TransAct Technologies Incorporated (Nasdaq: TACT) (“TransAct’ or
the “Company”) today reported operating results for the second
quarter ended June 30, 2013, as summarized below:
Summary of 2013 Q2 Results
(In millions, except per share and
percentage data)
Three Months Ended
June 30,
2013 2012 Net sales
$ 15.8 $ 15.9 Gross profit $ 6.5 $ 5.8 Gross margin 40.9% 36.9%
Operating income $ 1.8 $ 0.8 Net income $ 1.2 $ 0.5 Diluted
earnings per share $ 0.14 $ 0.06 Adjusted EBITDA(1) $ 2.2 $
1.9 Adjusted operating income(2) $ 1.7 $ 1.3 Adjusted net income(2)
$ 1.1 $ 0.9 Adjusted diluted earnings per share(2) $ 0.13 $ 0.09
(1)
Adjusted EBITDA is defined as net income
before net interest expense, income taxes, depreciation,
amortization and stock-based compensation and adjusted for the
impact of acquisition related expenses, restructuring expenses and
certain legal fees as described later in this release. A
reconciliation of Adjusted EBITDA to net income, the most
comparable Generally Accepted Accounting Principles (“GAAP”)
financial measure, can be found attached to this release.
(2)
Reconciliations of GAAP earnings financial
metrics to corresponding non-GAAP financial measures can be found
attached to this release.
Bart Shuldman, Chairman and Chief Executive Officer of TransAct,
commented, “Our growth in 2013 second quarter gross profit and
gross margin drove significant increases in adjusted EBITDA and
diluted EPS and adjusted diluted EPS compared to the same period a
year ago. The strong second quarter financial performance
highlights the benefits of our ongoing expansion into new, higher
margin markets and continued progress in bringing innovation and
value to customers in existing markets. Our strategic initiatives,
focused on developing and marketing products and technologies for
large, diversified domestic and international markets, continue to
provide TransAct with opportunities in fast growing verticals such
as food safety, oil and gas exploration and casino promotional and
couponing systems.
“Our transition to new markets and opportunities that leverage
the Company’s expertise in creating new, value-added solutions for
transaction-based businesses has enabled TransAct to successfully
launch three new products since the beginning of 2012. Each of
these products has advanced features and functionality and
generates higher average selling prices and gross margins than our
existing products for these markets. Building on our expertise in
the casino industry, we are now proving the value of our
Epicentral® casino system, which is live at four casinos with three
additional casinos scheduled to come online by the end of 2013. In
its initial installations, Epicentral® is proving to be a strong
marketing tool that rewards guests in new ways and helps casino
operators grow revenue at their facilities. We expect the number of
Epicentral® installations to grow over the balance of 2013 and
throughout 2014, which will drive higher overall revenue and
higher-margin annual recurring maintenance revenue.
“In the 2013 second quarter, we generated solid revenue growth
from the sale of the Ithaca® 9700 food safety terminal, which
accounted for over 50% of the total revenue in our food safety,
point-of-sale and banking unit. With a total addressable market of
approximately 700,000 terminals in restaurants, hospitals,
convenience stores, corporate foodservice operations and schools,
the global food safety market represents a large and untapped
opportunity for TransAct. There is already strong market interest
in the Ithaca® 9700 with a growing number of product trials, and as
this innovative solution continues to prove its value, we expect to
continue to transition trials to sales.
“Our line of Printrex color printers for the global oil and gas
exploration industry is another recent product offering with a high
level of customer interest. Leveraging our large installed base of
black and white printers, we are in the early stages of a
multi-year replacement cycle for the Printrex 920 and Printrex 980
full color solutions which we expect will be another source of
recurring revenue growth going forward. Finally, our TransAct
Services Group (TSG) provides post-sale fulfillment and services
through three global service centers and a newly upgraded website
that together provide customers with efficient, easy to use
options. TSG and its recurring, high-margin revenue model present
the Company with another channel of long-term growth.”
Mr. Shuldman concluded, “Over the last several years, TransAct
has made substantial progress with transitioning the business by
expanding the number of higher margin products we offer and
increasing the number of global markets we address. Our new,
innovative solutions enhance our product suite and are driving
growing levels of customer adoption as they deliver proven results.
At the same time, these initiatives offer TransAct substantial
growth and diversification opportunities in new verticals. We
expect the momentum achieved in the first half of 2013 will
continue in the second half of the year as higher sales of our
newest products drive further gains in revenue, gross margin and
diluted earnings per share.”
Summary of 2013 Second Quarter Operating Results
TransAct generated 2013 second quarter net sales of $15.8
million compared with net sales of $15.9 million for the 2012
second quarter. Casino and gaming revenue in the 2013 second
quarter increased $0.2 million, or 3%, to $7.3 million compared to
$7.1 million in the prior year period. Food safety, point-of-sale
(POS) and banking net sales increased 29%, or $0.8 million, to $3.5
million compared to $2.7 million in the prior year period. The
increase reflects the first volume sales of Ithaca® 9700 food
safety terminals for several quick service and casual restaurant
franchises, more than offsetting declines in revenue from sales of
TransAct’s banking and legacy POS printers as the Company continues
to transition away from these lower margin markets. Lottery sales
for the 2013 second quarter declined to $0.5 million from $1.7
million in the 2012 second quarter reflecting the timing of orders
from GTECH. Revenue from Printrex® printers of $1.1 million in the
2013 second quarter compares to revenue of $1.2 million in the
year-ago period as sales of TransAct’s new color printers were more
than offset by a decline in sales of legacy black and white
printers. The Company’s TransAct Services Group recorded net sales
of $3.5 million, a 10%, or $0.3 million, year-over-year
increase.
