Good day, and welcome to the TransAct Technologies First Quarter 2020 Conference Call. Today's call is being recorded. At this time, I would like to turn the conference over to Mr. Marc Griffin, Investor Relations. Please go ahead, sir.

Thank you. Good afternoon, and welcome to TransAct Technologies first quarter 2020 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 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 Form 10-Q. 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, 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 hand it over to Bart.

Thank you, Marc. And thank you to everyone joining us on the call today. As you know, we're all doing it from a remote location, so please bear with us as we try to talk and answer your questions without being able to see each other between Steve and myself on the call. Before we dive into our first quarter results, I'd like to spend some time on the current business environment. As you are well aware, the COVID-19 pandemic continues to create challenges for countries, towns, businesses, and families around the world. As we navigate this uncertain environment, we will do our best to remain thoughtful and transparent and share as much as we can about what we are seeing in our business. Finally, our thoughts and prayers are with those families that have been impacted, and our gratitude goes out to the dedicated medical staff and frontline workers helping to fight the virus. We thank you. On our last earnings call in early March, we spoke about accelerating investments, mostly in additional people to support the rollout of BOHA! Since that time, the COVID-19 pandemic and the resulting stay-at-home orders have caused massive disruptions to our customers' businesses, and thus, our business, and that hiring quickly came to a halt. In addition, as trade shows were canceled, the product launch we had scheduled for our foodservice technology market for mid-May has been changed to mid-September for all the right reasons. I will have more to say shortly. So let me provide some insight into the different markets we serve, which should give you the context of where our business is trending in Q2 and beyond. The global casino and gaming market is challenged to say the least. Breaking the market into different geographical areas, casinos in the Asian market, mainly Macau, are starting to open albeit at a diminished capacity, and we are evaluating the opening trends and results for a window into how post-COVID-19 casinos may work around the world. There are some opportunities we are working on, but at this time, we have no visibility on when and how they will move forward. In the U.S. market, casinos were closed, and a very small number have announced they will open this week or will begin to open. We are expecting a very slow recovery of the market as many questions still exist as to how casinos will provide their customers and employees a safe place to go. I would like to thank Barry Jonas of SunTrust, who held a great conference call focused on the opening of casinos. Many topics and ideas were discussed, and I believe there will be different processes to try and analyze to see what will work best. I know our casino market will rebound with the industry working together to define the new normal. With the opening stress beginning, this will limit the amount of business we will be able to conduct. It is our expectation that a few small projects will come through, but it remains difficult to gauge when they will close. And in Europe, it's kind of similar to the U.S.; it's slow to reopen. We do have some opportunities in the pipeline, but we have no certainty on when those deals might close. I would like to highlight that our Epicentral platform was created to help casinos drive more activity through real-time promotions and incentives. Once a customer is back in the casino and starts playing, our real-time Epicentral system can reward players to incentivize them to come back. Based on what I heard during Barry's conference call, there will be marketing dollars spent to get the player back into the casino. Now with the challenge to get the slot player back into the casino, we like to say, once you get them to the casino, Epicentral can get them back. We're also very pleased that Acres, our partner providing technology to gather true real-time data, got their GLI approval for the combination of their system with ours. It is truly exciting that we can now supply the casino industry with true real-time promotions at slot machines without the challenge of working with some of the casino data systems in the market today. In addition, as more casinos look to add electronic table games, ETGs, to keep with social distancing practices, we could see more machines entering the market with ticket printers. Our Epicentral platform can also be added to these types of machines. Now on to foodservice technology. March and now April were extremely challenging months for all restaurants and foodservice companies. While most restaurants turned to 100% takeout and some closed entirely, some convenience stores expanded their fresh food offerings. The entire industry is coming to grips with wholesale changes to their respective business models. Restaurants are in the process of finalizing new plans, procedures and policies to keep their employees and customers healthy and safe as they consider reopening. Our understanding from talking to customers is that openings will be slow with limited seating and lower revenue. That said, we are working with our customers to implement new menus to prepare them for expanded sales when the time comes. Again, we are working on projects and opportunities with a variety of customers but do not have the visibility into when they will close. As we think about the FST market and how BOHA! can help, we are beginning a marketing program we call, Be Ready. BOHA! can support all venues with technology that can add to the restaurants' processes and procedures as many will have limited staff once they open. Technology can add to their safety and cleaning processes. And as one customer told us just yesterday, BOHA! is all about efficiency and accuracy, simplifying operations and freeing up labor for different tasks as restaurant staff are under pressure. So BOHA! is a perfect system to alleviate some of that. Clearly, these are words we love to hear and read. Despite the fall-off we experienced in March, in keeping with our decision to share our installations of BOHA!, we installed 380 new terminals in the first quarter of 2020. To also give you more color about what is happening - continuing to happen in our FST market, we installed an additional 156 terminals in April, demonstrating the value and the momentum of our BOHA! solutions platform even in these most difficult times. As we look at the remainder of 2020 and beyond, developing new technology is paramount to enhancing our position in the foodservice technology market. We have been working on a new BOHA! product launch, which was originally expected to be released in May. But with a slow market and the opportunity to add some additional technology to an already great new product, we are delaying our launch to September when we believe more customers will be able to think about spending in the FST market. We believe the new technology and features will drive even more momentum in the BOHA! solution. And now just quickly on our first quarter results. I'll briefly touch on the results before turning it over to Steve, who will discuss our financials and liquidity position in detail. Our team's execution was strong through January and February. You need to remember, we announced five deals in January and February alone for FST. And there is no doubt we felt the negative effect of COVID-19 starting in March. Our preliminary first quarter total net revenue declined 11% year-over-year to $10.2 million, and we recorded an operating loss of $1.3 million and negative adjusted EBITDA of $1 million. We delivered a quarterly gross profit margin of 48%, and diluted EPS for the first quarter was a net loss of $0.13 per share. Our BOHA! platform continued to gain traction and drove 13% year-over-year revenue growth. More importantly, our foodservice technology recurring revenue only declined 10% sequentially and was more than double the year ago basis. As a reminder, recurring sales include software and service subscriptions, as well as consumable label sales and were $616,000 in Q1 of 2020 or an annual recurring revenue rate of $2.5 million. As of March 31, we have 3,130 paid terminals in the market. And in April, as I said, we installed an additional 156 terminals. Moving on to our market-leading casino and gaming printer business. Revenue in the quarter was down 10% year-over-year at $4.9 million on lower U.S. sales related to the COVID crisis. However, we continue to be pleased with the strength of the casino business, particularly on the international side. With that, Steve will now review our preliminary first quarter 2020 results, and more importantly, our liquidity position. After which, I will make some summary remarks before opening the call to questions and answers.

