TransAct Technologies - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 delivered a clean inflection: net sales rose to $13.1M (+28% q/q, +22% y/y), gross margin was 48.7%, and the company posted positive net income ($0.00 EPS) with adjusted EBITDA of $0.54M; BOHA! Terminal sales set an all-time quarterly high at 2,350 units, while Casino & Gaming revenue rebounded to $6.7M (+41% q/q, +18% y/y).
• Versus consensus, TACT beat Q1 revenue ($13.05M vs $11.04M*) and EPS ($0.00 vs -$0.10*); EBITDA surprised positively (reported $0.22M vs -$0.60M*). Management maintained FY25 revenue guidance at $47–$52M and improved the bottom end of adjusted EBITDA guidance to breakeven to -$1.5M (from -$2.0M).
• Record BOHA! deployments were underpinned by a full-fleet 1,400-unit upgrade at a national convenience store chain completed in Q1 and new wins in healthcare foodservice, expanding use cases and future recurring monetization opportunities.
• The Board suspended the strategic review to focus on organic execution amid macro uncertainty and improving momentum in FST and Casino & Gaming; this pivot is a narrative catalyst centered on operational discipline and growth execution.
• CFO commentary flagged tariff dynamics as manageable (surcharges applied where needed; BOHA! terminals currently exempt), and gross margin is expected to remain mid-to-high 40% for 2025, supporting sustained profitability trajectory if volume and mix hold.

What Went Well and What Went Wrong

What Went Well

• Record BOHA! Terminal sales (2,350 units) drove 49% y/y FST revenue growth; management emphasized a “land-and-expand” playbook with improving pipeline quality and conversion, citing wins in convenience stores and healthcare foodservice: “The product is probably the best salesperson we have…Once we get that unit in the store…customers easily see the advantage”.
• Casino & Gaming recovered: revenue reached $6.7M (+41% q/q, +18% y/y), OEM partners returned to buying, and a new OEM win plus TR80 rollout support momentum and subscription income via CasinoTrac.
• Cost discipline showed through: OpEx fell 8% y/y, operating loss was essentially breakeven (-$15k), net income was positive ($19k), and adjusted EBITDA turned positive ($544k) on strengthening sales mix and prior cost actions totaling ~$5M annualized.

What Went Wrong

• Gross margin compressed to 48.7% from 52.6% y/y on higher FST hardware mix; ARPU fell sequentially to $761 as terminals sold to a large QSR initially carry no recurring revenue, delaying subscription uplift.
• FST recurring revenue was flat-sequential and only +10% y/y ($2.7M), signaling near-term mix headwinds as hardware-led growth outruns subscription attachment; TSG revenue also declined y/y to $0.8M.
• POS automation remains competitive and soft: Q1 revenue dipped to $0.62M (-5% y/y), with pricing adjustments required to stay active; gross margin guide mid-to-high 40% suggests limited near-term expansion without improved mix.

Transcript

Operator (participant)

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ryan Gardella, Investor Relations. Please go ahead, sir.

Ryan Gardella (SVP of Investor Relations)

Thank you. Good afternoon. Welcome to the TransAct Technologies First Quarter 2025 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 of our first quarter financial results. We will 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 Form 10-K and 10-Q.

TransAct undertakes no obligation to revise or update any forward-looking statements to reflect eventual circumstances that occur after the call. Today's call and webcast will include non-GAAP financial measures and the meeting of SEC Regulation G. When required, reconciliation of all non-GAAP financial measures and 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. With that, I'd like to turn the call over to John.

John Dillon (CEO and Director)

Thanks, Ryan, and good afternoon, everyone, and thanks for joining us today. I'm pleased to report that TransAct started off 2025 with a strong quarter, delivering record BOHA Terminal sales. We had 2,350 units, which surpassed last quarter's results, which I believe were 1,639 units. This performance in our food service technology, or FST, business is a high bar for the year, and why we believe it's likely to be our strongest quarter for 2025. We're pleased with the strength and execution of our revised go-to-market strategies and the dedication of our reorganized sales team. Let me start by reviewing some of the FST highlights for the quarter. First, total FST revenue increased to $14.9 million, up an impressive 49% year-over-year, driven largely by hardware sales.

