TransAct Technologies Incorporated (TACT) Earnings Call Transcript & Summary

Thanks. Good afternoon, and welcome to the earnings call for Transact Technologies covering the third quarter of 2026. We'll be going over the results we announced in the press release that came out after the market closed today. With us from the company are CEO John Dillon and CFO Troy Angiani. On today's call, we'll talk about the company's key operating strategies, how progress is going on those initiatives, and the details of our third quarter financial results. After that, we'll open things up so participants can ask questions. As a reminder, this conference call includes statements about future events and expectations, and those are forward-looking in nature. Statements made on this call may be considered forward-looking, and actual results could differ materially. For a complete list of the risks inherent to the business and the company, please see the company's SEC filings, including its reports on Forms 10-K and 10-Q. Transact has no obligation to revise or update any forward-looking statements to reflect circumstances that occur after the call. Today's call and webcast will include non-GAAP financial measures. When required under SEC Regulation G, the 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. With that, I'll hand the call over to John.

Thanks, Ryan, and good afternoon, everyone. We're glad you could join us today. I'm pleased to report that Transact delivered a solid third quarter, fueled by widespread gains across our food service technology, or FST, segment. Total company net sales reached $14.1 million, up roughly 10% from the same period last year and about 4% above the previous quarter. Over the nine-month period, adjusted EBITDA came in at approximately 2.2 million, which we view as evidence of our operational discipline, our typical seasonality, and the business's usual rhythm. The benefits of our go-to-market and sales initiatives in the FST business are now becoming visible. The numbers point to real momentum, with hardware, software, and labels all posting healthy growth over last year. Just like a year ago, casino and gaming demand eases seasonally during the back half, and I'll get into that in a moment. Beyond that—something we've mentioned repeatedly on these calls—the casino and gaming side of our business moves in cycles, driven by when casino openings and expansions are expected to land. FST revenue came in at $6.4 million, a 33% increase year-over-year and 24% higher sequentially. Each product line within FST grew compared with a year ago. Above all, our FST software business continues to pick up speed as we focus on growing a recurring revenue base inside our FST solutions business. Software revenue was up 61% compared with a year ago and rose roughly 20% quarter over quarter. The gains came from the pricing moves we began implementing earlier this year—which I covered on last quarter's call—along with higher unit sales to our current customers and new accounts we brought in during the quarter. As I've noted previously, giving software away at no charge simply to help move hardware is no longer how we operate. What we offer is an integrated solution, so whenever we sell a terminal to a new or existing customer, the contract includes software packages priced at an added cost. And throughout our current customer base, we're engaging with customers to confirm they are paying fair market value for what the software and hosting services deliver. As I've mentioned previously, our goal over the long term is to reach roughly $100 to $200 per terminal in software plus recurring support and associated revenue from our FST install base. When applied across an expanding fleet of business terminals, that degree of monetization could unlock considerable value for Transact and its shareholders. FST revenue with Turing — covering software, contract support services and labels — came to $4.1 million this quarter, a 24% increase year over year, and during the third quarter we sold 2,346 BOHA units, which puts us at about 5,600 units sold year to date for 2026. As a result, revenue from FSD hardware climbed to $2.4 million, which is roughly 51% higher than the same period last year. Demand for upgrades keeps coming from our older offline terminal install base; we closed the quarter with about 22,600 online terminals, a 26% year-over-year increase. That growing base is truly the foundation of the software opportunity we are monetizing actively at present, and these initial results leave us encouraged. Labels also delivered another solid quarter, up approximately 15% compared with a year ago. Labels come with accretive margins and they deepen the relationships we hold with customers. So as our terminal base continues to expand, it fuels growth in both labels and software; and labeling is an area where we perform very well, and we plan to maintain that focus. This matters a lot for the differentiated long-term research and technology we've built, and it sits at the heart of our strategy. On the technology side, as you're aware, we launched our next-generation enterprise-grade BOHA platform on Microsoft Azure last quarter, and that work is complete. It's live and running. It delivers results, and we're very pleased with its performance. The new platform lets us get requested enhancements to market faster, enables integrations with systems beyond the BOHA suite — point of sale, for example — and delivers enterprise-grade uptime along with disaster recovery, HADR, for large deployments spanning multiple locations. So we believe we have the right platform, the right focus, and the right team to keep pushing the software transition ahead. Our attention likewise remains on how AI can be put to practical use. Many of you who invest with us, I realize, have a strong interest in AI. Rest assured, this is something we are engaged with. As a tool, it is extraordinarily helpful and delivers substantial value to us. Our engineers rely on it when developing software, and it also appears in the tools we hand to customers. We think our integrated hardware-software strategy provides a real advantage when it comes to launching these capabilities commercially and tackling genuine business challenges. So what AI is accomplishing for us pleases us, and we will continue directing investment into it. Like I mentioned during the prior quarter, we are adjusting the way we present new business figures so that they capture more accurately how our market presence is expanding. There are numerous approaches to presenting this, yet instead of counting new logos — which did not provide us with a full view of the sell-in or sell-through opportunity available with partners and customers — we will now share the number of FST accounts. During the third quarter, we brought on four additional FST accounts, and those open the door to a number of new food service venues, which makes us quite happy. As our customer accounts expand, we expand with them. That expansion revenue, as you would expect, requires considerably less sales investment than securing a net. We opened a brand-new account, which fits into the land-and-expand approach we've been following; on top of that, the effort we put into beefing up our sales and marketing engine is paying off. Lead generation keeps improving. Software now comes up in every sales discussion and shows up in every sales comp plan. Those shifts, in our view, are beginning to appear in the numbers. Turning to casino and gaming, Q3 revenue was $6.4 million, down about 11% versus the same period last year. As we've mentioned before on these calls, this market is very cyclical and tends to be uneven quarter to quarter, since it depends on when OEM orders land, what inventory customers are carrying, the pipeline of new casino openings and expansions, and when jurisdictions approve new rollouts. Those factors are difficult to forecast, so results rise and fall, and that reflects the type of OEM relationship we have with the PEDO and pick it in, pick it out for now. for the slot machines. After a strong first half, we're seeing weaker results in the second half, which matches the trend we saw in the back half of last year. At present, we expect softer demand for casino and gaming to carry into the fourth quarter, again consistent with last year; even so, the fundamentals of this business haven't changed. It's a regulated market with high barriers to entry and a long-established OEM customer base. and we still operate in the duopoly market with a recurring replacement cycle. Casino and gaming continues to be a strong generator of cashflow and a steady contributor to earnings.

