Greetings, and welcome to the TransAct Technologies’ Third Quarter 2023 Earnings Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ryan Gardella, Investor Relations. Thank you, sir. You may begin.

Thanks, Karl. Good afternoon, and welcome to TransAct Technologies' third quarter 2023 earnings call. Today, we 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 a discussion of the company’s key operating strategies, the progress on those initiatives, and details on our third 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 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 measures calculated and presented in accordance with GAAP can be found in today’s press release as well as on the company’s website. And with that, I’d like to turn the call over to John. John?

Ryan, thank you. And good afternoon, everyone. And thank you for joining us today. I’m pleased with the progress we’re making operationally across the organization, and I am happy to report fairly solid results for the quarter. That said, I’m the first to acknowledge that we’ve still got some work to do. There’s a lot of work yet to be done and the changes that we’ve made and continue to make will take some time. It always takes time to produce the results we know we need, and that helps the company deliver the future that we want. So, on the top line, results were in line with what we expected for the quarter, as discussed in the last call. Net sales of $17.2 million were down 4% year-over-year and approximately 14% sequentially. The sequential decline was a result of lower casino and gaming sales, and I’ll speak more about that shortly. Operationally, I believe we made an incredible amount of progress and are on the right track to getting the business back to a place of sustainable strength. Before diving into the results by market, I want to discuss some specific initiatives underway. First, as mentioned in prior calls, after an extensive reorganization of our FST sales team and our go-to-market strategies, we believe we have the right pieces in place, including people, processes, and the right organization to make things happen. We have also refocused on the market segments where we can win. We expect to see results from these changes in the first half of 2024. The BOHA! platform, including the new T2 Terminal, is designed for enterprise-grade customers—larger, more complex, and sophisticated organizations. We are focusing our sales team on the top 1,000 organizations in the U.S. and their operations internationally to sell the BOHA! platform. This shift requires us to prioritize lead generation, lead-to-close metrics, and customer acquisition costs, which are critical for understanding our business operations. We are beginning to see quarter-over-quarter growth in qualified leads, reflecting early progress. As part of our commitment to transparency, I intend to publish pipeline metrics beginning next quarter, as well as the number of net new logos for the FST business. This, along with units sold, is a solid indicator of the progress we want to see. I believe that the best way to assess metrics is over time. Merely presenting a number is not meaningful without context. We must understand whether something is improving or declining and the implications of that change. If it’s improving, we should do more of it; if not, we should address it. These improvements take time, and we cannot expect continuous returns immediately. We will iterate and optimize how we manage these metrics over time. Additionally, I am pleased to announce that we have received formal approval from a global QSR to sell our new BOHA! Terminal 2 in their stores overseas, with U.S. approval expected soon. This presents a multi-thousand unit opportunity for us, and we have already seen some initial orders from this win. While it is challenging to predict the penetration rate and sales cadence due to varying franchisee order rates, we will provide a more detailed update when possible. I want to highlight the cost-cutting and rebalancing of our teams and organization. We reported this in our press release, and it is a crucial aspect of our operation. During the quarter, we initiated cost-cutting measures, including eliminating approximately 10% of our workforce through a mix of attrition and selective headcount reductions, along with cuts in sales and marketing, G&A, and engineering. By the end of the fourth quarter, we estimate these actions will produce about $3 million in annual operating expense savings, fully realized in 2024. With our organization streamlined and focused, we believe we are better positioned for long-term success and enhanced profitability. I have asked Steve to go over the details of the third quarter numbers shortly. Finally, the third initiative I want to mention involves engaging an advisor to assist the C-suite and the Board of Directors in formulating our long-term business strategy. We believe an independent external perspective will be important in helping us make decisions to maximize value for shareholders and stakeholders. We will provide updates as they become available. Now let me discuss results and updates on our two major markets: the food service technology (FST) and casino and gaming. FST total revenue was $4.2 million, up about 13% year-over-year, with our highest recurring revenue for FST at $3.1 million—the first time this number has surpassed $3 million. We sold 710 new terminals in the quarter, bringing the total number of online terminals to 13,795. Although I’m disappointed in the sequential slowdown, I am confident the changes in our sales strategy will lead to more momentum in 2024. We anticipate some uplift in numbers from our global QSR win in the fourth quarter. As a reminder, BOHA! has a long sales cycle and is often a land-and-expand approach, starting small but resulting in long-lasting relationships. We’re on track to get approvals from key accounts and are optimistic that these will yield results in 2024. On the casino and gaming side, revenue for the quarter was $9 million, up 17% year-over-year but down 26% sequentially. The biggest reasons for this slowdown include a minor re-entry of our main competitor and an observed oversupply from OEMs, which has slowed their order rates. This was the leading reason for the current quarter's slowdown. We estimate that our net sales run rate should be about 15% to 20% higher than pre-pandemic levels, but this new run rate may not fully materialize until 2024. Let’s conclude with the outlook for the rest of the year. We believe it is prudent to raise the low end of our net sales guidance to a range of $72.5 million to $73.5 million for the year, while raising our adjusted EBITDA guidance to between $9.5 million and $10 million. We’ve made good operational progress so far and have substantial reasons to be confident as we move into 2024. We are making strides in FST by honing our sales focus on the top 1,000 organizations in the market and optimizing our business with an anticipated $3 million annualized reduction in spend. We won approval to sell our BOHA! terminal to overseas stores, with U.S. approval to follow. Our pipeline is growing, and we are optimistic about our future. Lastly, we intend to engage an advisor to further explore our long-term business direction. That’s my formal report, and I’ll now pass it to Steve for a detailed review of the numbers. Steve?