Recurring FST revenue remained stable, and we're happy to report positive net income and Adjusted EBITDA for the quarter, demonstrating that our operational and cost discipline is delivering positive results. Clearly, we're encouraged by this momentum, and our team is excited about what the potential for the future is. A key driver for this quarter was the conversion of three Tier 1 customers from our first-generation BOHA Terminal to the BOHA Terminal 2. These upgrades include rollouts with a major QSR and convenience store chains and highlight the confidence our customers have in the platform. The Terminal 2 is streamlining operations, driving efficiency, and that sales story is resonating. The feedback we're getting is positive. That fuels our optimism for continued growth. Our sales team's refined lead tracking and nurturing processes, which I spent significant time and effort overhauling, are paying off with what I consider a well-scrubbed pipeline.

A lot of times, pipelines are kind of a mess, but we're feeling like we're in pretty good shape, and it's holding steady quarter over quarter. We also, as previously reported, continue targeting the about 40,000-unit AccuDate 9700 install base. This was a prior terminal, probably the baby terminal in the early days. Then we had the terminal 1, then we had the terminal 2. That is a significant long-term opportunity, and we're targeting that, I believe, effectively. Our success in convenience store market demonstrates a solid footing that we're finding with this terminal 2. We secured a major BOHA Terminal 2 upgrade order with a leading national convenience store chain that operates over 700 locations. What started out as a simple pilot has expanded into a full rollout. The chain is replacing legacy workstations to enhance food safety, labeling, and operational tasks.

The rollout showcases our growing traction in the convenience store vertical, which we believe is an important vertical, and there's a lot of headroom there and opportunity in the future. We're seeing strong adoption in this subvertical and expect this win to unlock further opportunities as we move forward. The success reinforces the commitment to what I call a land and expand strategy, where we secure initial deployments and then grow our footprint over time. Being a little glib here, simple wins, easy expansion. The product is probably the best salesperson we have on the staff. It works well. It's reliable. It delivers the value we promise. Once we get that unit in the store and operational, the customers easily see the advantage, and that's a way we expand the business.

We're very proud to demonstrate the power of the terminal and its applicability across a large range of industries. In Q1, we got a contract with a national healthcare food service provider to deploy BOHA terminals for nutritional labeling and compliance in hospital and care facility kitchens. This new use case in a large subvertical demonstrates the flexibility of the technology, how it adapts seamlessly to different demands for different industries, in this case, healthcare, yet delivering the same reliability that the restaurant and food service customers, the typical food service customers that we target, rely on. This foothold opens new growth avenues and proves that BOHA is a versatile platform built for innovation, and we think we can serve a number of different industries. We're excited to explore that, and we believe the terminal can drive a lot of value.

Shifting over to casino and gaming, we're seeing the rebound that we forecasted last quarter with notable strength in our domestic markets. We recorded casino and gaming revenue of $6.7 million, up 18% year-over-year and 41% sequentially. The growth was driven by improving market demand, as we highlighted on our last call, and we're pleased that all of our major U.S OEM partners have returned to what we call buying positions after resolving the prior inventory oversupply. A new win with a major OEM also was a significant contributor to this quarter's success, and we're eager to deepen the partnership with that supplier moving forward. Our new Epic TR80, it's a thermal roll printer, has now fully entered the market and is available for purchase. It handles printing in sports betting kiosks, video lottery terminals, and other non-casino gaming applications.

During Q&A, if somebody wants to know what those are, I'd be happy to help describe that, but it's not betting the same way. It's more like a lottery system for things like a Lions Club or a Rotary Club or a Veterans Home. Anyway, the TR80 is gaining momentum, and we expect sales to climb steadily through 2025, complementing the existing casino and gaming portfolio. Additionally, our partnership with Casino Track continues to drive Epicentral sales through their slot suite offering, which generates subscription-based revenue that enhances player engagement and supports our recurring revenue income stream. We are mindful of the macroeconomic uncertainties, yet we see no systemic challenges in the midterm for our casino and gaming business, and the industry's somewhat slow and pretty jerky, but nonetheless, headed up to the right. The recovery gives us confidence for the year ahead.

