TransAct Technologies Incorporated (TACT) Earnings Call Transcript & Summary

Greetings. Welcome to the TransAct Technology second quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Ryan Gardella, Investor Relations. Thank you, Ryan. You may begin.

Thanks, Sam. Good afternoon. Welcome to the Transact Technologies second quarter 2026 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 CFO Troy Injiani. Today's call will include a discussion of the company's key operating strategies, the progress in those initiatives, and details on our second quarter. 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 as forward-looking and actual results made from materially. For a full list of risks inherent to the business and the company, please refer to the company's SEC filings and clinical report. forms 10-K and 10-Q. Transact under a case of no obligation to revise or update any forward-looking statements to reflect events or circumstances that occur after the call. Today's column webcast will include non-GAAP financial measures from the meaning of the SEC Regulation G. When required, reconciliation of all non-GAAP financial measures to the most directly comparable financial measures calculated in percentage and 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.

Thanks, Ryan, and good afternoon, everyone, and thank you for joining us today. Before I begin, let me introduce you to Troy Ingeani. I'm delighted to have him here. He's joining us as our new CFO and on the call for the first time. And let me just say, he's been great to work with. He's really exceptional at his job. And I couldn't be happier to have him on our team. And I think as shareholders, you'll be pleased as well with him. He's a great addition, and I'm really delighted to have him here. So thank you for joining us, Troy. Thank you, John. I appreciate that. Yes. So I'm pleased to report that Transact delivered solid second quarter results that continue to demonstrate progress against the long-term strategy that we've discussed total net sales with 13.9 million and And as Troy will detail in a moment, this figure includes the impact of an approximate $1 million reduction to sales related to estimated customer refunds. These were driven by a US Supreme Court ruling on certain import tariffs. Excluding this tariff impact, net sales would have been approximately $14.9 million, up 8% year over year. And adjusted EBITDA was 514,000 during the second quarter, also impacted by 400,000 of the tariffs of adjustments. So for the first half of 2026, we generated $1.9 million of adjusted EBITDA, resulting in us raising our full year guidance to a range of between $1.5 million and $2.2 million. So, let me begin with a more detailed breakdown of the results and I'll start with food service technology. We refer to that as FST, food service technology. So if I say that, you'll know what I mean. revenue was $5.2 million, up 9% year-over-year, and up 10% sequentially. Our focus remains squarely on driving revenue growth in our food service technology space, that's the market. software as a primary growth engine. Our second quarter results are consistent with the strategic direction we have shared with investors to date. That's building a high margin, more predictable recurring revenue stream that leverages a growing base of online BOHA units. In the second quarter, we sold 1,900 BOHAI units, which means we now have sold 3,270 units through the first six months of 2026. and continue to be driven by upgrade orders from many of our large install base of older Accudate and Terminal One systems. Customers are seeing the value of moving to the new terminal, and we are continuing to view this conversion cycle as a multi-year runway of opportunity. We continue to execute on our land and expand strategy and believe the revised go-to-market or GTM motions and revitalized sales and marketing teams that we have are just beginning to pay dividends in the form of increased FST sales. We ended the second quarter with nearly 22,000 online units. up about 33% year over year, continuing the steady growth of our install base. That growing online base is the foundation of the software opportunity we're now actively monetizing. Most importantly, our recurring FST revenue continues to grow. During the last quarter, the recurring FST sales reached 3.4 million in the second quarter, up 13% year over year. With that, software revenue was up 25% sequentially and 47% year over year, driven primarily by price increases that we began implementing earlier this year as part of an intensified focus where we ensure that we capture fair market value for the software offerings we have. And as I've said before, In the past, the company frequently bundled the software for free simply to close a hardware sale or to get the label business. This practice now is behind us. control the source code for the software and the platform. We're deliberately seeking to shift the business model towards a higher margin, sustainable and predictable recurring software revenue model. So this should make pretty good sense, but later I'm happy to discuss this in detail for any of those who want