Greetings, welcome to TransAct Technologies' fourth quarter and full year 2023 earnings call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to Ryan Gardella, Investor Relations. Thank you. You may begin.

Good afternoon, and welcome to TransAct Technologies' fourth quarter and full year 2023 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 discussions of the company's key operating strategies, the progress of those initiatives, and details of the fourth quarter and full year financial results. We'll then open the call to participants for questions. As a reminder, this conference call contains statements about future events and expectations, which are forward-looking in nature. Statements on this call may be deemed forward looking and actual results may differ materially. For a full list of risks inherent to the business of 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 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 the SEC Regulation. 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 the company website. With that, I'll turn the call over to John.

Thank you, Ryan, and good afternoon, everyone. Thanks for joining us today. 2023 has been a unique year for TransAct in many regards, and I'm happy to report that we closed it out with a fair amount of good news, and we believe that we are well set to see increasing momentum in 2024. We reported $13.3 million for the fourth quarter and $72.6 million for the full year, reflecting results of changing dynamics in both of our main lines of business as we've been discussing in prior calls. On the FST side, food service technology, we saw revenue of $4.7 million, that's up about 54% year-over-year and 11% sequentially, with the recurring component of that revenue of $3.2 million, up 33% year-over-year and 2% sequentially, both to a record high. As I discussed at length previously, FST was a major focus in our reorganization of TransAct Technologies, and we believe that we now have the right pieces in the right places, as we're now focusing on selling our efforts to the top thousand organizations in the US and their related operations abroad to sell BOHA!, the Back of the House Automation platform. Additionally, we launched our new BOHA! Terminal 2 in 2023, and this is a high-end enterprise-grade solution, which will be suitable for enterprise customers. While we expect progress to be lumpy quarter to quarter as a small business would, we believe that we are seeing the first signs of momentum to build. We sold 1,235 new BOHA! Terminals in the fourth quarter, bringing the annual total to 3,655 units sold during the year. We ended the year with a total of 14,514 online terminals installed in the marketplace. We count that statistic because we think that's a platform event and it's an opportunity for cross-selling. We did see some benefit from international QSR that we talked about. After almost a year instituting major changes across the FST organization, we are encouraged by our sales numbers for the quarter, but acknowledge that we have much greater goals in mind for BOHA! and FST going forward. Our Terminal 2 continues to be well received by the customers that have seen it and prospects we showed it to, and we believe this new product will be crucial to growth going forward. I also wanted to provide an update on the two new metrics, which I mentioned last quarter. One of them is pipeline growth, and the other one is new logos, also known as new customers. As part of my commitment to the TransAct shareholders, my goal has been to increase the transparency into the business. We felt this would be important to help investors evaluate the growth and future prospects for BOHA! I use both of these metrics to run the business myself; they really matter. On the FST pipeline growth side, let me give you some historical context first. Under previous leaders, there's been sporadic reporting of the pipeline. More importantly, I think subject to certain criteria, we reorganized it, moved some people around, we took a hard look at the pipeline, scrubbed it, and boiled it down to a place where we felt the pipeline was really reflective of the opportunity in front of us and represented guidelines for the next four quarters, a possibility. We tend to look at the pipeline quarterly, but we run out a 12-month, four-quarter rolling pipeline to look at the business, and we can see opportunities out quarters. With this process, I am satisfied that the pipeline and our belief in the dollars and opportunity in it are good and represent opportunities for TransAct to convert that pipeline into revenue. With this in mind, I'm pleased to report that the FST pipeline increased 161%, representing a total amount that is several times larger than the current FST sales level, which is a good sign. The BOHA! sales cycle is typically pretty long and somewhat complex, but it pays dividends in the long run. For businesses that operate in a franchise fashion, we almost always need to engage both the headquarters and the individual franchisees, making the sales process a little more complicated but it's typical for many of the most well-established brands. We are optimistic that these approvals will begin to yield results as we move forward. In the fourth quarter of 2023, we added 12 new logos, including the international QSR, which I mentioned previously. Our reconfigured and retrained sales team is now focused on the enterprise part of the market, particularly, approximately the top thousand organizations in the United States, and we will update you all next quarter on how each of these metrics is trending with the first quarter of 2024. Overall, I feel we're well positioned to see some accelerating growth from FST as we move forward in 2024. While I anticipate the majority of tangible progress to occur in the back half of the year, I have confidence in the team we have in place. We've lowered the cost structure as a result of cost-cutting measures that I discussed last quarter, so I think we're in a pretty good place. On the casino and gaming side, we reported $4.2 million for the quarter, which is down an enormous 62% year-over-year, and I'll talk about that in a moment, with a full-year revenue of $41.2 million. We've been discussing the challenges of the changing dynamics in the duopoly we share in the market during the past several quarters, and I wanted to provide more of an update on the two most important factors. First, from a competitive standpoint, we believe we're beginning to see a slightly wider scale re-entry into the market from our main competitor, and expect to experience some pricing competition as they attempt to regain some of their lost market share. This has not been widespread as of yet, and it's mainly confined to overseas markets. We're watching it carefully, but it's not significant at this point and we will keep you posted if that situation changes. Secondly, on the inventory side, we're now hearing from almost all of our OEM customers that they're in an oversupply position and have been slowing order rates substantially. In short, these OEM customers overbought as the casino business rapidly rebounded and at the same time, tried to offset supply chain uncertainty by overbuying. This dynamic continues to be the main reason for the sequential slowdown in the quarter. We expect the first quarter of 2024 to be the peak of this oversupply effect, with orders picking up as we move forward throughout the year. Ultimately, we continue to estimate our go-forward annual net sales run rate in the casino and gaming market should be about 15% to 20% higher than the historical pre-COVID averages and believe that this will be the case for 2024 as a whole, with sales numbers improving sequentially quarter to quarter. Finally, I want to provide our financial outlook for 2024. We are currently expecting full-year revenues of between $53 million and $58 million, and adjusted EBITDA approximately at the breakeven level. These ranges take into account all points I've already discussed today; I believe we're well positioned to see acceleration in the business in 2024, after a year of rebuilding and cost-cutting across the organization last year. We've got the right team in place, selling to the right customers and prospects on the FST side, and believe this should result in growing momentum as we move through the year. We're beginning to see orders for this new T2 terminal. It's a platform that can run many different types of software and technology, so we're excited about it. We saw orders start from our large international QSR and expect domestic orders for BOHA! from the same customer in the coming months. Pipeline growth and net new logo metrics were solid for the quarter. I'm going to report these numbers, whether they're good or bad. The casino and gaming line have seen some increased pressure. I think we've explained that we have confidence in our long-term run rates for 2024 and beyond, and that's pretty much all I have for prepared remarks. With that, I'll turn the call over to Steve DeMartino.