Next, let me provide you with an update on the strategic review process. As you've likely seen in our press release, the board of directors and management have determined that it would be most appropriate to suspend the process for now due to increasing levels of uncertainty in the macroeconomic environment at this time. Given the increased momentum in both the FST and casino business, we think slowing down right now is the best strategy. Yet, TransAct and our board and management feel the intention to focus on incremental growth now, executing on our corporate plan in order to expand the business and invest where prudent, yet retaining a commitment to disciplined spending. If and when conditions seem more favorable and/or opportunities arise, the board and management will jump right back into resuming the process.

As always, the board is committed to maximizing stockholder value and is constantly evaluating best strategies to achieve that goal. Before I turn the call over to Steve, I wanted to provide a brief update on our financial outlook for 2025. We're maintaining a full-year revenue guidance of $47 million-$52 million, with Adjusted EBITDA now expected to range from break-even to negative $1.5 million. That moves the bottom end of the range up by $500,000 based on a solid first quarter. The ranges we assume we see continue to be based on recovery in casino and gaming throughout the year without any unexpected disruption in either supply or demand. While we believe this will be the case, we felt it was important to highlight this with some additional color.

We have a strong balance sheet, ample working capital to provide a buffer against economic and potential uncertain headwinds. We are pretty strong in the area of cost discipline, evident in Q1's positive EBITDA and positions us well for the year. I'm pretty comfortable with that. In summary, we're pleased with a strong first quarter. We achieved record BOHA Terminal sales. We delivered positive net income and EBITDA and drove robust growth in FST and casino and gaming sales appear to be back. The BOHA platform is demonstrating its value to customers in convenience stores, healthcare, and beyond. We're seeing the rebound we anticipated last quarter in casino and gaming, including a win with a new OEM customer that helped us generate strong results for products like the Epic TR80. We're focused on execution, improving processes, and fiscal discipline, as I believe you'd hope we would be.

Net-net, I'm pleased with the results for the quarter and confident in our team's ability to execute during the remainder of the year. With that, I'd like to hand the call over to Steve for a detailed review of the financials. Steve?

Steve DeMartino (President and CFO)

Thank you, John. Thank you, everyone, for joining us today. Let's take a look at our first quarter results in a little more detail. Our total net sales for the first quarter were $13.1 million, which was up 28% sequentially and also up 22% compared to $10.7 million in the prior year period. Sales from our food service technology market, or FST, for the first quarter were $4.9 million, and that was up 14% sequentially and also up 49% compared to $3.3 million in the prior year period. Our recurring FST sales, which include software and service subscriptions as well as consumable label sales for the first quarter, were $2.7 million. That was down 3% sequentially but up 10% compared to $2.4 million in last year's first quarter. Our ARPU for the first quarter of 2025 was $761, and that was down 13% sequentially but up 15% year-over-year.

As we've reminded on past calls, we continue to sell a number of our BOHA terminals to a large QSR with no recurring revenue attached to start. While this presents an opportunity to sell recurring elements in the future, for now, they continue to represent a drag on our ARPU number. In the quarter, a large number of our terminals fell into this category again, and we expect this to continue into the near future. Our casino and gaming sales were $6.7 million. That was up 41% sequentially and up 18% year-over-year, reflecting the market rebound John discussed, as well as sales from a new OEM win combined with normalized buying levels from all major OEMs. Our POS automation sales for the first quarter declined 5% from the prior year to $618,000.

This slight decline was due to continued strong competitive environment as other market participants have fully restored their supply chains. We will continue to adjust pricing if necessary to remain active in this market. Moving to TransAct Services Group, or TSG, for the first quarter, TSG sales were down 22% year-over-year to $808,000. This decrease was largely due to strong demand for legacy spare parts in the prior year quarter that did not repeat. We expect TSG sales to remain approximately at this quarterly run rate going forward, consistent with normalized demand. Moving down the income statement, our first quarter gross margin was 48.7%, and that was down from 52.6% in the prior year period. This is largely a result of a higher mix of FST hardware sales, which carry lower margins than our casino and gaming products.

Going forward, we expect our gross margin to remain in the mid-to-high 40% range for the remainder of 2025. Before leaving the gross margin discussion, I wanted to briefly touch on our tariff exposure and its impact on our product costs. As it currently stands, we have added a small tariff surcharge on applicable imported items, mainly our casino and gaming printers so far, to maintain our margin. I want to emphasize that while this is a highly fluid situation, currently, our BOHA terminals are exempt from any tariffs. We'll continue to monitor this situation, and we'll update you as needed. Turning to our operating expenses, our total OpEx for the first quarter decreased by 8% from the prior year first quarter to $6.4 million.