Before we get to the outlook for the rest of the year, I'd like to discuss our strategic review process. As we said last quarter, the board of directors began a formal strategic review concerning the casino and gaming business. During the third quarter, management brought in B of A securities to serve as its financial advisor. We have been collaborating closely with B of A, since we remain convinced that examining possible options serves stockholders' best interests as we seek to maximize value. Although the review centers on the casino and gaming business, the board is additionally assessing a wider set of strategic alternatives for the company, including alternatives that involve the FST business. Such alternatives might include a possible sale of the company's FST business, either on its own or within a larger transaction, should the board conclude that this kind of alternative could further boost stockholder value. The company has not established a public timetable for the review, and we cannot assure you that the review will lead to any transaction or strategic outcome. We do not plan to disclose developments until our Board of Directors has approved a specific transaction or course of action, or until we otherwise decide that disclosure is appropriate or required. Going back to our outlook, we are revising our full year 2026 net sales outlook to $55 to $56 million, lowering the high end of our outlook from the earlier 55 to 57 million. The main reason for this change is a softer fourth quarter for casino and gaming, as foreshadowed by the softer third quarter we just went through, and more in line with the casino and gaming results for the same period a year earlier. As noted earlier, the casino business tends to show lumpiness tied to a shifting pipeline driven by forecasted casino openings and expansions. With a softer top line, we are also refining the top end of adjusted EBITDA guidance, lowering the top end of the adjusted EBITDA outlook for 2026 from 2 million to 1.75 million, which gives adjusted EBITDA guidance for 2026 of 1.5 million to 1.75 million for the full year; we are pleased to have delivered a solid quarter. We sold 2,346 BOHAI units. We increased quarterly software revenue by 61% year over year and delivered year to date adjusted EBITDA of approximately 2.2 million; we clearly laid out our strategy and focus in FSP and keep seeing positive results. We are building a high margin software led recurring revenue business on a growing install base, and we are working to carry out that transition with disciplined capital allocation and the strength of a solid balance sheet; and with that, I'll hand the call to Troy for a more detailed view of the financial results. Troy?.