Thank you, John, and thanks, everyone, for joining us today. I'd like to start by discussing our fourth quarter and full year 2023 results in more detail. Total net sales for the fourth quarter were $13.3 million, which was down 26% compared to $18 million in the fourth quarter of 2022. For the full year 2023, total net sales were $72.6 million, which was up 25% compared to $58.1 million in 2022, and within our financial outlook range we provided for the 2023 year. Sales from our Foodservice Technology market, or FST, for the fourth quarter were $4.7 million, which was up 11% sequentially and 54% compared to $3.1 million in the prior year period. For the full year, FST sales were $16.3 million, which was up 32% compared to $12.4 million in 2022. These increases were largely due to higher terminal sales, including the launch and first sales of our new BOHA Terminal 2, as well as sales of centers and gateways to a new assisted living customer and higher recurring revenue. We sold 1,235 terminals in the fourth quarter of 2023 and ended the year with 14,514 net new terminals installed in the market. Our recurring FST sales, which include software and service subscriptions, as well as consumable label sales for the fourth quarter reached a record high of $3.2 million, which was up 33% compared to $2.4 million in the prior year period. For the full year, recurring FST sales were $11.1 million, also a record high and up 28% compared to $8.7 million for the full year 2022. Our ARPU for the fourth quarter of 2023 was $926. That was up 15% compared to $806 in the fourth quarter of 2022, but down slightly sequentially from $929 in the third quarter of 2023. As a reminder, we're currently selling some BOHA terminals with no recurring revenue attached to them to start. While this presents an opportunity to sell recurring elements in the future, for now, they represent a drag to our ARPU numbers. Our casino and gaming sales were $4.2 million for the fourth quarter of 2023, which was down 62% from the fourth quarter of 2022, largely due to OEMs working down high levels of printer inventory that they stockpiled during the supply crisis earlier in 2023, that's now eased. For the full year 2023, casino and gaming sales were $41.2 million, which was up 37% year-over-year. As John mentioned, we expect the dynamics we experienced during the fourth quarter to continue into the first half of 2024, with the most significant effect likely in the first quarter and improving thereafter. POS automation sales for the fourth quarter decreased 47% from the prior year to $1.6 million. For the full year, POS automation sales were $6.9 million, which was down 35% from the full year 2022. This decline was largely the result of difficult comparisons, as we experienced unusually high sales in 2022 due to our competitor's inability to supply product. We believe the competitors in this market are now fully back online and expect Q4 to represent close to our normalized go-forward sales rate. Moving to TransAct Services Group or TSG sales, for the fourth quarter, TSG sales nearly tripled year-over-year to $2.8 million. This increase was largely due to unusually high sales of legacy lottery spare parts. For the full year 2023, TSG sales were $8.2 million, which was up 61% from the full year 2022. Sales of legacy lottery printer spare parts are sporadic, hard to predict, and they can vary significantly from quarter to quarter. As a result of this, we don't expect this level of sales to repeat in 2024. Moving down the income statement, our fourth-quarter gross margin was 48%, which was down sequentially from 51.9%, but up from 45.8% in the prior year period. Full-year gross margin was 52.9% as compared to 42% in the full year 2022. This comes as a result of significantly higher sales and an improved mix of higher-margin casino gaming printer sales. Also contributing to the increase was the continued positive effect from two rounds of price increases that we instituted during 2022 and were able to largely maintain throughout 2023. However, based on an expected return to more normalized competitive dynamics in both our casino and