TransAct Technologies Inc. — FY2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. The filing also reports fourth-quarter results. TransAct designs and sells transaction and specialty printers, terminals, software, supplies, and related services across gaming, lottery, POS, food safety, oil and gas, and other markets.
Financial performance
| Metric | FY2012 | FY2011 | Change |
|---|---|---|---|
| Net sales | $68.386 million | $65.969 million | +3.7% |
| Gross profit / margin | $25.982 million / 38.0% | $24.626 million / 37.3% | +5.5% gross profit |
| Operating income / margin | $5.602 million / 8.2% | $6.989 million / 10.6% | −19.8% operating income |
| Net income | $3.621 million | $4.676 million | −22.6% |
| Diluted EPS | $0.40 | $0.49 | Down $0.09 |
| Cash from operating activities | $8.030 million | $2.096 million | +$5.934 million |
| Cash and cash equivalents | $7.537 million | $6.863 million | +$0.674 million |
| Working capital / current ratio | $25.492 million / 3.5 | $27.222 million / 5.7 | Both decreased |
| Debt | No borrowings outstanding | Not stated here | $20 million revolving facility undrawn |
Fourth-quarter 2012 sales were $19.616 million versus $13.645 million in Q4 2011; net income was $1.882 million versus $0.570 million. Annual sales growth reflected higher casino and gaming and Printrex sales, partly offset by declines in lottery, POS-related markets, and TSG. Printer shipments slipped 1% to approximately 199,000 units, while average selling price increased 7%.
Markets and material year-over-year changes
- Casino and gaming sales increased 16.7% to $29.129 million, supported by U.S. casino openings, market-share gains, and initial EPICENTRAL sales.
- Lottery sales decreased 22.1% to $11.634 million; sales to GTECH, the largest customer, declined approximately 27%.
- Printrex sales rose 173.3% to $4.673 million, principally because 2012 included a full year after the August 2011 acquisition; the new Printrex 920 and 980 color printers were launched.
- Food safety, banking and POS sales decreased 4.6% to $9.484 million. POS shipments to McDonald’s declined as earlier upgrade initiatives substantially wound down; banking sales benefited from a large new-customer order.
- TSG sales decreased 6.7% to $13.466 million, mainly due to lost consumables sales to two OEM customers, partly offset by new paper-testing service contracts.
- International sales increased 10.7% to $18.454 million, or 27% of total sales.
Cash, liquidity and capital allocation
Operating cash flow was $8.030 million, but accounts receivable increased $6.332 million, primarily on higher fourth-quarter sales. Inventory fell $3.684 million, while accounts payable rose $3.403 million. Capital expenditures were $1.082 million and capitalized software development was $0.035 million. The company repurchased $5.938 million of shares and paid its first cash dividend of $0.526 million. Shareholders’ equity fell to $33.369 million from $35.313 million.
The $20 million TD Bank revolving credit facility expires November 28, 2014; no amount was drawn at year-end and the company reported compliance with its covenants. Management said cash on hand and operating cash flow should cover working capital, capital expenditures, repurchases, dividends, and liquidity needs for at least twelve months. The board authorized a $0.06-per-share first-quarter 2013 dividend; management expected approximately $2.1 million in total 2013 dividends. Approximately $6.206 million remained authorized for repurchases under a program scheduled to end May 27, 2013.
Outlook, unusual items and risks
- Management expected 2013 gross margin to exceed 2012, citing anticipated growth in newer value-added products and lower lottery sales. It expected engineering and general and administrative expenses to be broadly consistent with 2012, selling and marketing expense to increase, and capital expenditures of approximately $1.2 million.
- Management forecast 2013 GTECH sales of approximately $4–$5 million and expected TSG sales to be higher than 2012, especially in the second half, as Printrex consumables gained traction. The Ithaca 9700 food-safety terminal was expected to contribute meaningfully in 2013 after customer trials; Printrex 920 integration with customer systems was still underway.
- The Avery Dennison trade-secret lawsuit generated $1.533 million of 2012 legal expense. The court denied Avery Dennison’s request for a preliminary injunction against sales of the Ithaca 9700 and 9800, but Avery Dennison appealed; additional legal costs were possible.
- GTECH represented 18% of annual sales and 37% of year-end receivables; Customer A represented 15% of sales and 17% of receivables. The company also relies on Asian contract manufacturers for approximately 85% of printer production and identified several sole-source suppliers, including suppliers of key print mechanisms and consumables.
- Printrex contingent consideration was recorded at $0.960 million, up $0.280 million during 2012; potential undiscounted payments ranged from $0.2 million to $2.4 million. The 2012 effective tax rate was 35.2%; management expected a 32%–33% rate for 2013 and said the renewed federal R&D credit would be reflected as a first-quarter 2013 discrete benefit.
- Other stated risks include customer acceptance and execution for newly launched products, competitive pricing and technology changes, economic and foreign-market exposure, inventory forecasting, and shareholder activism. Management and the auditor reported effective disclosure controls and internal control over financial reporting as of year-end.
Important facts for investors to verify
- Track adoption, customer integration, and recurring consumables revenue for the Printrex color printers, Ithaca 9700, and EPICENTRAL.
- Assess the sustainability of casino and gaming growth against declining lottery sales and the expected $4–$5 million of 2013 GTECH revenue; GTECH contract end dates are described inconsistently in the filing (January 2015 in one section and November 2014 in another).
- Monitor receivables collection, working-capital trends, and the effect of repurchases and dividends on cash and liquidity.
- Follow the Avery Dennison appeal, potential legal costs, and the contingent-consideration estimate for Printrex.
- Evaluate customer and supplier concentration, contract-manufacturer continuity, and progress in diversifying revenue into newer markets.