TransAct Technologies Incorporated — FY2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. This is an annual filing; unaudited fourth-quarter results are also provided. Amounts below are in U.S. dollars.
Business context
TransAct designs and sells transaction printers, terminals, software, supplies and services for food safety, banking and point-of-sale, casino and gaming, lottery, and Printrex markets, with related recurring revenue from its TransAct Services Group (TSG). It reports one operating segment. Manufacturing is heavily outsourced, primarily to contract manufacturers in Asia.
Financial performance and liquidity
| Metric | FY2015 | FY2014 |
|---|---|---|
| Net sales | $59.676 million | $53.108 million |
| Gross profit / gross margin | $24.978 million / 41.9% | $21.711 million / 40.9% |
| Operating income (loss) / margin | $4.468 million / 7.5% | $(3.772) million / (7.1)% |
| Net income (loss) | $3.092 million | $(2.421) million |
| Diluted EPS | $0.39 | $(0.29) |
| Cash from operating activities | $5.547 million | $6.053 million |
- Fourth-quarter 2015 sales were $12.116 million versus $12.296 million in Q4 2014; net income was $0.532 million versus a $3.040 million net loss.
- At year-end, cash and cash equivalents were $4.473 million, working capital was $18.983 million, and the current ratio was 4.0. Total assets were $32.569 million and shareholders’ equity was $25.728 million.
- No debt was outstanding at December 31, 2015. The company had a $20 million revolving credit facility, all undrawn at year-end, expiring November 2017; it reported compliance with its financial covenants.
- Capital expenditures were $0.959 million. Dividends paid were $2.485 million, and share repurchases were $1.020 million.
Material changes versus FY2014
- Sales increased 12.4%, while printer and terminal unit volume rose 22%; average selling price declined approximately 7%, largely due to a greater mix of lower-priced lottery printers.
- Food safety, banking and POS sales rose 40.0% to $13.029 million, led by food safety terminals and Ithaca 9000 printer initiatives. Lottery sales nearly doubled to $9.468 million, reflecting IGT installations.
- Casino and gaming sales decreased 4.3% to $21.755 million, and Printrex sales declined 64.7% to $1.381 million, principally amid reduced oil-and-gas drilling activity. TSG sales increased 13.3% to $14.043 million.
- Gross margin improved by 100 basis points, with management citing the higher contribution from food safety terminals and TSG. Operating results also benefited from lower legal and settlement expense than in 2014.
- International sales fell 4.1% to $13.946 million, or 23.4% of total sales.
Outlook, risks and unusual items
- Management expected 2016 gross margin to increase as newer value-added products grow; it also expected higher product-development and slightly higher selling and marketing expenses. It estimated a 2016 effective tax rate of approximately 32%, capital expenditures of approximately $1 million, and cash dividends of approximately $2.5 million. These are expectations, not guaranteed results.
- Management expected food safety terminal sales and McDonald’s-related Ithaca 9000 sales to continue into 2016, and anticipated contributions from the new EPIC 3000 lottery printer. It expected oil-and-gas weakness to continue to weigh on Printrex sales during 2016.
- Firm-order backlog was approximately $5.403 million as of February 29, 2016, down from $11.356 million a year earlier; the company expected to ship the current backlog during 2016.
- IGT accounted for 29% of FY2015 sales, up from 19% in FY2014. The May 2015 IGT agreement runs through 2019 but is non-exclusive, replacing the prior exclusive arrangement. Suzo-Happ represented 14% of FY2015 sales.
- The Avery Dennison lawsuit was settled in March 2015. TransAct paid $3.6 million in April 2015; the related $3.625 million expense had been recorded in Q4 2014. TransAct reversed $25,000 of expense in Q2 2015. FY2015 still included $1.738 million of legal fees and settlement expenses; management said no further expenses from this lawsuit were expected.
- Key risks include reliance on IGT and major distribution customers, concentrated overseas manufacturing and sole-source components, competition and adoption of new products, and continued weakness in oil-and-gas markets. The filing describes manufacturing concentration in different terms in separate sections, so the precise share should be verified.
- The company reported effective disclosure controls and internal control over financial reporting as of year-end. The independent auditor issued an unqualified opinion on the financial statements.
Important facts for investors to verify
- Whether 2016 sales, margins and cash generation can be sustained given the lower backlog and project-driven lottery and gaming demand.
- Whether IGT orders remain strong under the non-exclusive agreement and whether TransAct can win meaningful business from other lottery-system customers.
- The pace of food safety and new-product adoption, including the EPIC 3000, EPICENTRAL enhancements and RESPONDER MP2.
- The duration and financial impact of low oil prices on Printrex, and whether customer and supplier concentration creates material operating exposure.
- Whether planned dividends, buybacks and investment spending remain supported by operating cash flow and covenant capacity.