gaming and POS automation markets in 2024, we expect our gross margin for 2024 to be somewhere in the mid-40% range. Our total operating expenses for the fourth quarter decreased by 11% to $6.9 million. And on a sequential basis, our operating expenses declined 11% as well. These declines come as a result of our previously discussed savings achieved from the cost cutting efforts that we began to implement late in the third quarter. We estimate that these actions will produce operating expense savings of approximately $3 million on an annualized basis, and we experienced the full effect of these reductions during the fourth quarter. For the full year 2023, operating expenses were $32.7 million, which was up 2% from the full year 2022. However, our 2023 operating expenses included a $1.5 million severance charge related to the resignation of our former CEO. Excluding this charge, our operating expenses actually declined 3% year-over-year. Breaking down our operating expenses a bit more, our engineering and R&D expenses for the fourth quarter were essentially flat from the prior year, increasing just 1% to $2.2 million. For the full year 2023, these expenses increased 10% year-over-year to $9.4 million. Our selling and marketing expenses decreased 90% to $2.1 million for the fourth quarter on a year-over-year basis. For the full year 2023, our selling and marketing expenses were $9.9 million, which was down 12% year-over-year. The decrease was largely due to rightsizing changes related to our FST market that we made during the latter half of 2023, including reductions in headcount, trade show expenses, and overall marketing expenses. Lastly, our G&A expenses decreased 12% to $2.6 million for the fourth quarter, largely due to lower stock incentive compensation expense, as well as lower bad debt expense and recruiting fees. For the full year 2023, our G&A expenses were $13.3 million, which was up 9% from the full year 2022, largely due to the $1.5 million severance charge I mentioned earlier. Excluding this charge, G&A expenses declined 3% year-over-year. For the fourth quarter, our operating loss was $522,000 or 3.9% of net sales, compared to operating income of $494,000 or 2.8% of net sales in the prior year period. For the full year, we generated operating income of $5.7 million compared to an operating loss of $7.7 billion in 2022. On the bottom line, we recorded a net loss of $62,000 or a penny loss per share for the fourth quarter, compared to net income of $260,000 or $0.03 per diluted share in the year-ago period. For the full year 2023, we had net income of $4.8 million or $0.47 per diluted share, compared to a net loss of $5.9 million or $0.6 per diluted share in 2022. Our adjusted EBITDA for the quarter was $600,000, compared to $1.3 million for the fourth quarter 2022. For the full year, our adjusted EBITDA was $10 million, which compared to negative $5.2 million in 2022. Our adjusted EBITDA for the full year 2023 put us at the high end of our financial outlook. Our balance sheet remains solid. We finished the year with $12.3 million in cash, which was up $4.4 million over the cash balance we had at the end of 2022. In terms of debt, we had only the minimum required borrowing of $2.25 million under our credit facility. Before opening the call for questions and answers, I wanted to discuss our projected cash flow for 2024. With our 2024 outlook for projected adjusted EBITDA of around breakeven, we expect the business will also be around working capital neutral for the year. We ended the year with a relatively high level of net inventory, about $17.8 million, which we expect to sell down as we move throughout 2024. We believe this inventory liquidation should provide enough cash to fund any anticipated growth in receivables and working capital items. We also expect a fairly typical year for capital expenditures. Given these factors, combined with our current financial outlook range, we believe we will likely end 2024 with a similar amount of cash and cash equivalents as we had at the end of 2023. That's it, and with that, I'd like to turn the call over to the operator for questions.

