With the domestic casino market stabilizing and the international casino and gaming market showing some signs of life, TransAct was perfectly positioned to provide printing solutions for our customers, and the result was a strong start to the year. In addition, with the transition of a majority of our manufacturing to China complete, we saw a significant improvement in our gross margin from the prior-year quarter. Further, our continued relationship with McDonald's and ongoing sales into the lottery market should keep TransAct on course for solid growth in 2010."
Shuldman continued, "For the first quarter of 2010, our overall casino and gaming sales were up 43% from the prior-year quarter - a great turnaround from a very difficult 2009. These results were driven by significant growth in the casino market alone, where we experienced an 89% increase in sales into the international market and a 40% increase in sales in the domestic market - which we believe is quite impressive given that the overall domestic casino market was flat during the first quarter of 2010.”
He added: “Our banking and point-of-sale sales declined 4% on a quarter-over-quarter basis, as an increase in POS sales due to the ramping up of our McDonald's grill initiative was more than offset by lower legacy POS printer sales as well as lower sales in the banking market due to strong sales to a large customer in the first quarter of 2009. Lottery sales, which can vary significantly from quarter-to-quarter, rose by 50% due to an increase in orders from our lottery customer in the first quarter of 2010 compared to the first quarter of 2009. TransAct Services Group revenues declined by 15% compared to the first quarter of 2009, primarily due to a stocking order received from a large consumables customer in the prior year's quarter that did not repeat to the same extent in the first quarter of 2010. Finally, our balance sheet continues to prosper, with $10.7 million in cash and no debt outstanding at March 31, 2010."
Revenue for the first quarter of 2010 was us$ 14.2 million, an increase of 16% compared to us$ 12.2 million in the prior-year period. Gross margin for the first quarter of 2010 was 36.5%, compared to 33.8% in the prior-year quarter as the company experienced a favorable sales mix due to increased sales of higher margin printer products and fewer sales of certain lower margin consumable products, and realized benefits from its completed shift of a substantial portion of its production to its lower-cost manufacturer in China.
Operating expenses were us$ 4.2 million, an increase of us$ 0.3 million from the prior-year period, driven largely by increased selling and marketing expenses, primarily from higher sales commissions and travel expenses resulting from higher sales volume. The Company recorded net income in the first quarter of 2010 of approximately us$ 0.6 million, compared to net income of approximately us$ 0.1 million in the prior-year period.
Commenting on the financial results, Steven A. DeMartino, Executive VP and CFO of TransAct Technologies, said, "We are very pleased that we are now realizing the positive effects of our manufacturing transition to China in our gross margin, as the transition combined with a favorable sales mix of higher margin products led to an improvement in gross margin of 270 basis points from the prior-year quarter. We expect to experience continued improvement in our gross margin throughout much of 2010 as we realize the full benefit from the completed move of our production to China."
For the remainder of 2010, TransAct continues to expect both revenue and gross margin improvement, especially during the second half of 2010, compared to 2009 based on the current backlog of orders and forecasts of order flow provided by some of the company's customers. The company expects most of its year-over-year sales growth to come from the international casino and gaming markets, as well as some improvement in the replacement cycle in the domestic casino market. In addition, the firm expects sales from the McDonald's grill initiative to add to its revenue growth in the second half of 2010. Finally, TransAct reiterates that it expects to see solid free cash flow (cash provided by operations less capital expenditures) for the full year 2010.