TransAct Technologies Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. TransAct develops and sells software-driven technology and printing solutions for food service technology, POS automation, casino and gaming, and related services and supplies. It reports one operating segment.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net sales | $19.9 million | $12.6 million | $42.2 million | $22.3 million |
| Gross profit | $10.9 million | $5.4 million | $23.1 million | $8.0 million |
| Gross margin | 54.5% | 43.0% | 54.8% | 35.8% |
| Operating income (loss) | $1.2 million | $(3.0) million | $5.0 million | $(8.6) million |
| Net income (loss) | $0.8 million | $(2.4) million | $3.9 million | $(6.7) million |
| Diluted EPS | $0.08 | $(0.24) | $0.39 | $(0.68) |
Q2 sales rose 57.7% year over year; first-half sales increased 88.9%. Growth was led by casino and gaming, with Q2 revenue up 86.5% and first-half revenue up 147.9%. For the first half, hardware unit volume increased 95% to approximately 93,000 units, and average selling prices increased 14%. Q2 casino and gaming revenue represented 61.1% of sales.
Q2 operating expenses were $9.6 million, up from $8.4 million. General and administrative expense included approximately $1.5 million of former-CEO severance. Q2 net interest expense was $68,000; first-half net interest expense was $134,000. Income tax expense was $391,000 for Q2 and $1.0 million for the first half.
Cash, debt and liquidity
Cash and cash equivalents were $10.8 million at June 30, 2023, up from $7.9 million at December 31, 2022. First-half operating cash flow was $3.7 million, versus cash used of $14.6 million a year earlier; capital expenditures were $689,000. The company collected a $1.5 million employee retention credit receivable during Q1. Inventory increased to $15.4 million from $12.0 million at year-end.
At June 30, borrowings under the Siena revolving facility were $2.3 million, with $5.6 million of net borrowing capacity available. The facility has a $10 million maximum commitment, is secured by substantially all company assets, and matures March 13, 2025. Its excess-availability covenant requires at least $750,000; the company reported compliance through June 30. Management believes cash, operating cash flows and facility availability will meet needs for at least 12 months.
Changes, outlook and risks
- Casino and gaming gains benefited from market share captured while the largest competitor faced supply constraints, as well as higher prices and improved product mix. Management expects the competitor may resume supplying the market later in 2023 and warns this could pressure casino sales and gross margins.
- Management reported demand recovery continuing into 2023 and said it expects casino printer sales to remain strong for the year, but provided no specific numerical revenue or earnings guidance in the supplied filing text.
- Management said it had offset most cost increases through pricing, but cited continuing uncertainty from inflation, rising interest rates, supply-chain disruption, component availability, and customer demand. It plans to continue increasing inventory during the balance of 2023.
- Former CEO Bart Shuldman resigned in April 2023; John Dillon was appointed interim CEO and became CEO without the interim designation in May. The departure generated approximately $1.5 million of severance expense.
- Other risks include reliance on contract manufacturers and significant suppliers, foreign-exchange movements, competition, customer payment risks, and reliance on a third party for certain food-service software development and hosting. The company reported no material change to previously disclosed risk factors, no material pending legal proceedings, and effective disclosure controls.
Important facts for investors to verify
- Whether casino and gaming demand and market share can be sustained if the largest competitor restores supply, and the resulting effect on margins.
- How much of the sharp sales growth reflects durable demand versus competitor supply constraints, price increases, and recovery from the prior-year period.
- BOHA! recurring-revenue and installed-base growth, alongside the pace of investment and product development.
- Inventory levels, cash conversion, and borrowing availability under the borrowing-base facility as sales and working-capital needs change.
- CEO transition costs and execution, as well as exposure to supply disruptions, inflation, interest rates, and third-party software services.