportunities 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 land-and-expand, 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 that quarter-over-quarter difference and the rolling 4-quarter pipeline numbers remaining consistent and constant. So the pipeline's holding up good.
I'll point out that when I took over, the pipeline discipline was pretty weak. The discipline around vetting the pipeline and making sure you know what's in it and what's going to close and what's not going to close has improved, significantly, since we began the GTM overhaul, last year.
Moving on to Casino & 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 of this year trending a bit stronger than the fourth quarter last year, so far.
On the inventory side, we believe we, now, have all of our major domestic [OAM] 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 '25.
First, we have completed the roll-out 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 going to be something that's going to complement some of the other systems that we already sell in Casino & Gaming. So we're happy about that. We expect it to fuel additional sales, more or less, throughout the year.
Second. We are, again, encouraged by the increased sales traction we're seeing with Epicentral, due to our new relationship with CasinoTrac. CasinoTrac sells Epicentral as part of their slot suite product offering, on a subscription basis.
So we receive, if you will, recurring revenue per month per unit, for, basically, SWOT, going forward. It basically helps encourage players to expand their 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 & Gaming sales. However, it's incumbent upon me to add that that business -- we call it C&G for Casino & Gaming -- it's still recovering from the pandemic and the exuberant post-pandemic rebound.
Now, it's in a bit of a hangover. Everybody came back to the casinos and everyone went crazy, when the pandemic was over. And, now, the casinos are sitting there, figuring out what's steady state going to look like?
However, all in all, we see no systemic problems in the midterm for our C&G business. But our clients are still dealing with some amount of day-to-day market uncertainties. Again, we feel that the industry is back and it's going to 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 in the long term or the mid midterm, relative to those industries.
Next. I want to provide you with an update on our strategic review process.
We began that only just a year ago. When we started it, we announced we were going to do it in Q4 of '23. We began, in earnest, in '24. The process is active and it's ongoing.
Our Management Team and our Board of Directors are focused on the process, believe me. Collectively, we're 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, it seems like it's taking a long time. Believe me, the process is way more complex than you might suspect 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's the process of doing the things that most investors would want us to do.
Finally, before I turn the call over to Steve, let me provide our 2025 financial outlook.
The total revenue, we're expecting a range of between $47 million and $52 million dollars in top-line revenue. 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 & 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 that additional color commentary.
Overall, we are pleased with our momentum on the FST side of the business, including the 40%-plus compound annual growth rate and 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 if needed.
Our Casino & Gaming business is recovering.
While we're continuing to press forward to grow our success in FST, we also, simultaneously, will vigorously pursue our strategic review, focused on maximizing and 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. Thanks, everyone, for joining us, today.
Let's take a look at our fourth-quarter and full-year '24 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 '23. For the full year '24, our net sales were $43.4 million, which was down 40% compared to $72.6 million in '23 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 the 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, FST sales were $16.1 million, that's down 1% compared to %16.3 million in '23.
As John said, we sold 1,639 terminals in the fourth quarter and 5,371 terminals for the full year. We ended the year with 13,961, just shy of 14,000, net new terminals installed in the market.
Our recurring FST sales, which includes software and service subscriptions, as well as consumable label sales for the fourth quarter, were $2.7 million, that was down 15% compared to $3.2 million in the prior year period. For the full-year '24, recurring FST sales were $10.8 million, that was down 3% compared to $11.1 million for the full-year '23.
Our ARPU, for the fourth quarter of '24, was $875, that was down 6% compared to $926 in the fourth quarter of '23 but it was up 25% sequentially from $700 in the third quarter of '24.
Our Casino & Gaming sales were $4.8 million, that was up 14% from the fourth quarter of '23, primarily due to a recovery in the demand for our printers at the major slot OEMs. For the full year, Casino & 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 to $411,000. For the full year, POS Automation sales were $3.4 million and that was down 51% from the full-year '23. The decline was largely a result of difficult comps, as we experienced unusually high sales in '23 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 in the prior year that didn't repeat in '24. For the full-year '24, TSG sales were $3.6 million and that was down 56% from the full-year '23.
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 '23.
This comes as a result of lower overall sales volume and competitive price adjustments, as well as significantly lower Casino & 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 '25.
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 '23. For the full-year '24, operating expenses declined by $7.6 million, or 23%, to $25.1 million compared to the full year of '23.
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 the late third quarter of '23, we initiated our first round of broad-based cost-cutting efforts. We estimated that this initiative would produce operating expense savings of about $3 million on the annualized basis. And we experienced the full effect of these reductions throughout '24, including the fourth quarter.
We, then, instituted a second cost-reduction initiative in June of' 24 that focused largely on further reducing headcount and other external third-party resources. We estimated that this 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 effect from the second round of cost reductions during the fourth quarter of '24.
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 '24, these expenses decreased by 30% to $70 million compared to '23.
Our selling and marketing expenses decreased 3% to $2 million for the fourth quarter on a year-over-year basis. For the full-year '24, 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 '23, 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 largest trade shows: G2E, which is for the Casino 7 Gaming market; and, NACS, which is for our FST market -- both occurred 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 '24, our G&A expenses were $9.9 million and that was down 25% from the full-year '23.
Note that our '23 G&A expenses included a $1.5 million-dollar severance charge related to the resignation of our former CEO.
For the fourth-quarter '24, our operating loss was $1.1 million, which was 10.3% of net sales; and that's compared to an operating loss of $522,000 or 3.9% of net sales in the prior year period. For the full-year '24, our operating loss was $3.6 million and that's compared to operating income of $5.7 million in '23.