Thanks, Bart. Good afternoon, everyone. Before I get into the details of our first quarter results, I'd like to highlight the steps we took to decrease our operating expenses and manage our liquidity during this COVID-19 crisis. As we announced on March 24, we took a number of austerity measures to reduce spending by an estimated $1.75 million. I'm proud of our ability to pivot quickly, which enabled us to lower our Q1 operating expenses by over $500,000 and manufacturing overhead expenses by approximately $200,000 or $700,000 in total from the levels we projected internally for Q1. As you may recall, we planned to significantly increase investment spending to accelerate growth of our BOHA! solutions in 2020, including hiring new sales and marketing staff and greatly expanding marketing efforts. As a result, we internally projected our operating expenses to increase substantially beginning in Q1. However, when COVID began to impact us hard in March, we quickly put the brakes on all new planned spending. We then met as an executive team, combed through our departmental expenses, and put a detailed plan in place to reduce spending in every area we could. The measures we took included furloughing over 10% of our workforce, instituting a 10% across-the-board salary reduction for all salaried non-commissioned employees, reducing sales commissions for all commissioned employees, reducing the cash retainer fees we pay to all non-employee directors by 10%, reducing our inventory purchases and related tariffs on those purchases from China, and eliminating all discretionary spending such as trade shows, marketing and promotional activities, travel, entertainment expenses, training, etc., wherever we could. In addition to the $700,000 of savings we achieved in Q1, we believe these measures will result in a further reduction of another $1.1 million in Q2 compared to our Q1 run rate, consisting of savings of about $700,000 in operating expenses and $400,000 in manufacturing overhead expenses. Combining the Q1 savings of $700,000 and Q2 expected savings of $1.1 million, we think we'll achieve a total savings of $1.8 million, which would be slightly ahead of the $1.75 million estimate we provided about a month ago. You should also note that the Q2 estimated savings are calculated after adding back the payroll cost for our furloughed employees, who we were happily able to return to work this week as a result of receiving the proceeds from the Paycheck Protection Program administered by the SBA. Our original savings estimate of $1.7 million included those furloughed costs, so we easily exceeded our savings goal. We received about $2.2 million of PPP funds earlier this week that we'll use to pay payroll costs and help fund our operations for the next 8 weeks. Based on our intended use of the loan proceeds, we expect a substantial portion of the loan will be forgiven. We also secured a new revolving credit facility, which provides for up to $10 million of borrowing, subject to a borrowing base calculation. This additional capital, combined with the PPP loan, will help ensure we have the liquidity to endure these challenging times. Though we traditionally have not given financial guidance, in the spirit of transparency, we wanted to provide investors with an understanding of where the business is trending in Q2, our sales expectation for the remainder of the year, and some insight into our projected liquidity. Our total sales for April were approximately $1.6 million, and based on our average daily bookings so far, we expect this run rate to continue for the remainder of Q2. This would bring our estimated Q2 sales to around $4.5 million to $5 million. It's very difficult, if not impossible, to predict what the market conditions will be like beyond Q2, especially with our two largest markets, casino and gaming and foodservice, being two of the hardest hit. As a result, we're taking a very conservative approach to our assumptions. We believe it could be a year before we get back to the sales levels we saw at the beginning of 2020. Therefore, we're projecting very modest quarterly sequential increases in sales as we move through each quarter of 2020 and into 2021, starting with Q2 as the base quarter of $4.5 million to $5 million and slowly building back up to the Q1 2020 level of sales of around $10 million by the fourth quarter of 2021. Importantly, using these depressed forecasted levels of sales, we believe that the liquidity measures we have taken will provide us with enough runway for at least the next 12 months. Of course, we hope we're wrong and we're being too conservative in our assumptions, but in my CFO world, it's always better to hope for the best and plan for the worst. Now turning to the first quarter results. Net sales were $10.2 million, down 11% from $11.6 million in the first quarter of last year. As Bart noted, the business was trending very well in January and February before slowing dramatically in the last few weeks of the quarter. In fact, beginning in mid-March, our sales began to be negatively impacted by order push-outs and cancellations due to the pandemic spread, so it's difficult to say what our quarter could have been if the crisis didn't happen. Looking at our first