TransAct Technologies Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. TransAct develops and sells software-driven technology, printers, and related services and supplies for food service, POS automation, and casino and gaming markets. Financial comparisons are against Q1 2022; amounts below are in U.S. dollars.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Net sales | $22.27 million | $9.70 million |
| Gross profit / margin | $12.26 million / 55.0% | $2.57 million / 26.4% |
| Operating income (loss) | $3.81 million | ($5.60 million) |
| Net income (loss) | $3.14 million | ($4.35 million) |
| Diluted earnings (loss) per share | $0.31 | ($0.44) |
| Net cash used in operating activities | $0.76 million | $6.82 million |
- Sales rose 129.5% year over year. Casino and gaming sales increased 232% to $15.81 million, representing 71% of revenue; food service technology rose 62.3% to $3.46 million; POS automation rose 38.2% to $1.80 million. TransAct Services Group sales fell 20.3% to $1.20 million.
- Hardware unit sales increased 125% to approximately 51,000, and average selling prices increased 25%, primarily reflecting 2022 price increases. Food service software, labels, and other recurring revenue grew 48.5%.
- Operating expenses totaled $8.44 million, up 3.3% year over year. Selling and marketing expenses rose 2.8%; general and administrative expenses rose 6.6%; engineering and product development expenses were approximately flat.
- Cash and cash equivalents were $6.64 million at quarter-end, down $1.30 million from year-end 2022. Operating cash use reflected, among other factors, higher receivables and lower accounts payable, partly offset by collection of a $1.5 million employee retention credit receivable.
- At March 31, 2023, revolving borrowings were $2.25 million and net borrowing capacity was $6.4 million. The revolving facility is secured by substantially all company assets, has a March 13, 2025 maturity, and requires at least $750,000 of excess availability under its covenant; the company reported compliance. The facility has a floating interest rate. Lease liabilities totaled $2.34 million.
- Current assets were $36.97 million and current liabilities were $12.98 million at March 31, 2023. Capital expenditures were $0.38 million during the quarter.
Material changes and accounting
- The shift from a Q1 2022 net loss to Q1 2023 profitability chiefly reflected higher sales and gross margin, particularly in casino and gaming, as well as price increases. Management also attributed market-share gains to a major competitor’s supply constraints.
- Q1 2022 comparative figures were retrospectively adjusted for the 2022 inventory-costing change from standard costing approximating FIFO to average cost. The adjustment increased Q1 2022 cost of sales by $428,000 and net loss by $335,000. Q1 2023 results are presented under the new method.
- The company adopted the expected-credit-loss accounting standard on January 1, 2023; it reported no material financial-statement impact.
Outlook, risks, and unusual items
- Management expects demand recovery to continue through 2023, citing backlog and market-share gains, and believes cash, operating cash flows, and available borrowing capacity will cover obligations, capital spending, and working-capital needs for at least 12 months. No specific revenue or earnings guidance was provided.
- Management expects casino printer sales to remain strong and higher in 2023 than in 2022, but said a major competitor may resume supplying the market later in 2023, potentially reducing sales and pressuring gross margins.
- Supply-chain disruptions, inflation, shipping and component costs, customer demand, and broader economic conditions remain risks. The company said future cost increases may not be fully offset by pricing actions.
- After quarter-end, CEO Bart Shuldman resigned effective April 4, 2023; John Dillon was appointed interim CEO and on May 8 was named CEO indefinitely. The company expects approximately $1.5 million of severance expense in Q2 2023. A May 1 facility amendment confirmed the lender’s acceptance of Dillon as successor.
- The company reported no material pending legal proceedings and no material changes to previously disclosed risk factors. Management concluded disclosure controls were effective as of March 31, 2023.
Important facts for investors to verify
- Whether exceptional casino and gaming growth, including competitor-related market-share gains, continues as the competitor’s supply recovers.
- Whether Q1 profitability converts into positive operating cash flow, given the quarter’s cash use and working-capital movements.
- Whether the company maintains borrowing-base capacity and compliance with facility requirements, including the minimum borrowing provision and excess-availability covenant.
- The timing and amount of the expected Q2 severance charge and any further implications of the CEO transition.
- Whether food service recurring-revenue growth and backlog translate into sustained sales and margins amid supply-chain and economic uncertainty.