Greetings and welcome to the TransAct Technologies Second Quarter of 2024 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. This conference is being recorded. It is now my pleasure to introduce your host, Ryan Gardella, Investor Relations. Thank you, sir. You may begin.

Thank you. Good afternoon. Welcome to TransAct Technologies’ second quarter 2024 earnings call. Today, we will be discussing the results announced in our press release issued before market open. Joining us from the company is CEO, John Dillon; 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 second 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 Forms 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 may include non-GAAP financial measures within the meaning of 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 company website. And with that, I’d like to turn the call over to John.

Thank you, Ryan. Good afternoon, everyone, and thank you for joining us today. I'm pleased to announce positive results for the quarter. Total sales of $11.6 million, FST, food service technology, recurring revenue up sequentially, a little over 15%, despite the loss of a large customer early in the quarter and continued signs of stabilization in our casino and gaming market. So let's go through some of the highlights for FST, again, that food service technology. It had a strong quarter, and it's showing early signs of building momentum. We generated total FST revenue of $4.2 million, up 7% year-over-year and 27% sequentially, from the last quarter to this quarter. Our FST recurring revenue was $2.8 million, up 12% year-over-year and 15% sequentially, mostly on strength from several of our large chains. And despite the loss, again, of the large customer in April that we discussed on our last call. Our FST hardware revenue was flat year-over-year, despite the lost customer, but generally grew sequentially, up 57% from Q1 this year, and in the quarter we sold almost 1500 terminals. We believe we're starting to see some real success from the reorganization and refocusing of our FST sales group and our go-to-market strategy. These were key initiatives where we placed a heavy focus last year and continue to fine-tune the process as we go forward. We've got the right pieces in the right places working on selling the right accounts, and this quarter's results reflect the beginning stages of what I consider growing success. We're executing well with the continued focus on the blocking and tackling needed to build our business, and yet I'd like to reiterate that results may continue to be lumpy until we reach some degree of scale, clearly. Yet, however, we are positive about the progress we've made so far. The rollout of the Terminal 2, the BOHA! back-of-the-house automation platform to our international QSR customer that we've referenced on prior calls, continues to be a solid success. As many of you have already seen, in June, we announced that we had sold Terminal 2 units to 200 Italian locations, marking the fifth new international market that we've entered. Additionally, we have pending expectations for several other international markets representing over 3,500 additional locations, and we are confident that we'll begin selling into these locations before the end of 2024. These are completely new markets for us that have never had BOHA! products in use, meaning that many franchises are recognizing unique benefits and cost savings associated with the TransAct BOHA! platform for the first time. So we're very excited about that progress. We also announced a new win domestically with Jet Food Stores, a convenience store chain in Georgia, which will deploy Terminal 2 for date code and grab-and-go labeling across 42 locations. One of the major benefits of the BOHA! platform is the ability to remain in compliance with FDA labeling requirements for our fresh food offerings. This is a primary focus for this particular client. We've already begun rolling out the terminals and expect to be finished with this rollout by the end of September. We'll continue to receive very positive feedback on Terminal 2 from both customers and prospects, as we see existing BOHA! users converting from previous generations of the AccuDate and the original BOHA! Terminals to the new BOHA! Terminal 2. So we're very happy about that. And that's great progress. We believe the momentum will continue to build. So it's all good there. We also posted a good showing on the new logo line, adding 13 new BOHA! customers in the quarter, representing a potential deployment of approximately 2,800 units in the future. Additionally, our new pipeline remains strong with the quarter-over-quarter difference in our rolling four-quarter pipeline holding steady, with a slight dip of a little less than 10%, mostly at the end of the pipeline, in other words, four quarters out. And as we continue to refresh the pipeline with new engagements and discussions, that four quarters out will begin to grow. We have plenty of revenue potential in the pipeline to cover the near-term quarters, and we can easily see that moving forward. Moving on to the casino and gaming market, we reported revenue of $5.3 million, a decrease of 56.2% from the prior year. But we've been discussing the dynamics around this market for the past several quarters, primarily in the context of competition and inventory supply. On the competitive side, we've noted last quarter that we've seen a re-entry into the marketplace from our main competitor. We continue to take the steps necessary to retain market share and are confident that we have fortified our positions well enough to continue to hold on to these market share gains. We're also confident in our strategy and ability to adjust as needed and believe that we are approaching a new status quo. So that's generally pretty good news. On inventory, we've pinpointed two particular slot OEMs, one domestic and one international, who are still working through their oversupply situations. These manufacturers purchased a very large quantity of printers from us during the supply chain crisis and are still sitting on some units. The other slot OEMs we work with have returned to normal supply amounts. As we move through the year, we believe this dynamic will continue to trend towards normalization. It hasn't happened yet, but we believe we are on our way. So we're also seeing positive signs around our Epicentral promotion and purchasing systems, such as the two resorts in Macau that we announced in June. This was a globally renowned casino owner and operator who signed up for a 200-game deployment on their floor. This will allow floor managers to push promotional offers in real time while the guest is playing. This offers a significant return on investment for the casino. The system pairs seamlessly with our products, our Epic Edge and our Epic 950 TITO printers, which enhance profits and improve guest satisfaction when paired with Epicentral. That's really good news and progress. Next, I wanted to discuss our strategic review process, which I didn't do a good job of on the last earnings call, but I'm trying to improve. We last provided an update in June. As we mentioned in our earlier release, we have engaged with a number of different outside parties since then and are in various stages of discussions on alternatives. We're going to continue working diligently on this process until we determine what an optimal outcome looks like for the company and its stakeholders. Trust us, we're doing everything you'd want us to do. We'll update everyone via the appropriate channels as soon as we have something more to report. Finally, before passing the call over to Steve for some closing remarks about the financials, I want to discuss our 2024 financial outlook. While we are still maintaining our total net sales estimate of between $45 million and $50 million for the year, we are raising our adjusted EBITDA guidance to a range between negative $1 million and negative $2 million, which is an improvement over the previously provided range of negative $2.5 million to negative $3.5 million. This is due to our success in controlling costs, allowing more revenue to flow to the bottom line than we previously anticipated. Clearly, we feel we're making good progress on the FST side and seeing early signs from our initiatives. We're pleased with the sequential increase in the number of terminals sold, as well as our sequential increase in recurring revenue. Combined with the continued normalization of our casino and gaming business, we're optimistic about the remainder of the year. So with that, I'd like to pass the call over to Steve for a more detailed review of the financials.

