Business context and reporting period
TransAct Technologies Incorporated designs and sells software-driven technology, printers, terminals, supplies and related services for food service technology (including BOHA!), POS automation, and casino and gaming markets. This unaudited Form 10-Q covers the three and six months ended June 30, 2022; financial figures below are in U.S. dollars, with millions abbreviated as “m.”
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net sales | $12.623m | $9.325m | $22.325m | $17.626m |
| Gross profit / margin | $5.434m / 43.0% | $3.432m / 36.8% | $8.000m / 35.8% | $6.771m / 38.4% |
| Operating loss | $(2.954)m | $(2.648)m | $(8.558)m | $(5.164)m |
| Net loss | $(2.376)m | $(2.030)m | $(6.724)m | $(4.119)m |
| Diluted loss per share | $(0.24) | $(0.23) | $(0.68) | $(0.46) |
- Q2 revenue rose 35% year over year; casino and gaming revenue increased 88%, while food service technology revenue increased 12% and POS automation declined 7%. International sales grew 111% in the quarter.
- Q2 gross margin improved 6.2 percentage points, primarily from higher volume, product mix and price increases. First-half gross margin fell 2.6 points, reflecting higher freight and product costs amid supply-chain disruption and chip shortages.
- First-half operating expenses increased 39%, to $16.558m, exceeding the gross-profit increase. Selling and marketing expense rose 86%, including investment in BOHA! sales and marketing; engineering and G&A expenses also increased.
- Cash and cash equivalents were $3.893m at June 30, down from $19.457m at December 31, 2021. First-half operating cash use was $14.588m, compared with $3.919m in the prior year, with higher receivables and inventory among the drivers. Capital expenditures were $0.744m.
- There were no borrowings under the Siena revolving facility at June 30; reported borrowing capacity was $4.5m, subject to borrowing-base and covenant terms. Current assets were $29.273m and current liabilities $10.342m. The company also reported $2.959m in lease liabilities and $12.871m in total liabilities.
Material changes and unusual items
- Casino and gaming recovery drove much of the revenue growth; the company reported higher hardware unit volume and average selling prices. Food service technology sales declined 4% in the first half, as lower hardware sales outweighed growth in software, labels and recurring revenue.
- The company exited the Printrex market at year-end 2021, so it reported no Printrex sales in 2022.
- Effective April 1, 2022, TransAct changed inventory valuation from standard costing approximating FIFO to average cost. Prior periods were retrospectively adjusted. The change reduced first-quarter 2022 gross profit by $0.428m versus FIFO and increased first-half 2021 gross profit by $0.257m versus FIFO.
- Q2 other expense was $0.264m, mainly foreign-exchange losses as the British pound weakened against the U.S. dollar. The first-half income tax benefit was $2.225m.
- The company completed implementation of a new NetSuite ERP system in April 2022. Management reported that implementation did not materially change internal control over financial reporting.
Outlook, management commentary and risks
- Management expected recovery in food service and casino markets to continue during the remainder of 2022, but said timing and pace were uncertain. It expected second-half production and sales of POS automation and casino printers to increase, supported by customer backlogs.
- Management anticipated selling and marketing expense to be lower in the second half than in the first half, citing cost reductions in other areas. No specific full-year revenue or earnings guidance is provided in the filing text.
- COVID-19 effects, supply-chain delays, component shortages, increased freight and input costs, inflation, labor shortages, and potential renewed virus disruptions could affect demand, production, margins and timely delivery. The company cited global chip shortages as a constraint on printer production.
- On July 19, 2022, after quarter-end, the company amended its Siena facility to extend maturity to March 13, 2025. The amendment retained the $10m revolving commitment and existing loan interest-rate terms, but introduced a requirement for at least $2.25m in outstanding borrowings while the company can direct its deposit-account funds; otherwise, interest is payable on at least that principal amount whether or not borrowed. Management expected interest expense to increase in the second half.
- Management stated that cash, expected operating cash flows and facility availability were expected to fund obligations and requirements for at least 12 months after issuance of the statements. This assessment depends on assumptions about demand recovery and other estimates; management noted additional cost reductions or capital raising could be considered if needed.
- The filing reports no material pending legal proceedings known to the company and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether printer backlogs convert into shipments and revenue as production recovers, given ongoing supply and chip constraints.
- Whether casino and gaming recovery and BOHA! recurring-revenue growth can sustain sales and improve profitability as operating expenses remain elevated.
- Cash burn, working-capital needs, borrowing-base availability and compliance with Siena facility covenants, including the post-quarter-end minimum-borrowing terms.
- The effect of freight, component costs, inflation and foreign-exchange movements on margins and earnings.
- Comparability of reported periods after the retrospective inventory-costing change; confirm the adjusted figures against the filing’s accounting-policy note.