Greetings and welcome to the TransAct Technologies First Quarter 2023 earnings conference call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ryan Gardella, from Investor Relations. Thank you. You may begin.

Thank you, Carl. Good afternoon, and welcome to TransAct Technologies first-quarter 2023 earnings call. Today, I will 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 discussion of the company's key operating strategies, the progress on these initiatives, and the details on our first-quarter 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 that 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 Forms 10-K and 10-Q. TransAct undertakes no obligation to revise or update any forward-looking statements or to reflect events or circumstances that occur after the call. Today's call and webcast may include non-GAAP financial measures within the meaning of the SEC Regulation G. When required, reconciliation of all non-GAAP financial measures to 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 website. And with that, I'd like to turn the call over to John.

Thanks, Ryan. This is John Dillon, and good afternoon to all of you, and thanks for joining us today. This is my first earnings call as Chief Executive at TransAct. For those of you who don't know me, my name is John Dillon. Before becoming the CEO here, I've been on the Board for about a decade, so I know something about the company. I've been a tech individual for a long time, with experiences at places like Oracle, Salesforce, Hyperion Solutions, and the like. I feel I can bring a fair amount of guidance and experience to the job. I've only been here for about a month, but I want to share some of my first impressions and highlight some areas where we are doing well and where we have opportunities to improve. First of all, I feel confident stating that TransAct has a great number of strengths and a fundamental goodness for a company of our size, and we're not big. I also want to thank Bart Shuldman for his dedication to TransAct. His ability to navigate three years of unprecedented business and logistic challenges—because of the virus, the war in Europe, inflation, and the potential recession—has been invaluable. Without his leadership through the lockdowns and COVID-related challenges, the company would not be as well-positioned as it is today. I want to shout out a thank you to Bart for everything he's done to get us where we are. We have core competencies that differentiate us from our competition, and I believe we can leverage these effectively to build competitive moats around our businesses. For example, our printing products, manufacturing processes, and logistic capabilities are industry standard. They have allowed us to demonstrate, in the past few quarters, that we can deliver products when others cannot, winning market share in printing markets around the world. This builds trust with our customers. I believe this is an advantage that we should lean into, and I intend to double down on these strengths and focus on where we can win by penetrating customer opportunities and markets with a winning strategy. If you're smart, you lead with your strengths, and we can do that. The BOHA! platform is also differentiated. It is a well-designed product, and with the recent launch of the BOHA! Terminal 2, I believe the product's strength only improves, especially given the need for technology solutions in the back of the house where operational challenges are increasing. Companies in the foodservice industry are dealing with food wastage, spillage, labor, costs, and more, and I believe the challenges of FDA-approved labeling will continue to grow. TransAct's ability to address these needs is real. Adjustments to our product positioning and sales strategies will result in positive changes to how our customers and prospects perceive our BOHA! platform. In the end, we can gain widespread adoption of these terminals in the food service establishments we serve. Since I've been CEO, I've had the opportunity to enact some early changes to our sales motion and go-to-market strategy. I believe these changes will take time, as this is an iterative process, but we can improve our go-to-market strategy relative to FST (Food Safety Technology) and increase the number of new terminals sold. I consider this the most important indicator of success and traction for BOHA!. I am already prioritizing this objective. Our customers have learned to trust us and rely on TransAct and our products. The relationships we've built are the life-blood of any business. Through years of service, innovation, and collaboration with our customers, we've built a high degree of customer intimacy that any business would want to leverage to continue growing market opportunities. I believe we can continue to evolve and improve with a focus on a customer-centric approach, which will be key to our long-term success and differentiation. I'm getting to know and speak with members of the TransAct team. I knew many from my service on the Board, but I'm impressed with the quality of the people we have in the organization. Many are tenured and dedicated to success here at TransAct. We have good bench strength and institutional knowledge across the company, from finance and accounting to our sales organization now led by Tracy, our Chief Revenue Officer, and our technology design teams led by Brent. I have a solid team, and I am confident that we can achieve our objectives. The foundation is here, and I believe TransAct is taking the right steps toward growing into a class-leading enterprise. I will walk through highlights from our two key vertical markets, FST and casino and gaming, before a brief discussion about guidance, and then I will hand it off to Steve for detailed analysis. Relative to FST, total FST revenue for the quarter was up about 60% to $3.5 million, primarily driven by an increase in the number of terminals sold to new customers and higher shipments of our AccuDate 9700. New terminal growth remains the most vital element of our FST business, and I intend to focus on that metric. While I am encouraged by the addition of 553 new terminals in the quarter, we are already making changes to our sales strategy to enhance our quarterly run rate. The changes will take time, as noted earlier, and I will provide more detail around these efforts in the upcoming quarters. We ended the quarter with 12,733 terminals in the marketplace, a 26% year-over-year increase from 10,127 in Q1 2022. That's good, but it could be better. In the casino and gaming market, we achieved all-time high quarterly record revenues of $15.8 million, up nearly 250% year over year and almost 50% sequentially, marking our highest revenue bookings for casino and gaming in history. Strength was seen across both domestic and international sales, with triple-digit percentage gains as our industry-leading printers continue to capture market share. As mentioned last quarter, we are benefiting from a competitor's inability to supply product to the market, and our stellar production and design teams have secured parts and products where the competition has failed. While this outcome is positive, we foresee likely normalization in the competitive environment in the future. It would not surprise us. Therefore, we feel it prudent to update our financial outlook to reflect what we expect for fiscal year 2023, which is now between $71.5 million and $73.5 million in revenue and between $6.5 million and $7.5 million in adjusted EBITDA. Our first-quarter results show the opportunity in the market, yet we believe the correct approach is to assume that the current dynamics in casino and gaming may not persist. We anticipate moderation in casino and gaming sales in the latter half of the year. Although we are implementing changes to our sales and go-to-market strategy in FST, it will take time to see results reflected in sales figures. From a profitability standpoint, we assume there will be downward margin pressure due to lower casino and gaming sales, which will flow through to our results. We are not currently seeing our main competitor in the market in Q2, so we think our assumptions now are prudent, given that we cannot project when a competitor might re-enter a mostly abandoned space. Finally, as CEO, I want you to know what to expect from me. My primary objective is to create value for all stakeholders. As a shareholder myself, our objectives are aligned. My success as a leader of TransAct will result in success for all stakeholders. This will be achieved partly through transparency with you as shareholders and the financial community. I welcome feedback, comments, criticism, and encourage any holder of our equity to reach out. I sincerely want to hear how we're doing and how we can improve. I am committed to answering questions, and if I don’t have an answer, I will find it. With that, those are my comments today, and I'll turn the call over to Steve DeMartino, our Chief Financial Officer.