quarter sales by market, foodservice technology sales were up 13% to $1.4 million from $1.2 million in the first quarter of last year. Our FST hardware sales declined 13% to $755,000, and we ended the quarter with 3,130 paid terminals. Hardware revenues were down largely due to the impact of COVID-19 on our FST customers. As Bart mentioned, we continue to see momentum building in FST, even in light of the COVID crisis, with 156 new terminal installations in the month of April. Our recurring FST sales, which include software and service subscriptions as well as consumable label sales, came in at $616,000 in Q1, which was almost double the $310,000 we reported in the year-ago period. The large increase in our recurring revenue demonstrates that our BOHA! initiatives have begun to gain traction and are building a recurring revenue stream as our installed base of terminals grows. Casino and gaming sales were $4.9 million, a decline of 10% from the first quarter of '19. Breaking this down further, our domestic revenues were down 25% from the prior year as we begin to experience the impact of casino closures from COVID-19 on our customers' casino ticket printer purchases in March. However, our international casino and gaming revenues were up 15%, due largely to international gaming printer sales, including a large order in Spain based on strong demand from sports betting applications, which offset lower demand from Asian OEMs. POS Automation and banking sales were up 22% to $1.6 million in the first quarter of 2020 on stronger sales of our Ithaca 9000 POS printer for McDonald's, who continues to operate in most of its stores through this crisis via drive-thru and takeout. Printrex product sales declined sharply to $117,000 compared to the prior year first quarter and the collapse in oil prices, caused at least partially by reduced demand and oversupply of oil from the COVID crisis. While we're no longer focused on this market, we expect to receive additional orders during 2020 as we continue to service our legacy customers. Finally, TSG sales were down 10% year-over-year to $2.3 million as we continue to experience declines in sales of legacy spare parts and legacy consumer products such as HP Inkjet cartridges and POS paper rolls that we no longer are focusing on. Moving down the income statement, our first quarter gross margin was 48% compared to 52.7% in the prior year period as our gross margin was negatively impacted by incremental expenses from additional Chinese tariffs. Total operating expenses for the first quarter of 2020 were $6.2 million, which was up 17% year-over-year. Selling and marketing expenses were up $354,000 or 19%, G&A was up $330,000 or 14%, and engineering, design and product development expenses were up $220,000 or 19%. As I previously stated, we plan to increase our operating expenses in 2020 to meet the demand for our BOHA! solutions. But unfortunately, the COVID-19 pandemic caused us to change course in a rather dramatic fashion. The majority of these increases came early in the quarter before we were able to initiate our cost-reduction measures. We incurred an operating loss for the first quarter of 2020 of $1.3 million or 12.6% of net sales, which compares to operating income of $777,000 or 6.7% of net sales in the year-ago period. Though we don't normally speak about our tax provision, we did record an unusually high effective tax rate of 31.9% in Q1 2020, which is well above the corporate statutory rate of 21%. An additional provision of the CARES Act gives companies the ability to carry back federal net operating losses. The CARES Act allows companies to carry any net operating loss generated during 2020 back up to 5 years and receive a cash refund based on the prior tax payments. While we don't know the exact magnitude of this yet, we do expect to incur a net operating loss in 2020. As a result, we don't expect to pay any federal income tax during 2020, and we expect to carry back our anticipated 2020 NOL to an earlier year when we paid a corporate tax rate of 34%, and receive a cash refund sometime in mid-2021. Depending on the amount of our 2020 NOL, the cash refund could be substantial and provide an additional boost to our liquidity. On the bottom line, we recorded a net loss of $992,000 or $0.13 per diluted share in the first quarter of 2020 compared to net income of $746,000 or $0.10 per diluted share in the year-ago period. Adjusted EBITDA for the first quarter of 2020 was a negative $1 million compared to a positive $1.3 million in the first quarter of last year. And finally, turning to the balance sheet. We ended the March quarter with $615,000 in cash and $794,000 of debt under our credit facility. As of yesterday, May 6, we had $2.6 million of cash, which included the PPP loan proceeds, and no debt outstanding on our revolving credit facility. In summary, these unprecedented times are causing challenges for many businesses, including ours. However, we continue to believe we're making prudent decisions and have the operating discipline to manage through the current volatility in our business and be positioned to come out the other side ready to grow again. At this point, I'd like to give the call back to Bart for some closing remarks.