Thank you, John, and thanks everyone for joining us today. So let's turn to our Q2 financial results in more detail. Our total net sales for Q2 were $11.6 million, which was up 9% sequentially, but down 42% compared to $19.9 million in the prior year period. Sales from our food service technology market or FST for the second quarter were $4.2 million, which was up 27% sequentially and up 7% compared to $3.9 million in the prior year period. Our recurring FST sales, which include software and service subscriptions as well as consumable label sales for the second quarter were $2.8 million, which was up 15% sequentially and up 12% compared to $2.5 in the prior year period. Our ARPU for Q2 of 2024 was $722, which was up 9% sequentially, but down 8% compared to $782 in the second quarter of 2023. As a reminder, we are currently selling several of our 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 on our ARPU number. In the first half of '24, a significant number of the terminals we sold fell into this category, and we expect this to continue in the near future. We're working on ways to lift this number going forward, but we expect our ARPU to range between $500 and $1,000 for at least the rest of '24. Our casino and gaming sales were $5.4 million, down 56% from the second quarter of '23, primarily due to two large OEM customers working down high levels of printer inventory that they stockpiled during the supply crisis in '23 that's now eased. As John mentioned, we expect these dynamics to begin to normalize as we move through the rest of '24. POS automation sales for the second quarter decreased 40% from the prior year to $1.2 million. This decline was largely the result of difficult comparisons, as we experienced unusually high sales in '23 due to a competitor's inability to supply products. Our competitors in this market are now fully back online, and we're returning to a more normalized competitive environment. As a result, we're taking steps, including adjusting our pricing, to ensure our products are in line with the new dynamics of this marketplace. Moving on to TransAct Services Group or TSG sales, for the second quarter, TSG sales were down 53% year-over-year to $911,000. This decrease was largely due to unusually high sales of legacy lottery spare parts in the prior year, which we don't expect to repeat. We also experienced declining sales of our legacy consumable products, which consists of paper rolls and inked ribbons used in our legacy POS printers. Though we continue to take orders for these products from legacy customers, they represent less than 5% of our total TSG sales and are no longer a strategic focus for us. Moving down the income statement, our second quarter gross margin was 52.7%, up slightly sequentially from 52.6%, but down from 54.5% in the prior year. This change comes as a result of lower overall sales volume, including significantly lower sales of our profitable casino and gaming printers, as well as competitive price adjustments in the POS automation market, somewhat offset by favorable overhead cost absorption. Going forward, we expect our gross margin for the remainder of the year to be in the mid to high 40% range. Our total operating expenses for the second quarter decreased by 32% from the prior year to $6.5 million, also down 5% sequentially. Excluding a $1.5 million severance charge incurred related to the resignation of a former executive in the prior period, operating expenses declined by 20% year-over-year. This decline stems largely from our previously discussed cost-saving measures put in place late last year, which we estimated would produce annual operating expense savings of approximately $3 million, and we experienced the full effect of these reductions during both the first and second quarters of this year. In June, we began another cost-containment initiative, focusing on further reducing headcount and other external third-party resources. We believe this initiative will generate an additional $2 million of annualized cost savings, which we anticipate realizing the full effect from the third quarter of '24. Breaking down our operating expenses, our engineering and R&D expenses for the second quarter were down 28% year-over-year to $1.8 million. Our selling and marketing expenses decreased 18% year-over-year to $2.2 million, and our G&A expenses decreased 43% year-over-year to $2.6 million. For Q2, our operating loss was $438,000 or a negative 3.8% of net sales, compared to operating income of $1.2 million or 6.1% of net sales in the prior year period. On the bottom line, we recorded a net loss of $319,000 or $0.03 loss per diluted share for the second quarter, compared to net income of $765,000 or $0.08 per share in the year-ago period. Looking at our adjusted EBITDA, I'm happy to report it broke back through breakeven for the second quarter, reaching positive $89,000, which was a nice improvement on a sequential basis from negative $701,000 in Q1 of '24, but down from $3.2 million in Q2 of last year. Taking a quick look at our balance sheet, it continues to remain solid. We ended the quarter with over $11 million in cash and only the minimum required $2.25 million of outstanding borrowings under our credit facility with Siena Lending. Finally, before we open the call up to questions, I wanted to mention that our upward revised adjusted EBITDA range of between negative $1 million and $2 million for '24 suggests that the business should be close to cash breakeven for the full year. We continue to expect to reduce our inventories for the remainder of the year, which we successfully decreased by $1.5 million during Q2, and now sits at $17.6 million. We believe that this, combined with continued strong collections of our receivables, will likely fund most, if not all, of our projected EBITDA loss for the year. Given these factors, we believe we will have enough cash to fund our business for at least the next 12 months. With that, I’d like to turn the call over to the operator for questions.

