TransAct Technologies reports 3Q revenue of USD 13.4 M

Bart Shuldman, Chairman and Chief Executive Officer of TransAct, commented, “As anticipated, the third quarter results reflect lower overall contributions from casino and gaming operations as a result of ongoing challenges in the gaming industry. Despite the current casino and gaming industry environment, TransAct is maintaining its strong world-wide market share of printer sales. More importantly, we are taking direct action to bring our costs in line with the current outlook for the domestic casino market through cost cutting initiatives of approximately US$ 1 million on an annualized basis while simultaneously continuing to invest in and fund our high growth opportunities. By prioritizing our organizational focus on our Epicentral promotional and bonusing print system, our Ithaca line of food safety terminals and our Printrex line of color printers for the oil and gas seismic and exploration industry, we expect to increase our revenues while further diversifying our revenue base which will benefit operating results as our sales mix shifts toward higher gross-margin businesses.

“Our Ithaca line of food safety terminals, which was launched with the Ithaca 9700 a little over two years ago, remains an exciting high-growth opportunity that we are actively pursuing. Recent approvals of the Ithaca 9700 by a number of national restaurant and food service operators highlight the progress we are achieving with industry operators in demonstrating the effectiveness and benefits of this solution and our ability to generate an attractive return on their investment. In addition, we believe the Ithaca 9800 will be the next wave of technology that certain restaurants and food service providers will need and we are making consistent progress with the systems integration process with large food service software providers for this terminal. We expect sales of the Ithaca 9800 will help to further accelerate market penetration and revenue contributions from this product line beginning late in 2015.

“With Epicentral-enabled casino locations continuing to report improved performance metrics including increased visitation, new enrollment in loyalty programs and additional play, we are gaining traction as the casino and gaming industry is increasingly seeking cost-effective solutions that demonstrate measurable success in growing revenue. Epicentral remains an attractive growth opportunity for TransAct, particularly as we continue to accelerate relationships with international casino operators for this solution.

“The rollout of our Printrex oil and gas seismic and exploration color printer for office installations is progressing very well as the pace of sales has exceeded our initial expectations. This success is promising for future results as each Printrex 980 office color printer generates on average approximately US$20,000 in annual recurring revenue, and the annualized run rate for Printrex-related recurring consumables revenue has now neared US$ 1 million. We believe sales activity for this line of products will continue to grow as we further penetrate the office market and make consistent progress with the multi-step process to integrate the Printrex 920 logging truck and offshore platform color printer into the operations of oil and gas exploration businesses.”

Shuldman concluded, “With the high value our Epicentral, Ithaca and Printrex products bring to their respective industries, the ongoing rollout of these new products is expected to improve our future financial performance. We continue to invest to support these business lines, as well as the BANKjet 3000, our newest solution for the retail banking industry which brings customer-favorite check image printing capabilities to the teller window, and our Responder MP2 all-in-one mobile printing solution is planned for launch at the end of this year which will mark our entry into the large machine-to-machine (M2M) vertical market. Management’s and our Board’s belief in our ability to execute on these high growth opportunities is underscored by our ongoing commitment to return capital to shareholders. In this regard, our quarterly cash dividend represents an attractive annualized yield and our recently announced 10b5-1 trading plan will enable TransAct to repurchase up to US$ 4 million of our outstanding shares on an accelerated schedule.”

Solid Financial Flexibility and Review of Capital Return Initiatives

As of September 30, 2014, TransAct had approximately $3.1 million of cash and cash equivalents and no debt. During the 2014 third quarter, the Company paid a dividend to shareholders of $0.08 per share and repurchased approximately 109,000 shares of its common stock for total consideration of approximately $0.8 million. In the first nine months of 2014, the Company has returned approximately $2.7 million of capital to shareholders.

Earlier this week, TransAct announced that its Board of Directors had declared a quarterly cash dividend of US$ 0.08 per share, payable December 15, 2014, to shareholders on record at the close of business on November 20, 2014. In addition, the Board approved a modification to the August 2014 US$ 7.5 million stock repurchase authorization.

The modified share repurchase plan authorizes the repurchase of up to US$ 4 million of the Company’s outstanding shares through April 30, 2015 pursuant to a new Rule 10b5-1 trading plan. The Rule 10b5-1 plan allows the Company to adopt a written plan for trading securities in a non-discretionary, pre-scheduled manner including during normal quarterly blackout periods. Reflecting the share repurchases completed in the third quarter of 2014, TransAct has approximately $6.7 remaining under its share repurchase authorization, $4.0 million of which is being allocated to the recently approved Rule 10b5-1 trading plan.

