TransAct Technologies Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. TransAct develops software-driven technology and printing solutions for food service, POS automation, casino and gaming, and related services and supplies. It reports one operating segment.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Net sales | $9.702 million | $8.301 million; up 16.9% |
| Gross profit / margin | $2.994 million / 30.9% | $3.189 million / 38.4% |
| Operating expenses | $8.170 million | $5.855 million |
| Operating loss | $5.176 million | $2.666 million |
| Net loss / diluted loss per share | $4.013 million / $0.41 | $2.206 million / $0.25 |
| Operating cash flow | $(6.819) million | $(3.094) million |
| Cash and cash equivalents | $11.994 million at March 31 | $19.457 million at December 31, 2021 |
Gross profit fell 6.1% despite higher sales; gross margin contracted 750 basis points, primarily from higher product and shipping costs. Operating expenses rose about 40%, led by BOHA! development, sales and marketing investment, compensation, ERP implementation and legal costs. The company reported a $1.262 million income tax benefit, at a 23.9% effective rate.
Cash declined $7.463 million during the quarter. In addition to operating cash use, investing activities used $496,000, primarily for ERP implementation and equipment; financing activities used $119,000. Inventory increased $1.328 million from year-end as the company built stock to address supply constraints. A $1.5 million employee retention credit receivable remained outstanding; the company expected collection during 2022.
TransAct had no borrowings under its Siena revolving facility at March 31 and reported $3.5 million of available borrowing capacity, subject to the borrowing base. It was in compliance with the facility’s excess-availability covenant, requiring at least $750,000. The facility provides for up to $10 million, is secured by substantially all company assets, and expires March 13, 2023. Management said cash, expected operating cash flows and facility availability should fund needs for at least 12 months. Operating lease liabilities totaled $2.361 million.
Material changes and business developments
- Casino and gaming sales rose 66.2% to $4.762 million, led by recovering domestic and international demand.
- Food service technology sales declined 22.5% to $2.130 million as hardware sales fell 63.5%; software, labels and other recurring revenue increased 30.0% to $1.567 million.
- POS automation sales increased 11.7% to $1.300 million. TSG sales rose 10.5% to $1.510 million, while Printrex sales ended following the company’s exit from that market.
- International sales increased 99.1% to $2.600 million, primarily on higher international casino and gaming sales.
- Firm remaining performance obligations were $13.6 million at March 31; $13.2 million was expected to be recognized within 12 months.
- The company entered a Cooperation Agreement with two shareholders on March 30, 2022; related legal fees contributed to higher G&A expense. The filing says the shareholder matter was resolved and reports no material pending or contemplated legal proceedings.
Outlook, commentary and risks
Management said recovery slowed in Q1 due to the Omicron resurgence but was beginning to resume in Q2, with improvement expected through the rest of 2022. The timing and pace remain uncertain. Supply disruptions at contract manufacturers in Thailand and China, component shortages, increased freight costs and inflation have contributed to backlog and delayed or missed deliveries. Management expects higher product and shipping costs to continue, while price increases implemented in Q1 and Q2—excluding food service technology products—were expected to provide some mitigation, with their full effect beginning in Q2.
Management expects engineering and selling and marketing expenses to increase in 2022 as it invests in BOHA! products and sales efforts. Additional expense-management measures were planned from Q2, but plans were not finalized. Management noted that slower-than-expected customer recovery, labor shortages, supply constraints, future virus resurgences and the Russia-Ukraine conflict’s effects on freight costs could affect results and liquidity; additional cost reductions or capital raising may be considered if needed.
Management’s liquidity assessment assumes customers and consumer traffic continue to recover, while acknowledging that restaurants and casinos may defer purchases. It stated that sensitivity analysis indicated the company could withstand lower-than-expected sales and take further actions if necessary. These forward-looking expectations are subject to significant uncertainty.
Key facts for investors to verify
- Whether casino and gaming demand and the expected POS automation order ramp translate into sales and cash collection.
- Whether supply availability, backlog, freight costs and gross margins improve, and whether price increases offset cost inflation.
- BOHA! recurring-revenue growth and whether elevated product-development and go-to-market spending produces sustained returns.
- Cash burn, collection of the $1.5 million employee retention credit, borrowing-base availability and continued covenant compliance.
- Progress on planned expense controls and any additional financing needs if recovery or supply normalization is slower than assumed.