Our first question comes from George Sutton with Craig-Hallum.

John, you mentioned strong performance from several large chains in the food service segment. Could you provide more specifics on that? Also, could you remind us whether the convenience store customer was completely excluded from the figures heading into Q2 compared to Q1? I'm trying to understand the dynamics better since there was a significant increase.

Well, one of the larger customers is a large QSR, where we are doing a very good job of engaging with them. So you can factor that in. There were a couple of other larger clients that won't let us use their names, but they have been buying. The C-store is a net new win, which is nice. They weren't a customer before. It's not huge, but every one of these deals contributes. As I've said before, the lion's share of our focus is selling into markets or clients where they have the potential to buy a minimum of 50 to 100 units. So most of our focus is there. We do have some smaller clients that insist on having this great technology. But the business that will move the needle comes from larger clients that have the potential to buy and then buy more. Our sales model is a land-and-expand model. Most clients want to see how well the machines work first. We like to joke internally that the machines we sell are our best salespeople, not because our salespeople are lacking, but because the products work very well; they are very reliable. Once clients see the ROI that they hoped for, then they buy more. We won't go for huge orders upfront because those large orders elongate the sales cycle and invite more competition. Typically, we get a smaller order initially, and then we see considerable follow-on business, which is what drove our numbers this quarter.