Thanks, John. Thanks, everyone, for joining us. Let's take a look at our first-quarter '23 results in more detail. Total net sales for the first quarter were $22.3 million, up 130% compared to $9.7 million in the year-ago period. Sales from our food service technology market (FST) for the first quarter were $3.5 million, up 62% compared to $2.1 million in the prior year period. These gains were driven by strength across the board, including record-high quarterly software revenue and stronger hardware sales with both BOHA! terminals sold to new customers and AccuDate 9700 units leading the way. We added 553 new pay terminals, ending the first quarter at 12,733 terminals compared to 10,127 at the end of the year-ago period. Our recurring FST sales, which include software and service subscriptions as well as consumable label sales for the first quarter '23, were $2.3 million, up 49% compared to $1.6 million in the prior year period. Our RPU (Revenue Per Unit) for the first quarter of '23 was $764, up 20% compared to $638 in the first quarter of '22, but down sequentially from $806 in the fourth quarter. As a reminder, the downward pressure on RPU stems from the additional terminals in the installed base that currently do not generate recurring revenue, slightly offset by an increase in recurring FST sales. However, as I mentioned last quarter, the good news is that we have a growing population of BOHA! terminals installed in the marketplace, allowing us to cross-sell other BOHA! software applications to these customers. Our casino and gaming sales reached a quarterly record high of $15.8 million, up 232% from the first quarter of '22 and up 44% sequentially from the fourth quarter of '22. We continue to see strength across the casino and gaming business, with our domestic sales up 315% and international sales up 115% year over year. While these excellent results are significantly driven by a competitor's inability to supply their customers with product—as John mentioned—we can assume these trends will hold for the entire year. Although we have yet to see evidence materialize, we suspect that our main competitor will likely re-enter the market in the back half of the year, which would impact our results. However, we believe a portion of our new market share gain will be sticky, resulting in a new go-forward run rate once the competitive dynamics normalize. POS (Point of Sale) automation sales for the first quarter '23 were $1.8 million, up 38% from $1.3 million in the prior year period. This growth resulted from higher Ithaca 9000 sales, compared to a COVID-impacted Q1 '22, largely due to a price increase we enacted in mid-'22 in response to supply shortages. As anticipated, sales were significantly down sequentially, as our largest QSR (Quick Service Restaurant) customer completed a major initiative in 2022. Therefore, we expect POS sales to remain lower throughout '23 compared to 2022. Moving on to TransAct Services Group (TSG). For the first quarter, TSG sales were down 20% year over year to $1.2 million. This decrease was driven primarily by lower sales of spare parts for our legacy lottery printers, although we expect some recovery during the remainder of '23. In terms of gross margin, our first-quarter '23 gross margin was 55%, compared to 26.4% in the prior-year quarter. The significant margin gain resulted from higher sales volume and an improved mix of higher-margin casino and gaming printer sales, along with the effects from two rounds of price increases we instituted during 2022. Looking ahead, we expect modest downward pressure on gross margin as we move through the rest of the year, anticipating the impacts from the competitive dynamics in the casino and gaming market. Our operating expenses for the first quarter increased 3% to $8.4 million, up from $8.2 million in the first quarter of '22. Breaking this down, our engineering and R&D expenses for the first quarter were flat at $2.3 million. Selling and marketing expenses also remained relatively flat, increasing 3% to $2.8 million for the first quarter as we return to more normalized levels of travel, marketing, and trade shows compared to the still COVID-impacted first quarter of '22. Lastly, our G&A expenses increased 7% to $3.4 million for the first quarter, largely due to a salary increase for all employees, the hiring of additional back office staff, and depreciation related to our new ERP (Enterprise Resource Planning) system implemented in the second quarter last year. We generated an operating income of $3.8 million, or 17.1% of net sales in the first quarter of '23, compared to an operating loss of $5.6 million in the prior-year period. On the bottom line, we recorded a net income of $3.1 million or $0.31 per diluted share compared to a net loss of $4.4 million or a loss of $0.44 per diluted share in the year-ago period. Our adjusted EBITDA for the quarter improved to $4.5 million compared to an adjusted EBITDA loss of $5.1 million for the first quarter last year. As John stated, we've updated our adjusted EBITDA guidance for '23 to $6.5 million to $7.5 million, which is up from our previous expectation of $5.2 million to $5.4 million. This outlook is the most prudent approach to our guidance, considering the anticipated normalization of the casino and gaming market in the latter half of the year, which may negatively affect both our sales and gross margin compared to the first quarter of '23. Lastly, I'd like to mention our cash position. We finished the quarter with $6.4 million in cash and $2.25 million in outstanding borrowings under our $10 million revolving credit facility with Sienna Lending. Under our current guidance, we expect to be cash flow positive for 2023 and believe our current cash and available borrowings position us well to execute our growth roadmap without immediate additional funding needs. With that said, operator, I think we can now open up the call to questions.