Steve DeMartino, President and Chief Financial Officer of TransAct, commented, “TransAct has the financial capacity to both invest in the Epicentral, Ithaca and Printrex brands’ growth opportunities while simultaneously supporting our goal to enhance shareholder value through the return of capital. With a solid portfolio of innovative products for high growth market opportunities now developed, we can reduce our level of investment in product development during 2015. Combined with efforts to reduce our overall cost structure, we believe the Company’s financial foundation will continue to support our initiatives to profitably diversify our revenue base.”

Summary of 2014 Third Quarter Operating Results

TransAct generated 2014 third quarter net sales of US$ 13.4 million compared with net sales of US$ 16.8 million in the 2013 third quarter. Casino and gaming revenue in the 2014 third quarter was US$ 5.1 million compared to US$ 7.5 million in the prior year period, reflecting lower sales of casino printers to original equipment manufacturers and lower domestic Epicentral revenue as the year-ago period included one domestic Epicentral software installation compared to no domestic installations in the 2014 third quarter. International casino and gaming revenue increased US$ 0.5 million year over year reflecting higher printer sales partially offset by lower international Epicentral revenue. Food safety, point-of-sale (POS) and banking revenue decreased by US$ 1 million to US$ 2.6 million in the 2014 third quarter and was essentially flat on a quarterly sequential basis. Sales of the Ithaca 9700 food safety terminal in the prior-year quarter included a US$ 1.5 million stocking order to a large distributor that did not repeat in the 2014 third quarter. Revenue from point-of-sale printers increased US$ 0.3 million to US$ 1.7 million reflecting the continued roll-out for a new checkout application at McDonalds. Lottery printer sales for the 2014 third quarter were US$ 1.5 million, compared with lottery sales of US$ 1.0 million in the 2013 third quarter. Printrex revenues were US$ 1 million in the 2014 third quarter compared to US$ 1.1 million in the year-ago period. The Company’s TransAct Services Group recorded net sales of US$ 3.2 million compared to net sales of US$ 3.5 million in the year-ago period, reflecting a 50% year-over-year increase in Printrex-related consumables that was more than offset by a decline in HP inkjet cartridge sales due to year-over-year declines in the Company’s installed base as well as lower spare parts and service revenue.

Gross margin of 39.5% in the third quarter of 2014 compares to gross margin of 43.0% in the year-ago quarter, reflecting the year over year revenue decline as well as an unfavorable shift in the sales mix. Gross profit was US$ 5.3 million compared to US$ 7.2 million in the year-ago quarter.

Total operating expenses for the 2014 third quarter were US$ 5.2 million compared to US$ 5.3 million in the for the same quarter in the previous year. Engineering, design and product development expenses of US$ 1.1 million were in line with the year-ago period. Selling and marketing expenses decreased US$ 0.2 million to US$ 1.8 million, reflecting lower variable expense on lower sales volume and the shift of the Global Gaming Expo into the fourth quarter of 2014 compared to last year when this industry trade show was held in the third quarter. General and administrative expenses were US$ 1.9 million compared to US$ 2 million in the year-ago quarter, primarily reflecting lower depreciation and amortization expense as well as lower professional fees. TransAct incurred US$ 0.4 million of legal fees related to the Avery Dennison lawsuit compared to US$ 0.1 million in the year-ago quarter.

The Company recorded operating income of US$ 0.1 million for the 2014 third quarter compared to $1.9 million in the 2013 third quarter. Excluding the impact from the legal fees related to the Avery Dennison lawsuit and an adjustment to accrued contingent consideration), TransAct generated adjusted operating income of US$ 0.4 million, or 3.3% of net sales, in the third quarter of 2014 compared with adjusted operating income of $2.1 million, or 12.3% of net sales, in the year-ago period with the decline primarily attributable to the lower revenue levels in the 2014 third quarter and an unfavorable sales mix shift which impacted gross margins. Net income in the 2014 third quarter was $0.1 million, or $0.01 per diluted share, compared to net income of $1.5 million, or $0.17 per diluted share, in the prior-year period. Adjusted net income was US$ 0.3 million, compared to US$ 1.5 million,in the 2013 third quarter.