TransAct Technologies Inc. (NASDAQ: TACT) — FY 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone quarterly filing; selected fourth-quarter results are included below. TransAct develops software-driven technology and printing products, including its BOHA! food-service platform, POS printers, and casino and gaming printers.
Financial performance
| Metric | FY 2021 | FY 2020 |
|---|---|---|
| Net sales | $39.4 million | $30.6 million |
| Gross profit / margin | $15.2 million / 38.7% | $12.9 million / 42.3% |
| Operating loss | $9.5 million | $8.2 million |
| Net loss | $4.1 million; $0.45 per diluted share | $5.6 million; $0.72 per diluted share |
| Cash used in operating activities | $2.5 million | $3.5 million |
| Capital expenditures | $1.4 million | $0.7 million |
- Fourth-quarter 2021 net sales were $11.1 million, gross profit was $4.4 million, and net loss was $0.7 million.
- Cash and cash equivalents were $19.5 million at year-end, including $1.8 million held by the UK subsidiary. Total current assets were $37.1 million and current liabilities were $9.8 million.
- No borrowings were outstanding under the Siena revolving facility; reported available borrowing capacity was $5.1 million. The facility provides up to $10 million, subject to a borrowing base and covenants. The $2.2 million PPP loan was forgiven in 2021.
- Total liabilities were $12.0 million, including $2.6 million of lease liabilities. Shareholders’ equity was $39.0 million.
Business trends and changes
- Sales rose 28.7%, with growth in food service technology (FST), casino and gaming, and POS automation. International sales increased 19.2% to $7.0 million.
- FST sales grew 63.2% to $12.6 million. Software, labels, and other recurring revenue rose 94.9% to $7.4 million; hardware sales increased 32.7%. The BOHA! installed base grew by 4,130 terminals and workstations to 9,818.
- Casino and gaming sales increased 39.4% to $15.3 million as venues reopened and expanded capacity. POS automation sales rose 28.0% to $4.8 million, largely from higher Ithaca 9000 printer sales to McDonald’s.
- TSG sales fell 14.2% to $6.0 million, while lottery revenue ended after the final 2020 printer sale. TransAct completed its final Printrex orders in 2021 and exited that market at year-end.
- Gross margin fell 360 basis points, to 38.7%, reflecting lower-priced BOHA! hardware intended to grow the installed base and increased materials and shipping costs. Operating expenses increased 17% as the company returned toward normal spending and invested in FST.
- Reported net loss improved by $1.5 million, but FY 2021 included a $2.2 million PPP-loan forgiveness gain and a $1.5 million employee retention credit gain. Operating loss increased to $9.5 million from $8.2 million.
Liquidity, outlook, and risks
- Management said cash, expected operating cash flows, and available facility capacity should fund operations, capital expenditures, and working capital for at least the next 12 months. It also noted continued uncertainty and said additional cost reductions or capital raising could be considered if needed.
- Management expected 2022 operating expenses to increase, particularly for FST product development, sales, and marketing. It expected TSG sales to decline, including due to the anticipated end of a legacy banking service contract and lower lottery-printer spare-parts sales. No specific revenue or earnings guidance was provided.
- Management expected gradual recovery in food service and casino markets, but the pace remained uncertain. Customer capital spending, supply interruptions, component availability, freight and input costs, and inflation could affect deliveries, sales, and margins.
- Manufacturing is concentrated in two contract manufacturers in Thailand and China; supply delays had reduced inventory. The company also relies on a third party for development, maintenance, and hosting of certain BOHA! software, under a non-exclusive license.
- IGT accounted for 9% of FY 2021 sales, down from 15% in 2020. Customer concentration, competitive pressure, subscription renewals, international exposure, and the company’s continuing losses are additional risks.
- TransAct raised $11.2 million net through a 2021 public offering, issuing 842,375 shares; this strengthened liquidity but diluted existing shareholders. The company paid no dividend in 2021 and had suspended its dividend beginning in 2020.
Other notable disclosures
- Management reported that internal control over financial reporting was effective as of December 31, 2021 and that a previously reported spreadsheet-control material weakness had been remediated. The independent auditor expressed an unqualified opinion on the financial statements; it was not engaged to audit internal controls.
- The auditor identified revenue recognition for a bundled BOHA! customer arrangement as a critical audit matter, involving judgments about performance obligations and standalone selling prices.
- The company reported no material pending or threatened legal proceedings and no impairment of goodwill or intangible assets in its year-end assessment.
Most important facts for investors to verify
- Whether BOHA! recurring-revenue growth and installed-base expansion continue, and whether they translate into improved margins and profitability.
- Whether the supply chain recovers sufficiently to rebuild inventory and meet the elevated order backlog; the company reported $14.2 million of firm orders as of February 28, 2022, with most expected to be recognized during 2022.
- Whether operating cash use and losses persist, and whether cash, the $5.1 million of reported facility availability, and the employee retention credit collection are sufficient for planned investment.
- The effects of exiting Printrex, declining TSG revenue, and the expected expiration of the legacy banking service contract.
- Customer concentration and dependence on IGT, Asian contract manufacturers, and the third-party BOHA! software provider.