TransAct Technologies Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Amounts below are in U.S. dollars; financial statement figures are in millions unless otherwise noted.
Business context and results
TransAct develops and sells software-driven technology and printing solutions, with products and services spanning food service technology (including BOHA!), POS automation, casino and gaming, Printrex, and TransAct Services Group (TSG). It operates as one reportable segment.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $10.637 | $7.300 | $28.263 | $22.832 |
| Gross profit | $4.317 | $3.349 | $10.831 | $10.557 |
| Gross margin | 40.6% | 45.9% | 38.3% | 46.2% |
| Operating loss | ($1.604) | ($1.479) | ($7.025) | ($5.512) |
| Net income (loss) | $0.910 | ($0.867) | ($3.410) | ($3.712) |
| Diluted EPS | $0.09 | ($0.11) | ($0.37) | ($0.49) |
Q3 sales rose 45.7% year over year, with hardware unit volume up 91% to approximately 22,000 units. Growth came mainly from casino and gaming, food service technology, and POS automation. For the first nine months, sales rose 23.8%, while gross profit increased only 2.6% as gross margin contracted. The Q3 and nine-month net results included a $2.173 million gain from forgiveness of the PPP loan; excluding that item, operating performance remained loss-making.
Cash flow, liquidity, debt, and balance sheet
- Cash and cash equivalents were $18.658 million at September 30, 2021, up from $10.359 million at December 31, 2020. Current assets were $35.229 million and current liabilities $6.771 million.
- Cash used in operating activities was $3.939 million for the first nine months, compared with $4.232 million used in the prior-year period. Investing activities provided $0.802 million, including collection of a $1.6 million note receivable; financing activities provided $11.500 million, principally from the August 2021 equity offering.
- The company had no outstanding borrowings under its Siena revolving credit facility and reported $4.2 million of available borrowing capacity. The facility provides up to $10 million, subject to a borrowing base, and is secured by substantially all company assets. The amended covenant requires at least $750,000 of excess availability; the company reported compliance in Q3.
- The $2.2 million PPP loan was fully forgiven in July 2021 and recognized as a gain. Operating lease liabilities totaled $2.772 million.
Material changes and unusual items
- Q3 sales increased in food service technology by 39.7%, POS automation by 60.1%, and casino and gaming by 100.9%; TSG declined 5.8%. Nine-month TSG sales fell 17.7%, and lottery sales ended following the company’s exit from that market.
- Despite higher sales, gross margin fell 5.3 percentage points in Q3 and 7.9 points for the nine-month period. Management cited lower BOHA! hardware margins from pricing intended to grow the installed base, as well as higher material and shipping costs.
- Operating expenses rose $1.1 million in Q3 and $1.8 million for the first nine months, reflecting, among other factors, increased product development and sales and marketing investment.
- The August 2021 public offering raised $11.3 million net and involved 842,375 shares, increasing outstanding shares. The company reported 9,835,379 shares outstanding as of October 31, 2021.
Outlook, risks, and contingencies
- Management expected a gradual recovery through the remainder of 2021 but said timing and pace were uncertain. It anticipated ongoing pandemic-related pressure on food service and casino customers’ spending, gross margin, and demand.
- Supply interruptions and parts shortages at contract manufacturers in China and Thailand had reduced inventory substantially. Management warned that prolonged or further disruption could impair timely product delivery.
- Management stated cash, expected operating cash flows, and available credit were sufficient for working capital, capital spending, and other requirements for at least 12 months after issuance. It did not anticipate needing another credit facility in that period, but noted additional cost reductions or capital raising could be considered if needed.
- Capital expenditures for 2021 were expected to be approximately $1.2 million. Engineering and selling/marketing spending were expected to rise as investment in food service technology continued. Management planned to exit Printrex at year-end 2021 and expected no sales beyond 2021.
- Disclosure controls were reported ineffective at September 30, 2021 because a spreadsheet-control material weakness had not yet been fully remediated; management expected to validate remediation by year-end. Management said the financial statements remained fairly presented and reliable.
- The filing reported no material pending legal proceedings and no material changes to previously disclosed risk factors. No formal earnings or revenue guidance was provided.
Important facts for investors to verify
- Whether demand recovery and customer capital spending in food service and casino markets continue, and whether BOHA! recurring revenue and installed-base growth translate into improved profitability.
- Whether gross margins recover as pricing, material costs, freight costs, and supply constraints evolve.
- Cash burn, working-capital requirements, borrowing-base availability, and ongoing compliance with the Siena facility covenant.
- Whether the spreadsheet-control weakness is fully remediated and validated, and the effect of equity issuance on per-share results.
- Execution and financial effects of the planned Printrex exit, and the expected decline in TSG revenue tied to legacy service and product lines.