The year-over-year decline reflects the continued impact from several rounds of cost reduction initiatives that we took in 2023 and 2024 that totaled about $5 million in annualized savings. We began to fully realize these savings during the second half of 2024 and expect to continue to realize them during 2025, though somewhat offset by typical annual cost of living and other inflationary increases. Our engineering and R&D expenses for the first quarter were down 17% year-over-year to $1.6 million. Our selling and marketing expenses remained flat at $2.1 million, and our G&A expenses declined by 8% to $2.7 million. On the operating income line, we just missed reaching break-even for the first quarter, recording a slight operating loss of $15,000 or a negative 1/10 of 1% of net sales. This compares to an operating loss of $1.3 million or negative 12.2% of net sales in the prior year period.

On the bottom line, I'm happy to report that we broke through break-even and recorded positive net income of $19,000, which represented EPS of zero, and that compared to a net loss of $1 million or a $0.10 loss per diluted share in the year-ago period. Our Adjusted EBITDA for the quarter also crossed over to the positive territory level, reaching $544,000, and that was up from negative $701,000 in the prior year period. Lastly, turning to our balance sheet, it continues to remain solid. Our cash and cash equivalents held steady at $14.2 million, which was relatively consistent with our year-end cash balance of $14.4 million. Our debt balance remained unchanged from year-end at only the $3 million of required minimum borrowings under our $10 million credit facility. Overall, our liquidity position continues to be strong.

With that, I'd like to turn the call over to the operator for questions. Operator?

Operator (participant)

Thank you, sir. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star then one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and then two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Again, if you would like to ask a question, please press star and then one now. The first question that we have comes from Jeff Martin of Roth MKM. Please go ahead.

Jeff Martin (Co-Director of Research)

Thanks. Good afternoon, John and Steve. Hope you're both doing well. John, can we start on the FST pipeline? You mentioned that it's stable. How is conversion progressing? And what end markets are you seeing the most traction in currently? Hello?

John?

John Dillon (CEO and Director)

I had you all on mute so you wouldn't hear the man with the leaf blower in the background who's blowing the leaves off my deck. Sorry about that. I'm just kidding, but it's somewhat true. Good question, Jeff. The FST machinery is working pretty well. We had to recast the whole thing, rebuild a lot of it. What we're seeing now, originally, I think when we went into the market, we thought that restaurants, your typical fine dining and restaurants like that, would be a big consumer of the technology. Their challenges are pretty simple compared to large food service management companies and the grab-and-go market. Both grab-and-go, which is a sophisticated area where you make a food product and you have to label it with the nutritional items, and all of a sudden, that means the applications have to be more sophisticated.

You have to know what the ingredients are, and you have to go out to a database to look up what calorie content, the glycerides, the cholesterol, the fat content, sugars, etcetera, sodium. That has to all be on the label in addition to when it was made and when it needs to be consumed. We are doing really well there. In particular, if you do grab-and-go sushi, which is made fresh every day, that is kind of a scary thing for a consumer, and you really want to make sure that the food safety technology supports that. We are doing really well in that space with several large national sushi providers. They do not run the stores. They basically provide the sushi product that sits there in those counters in those plastic containers that have a really nice label, many of them printed by the TransAct BOHA! Terminal.

That's one area that's doing well. The second one is food service management, which we have clients like Sodexo and Aramark as an example. I believe Compass Group is also a customer of ours. They automate large organization facilities. It can be a rest home. It can be a sports stadium. It can be a hospital. It can be a college campus. It can be a large manufacturing facility. They basically set up food service for maybe 5, 6, 7, 8, 10, 20,000 employees in some cases. They have multiple stations with multiple items. They need a sophisticated food service technology supplier. We're doing really well in that market as well. I'd say those are the two highlights that we find very exciting right now. I will mention we're finding that there's an opportunity in the medical field.

We had a win a couple of quarters ago where we provide Temp and Sense capabilities for a senior living home where we provided the sensor devices that were on all the small refrigerators that held the controlled medicinals. You do not want the temperature in one of those reefers to go bad because the chemicals in those medicinals sometimes go bad, and you do not want to damage grandma by giving her a damaged medicine. At the same time, those medicines are sometimes very expensive. We are winning business like that, and we are finding that food service in the hospital space and the medical space is something that is actually a pretty good opportunity for us. We have a developing partnership with several suppliers into those spaces that know the industry better than we do but basically can take our technology in because they have already got a relationship.