to follow up. Our long-term aim remains to drive the FST install base toward $100 to $200 per machine per month in recurring software-related revenue. That level of monetization applied to the growing base of terminals has the potential to unlock significant value for transactions. Labels also saw a strong quarter, contributing positively to our gross margin and enhancing retention within our customer base. We'll continue to lean into the label sales business as a key piece of our long-term FST strategy, as growth within the terminal base generally helps grow both the label the software businesses and the label business creates a stickier long-standing relationship with the client and creates a greater degree of intimacy there so it's very important On the technology side, as you've heard, we recently launched our next generation enterprise grade BOHA SaaS, that's Software as a Service platform, with the completion of our migration from our legacy hosted infrastructure to Microsoft Azure. This was a strategic move. It significantly enhances the platform scalability, security, resiliency, and performance. allowing us to bring innovation and requested enhancements to market faster, deliver seamless integrations with other systems such as point-of-sale systems, and provide enterprise-grade uptime disaster recovery across large multi-location deployments. Combined with the control of the software, the new platform also gives us greater operational freedom and positions us to accelerate our software roadmap. including implementing AI-related workflows and additional applications over time. Internally, because people asked, AI is also helping us with the development teams. They can move faster and quicker, and it's more a function of having experts looking at code that's written by AI rather than having a typing pool that types things and we have to fix it anyway. Remain focused on the practical application for AI, but we feel confident that it will leverage our integrated hardware and software solutions approach in the future. Turning to casino and gaming, revenue in the second quarter was $7.3 million, down approximately 4% from the prior year after adjusting for the tariff-related impact of the refunds for the casino and gaming revenue would have been approximately $8.3 million, approximately up 9% year over year. We saw solid contributions from key OEM customers, both domestically and internationally. And a relatively new Epic TR-80 roll-fed printer continued to gain traction internationally in the gaming applications for... for betting kiosks and similar systems like that. And finally, moving on to our financial outlook, we reaffirm our full year 2026 net sales outlook of 57 to 55 million. And as noted earlier, we are increasing our adjusted EBITDA outlook to around range of $1.5 million to $2.0 million. So we delivered solid second quarter results, continued to demonstrate real progress against our strategic priorities, sold 1,900 online BOHA units, increased our recurring revenue opportunity. We posted software revenue growth of 47%, and we successfully launched the next generation BOHA platform on Azure. The recurring revenue continues to build, our installed base is expanding, and we remain firmly on track to deliver against our financial and strategic goals for the year. At the center of the strategy is to build out a high-margin software-led recurring revenue business on a growing install base. We are executing that transition with disciplined capital allocation and, frankly, the strength provided by a solid balance sheet. So those are most of my remarks, but before I turn it over to Troy, I wanted to provide some additional news related to casino and gaming. The Board of Directors recently initiated a formal strategic review related to the casino and gaming business. Management has engaged B of A Securities as its financial advisor, given their expertise within the casino and gaming market and their long-term standing relationship with Transact. We believe that exploring potential options within casino and gaming, given the current strength of that market, is in the best interest of stockholders as they look to maximize value. While the review is focused on the casino and gaming business, the board intends to evaluate a broader range of strategic alternatives to the extent the board determines that doing so is not a good idea. so may further enhance stockholder value. As you would expect, the company has not set a public timetable for the review and there can be no assurance that the review will result in any transaction or other strategic outcome. We do not intend to disclose developments until our Board of Directors has approved a specific transaction or course of action. or until which time we otherwise determine that disclosure is appropriate or required. We have the right platform, we have the right focus, we have the right team to continue driving the software transition forward. also focusing on strategic potential options for casino and gaming. So those are my remarks, and with that, I'll turn the call over to Troy for a more detailed review of the financial results. Troy?.