Thanks, Sean, and thank you all for being with us today. Now let's go into more detail on our results for the third quarter of 2026. Total net sales came to 14.4 million for the third quarter, a rise of 10% from 13.2 million in the same period a year earlier. Within FST, net sales were 6.4 million in the third quarter, which is 33% higher than 4.8 million in the prior year period and 24% higher sequentially than 5.2 million in the second quarter of 2026. During the third quarter of 2026 we sold 2018 BOHA Terminal 2 units along with 328 workstation units. quarter, bringing the total to 2346 boha units, as John mentioned. Our FST recurring revenue, covering software and service subscriptions plus consumable label sales, reached 4.0 million in the third quarter, an increase of 24% over 3.3 million in the prior year period. As John also noted, software revenue grew roughly 61% year-over-year, mainly because of price increases achieved through contract renewals, more units sold to existing customers, and new accounts won. ARPU for the quarter came in at $740,000, which is up 10% sequentially from last quarter but 7% lower on a year-over-year basis. As we pointed out last quarter, ARPU has grown less indicative of actual software growth as our installed base of units expands. Although we are still reporting ARPU this quarter, going forward we intend to share metrics that more accurately reflect our contractual software business. Casino and gaming sales totaled 6.4 million, down 11% from 7.1 million in the third quarter of 2025 and down 13% sequentially from 7.3 million in the second quarter of 2026. Casino and gaming sales took a negative hit this quarter from natural variations in the cyclicality and seasonality of the business. As John mentioned, things like OEM order timing, customer inventory levels, projected new casino openings and expansions, and the timing of jurisdictional approvals for new rollouts often affect our sales levels in any given quarter. POS automation sales for our Ithaca 9000 printer were 733,000 in the third quarter, up 84% from 399,000 in the prior year period. This quarter we came in above our normalized range. That normalized range is roughly 600,000 per quarter, and we expect future results to be closer to that same range. It is sort of the sweet spot at around 600,000 per quarter. Turning to Transact Services Group, or TSG, sales. TSG sales for the third quarter were 900,000, an increase of 14% from 792,000 in the prior year period. Higher spares revenue drove the increase, and depending on customer needs, that revenue can be lumpy from period to period. Further down the income statement, gross margin for the third quarter was 46.4%, versus 49.8% in the prior year period and down sequentially from 50.2% in the second quarter of 26. The decline in gross margin was mostly a matter of mix. It comes from higher sales volume in the FST hardware business, which generally carries lower gross margins than our other product offerings. That, together with a drop in sales of casino and gaming hardware—items that typically deliver better gross margins than our other products—is a factor. For the entire year of 2026, we still anticipate gross margin landing somewhere in the mid to high 40% range. Operating expenses overall came to 7.1 million dollars in the third quarter, which is 9% higher than the 6.5 million dollars recorded in the same period a year ago. Looking more closely at OpEx, engineering and R&D spending was 1.7 million for the third quarter, roughly level with the prior year period. Sequentially, though, that figure rose 36%, which stems from bringing the new BOHA platform onto Azure. Once it launched, we needed certain consulting and technical support costs, since we now hold the source code. John touched on this point earlier. Depreciation and amortization came to 277,000 for the quarter, versus 163,000 a year ago and 138,000 in the second quarter of 2026. Selling and marketing costs were 2.6 million in the third quarter, a 24% rise from 2.1 million in the prior year period, though lower than 2.7 million on a sequential basis. That year-over-year growth comes from trade shows, consulting, and website marketing costs, plus hiring extra support staff. As we've noted previously, we remain focused on putting more investment into the BOHA side of the house, and really concentrating on further developing our go-to-market strategy from a software standpoint. Lower incentive compensation partly offset those increases. Finally, our expenses were 2.8 million for the third quarter, up 2% versus the prior year period and essentially flat; slightly higher legal fees drove this, partly because of third-party legal and advisory costs tied to shareholder activism during the quarter. We posted an operating loss of 415,000, or negative 2.9% of sales, for the quarter, against operating income of 14,000, or 0.1% of sales, in the prior year period. On the bottom line, our net loss was 440,000, or $0.04 per diluted share, for the third quarter of 2026, compared with net income of 15,000, or break even on a diluted basis, a year ago. Tax expense of 78,000 was recorded in the third quarter. Adjusted EBITDA came in at 289,000 for the quarter, compared with 669,000 in the third quarter of 2025 and 514,000 in the second quarter of 2026. Across the first nine months of 2026, adjusted EBITDA added up to 2.2 million. Finally, on the balance sheet, we closed the third quarter with cash and cash equivalents of 20.2 million, versus 19.4 million at the close of the second quarter of 2026 and 20.4 million at the end of 2025. On debt, we had 3.0 million in outstanding borrowings on our revolving loan, the same as at the end of the second quarter and since the close of 2025. That represents the minimum we draw down on the line. Thank you for your continued interest and support. So with that said, I'll now hand things back to the operator so we can take your questions.