Thanks, John, and thank you everyone for joining us. Let’s dive into the third quarter results. As John mentioned, total net sales for the third quarter were $17.2 million, which was down 4% compared to $17.9 million from the same period last year. Sales from our Food Service Technology market, or FST, for the third quarter were $4.2 million, reflecting a 13% increase from the prior year period and a 9% sequential increase. This growth is largely due to record highs in BOHA! software subscription revenue and label sales. During the third quarter, we sold 710 new terminals, reaching a total of 13,795 online terminals at the end of Q3. Our recurring FST sales, which include software and service subscriptions as well as consumable label sales, reached a record high of $3.1 million, up 22% from $2.6 million in the prior year period. For the third quarter, our ARPU was $929, consistent with the ARPU of $936 in the same quarter last year, while up 19% on a sequential basis compared to $782 in Q2 primarily due to the record recurring revenue realized. It’s worth noting that we are currently selling some BOHA! terminals with no recurring revenue attached, which presents future opportunities but currently drags on our ARPU. In casino and gaming, sales reached $9 million, up 17% from the third quarter of 2022, driven by domestic sales increasing by 43% year-over-year. However, sequentially, sales were down 26% from the second quarter’s $12.2 million, primarily due to OEMs reducing high levels of printer inventory they had amassed during the supply crisis earlier this year. We expect this trend to continue into the fourth quarter. POS automation sales decreased 69% year-over-year to $1.6 million, reflecting a return to more normalized sales levels compared to the prior year, which was inflated by the chip shortage impacting our competitors. We believe this quarter represents a normalized level and expect it to continue into Q4 and 2024. Moving to TransAct Services Group (TSG) sales, they doubled to $2.3 million, up 101% year-over-year, primarily due to increased sales of spare parts and service for our legacy lottery printers. Although we had a strong third quarter, sales of legacy lottery printer spare parts can vary significantly from quarter to quarter. Now, moving down the income statement, our third quarter gross margin was 51.9%, decreasing sequentially from 54.5% but improving from 45.9% in the prior year period. This improvement is due to an enhanced mix of higher-margin casino and gaming printer sales along with the positive effects from two rounds of price increases instituted in 2022, which we’ve maintained through Q3 2023. However, we anticipate some downward pressure on our gross margin in Q4 due to lower expected sales volume. Our total operating expenses for Q3 remained relatively consistent, decreasing by 1% to $7.7 million. When excluding a $1.5 million severance charge related to the termination of the former CEO in Q2, our operating expenses declined by 5% sequentially, resulting from initial savings from the late-Q3 cost-cutting efforts. We expect these cost reduction initiatives to further impact our Q4 operating expenses, but do not anticipate realizing the full effects until 2024, with an expected annualized cost saving of approximately $3 million. Breaking down our operating expenses, our engineering and R&D expenses for Q3 increased 26% to $2.5 million, largely due to higher incentive compensation, additional software resources, and increased testing fees for product launches. Our selling and marketing expenses decreased 13% year-over-year to $2.4 million, primarily due to cost reductions including fewer headcounts, fewer trade shows, and overall marketing spending. Our G&A expenses decreased by 8% to $2.8 million for the third quarter, attributed to lower stock and incentive compensation due to the former CEO's termination and not repeating post-live support expenses for the NetSuite implementation incurred last year. This quarter, we generated operating income of $1.2 million, or 6.9% of net sales, compared to $387,000, or 2.2% of net sales, in the prior year. Our operating margin last year had been negatively impacted by lower gross margins primarily because of COVID-related supply chain issues. On the bottom line, net income was $906,000 or $0.09 per share, compared to $528,000 or $0.05 per share in the previous year. Our adjusted EBITDA improved to $1.7 million compared to $1.2 million for Q3 last year. For the full year 2023, we now expect to generate total adjusted EBITDA between $9.5 million and $10 million. Lastly, our balance sheet remains strong, ending the quarter with $11.6 million in cash and the required $2.25 million outstanding on our credit facility with Siena Lending. Now, I’ll turn the call back to John for any closing remarks.