Thank you, Steven. I'd just like to tell the shareholders that when we started to experience the effect of the virus hitting our businesses, which, in all fairness, first hit us in Asia in Macau, Steve went to work. And let me tell you, he worked 12, 15, 18 hours a day to get our loan, the PPP, I mean, to get all of our SEC filings done. He took a very conservative approach to our business and said, I am going to get enough liquidity for at least 12 months, based on some very conservative projections that he was going to put together. And he drove the business to achieve that. And I just want to thank him for what he did because we're going to come out of this fine. The outlook for 2020 remains challenged, but we are confident in the strong countermeasures we implemented to ensure TransAct's long-term survival in these volatile times. The COVID-19 pandemic has caused us to pause our planned increases in investments, mostly in BOHA!, but that in no way diminishes the opportunity we see for our FST market. We are confident in the resilience of our business and employees and believe we will come out at the other end of these times even stronger and more resilient. I want to thank the employees of TransAct for their hard work and dedication to our company as we all get through this. I'd like to thank our Board. And most importantly, I'd like to thank our shareholders. At this point, I'd like to open the call to questions.

Thank you. We will take our first question from Mitchell Sacks of Grand Slam.

Hey, guys. Interesting time. Can you talk a little bit about the convenience store market, what you're seeing there, and if that market is operating in a way where there's still business or is it frozen up a bit like the restaurant and casino market?

So I think, Mitch, we've got two markets that are doing okay. One of them is the convenience store market and then one of them is our grocery store market. Let me talk about each one. On the convenience store market, I think that if we go back to the third week of March, when things like the NBA started to get canceled, we heard about some casinos shutting their doors and all that. I think all of our convenience store customers went into a mode of, okay, what is business going to be like during this crisis? And so what we saw was convenience store companies looking at their menu items, their product offerings, what new labels they might need. And of course, we helped lay those out. At the same time, they were also looking at their policies and procedures of how to keep their employees safe and their customers safe and what they were going to do to make that happen. And I think we're through that process. I think when I talked to you a couple of weeks ago and some of the other investors, I said I think it's going to be the end of April where we start getting through that heavy lifting of what these stores were going to look like and how they were going to operate. And in talking to some of our technology people that helped the convenience stores with their new labels, we've got some really good stories about how we're designing some new labels for different food items that convenience stores will offer their customers. So that market is good. Now look, they're not expanding. They're not rolling out as much technology as we would like them to. Capital spending is down as they look at their balance sheet, they look at their profitability and all that. But we are shipping units. We shipped another 156 units across many different customers in April, and we expect to continue to do that. In the grocery store market, we're seeing kind of the same thing. We have these kiosks, these companies that run kiosks, specialty food items in grocery stores. We're seeing the same thing. People are going to the grocery store to get food. They're buying some special items because they want to spice up kind of the food that they're buying. But again, the first move by our grocery store customers was how they were going to get their policies and their procedures in place to keep their customers and their employees safe. And that's just not something that happens in a couple of days, as you know, but we're through that. So we believe we're through that because we are working on some projects that we believe could be meaningful to TransAct. So we can't predict when they're going to close or what's going to happen, but they haven't stopped talking to us, Mitch, and they haven't stopped talking to us about what more we can do for them. So we're all encouraged by that. I think it's going to go month-by-month as we all learn what - I hate this new term, the new normal. And we woke up to all of this. But I am optimistic that as we get through a couple more months that we're going to see some of this business come back. We had more business coming in the first quarter. We closed five. Trust me, we had more to close. We wanted to hire more people because we were going to book more orders. But it happened, right? I can't undo what happened. It's not our fault, not your fault. But we're looking forward, and as things improve, let's hope opening up the country works and we don't go backwards. We think that there is going to be some good life at the end of this for us.