George Sutton from Craig-Hallum is on the line. I would like to mention our cash position. We finished the quarter with $6.4 million in cash and $2.25 million in outstanding borrowings under our $10 million revolving credit facility with Sienna Lending. Under our current guidance, we expect to be cash flow positive for 2023 and believe our current cash and available borrowings position us well to execute our growth roadmap without immediate additional funding needs. With that said, I think we can now open up the call to questions.

Great results and, John, welcome to the call. I'm curious if you could talk about the casino printer business from the following context. We were adding lines much of last year to try to keep up with demand. Can you just give us an update on where we are there? Are we working off of a backlog? And is there any way to characterize this on a book-to-bill kind of basis?

I think I can answer that. I think we're in pretty good shape. However, I would prefer Steve to speak to the specifics.

Sure. We have a very healthy sales backlog for casino and gaming printers. On the inventory side, we are in good shape. For the first quarter, we were able to ship all the orders that were scheduled. In other words, we had no pushout of orders from Q1 to Q2. We were able to deliver everything scheduled, so we're in a good position. We still have a low inventory position, but we are building that back now in the second quarter.

Got you. And, John, you mentioned BOHA!, the second version of BOHA!. Can you talk about the changes and improvements that were made? I understand there were certain pushbacks from potential customers. Have we addressed those with the second version?