Regarding your point about the two customers with high inventory levels that you've identified, and your meetings with others who have more typical inventory levels, I'm not quite clear on your message. Are you implying that you are assisting these customers in selling off their excess inventory, or are they currently not making purchases because they are still managing their existing stock? I just want to ensure I understand your point correctly.

Well, I think the answer to your question is yes, both. We know who they are, we understand why they bought more inventory than they needed. They were concerned about supply chain shortages. For instance, if you're making slot machines that sell for $25,000 to $50,000 and you can't sell them due to lack of systems that TransAct provides, they needed our systems. Although the shark fin increase in revenue we had early last year resulted in us working back toward normalcy. We have good relationships with these clients and are helping them every day. We know who they are and we have good relationships with them. Initially, we didn't know where all the inventory was, but now we have a clear handle on it, which was the point I was trying to make on the call today.

George, to clarify further, all the OEMs have worked through their inventory issues and are essentially back to a normal buying pattern except for those two.

Yes, that was the point we're trying to make; that's an early precursor to normalcy. There are just two left, and once those guys return to normal, I believe you'll see the numbers that you would have expected pre-pandemic, with the growth and market share increase we have predicted to be about 15%.

And relative to the strategic review, I know you can't go into detail. I just noted that I looked up what 'assiduously' means, and it seems like you're working with great care and perseverance. So I wish you luck with the completion of that.

Thank you. My mom is an English teacher, so it's always my pleasure to introduce a new word to the vocabulary of the masses.

That's my new word for the day. Thank you.

Yes, we're hard at work on that. We can't discuss specifics, but you can trust that we're doing what you'd want us to do. We're looking at several different alternatives and will report back to you as soon as we have news on that.

Our next question comes from Jeff Martin with Roth Capital Partners.

I was wondering if you could break down the unit placements a little more in the quarter, nearly 1500 units. Could we get an updated installed base number for the terminals? I know there are some fluctuations with McDonald's coming in and 7-Eleven being discontinued, and then it sounds like some original BOHA! Terminals were replaced with the Terminal 2. So help us understand what's going on underneath that 1,500 number and then the total installed base, please.

Yes. Steve, do you want to take that?

Yes. The total installed base at the end of the quarter, Jeff, was 16,411 units.

So did 7-Eleven roll off in early April? Just trying to get a sense of any recurring revenue contribution from that moving forward.

7-Eleven are still included in the number I gave you, Jeff. They will gradually be phased out as we proceed through the year. I would expect that by the end of the year, all of the 7-Eleven units will be removed from the installed base number.

You broke up a bit in the early part of that answer. It rolls out slowly over time, is that what you're saying?

Yes, they're going to be turned off over time, so it will gradually decrease through the year.

Okay. Did much of a decrease occur during Q2?

Almost all of them were still online at the end of June.

And then, John, what should we expect regarding terminal installations as we progress through the second half of the year?

Installations or sales success; can you elaborate on the question?

It would be helpful to have your perspective on both installations and bookings, but initially, I was focused on installations.

Yes. When we get a booking, we receive payment immediately. Currently, the sale of the terminal itself contributes significantly to our revenue, as we receive that all upfront. Over time, there are scenarios where we anticipate the entire system generating recurring revenue, which is a promising opportunity for us. To be specific, it depends on the rollout plan. Most clients with a large business base do not implement every unit simultaneously; they usually start with a handful. It crescendos into a steady installation until they reach a ceiling where nearly all units are in place. This, of course, presents an opportunity for us to sell software and additional services that contribute to ARPU. Many contracts are three years. We don't yet report much regarding net retention, but we plan to add this to future earnings calls, which would look at additions and deletions in terms of net expansion and what that gap looks like. We don't have enough history yet to provide meaningful insights, but regarding how quickly a client implements and their longevity are critical factors in valuing the install base of 16,000 units. This represents a wealth of opportunity, which excites us.