We're excited about that sort of orthogonal opportunity as well.

Jeff Martin (Co-Director of Research)

Great. Could you touch on pipeline conversion for FST?

John Dillon (CEO and Director)

It's pretty good. I thought it was in our script, but we closed six new clients this quarter, this last quarter, brand new customers with the potential of about 1,800 units over time. The land and expand scenario is one that we like. Conversion is pretty good. We are still refining some of the metrics that we need to be familiar with: CAC, customer acquisition cost, lifetime customer value, LCV. What we are focused on, we have a very growing degree of sophistication in our pipeline management from who we target as potential customers, how we figure out the personas in each one of those clients, and then we put them at the top. We market to them, and we look at the conversion rate all the way down from when it's just the suspect who might need our technology to becoming an opportunity.

We go through the MQL, the marketing qualified lead, hand it off to the sales team to make it a sales qualified lead if it does, and all the way down to the different steps in the sales cycle. We are looking at the close rate. What we do is we look at the yields at each one of the steps. Where the yield somehow isn't consistent with the yield all the way through the funnel, we assume there's a constraint. We dive in, and we figure out what it is. Is it pricing? Is it technology? We didn't say the right things, or we didn't engage with the right people in the organization. It's kind of—I know this is a broad answer, but we are working very aggressively on improving yield all the way through probably 15 different steps through.

We don't even know who you are, but we want you as a customer until we got a closed deal. That is a process that we're refining every quarter. We're making progress on it. It's pretty complex, candidly. Let's just say we believe that the machinery there is working better and better, and we're getting a good handle on it.

Jeff Martin (Co-Director of Research)

Okay. And then with respect to the QSR rollout, where are we? If you want to use a baseball analogy, what inning are we in in terms of fulfilling as many of those 40,000 legacy units as possible?

John Dillon (CEO and Director)

I'd say we just finished maybe—maybe we're still at bat in the second inning, maybe at bat in the third inning. I don't know whether we're the home team or the visitors, but it's going really well. I mean, we don't treat that client as a new customer per se, but there have been a couple of cases where we've won entirely new markets where we never were before. Our permission, if you will, from the headquarters has historically only been to sell our product in North America, but the permission we have now is global. We can sell in every country in the world where that QSR is present, and that's a pretty big market opportunity. So far, we're finding the uptake is very positive and very successful.

Jeff Martin (Co-Director of Research)

Last one for me. As we look at the revenue guidance range maintained at $47 million-$52 million, anything we should consider in terms of how that comes in on a quarter-by-quarter basis over the balance of the year?

John Dillon (CEO and Director)

I don't think so. I think we tried to provide some guidance that says we think that we can continue to improve the year-over-year performance. The business still is lumpy. We mentioned we had a convenience store operation that has 700 units that upgraded with an enormous number of upgraded terminals from basically the prior terminal to the BOHA Terminal 2. Those orders happen, but they're lumpy. We take revenue when we ship. Sometimes they want it all at once. Sometimes they don't. I think you should assume that the business will still have a little bit of ups and downs in it. What we're saying is quarter over quarter, when we look at it year over year, I think we can say that we expect that we can continue to improve.

Ryan Gardella (SVP of Investor Relations)

Thank you.

John Dillon (CEO and Director)

Thanks, Jeff.

Operator (participant)

Thank you. Ladies and gentlemen, just a reminder, if you would like to ask a question today, please press star and then one. We'll pause a moment for any further questions. Just a final reminder, if you would like to ask a question, please press star and then one now. At this stage, there seems to be no further questions on the conference. I will now hand the call back to John Dillon for closing remarks. Please go ahead, sir.

John Dillon (CEO and Director)

Thank you very much. Once again, everyone, thank you for joining us. Thanks for your support. We look forward to talking to you if you're interested in conversations during the next quarter, but of course, again, in August on our next quarter two earnings call. Again, thank you very much. If it's summer coming up, I hope you have a great summer vacation, and we're looking forward to continuing to deliver on the promise. Thank you.

Operator (participant)

Thank you, sir. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.