I want to thank you all for joining us and listening, and I want to extend my gratitude for your support and feedback. We are dedicated to providing value for all our stakeholders and shareholders and are committed to enhancing transparency in the business. Should you wish to discuss anything related to TransAct, please feel free to reach out to me or Ryan in Investor Relations, and we can arrange a call.

Yes, we can now open up the call for questions.

Our first question comes from George Sutton with Craig-Hallum Capital Group. Please go ahead.

Hey guys, this is James on for George. Thanks for taking my questions. John, as you look at the current pipeline, how do you kind of describe the mix between convenience stores, QSR, and then other potential verticals you might look to address?

It’s interesting on that point because when we first got into the business, we thought restaurants would be a significant space. However, restaurants are still recovering from the pandemic, whereas convenience stores and grab-and-go services are thriving. Grocery store sushi, those markets are performing well, and we’re seeing a lot of traction there. QSRs, large chains and food service management companies are probably our hottest segments. We’ve refocused the sales team on more sophisticated customers and are seeing promising progress with lead generation. We're tracking funnel metrics at each step, and I’m pleased with the team's progress. The large QSRs, grab-and-go, and grocery store sushi are among the most promising markets for us, followed by food service management.

Great. And congrats on signing the global QSR. Can you talk about the sales process and any initial feedback from that customer regarding why they selected BOHA!?

Honestly, it’s a great product. We've been in this industry for a while. Our engineering is strong, and we listen to our customers. The feedback from the global QSR and others indicates this is the product they’ve been waiting for, and there’s enthusiasm among our sales team as well. It helps when the team believes in the product. Observing conditions at grocery stores, I’ve noticed tablets and labels that don’t meet quality standards. We see significant opportunities ahead.

Lastly, regarding engaging the advisor for strategic options, can you elaborate on what options you might be considering?

Sure, we have a smart team and experienced Board members. My role is to guide the company forward, and we want an outside advisor to provide a deeper understanding of the competitive landscape and ensure we're on track. We’re not presaging any specific outcomes; our goal is to consider all potential options and opportunities, including some we haven’t even thought of yet.

Great. Nice results, guys.

Thank you.

Our next question comes from Jeff Martin with Roth Capital Partners, LLC. Please go ahead.

Thanks. Good evening. I wanted to understand the $3 million expense reduction effort. Will there be any offsetting growth initiatives next year that you’ll be investing in? Thinking about this from a modeling perspective.

I wouldn't say we’re venturing into meaningful adjacent verticals just yet, although that’s a future possibility. Our focus is on ensuring we can navigate the upcoming challenges efficiently. We’re not scaling back on initiatives that promote our business growth, but we want to ensure our current operations are optimized and efficient. The total addressable market for FST is substantial, and while there are competitors, we don't see an issue with headroom at this time. Our goal is to demonstrate that we can win and grow our market share.

Great. Regarding the top 1,000 organizations you’ve identified, how are you categorizing them? Do you assign them to various parts of the sales organization, and do you have structured teams for that?

We analyzed the total addressable market and assessed which products fit where. I directed the team to evaluate different sub-verticals within FST, such as convenience, foodservice management, and restaurants. We focused on organizations that may require larger unit purchases. It turns out that roughly 1,000 organizations represent two-thirds of our market opportunity. So, we divided the sales team into five segments—restaurant, convenience, FSM, QSR, and grab-and-go. They are targeting their specific segments with structured lead generation, and our revenue generation process is in capable hands. We ensure that our sales opportunities are nurtured well, and we have a solid focus on the customer relationship. We want to sell where our product adds value and captures margins accurately. Our objective is to ensure the customer understands our offering and feels aligned with us.

Great. I appreciate the clarity. Regarding the QSR win, can you confirm it’s an international license, with U.S. approval expected to follow, meaning the U.S. isn't part of the initial several thousand units? Is that correct?

That is correct; the U.S. is not included in the initial opportunity, but we expect that approval to follow.

Great. One last clarification: you'll be selling software modules as well, not just terminals, correct?

Yes, each franchisee will have a say in the applications they wish to utilize, so while we cannot predict specifics, we do expect software to be included.

There are no further questions at this time. This concludes our Q&A session for today. I would now like to turn the floor back over to John Dillon for closing comments. Please go ahead.

I would like to thank all of you for joining us. If you have any follow-up questions, please feel free to reach out to me or to Ryan in Investor Relations for a discussion about the quarter or any related TransAct topics.

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