All right, thank you, John. I appreciate the kind words, and thank you, everyone, for joining us today. So, today is my first earnings call at Transact. I just wanted to take a minute to introduce myself. I bring to the company more than 25 years of financial leadership experience. Most recently, I served as the VP Global Controller and Chief Accounting Officer at Barnes Group, which was a global public company that got taken over by a I joined Transact on July 1st because I believe in the BOHA platform. I met with John. You know, I could see that it represents a really compelling growth opportunity for the company. So I'm excited to partner with John, the team, the executive team that I've met here, and And I think we're going to really be able to strengthen the financial foundation and support the company's continued success. So as you can tell, I'm very happy to be here. With that, let's turn to the second quarter results in a bit more detail. Total net sales for the second quarter were about $13.9 million, which were up slightly compared to $13.8 million in the prior year period. John mentioned this earlier. There was an impact on the financials related to tariff refunds that I'd like to spend a minute to discuss. Our second quarter results reflect the impact of a February 20th, 2026 US Supreme Court ruling that declared certain import tariffs to be invalid. During the periods in which the tariffs were in effect, we collected both the actual duties and related service and management fees from our customers. These amounts were broken out as tariff surcharges on the invoices themselves that we had with the customers. As of now, we're in the process of reclaiming the duty amounts from the government. There's a portal that was set up, and we plan to return these amounts in full to the customers who requested and paid them, as these were pass-through collections from a tariff standpoint. On the service and management fees, we have decided to refund a portion of the previously recognized tariff surcharge and return those amounts to the customers while retaining a modest management fee to cover the direct costs that we incurred while administrating this process for our customers. As a result, in the second quarter, we recorded an approximate 600,000 reduction to cost of goods sold related to the tariff refunds from the government, along with a corresponding 1 million in estimated customer refunds, thereby reducing sales. Subsequent to quarter ends and through the date of this call, we have received about $500,000 of the expected government refunds. This represents about 80% of the total. So we're still expecting some portion of refunds to go, but we are starting that process of returning the funds to our customers. Excluding this tariff impact, total net sales would have been $14.9 million, up approximately $1.2 million, or 8%, compared to prior year period. Sales from our FST business for the second quarter were 5.2 million, up 9% versus 4.8 million in the prior year period, and up 10% sequentially from the 4.7 million in the first quarter of 2026. John mentioned this earlier, but we did sell 1,900 BOHA units in the second quarter of 2020. quarter, which was impressive. Our recurring FST sales, which include software and service subscriptions, as well as consumable labels, were 3.4 million in the second quarter. This was up 13% as we had 3 million in the prior year period. And John also mentioned software revenue was up 47% year over year, driven primarily by price increases. ARPU for the second quarter of 2026 was $673, down 15% to $792 in the second quarter of 2025, and down 5% sequentially from $709 in the first quarter of 2026. Now, recall that ARPU ARPU includes software, labels, and other sources of recurring revenue. So we are very pleased with our label sales. However, we also recognize that as our software and our installed base grows, this metric, ARPU, it becomes less indicative of true software growth. Going forward, we plan to share metrics that better reflect our contractual software side of the house. John, myself, and the leadership team are working through some key metrics now, and we plan to, as I said, share those with you in the future. Our casino and gaming sales were 7.3 million, which were down 4% compared to 7.6 million in the second quarter of 25 and down 13% sequentially from 8.3 million in the first quarter of 2026. As with our company wide results, casino and gaming sales this quarter were were impacted by the tariff-related revenue reduction that I mentioned earlier of $1 million. Excluding this impact, however, and gaming sales would have approximated 8.3 million, which would have been up 700,000 compared to prior year period. And then as it relates to our Epic TR80, that line continues to build momentum internationally in role-fed gaming applications. Turning to POS. POS automation sales of our Ithaca 9000 printer for the second quarter were 619,000, up 5%, compared to 590,000 in the prior year period. sales remain in our normalized range of about 600,000 per quarter and we expect these results to remain similar going forward. It's a steady business, I'd say, at this point. Moving to Transact Services Group, or TSG, sales. For the second quarter, TSG sales were 838,000, up 3% from 818,000 in the prior year. The increase was driven by higher service revenue related to legacy-based lottery printers, partially offset by lower spares and accessory revenue, as their legacy install base continues to just naturally wind down. Moving down the income statement, our second quarter gross margin was 50.2 percent compared to 48.2 percent in the prior year period. This was roughly flat sequentially from 50.3% in the first quarter of 2026. We do continue to expect our gross margin to be in the mid to high 40% range for the full year 2026. Our total operating expenses for the second quarter were $7.1 million. This is up 2% compared to the $6.9 million in the prior year period. If I were to break down these operating expenses a bit more, our engineering and R&D expenses for the second quarter were $1.2 million, which is down compared to 1.7 million in the prior year period. This reflects the capitalization of software consulting and R&D costs related to the in-housing of the BOHA software, which John had mentioned earlier, we now have control over that source code. And we've now begun amortizing these costs that were capitalized in the third quarter of 2026. Our selling and marketing expenses for the second quarter were $2.7 million, up 30% compared to $2.1 million in the prior year period. The increase reflects new hires that we initiated in 2026, along with higher trade show, advertising, and also some commission expense. Lastly, our G&A expenses for the quarter were 3.1 million. This was essentially flat compared to prior year period. We had higher legal expenses related to the executive transition and other strategic items, but these were largely offset by lower bonus expense, so overall we ended up flat. On the bottom line, we recorded a net loss of $50,000. These were break-even results from a diluted share standpoint during the second quarter of 2026. And it's compared to a net loss of $143,000, or a one-cent loss per diluted share in the prior year period. We recorded income tax expense of $30,000 as we continue to take a full valuation allowance against our U.S. pre-tax earnings. Adjusted EBITDA for the quarter was $514,000, compared to $478,000 in the second quarter of 2025 and $1.4 million in the first quarter of 2026. For the first half of 2026, our adjusted EBITDA was right around $1.9 million. This is what allowed us to raise our full-year adjusted EBITDA to a range of 1.5 to 2.0. Our balance sheet remains strong. We have $19.4 million in cash and cash equivalents. And as in past periods, we held only the minimum balance on our revolver with Ciena, giving us the maximum financial flexibility going forward. We'll continue to closely manage the balance to ensure that we provide optionality as well as ensuring value is delivered to the shareholders to the extent we have the cash. Lastly, I'd comment that we have not repurchased any shares during the quarter and And again, thank you all. Appreciate you being on the call. Appreciate your continued interest in Transact and all that we're doing. and appreciate the support. Happy to be here. I'm excited to work with the team. With that, I'd like to turn the call over back to the operator. Operator?.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star 2. keys. One moment please while we poll for questions. Our first question is from Greg Burns with Sidoti and Co. Please proceed with your question.