Our next question is from George Sutton with Craig-Hallum Capital Group. Please proceed.

Thank you. John, I wondered if you could walk through the decline quarter over quarter. Just give us a sense of the significance of the inventory issue in the quarter, relative to the competitive change in the quarter. And as you look forward to Q1, I think you're suggesting Q1 will be below Q4 in that segment. Is that correct?

Steve, you'll have to answer that.

Yeah, we're expecting that inventory overstock position that we experienced in Q4 to continue into the first half, but most of the effect will be in the first quarter. A lot of the OEMs really have just slowed down, in some cases, turned off the orders for a quarter or so.

We've been supportive of our client base that they'd call us up and say, I need machines next week or tomorrow, and we can get them out to him. When the supply shortage hit supply chain, they found they couldn't ship machines, whether they were getting the machines from us or our main competitor. They overbought because making up $30,000 to $50,000 slot machines and needing a TITO printer, ticket-in, ticket-out printer, means you can't ship that machine. They panicked, overbought because of uncertainty in the supply chain. The net result is both we and our clients have increased inventory, and we're just going to have to work through that. The good news is, all of our inventory is saleable, and frankly, I've been to Las Vegas lately and many casinos are back full tilt. We expect that the normal supply and demand disruption will work its way out and stabilize probably towards the end of the year. We believe we've picked up about 15% to 20% in sustainable market share, given that our competitor was adrift during this whole supply chain issue. We expect them to return but, we can keep most of the inroads we made.

And just to be clear, Steve, did you say the revenues in casino this quarter were something you would anticipate as more normal going forward? Did I hear that correctly?

No, what I was saying was the revenue for the POS market, George, should be close to a similar run rate as we go into 2024. Casino game revenues will be lower in the beginning and should ramp up as OEMs work through their inventory issues.

Okay, I heard that incorrectly.

That's correct.

And lastly, John, I wondered if you could just give us a sense of the 12 logos that you signed in the quarter and just the composition of them, what types of outlets are they and how significant if you fully roll out to them, would those be?

It's hard to predict just from a sales focus standpoint. We're not focusing on organizations that can't place orders for 50 to 100 units minimum. There are some holdovers, and we don't turn people away when they say they need a small number of machines. So, we have a mix. We mentioned that we had an interesting opportunity where we monitored refrigerators and storage for additional items in a retirement home setting, where you can imagine losing expensive medicines due to temperature issues. I would say this is a mix, but I think it represents some significant unit sales over a period of time.

Our next question comes from Jeff Martin with Roth MKMV.

Could you give us an update? I know you've talked in the past and alluded to it briefly this afternoon, but in terms of adding technologies, perhaps partnering with other technology providers or software companies on the BOHA! T2 terminal, are you seeing that become more prominent in the potential offering?

It's a keen focus of mine, but it's early days, so there really isn't any meaningful commentary at this point. I would point out that in the food service technology space, they might lag in technological adoption. The industry has realized that there is improvement to be made. Minimum wages are rising, labor's hard to get, and automation is possible; we are hoping for growth in this area. We believe we are approaching it the right way by delivering a lot. Most other vendors are older software vendors who ship customers a couple of tablets and printers and expect them to figure out the configuration. Our BOHA! Terminal 2 is a platform capable of connectivity and various integrations. It's a key area of focus, and while I don't have specific updates at this time, I believe it represents significant potential as we grow.

Great, so John, your cellphone has been cutting in and out a bit throughout the call. I think we're done with that. It's things, but just as a fair warning. My question relates to the types of end markets that you're looking at when you talk about the pipeline being up 160% or so. Could you characterize the qualified near-term 12-month pipeline in terms of maybe convenience stores, QSRs, restaurant groups and the like?

I don't have the specific numbers in front of me, but we have a team dedicated to about four or five of the sub-verticals, including QSR, casual and fine dining, grocery, grab-and-go, and food service management. From an opportunity standpoint, it's about even. Some cases, like a QSR could have 1,000 stores, while the food service management might not have many units but would have large operations. The sales team is targeting each one of those. We're implementing some account-based marketing strategy, identifying potential customers and staying in touch. There are many factors affecting the decision-making process, which can slow things down. We've improved our processes, and we're beginning to see real progress. The pipeline is much better than it was six months ago, and I believe we have a way to go. Selling to the enterprise customers will be somewhat lumpy, but I'm hopeful for progressively better results every quarter. The recurring business model will be a focus area for us.

We have reached the end of our questions-and-answer session. I would like to turn the conference back over to John Dillon for closing comments.

I don't have a lot of things to add. We're excited about this quarter, even though the gaming and casino industry has its ups and downs. I'm disappointed, but it’s not broken; it's just out of equilibrium. All systems usually trend towards a mean or norm, and that's what we expect. We look forward to talking to some of you individually. I will continue to focus on transparency and share as much as possible with you. Thank you for your time and attention to this call; I appreciate it and look forward to working with you through the quarter.

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.