Our next question comes from Rick Fearon with Accretive Capital Partners.

Yes, nice job in stabilizing things this quarter, John. I wanted to ask about the T2 BOHA! Terminals going to the big QSR. You mentioned the 200-unit sale in Italy. And then on top of that, you discussed the 3,500 additional units, which sounded like international sales as well. Did I hear correctly that is anticipated before year-end 2024, so within the next six months?

I believe the potential to sell into those new markets will occur once we obtain the greenlight, and we will move terminals in 2024. It’s challenging to predict the exact number at this stage, but to your specific question, yes, we shall be making sales into those markets this year.

Once those are in, is there a recurring revenue component to those? Is there some labeling that gets printed, or is that more of an upfront sale?

Currently, at this point, there is minimal recurring revenue associated with these units, but there lies the opportunity to sell into those units. It’s potential energy, not kinetic energy, to get a little physical with you. We’re excited about having those units out there; as we promote product offerings from the software side and other services, we see great opportunities. It's akin to getting the camel's nose into the tent. Once it's in, we can work on bringing the rest of the camel in, which will create a chance for us to offer additional software and services. But for now, all of the QSR units have a very specific use case with little or no additional revenue from ARPU.

Does our sales force have international reach? I know many of these sales come from larger trade events that QSRs conduct, but is the sales team in touch with those franchisees regularly?

Absolutely! We were just at an annual event in Barcelona, and our booth was inundated with visitors from various foreign countries. We provide support in multiple languages, which is essential for many of these clients. As the food service industry matures and focuses on food service and food safety information delivery, many clients are excited about our products. I personally had a robust experience at that event. This event is exclusive to vendors and franchisees, which allows us to secure orders right there, which is quite unusual for trade show events. So to answer your question, yes, we know these individuals, and they know us. We have a strong presence in these international markets. The focus we established with the FST sales team is to target companies with significant buying potential, not only in North America but also in international markets, as the QSR industry demonstrates.

In the international markets, we also sometimes collaborate with a network of resellers or distributors authorized by the QSR, which extends our reach beyond our direct sales team. These partners establish contact with franchisees on our behalf, enhancing our impact.

Yes, good point, Steve. Absolutely.

The 200-unit sale in Italy; was that the beginning of this new market, and thus, the tip of the iceberg? So you're targeting to break into the additional 3,500 in 2024?

That's correct. As mentioned on the call, this was a region where we previously had no presence. We are excited about introducing the BOHA! Terminal into the market and see ongoing potential. Also, landing a client like this draws interest from others, leading to inquiries about our offerings. We can leverage this case in Italy to attract further business.

And domestically with that QSR, are you seeing similar types of opportunities? Is that dynamic, where you become a trusted partner, present at trade shows and other engagement, or is this unique to international markets?

No, this is similar in the U.S. We are in touch with large franchise owners and operators. In fact, it’s a mixture of push and pull strategies. We gain approval from headquarters for using this technology, which then opens the door for us. We strive to demonstrate to the franchisees how they can improve their operations, save costs, reduce food waste, and meet health regulations. We can help them understand the ROI of the technology. Following this, they typically contact headquarters asking for the technology. That's the push and pull dynamic, if you see.

John, kudos to you for being present in Barcelona and engaging in meaningful conversations.

Thank you. We appreciate your support!

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

Thank you all. We felt this was a good quarter as we make strides forward. A lot of our efforts are focused on the necessary blocking and tackling, measuring performance, identifying constraints, and eliminating them. Steve's team is doing a great job in the back office, and we look forward to our next call. We have a couple of conferences coming up in the fall: the National Convenience Store Conference and G2E Las Vegas. If we don’t see you there, we’ll see you on the next earnings call. As always, if you have questions, Steve and I are happy to discuss in more detail in person. With that, we’ll sign off and wish everyone well this Thursday afternoon. Thank you.

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