TransAct Technologies Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; compared with the three months ended March 31, 2020. Amounts are in U.S. dollars unless noted. TransAct develops software-driven technology and printing solutions for food service, POS automation, casino and gaming, and other markets.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Net sales | $8.301 million | $10.247 million; down 19.0% |
| Gross profit / margin | $3.189 million / 38.4% | $4.918 million / 48.0% |
| Operating loss | $2.666 million | $1.295 million |
| Net loss / diluted loss per share | $2.206 million / $0.25 | $0.992 million / $0.13 |
| Cash used in operating activities | $3.094 million | $3.571 million |
| Cash and cash equivalents | $8.728 million at March 31, 2021 | $10.359 million at December 31, 2020 |
| Current assets / current liabilities | $26.762 million / $5.799 million | At March 31, 2021 |
Investing activities provided $1.538 million, primarily from collection of a $1.6 million note receivable; capital expenditures were $68,000. Financing activities used $15,000. Total assets were $39.363 million and shareholders’ equity was $28.363 million at quarter-end.
The balance sheet reported $2.173 million of long-term debt, consisting of the PPP loan. There were no borrowings under the Siena revolving facility, with $3.6 million of borrowing capacity available. Operating lease liabilities totaled $3.479 million. The company reported covenant compliance; trailing-period EBITDA of negative $7.144 million exceeded the covenant minimum of negative $7.984 million.
Business trends and changes from the prior period
- Sales fell $1.946 million. Casino and gaming declined 41.9% to $2.865 million, POS automation declined 25.3% to $1.164 million, and TransAct Services Group declined 39.8% to $1.366 million.
- Food service technology rose 100.4% to $2.747 million, including a 95.6% increase in software, labels, and other recurring revenue. Printrex increased 35.9% to $159,000.
- Hardware unit sales declined 27% to approximately 18,000 units; average selling price increased 7%. International sales decreased 53.9% to $1.306 million.
- Gross margin contracted 960 basis points. Management cited lower sales of higher-margin casino printers and lower margins on BOHA! hardware.
- Engineering and product development expense rose 30% to $1.803 million, mainly reflecting food service technology development. Selling and marketing expense fell 35% to $1.443 million, while general and administrative expense was essentially unchanged at $2.609 million.
Outlook, risks, and unusual items
- Management described a modest recovery from the pandemic downturn but said the timing and pace remain uncertain. It expected disruption to continue, with sales in casino and gaming and food service technology negatively affected through at least 2021; demand was expected to remain below 2019 levels through at least the first half of 2021.
- Management expects engineering, selling and marketing, and general and administrative expenses to increase during 2021 as product investment and spending normalize. Planned 2021 capital expenditures and capitalized software additions were approximately $1.4 million.
- COVID-19-related customer closures and capacity restrictions, delayed customer investment, and supply-chain delays or component shortages at manufacturers in China and Thailand could further reduce sales or impair timely product delivery. Fixed manufacturing overhead may continue to weigh on margins.
- The company said cash, expected operating cash flows, and available revolver capacity should fund obligations and requirements for at least 12 months. This assessment depends on assumptions about gradual customer recovery; management noted that slower recovery could require further cost reductions or capital raising.
- The $2.2 million PPP loan remained classified as long-term debt pending SBA forgiveness determination. The company intended to apply for forgiveness; if none were granted, approximately $2.0 million of principal and interest would be due within 12 months of March 31, 2021.
- TransAct collected the remaining $1.6 million principal and interest on a third-party software developer note in March. The quarterly dividend had been discontinued in January 2020.
- Disclosure controls were not effective at March 31, 2021 because a material weakness remained in controls over completeness and accuracy of key accounting spreadsheets. Management said remediation was underway and expected completion during 2021; it stated the reported financial statements remained reliable and fairly presented.
Important facts for investors to verify
- Whether casino and food service customer demand, international sales, and gross margins recover as management anticipates.
- The status and amount of PPP loan forgiveness, and the company’s liquidity and covenant headroom if recovery is slower than expected.
- Progress toward remediating the spreadsheet-control material weakness and whether any additional control issues emerge.
- Whether supply-chain delays or component shortages affect inventory availability and customer deliveries.
- Execution and returns on planned BOHA! investment, including the growth and durability of recurring software and label revenue.