Yes, indeed. We have a strong relationship with several clients that wanted specific features. We've listened closely to their feedback. BOHA! Terminal 2 includes enhancements that we intended to make. The new terminal features an improved screen, a faster printer, and an enhanced power supply. You can also have it in two formats: with a detachable tablet for mobility, or as an all-in-one built-in model. Overall, it's a better terminal than before—it's faster, more efficient, and the screen is brighter. We've standardized the underlying chipset across our other products for better integration. This terminal helps save labor while complying with FDA labeling requirements. Overall, we believe we have nailed it. We will showcase it at the NRA conference on May 21, along with other trade shows. We remain positive about the changes in our sales organization and the training provided to our teams, making it essential for clients to implement back-of-house automation systems.

Hi, great. One last question from me. Can you provide insight regarding a large convenience store customer and a large franchisor you mentioned coming in the back half of the year? Any updates?

Not specifically. I can say that the large convenience store is purchasing more equipment again. They took a break for unrelated reasons but are back on track. As for the large franchisee, there is no news, which is good. They like what we are doing.

Jeff Martin from Roth MKM has a question. George Sutton, an analyst, asks if there are any updates about a large convenience store customer and a large franchisor mentioned for the latter half of the year. John Dillon, the CEO, responds that while there are no specific updates, the large convenience store is once again purchasing more equipment after a pause for unrelated reasons. Regarding the large franchisee, there is no news, which indicates they are satisfied with the company's efforts.

Thanks. Good afternoon, John and Steve. John, you touched on the changes in go-to-market strategy with BOHA!, specifically the enhanced training and other low-hanging fruit aspects. Can you elaborate on the framework around when we might see momentum building?

The outcome is difficult to predict with certainty, but we're working on perfecting our go-to-market strategy. This includes assessing our sales personnel, their training, our lead funnel, account-based marketing, and customer engagement. We're implementing industry best practices across the board. We've reorganized the sales force, initiated training, and are focusing on targeted clientele. There are many businesses, potentially millions, where we could sell BOHA! Terminal 2. However, some have multiple stores, while others may have just a few or even one, and some have a larger presence with thousands. We're attempting to focus our resources, create success where we can, and double down on that. The changes we are implementing should yield better results than before.

Great. And another question regarding BOHA! 2 Terminal compared to the first version. Has the initial version kept customers from purchasing for specific reasons, and what are the upgrades in the BOHA! 2 Terminal? Will this open doors to larger restaurant chains and groups?

Yes, good question. This has been an iterative process. The earlier version was a basic labeling printer, while now the software is more sophisticated. I believe this new terminal will open doors for larger organizations because we are effectively requesting that clients redesign operational aspects of their back of the house. We have individuals still using traditional methods, but from a sales perspective, this creates a lengthy process, particularly for larger clients, which could result in delayed sales cycles. In many cases, clients say 'not now' instead of outright refusing. We are focused on maintaining connections with those who have expressed interest and ensuring we remain in contact with them. For franchisees, the approval chain can be more complex, leading to delays in adoption. Overall, we believe we've improved our go-to-market strategy, the terminal itself, and customer targeting.

Hi, great quarter. Regarding historical performance, how many 9700s are out there in the restaurant and convenience store space? Can you provide insights on the opportunity to upgrade customers to the new terminal and increase recurring revenue?

That's a great opportunity for upgrades for several reasons: The BOHA! Terminal 2 can perform more tasks than the 9700, and eventually, replacements appear needed. We have tens of thousands of 9700s out in the market. Steve won't disclose the exact number, but it exceeds 110,000.

Are you approaching those customers for upgrades? If so, what’s the pushback?

Yes, we are reaching out to those customers. We are receiving positive feedback. Generally, there isn't particular pushback; the 9700 is still performing well. So while we expect to earn that business eventually, clients may not feel compelled to replace terminals all at once.

There are no further questions at this time. I would like to turn the floor back over to John Dillon, Chief Executive Officer, for closing comments.

Thanks for joining today. I sincerely request your feedback, comments, and input. If there are things you believe we should be doing differently, I appreciate calls like those. I'm open to suggestions and ideas from all of you. I intend to be transparent in our operations, as investors deserve insights into the company’s progress. As I become more familiar with the data and information, I wish to share more openly. I appreciate your participation, and with that, I’ll say goodbye.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.