On the income tax expense line, we incurred a $7.3 million-dollar non-cash charge, in the fourth quarter of '24, 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 a company to provide a full valuation allowance when the company reports a cumulative pre-tax loss over its previous three fiscal years -- which, for us, was 2022 to 2024 -- and a pre-tax 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 lookback 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 under current 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 pre-tax income and, essentially, pay no cash income taxes, until they're fully utilized.
Looking forward to '25, we expect to continue to provide a full tax evaluation allowance, until we're able to demonstrate a consistent pattern of profitability. As a result, we expect to record no income tax expense or income tax benefit during 2025, which means our pre-tax 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. For the full year, we 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 '23.
Just as a reminder, our fourth-quarter and full-year '24 numbers include the $7.3 million-dollar non-cash charged income taxes.
Our adjusted EBITDA, for the quarter, was negative $705,000 and that's compared to positive $587,000 for the fourth quarter of '23. For the full year, our adjusted EBITDA was $1.5 million and that's compared to positive $10 million in '23.
Our full-year '24 adjusted EBITDA result places us at the midpoint of our '24 outlook range that we provided on our last earnings call.
And, lastly, turning to our balance sheet. It still remains solid. We finished the year with $14.4 million in cash, which was up from $2.1 million at the end of '23.
In terms of debt, we successfully renewed our credit facility with Siena Lending, during the fourth quarter, extending the term for two-plus years, through March of '27. 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 '24.
We 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 12 months.
That completes my presentation. With that, I'd like to turn the call over to the operator for questions. Operator?
Operator
Thank you. We will, now, be conducting a question-and-answer session.
(Operator Instructions)
Jeff Martin, ROTH Capital Partners.
Jeffrey Martin
Thanks. Good afternoon.
Wanted to get a sense, John, in terms of the FST terminal installations in the quarter and, maybe, for the year, how much of that was concentrated with the large QSO, (inaudible) customer? How much of it was replacements? 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. We're still dealing with the mute button.
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
Yeah. The large QSR was a decent chunk of the number, Jeff. It wasn't more than half but it was a good chunk.
Jeffrey Martin
Okay.
And in terms of your outlook for and up-to-the-right year end in 2025, is the anticipation that you have the same relative contribution from the QSR? Or are there other clients coming into the folds, here?
John Dillon
Other clients. But, obviously, the large QSR is big. It's an enormous entity, as it were. And we're going to continue to sell into that, for the foreseeable future.
But I'm more encouraged by the net new business. It's net new business and it's expansioning into existing customers and it's a replacement of some of our older terminals. That is the most exciting for us.
Steve DeMartino
Jeff, just to be clear, we do expect the business with the large QSR to expand in '25, though, versus '24. We're going into multiple jurisdictions with them. And we get more and more approved, as we go here.
It's a license to hunt so we have to go and get them, one by one. But we do expect to close more in '25 than 24, as we expand our presence with the QSR.
John Dillon
Actually, Jeff, let me add to what Steve just said.
We're winning new business in geographies where we didn't have business before, overseas and other venues where we just didn't have a presence. We're winning that presence, now.
And 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 presence and we're getting it, now.
Jeffrey Martin
Got it.
Could we switch over to Casino & Gaming? Just want to confirm that I understood you correctly. Expect a growth, here, for the segment over 2024, during 2025.
And, then, if you could also give an update on the international side of that market.
John Dillon
Steve, you want to speak to that? You're closer to that than I am.
Steve DeMartino
Yeah. All the domestic OEMs, Jeff, are back to buying. So 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. That's good news on the domestic side.
On the international side, there's still a couple of OEMs that are still working through inventory. But the others are all back to buying.
So I think it's good news on both fronts. Even both of those OEMs that are currently still working inventory, I think they're going to come back to buying too but, probably, in the latter half of '25.
So we do expect to have a stronger year in '25, overall, both domestic and internationally.
Jeffrey Martin
Great. I'll pass it on. Thanks.
Operator
(Operator Instructions)
George Sutton, Craig-Hallum.
George Sutton
Thank you.
Steve, if I took out the revenues from your C-store customer that exited from the numbers in '24, how much, in revenue, would that have been? I'm just trying to think of comparisons year over year, ex that --
Steve DeMartino
Yeah. We previously disclosed, George, I believe that it was about $3 million to $4 million annualized, in a year. So about half of that was in the '24.
They finished up about halfway through the year. So about half of that is what fell off.
George Sutton
Got you. Okay.
John, you mentioned the process is way more complex than we may think. I understand you're, effectively, selling two different businesses, 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 who would partner with us or would be of strategic interest to us, they look at each business, relative to the markets they might serve. That's a complexity.
And, then, internally, we're not a large company so we operate the two businesses, very much, as if it's one that 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, it's complicated. It takes more time. And so, that's a degree of complexity that occurs.
And, then, the two businesses are very different. We've got we [Buchanan], you know this. We have the Casino & Gaming business, which is steady state. It grows. It's in a relatively small TAM, total available market. But we're in a duopoly. It's profitable.
And, then, we have a more rapidly growing opportunity over on FST, where the TAM is well over $1 billion. It's an underserved market, at this point. And we're still early days. 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 it makes for complexity, if you're talking to somebody about how do we want to work, together, with you. And so, all those things, basically, come into play.
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 want to tackle that one? You're closer to the TR80. That's the replacement for the 880.
Steve DeMartino
Yeah. That's our roll printer. That's really attacking the sports betting market, George, which is large and growing, especially in Europe. It's got a large market potential for it.
We were in the market with a previous product called 880. But we've been out of the market for a couple of years, so, now, it's a matter of just re-establishing 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. It's 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 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. 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 going to be at the ROTH conference on Monday. For any of you that are going to be there, I'm happy to take a one-on-one meeting or an after-hours chitchat, if that's appropriate.
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.
