TransAct Technologies Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; comparisons are primarily with FY2021. The filing was signed March 27, 2023. TransAct designs and sells software-enabled printers, terminals and related services across food service technology (FST), POS automation, and casino and gaming markets. It reports one operating segment.
Financial performance and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Net sales | $58.1 million | $39.4 million |
| Gross profit / margin | $24.4 million / 42.0% | $15.4 million / 39.1% |
| Operating loss / margin | $7.7 million / (13.2%) | $9.4 million / (23.8%) |
| Net loss | $5.9 million; $0.60 per diluted share | $4.0 million; $0.43 per diluted share |
| Cash used in operating activities | $12.2 million | $2.5 million |
- Gross margin improved 290 basis points, supported by a more favorable product mix, higher sales volumes and price increases. Operating expenses rose 30% to $32.1 million as spending moved toward more normal levels and sales and development investment increased.
- Quarterly results show net income of $0.5 million in Q3 and $0.3 million in Q4 2022, following losses in Q1 and Q2. The company nevertheless reported a full-year net loss.
- Cash and cash equivalents were $7.9 million at year-end, down $11.5 million. Working-capital investment included a $6.4 million increase in receivables and a $4.4 million increase in inventory. Capital expenditures were $1.3 million.
- Year-end total assets were $51.8 million, total liabilities $18.0 million, and shareholders’ equity $33.9 million. The balance sheet included $12.0 million of inventory and a $1.5 million employee retention credit receivable, collected in Q1 2023.
- Borrowings under the Siena revolving facility were $2.3 million, with $3.9 million of net availability at year-end. The facility commitment is up to $10 million, subject to a borrowing base; maturity was extended to March 2025. The company reported compliance with its excess-availability covenant.
Material changes and business drivers
- Sales rose 47.6%. Casino and gaming revenue increased 96% to $30.0 million, principally from market recovery and share gains as a major competitor faced supply constraints. POS automation increased 121% to $10.7 million, helped by a customer project and competitor supply issues.
- FST revenue decreased 2.1% to $12.4 million: hardware fell 30%, partly offset by an 18% increase in software, labels and other recurring revenue. The installed base grew by 2,362 terminals and workstations to 12,180.
- TransAct exited the Printrex oil-and-gas market at the end of 2021. TSG revenue declined 15% to $5.1 million, mainly due to lower legacy parts and service sales. International sales increased to $14.1 million, or 24% of total sales.
- IGT accounted for 10% of FY2022 sales, versus 9% in FY2021. The company also disclosed customer concentration in receivables, including IGT at 12% at year-end.
- Effective April 1, 2022, the company changed inventory costing from standard cost approximating FIFO to average cost and retrospectively adjusted comparative periods. The auditor identified this change and inventory valuation as a critical audit matter; the reported FY2021 net loss under the revised method was $4.0 million.
Outlook, risks and unusual items
- Management expects FY2023 FST revenue to exceed FY2022, casino printer sales to remain strong and higher, and TSG sales to increase. POS sales are expected to be lower following completion of the customer project. These are market-specific expectations; the filing provides no clear quantified consolidated revenue or earnings guidance.
- Backlog was approximately $27.5 million at February 28, 2023, versus $14.2 million a year earlier. Management expected $26.9 million of that backlog to be recognized in 2023, $0.5 million in 2024 and the remainder in 2025. The increase was attributed primarily to advance casino and gaming orders and longer supply-chain lead times.
- Management believes cash, operating cash flows and available borrowing capacity are sufficient for working capital, capital spending and liquidity needs for at least the next 12 months. This outlook depends on assumptions about demand, customer activity, inflation, interest rates and supply conditions; the company notes it may need further cost or liquidity measures if conditions worsen.
- Key risks include continued losses and operating cash burn; reliance on a Thailand contract manufacturer and other suppliers without guaranteed supply contracts; inflation, freight and component costs; customer demand and order timing; and dependence on a third party that develops, maintains and hosts portions of BOHA! software under a non-exclusive license through 2031.
- A criminal cybersecurity incident affected operational and IT systems in November 2022. The company said it restored operations in a remediated environment; investors should assess any continuing operational, customer, legal or financial effects.
- FY2021 included a $2.2 million PPP loan-forgiveness gain and a $1.5 million employee retention credit gain; these did not recur in FY2022. The employee retention credit receivable was collected in Q1 2023.
- No material pending or threatened legal proceedings were identified. Management assessed internal control over financial reporting as effective; the independent auditor did not audit or opine on internal control effectiveness.
Important facts for investors to verify
- Whether backlog converts to revenue on the expected schedule, and whether elevated orders reflect durable demand or customer advance buying to manage long lead times.
- Cash generation, inventory and receivables conversion, borrowing-base availability, covenant headroom and the effect of required minimum borrowings and higher interest rates.
- Progress in FST hardware sales, BOHA! subscription and label revenue, customer renewals, and the economics and continuity of the third-party software relationship.
- How sustainable casino and POS market-share gains are if competitors’ supply constraints ease, and the effect of the completed POS customer project.
- Any additional disclosure about the November 2022 cyber incident, and the effects of the inventory-costing change on reported comparisons.