Good afternoon. Maybe you could just help us understand behind the strategic review. I know you had started with the order process in the past and discontinued it. What's changed? Why now? And, um, It's possible that you might be able to share with us the EBITDA of the casino business, so we might...

better assess what the value of that business might be? Thanks. Well, on the last part of your question, my goal is eventually to share the specific even doubt between the two go-to-market strategies that we have. When we ran the process before, it was in a really turbulent time for the company. We'd come out of the pandemic. We had supply chain. where there was a shortage of supplies, we captured 100% of the market as gaming casino OEMs, guys that make the slots overbought. We had to work that down, so we had a real whipsaw and all that. And candidly, the gaming business hadn't stabilized and recovered, and it has now. The other thing is, by contrast, the two businesses – our role in the gaming industry is relatively small and a fairly large industry. The opportunity in the FST space is, you know, as a TAM, a total addressable market, depending on who you listen to, currently at least a $4 billion and maybe closer to $12 billion, expected to go to about $32 billion. I'm sorry, going to about $18 billion in 2032, 2033. So it's... we look at cash allocation as most of you know the gaming business has been profitable cash cow as it were in traditional sense and we need to figure out collectively you know kind of what's the best strategy with that unit where our strategy is pretty well baked with FST we kind of know what to do we have to execute, but with the gaming casino business, you know, do we expand? Do we do this? Do we do that? And so now's a good time to do that. And. As we commented on the call, we selected Bank of America Securities. I've known the team there for probably at least a few years. They know the industry well, and we thought they would be a really outstanding partner to help us figure out the best scenarios for how to monetize that asset. Okay. When you think about monetizing that asset,.

The FST business is obviously this kind of emerging growth company. it's got the cash, I guess, cash backing of the gaming business. But if you sell off the gaming, where does that leave the FST business? Does it have enough capital to grow? Do you think you could get that business... to break even from a cash flow perspective with the cash you have on hand?.

I think the answer to that question is yes.