And then in terms of customers that are buying equipment, are you considering or have you guys looked at providing some third-party financing to make it a little bit easier for them to do that?

We're lucky to have board members from the restaurant industry and to connect with some truly knowledgeable individuals. ICR is managing our investor relations and public relations, providing access to a wealth of expertise in the market. While we won't disclose specific initiatives aimed at helping customers who may be unable to invest right now, some of our ongoing projects involve different types of orders than usual. As you've seen on our social media, we've reduced our marketing and advertising spend, yet actively engaged with customers online. We ran a free promotion offering checklists and timers to assist with restaurant cleaning procedures. This initiative allowed us to support customers who took advantage of these free tools, keeping us connected and fostering discussions about BOHA! As restaurants reopen with reduced capacity, we anticipate revenue declines and fewer employees. Nevertheless, there will be an increased focus on health and cleanliness, and technology can help facilitate this. We aim to provide efficient and productive solutions. A customer shared positive feedback about our impact during these challenging times, and we're promoting this widely. We're also launching a 'Be Ready' campaign for the casino industry, aiming to prepare them for reopening. The landscape has changed dramatically, and we're committed to doing whatever it takes to equip our customers with the necessary technology for a safe reopening. Our comprehensive suite of products allows us to offer bundled solutions that combine food labeling, temperature-taking, checklists, and temperature-sensing tools to support their needs. We are fully engaged in this effort, understanding it will take time.

Okay. Thanks very much.

And we'll take our next question from Tim Chatard of Meros Investments.

Can I just ask on gross margin, if you expect that the level from Q1 to sustain for the rest of the year?

We expect the gross margin is probably going to decline some only because of the sales level dropping as much as it's going to drop. A lot of our overhead is fixed. So you can't take it away. So that would just drop the gross margin. It's only because of the sales level though. Once the sales level comes back, then the margin will grow back up to where it was.

And I wondered if you can recap the operating expense color that you talked about. I think I got some of it, but I'm just trying to get directionally operating expense sequentially from 1Q.

Yes. Let me get that in front of me. One second. Yes. So in the first quarter, we achieved about $700,000 of our $1.75 million of savings. And then the remainder of the savings will come in Q2. So that will be Q2 off of the Q1 actual. So the other $1.1 million of savings will be the decline from Q1 to Q2. A portion of that will be in the operating expense line, and a portion of that will be in cost of sales - with those two in cost of sales.

Okay. In aggregate, $1 million? Across...

In aggregate, $1.1 million. Yes. Yes, $1.1 million. $700,000 in operating expense and $400,000 in cost of sales.

Got it. And then you also talked about the BOHA! product upgrade that you were talking about for May getting pushed into September. Have you talked about what product enhancements are included in that product upgrade?

Yeah. So no, we haven't. And we don't. It's not good for us to tell our competitors what we're doing. I wouldn't even call it an enhancement. I'd rather call it a new product that we're going to bring out. And being the leader, we have a chance to get the early feedback on some things and to say, you know what, we think we got more that we can bring to the marketplace. So it's going to come in September, and we'll clearly let you know what it all is. It's a pretty good bundle of stuff.

Understood. Thanks.

Well, we really do thank you for joining us on today's call. We do wish you and your families and friends and your businesses health and safety. And we'll continue to keep you updated on our quarterly calls as to where we are. And again, we thank you for your support of TransAct. Thank you, and we'll talk to you soon.

Once again, that does conclude today's closing remarks. Thank you for your participation, and have a wonderful day.