Good afternoon. I'd like to explore a bit further the software attach rates on sales of the new BOHA terminal. Has it reached 100% now? I realize it can vary depending on which software packages customers choose. So perhaps you could share some detail about what you're observing regarding the degree of software adoption on those new BoHa terminals you're selling?

Well, we sell to brand-new customers, we sell expansion units to customers we already have, and we're able to sell software for units already installed at existing accounts. So frankly, it's really all over the place; sometimes we have contracts that deliver a certain amount of revenue for software, and we renegotiate those. Sometimes the contracts include some software at no charge for a period until that contract comes due, and then there's a renewal opportunity. With a net new customer, software is almost always bundled in. If they're opening new stores or something along those lines, or they complete an acquisition, that's when, as we said, there's a software conversation. And so in many cases software accompanies those terminals, but possibly not at the price we'd expect over the long run; so honestly, it's still somewhat up in the air, and we're not really in a position to say this is — no model exists that emerges from it. It's really — a conversation with every client as we add them, or every client that's already a client. And it's kind of all over the map, to be candid with you. But it's good, and it's growing, and we think and we expect it will continue.

All right, so with the install base we already have, how do those conversations go? Are you running into any pushback? Are you finding that you can upgrade them and get those software packages in place?

Well, once again, it really varies quite a bit. Say someone had a free trial and you ring them up and tell them the two-year free trial has ended and payment now applies. Sometimes the client responds that it's a lot of units, that they didn't budget for it, that it's OPEX and they weren't ready for it. So in many cases we're working alongside clients, some of whom we've known for years, helping them move to a software model they never really had from us before. That said, nearly all software today sold to organizations of this type arrives as a software as a service product, and there's a fee attached. Then there's our personalized offering, and as you know, anyone with a cell phone pays for certain applications, so nobody is taken by surprise, though they do push back somewhat, and it becomes a negotiation. We aim to reach a harmony, an accommodation, where they start paying, and I see that as the camel's nose in the tent, because we have other software to offer, we can upsell, we can cross sell, we can add new products, and that really is the future, a key future, of software for food service technology. In every case, though, it's a conversation, and our sales team is performing really well. They felt a bit nervous about picking up the phone and saying, hey, you know that stuff you're using for free, now you'll have to pay for it. It doesn't go quite that course or that craft, but the reality is we're offering a great service. We've improved the quality of the service. We moved it from a co-location facility that didn't have HADR, that's high availability and disaster recovery, which we get from Microsoft's cloud, their Azure product, their Azure cloud. So we're delivering a much better service, and we've got the software, it's running, and it's getting better and better literally by the month. So we make the argument that, hey, we're providing a service, and it's really a small price to pay for the value you get. So value for service is tremendous. And most clients grudgingly admit, you know, you're right, and we're adding them one at a time.

All right. And after that, you added or sold roughly 2,300 BOA terminals; it appears the connected terminals rose by just 800, about 800 from one quarter to the next. Did churn go up? Could you perhaps shed a bit more light on what is driving that? Yes.