Reflecting the shift toward higher margin products, gross margin
improved 400 basis points to 40.9% from 36.9% in the second quarter
of 2012, resulting in gross profit of $6.5 million. Total operating
expenses for the 2013 second quarter declined to $4.6 million from
$5.1 million a year ago. Selling and marketing expenses increased
$0.2 million to $1.9 million, reflecting the addition of sales
staff and higher marketing expenses to support the Company’s
recently introduced food safety and Printrex products. General and
administrative expenses declined by $0.2 million primarily due to a
reduction in the accrued contingent consideration liability to be
paid in connection with the Company’s 2011 acquisition of Printrex.
In addition, TransAct incurred approximately $0.1 million in legal
fees related to the lawsuit with Avery Dennison Corporation in the
2013 second quarter compared to $0.5 million in the 2012 second
quarter.
Operating income for the 2013 second quarter was $1.8 million
compared to $0.8 million in the 2012 second quarter. Excluding the
impact from several items (see details later in the release),
TransAct generated adjusted operating income of $1.7 million
compared with adjusted operating income of $1.3 million in the
year-ago period. Net income in the 2013 second quarter was $1.2
million, or $0.14 per diluted share, compared to net income of $0.5
million, or $0.06 per diluted share in the prior-year period.
Adjusted net income was $1.1 million, or $0.13 per diluted share,
compared to $0.9 million, or $0.09 per diluted share, in the 2012
second quarter.
Solid Balance Sheet and Liquidity Position
As of June 30, 2013, TransAct had approximately $8.8 million of
cash and cash equivalents and no debt. In the first six months of
2013, the Company generated cash from operating activities of $3.3
million and free cash flow (cash from operating activities less
capital expenditures) of $2.8 million. TransAct repurchased
approximately 25,300 shares of its common stock in the 2013 second
quarter at an average price of $7.72 per share for total
consideration of $0.2 million, and has repurchased approximately
114,200 shares of its common stock in the first six months of 2013
for total consideration of approximately $0.9 million. The
Company’s share repurchase program expired in May 2013. The Company
also paid a dividend to shareholders of $0.07 per share during the
quarter.
Steve DeMartino, President and Chief Financial Officer of
TransAct, commented, “Our solid financial position and emphasis on
prudent management of operating expenses have positioned TransAct
to develop and introduce new and innovative higher margin products
for existing and new global markets, grow recurring revenue and
generate solid improvements in both operating income and EBITDA. As
we successfully execute on this transition, TransAct has increasing
financial flexibility to deploy capital for growth opportunities
across multiple verticals including gaming, food safety and oil and
gas exploration while simultaneously returning capital to
shareholders.”
2013 Second Quarter Conference Call and Webcast
TransAct is hosting a conference call and webcast today, August
6, 2013, beginning at 4:30 p.m. ET. Both the call and the
webcast are open to the general public. The conference call number
is 678-825-8259 (domestic or international). Please call five
minutes prior to the presentation to ensure that you are
connected.
Interested parties may also access the conference call live on
the Internet at www.transact-tech.com (select “Investor Relations”
followed by “Events & Presentations”). Approximately two hours
after the call has concluded, an archived version of the webcast
will be available for replay at the same location.
Non-GAAP Financial Measures
TransAct has provided adjusted non-GAAP financial measures
because the Company believes that these amounts are helpful to
investors and others to more accurately assess the ongoing nature
of TransAct's core operations. The adjusted non-GAAP measures
exclude the effect in the applicable periods presented of non-GAAP
adjustments contained in the tables included with this release.
These items have been excluded from adjusted non-GAAP financial
measures as management does not believe that they are
representative of underlying trends in the Company's performance.
Their exclusion provides investors and others with additional
information to more readily assess the Company's operating results.
The Company uses the non-GAAP financial measures internally to
focus management on the results of the Company's core business. The
presentation of this additional non-GAAP information is not
considered superior to or a substitute for the financial
information prepared in accordance with GAAP.
Adjusted operating income is defined as operating income
adjusted for the impact of acquisition related expenses, business
consolidation and restructuring expenses and legal fees related to
the lawsuit with Avery Dennison Corporation.
Adjusted net income is defined as net income adjusted for the
tax-effected impact of acquisition related expenses, business
consolidation and restructuring expenses and legal fees related to
the lawsuit with Avery Dennison Corporation.
Adjusted diluted earnings per share is defined as Adjusted Net
Income divided by diluted shares outstanding.
About TransAct Technologies Incorporated
TransAct Technologies Incorporated is a leader in developing and
manufacturing market-specific solutions, including printers,
terminals, software and other products for transaction-based and
other industries. These industries include casino and gaming,
lottery, food safety, banking, point-of-sale, hospitality, oil and
gas, and medical and mobile. Each individual market has distinct,
critical requirements for printing and the transaction is not
complete until the receipt and/or ticket is produced. TransAct
printers and products are designed from the ground up based on
market-specific requirements and are sold under the Ithaca®, Epic,
EPICENTRAL® and Printrex® product brands. TransAct distributes its
printers through OEMs, value-added resellers, selected
distributors, and direct to end-users. TransAct has over 2.4
million printers installed around the world. TransAct is also
committed to providing world-class printer service, spare parts,
accessories and printing supplies to its growing worldwide
installed base of printers. Through its TransAct Services Group,
TransAct provides a complete range of supplies and consumable items
used in the printing and scanning activities of customers in the
hospitality, banking, retail, gaming, government and oil and gas
exploration markets. Through its webstore,
http://www.transactsupplies.com, and a direct selling team,
TransAct addresses the on-line demand for these products. TransAct
is headquartered in Hamden, CT. For more information, please visit
http://www.transact-tech.com or call 203.859.6800.
Forward-Looking Statements
Certain statements in this press release include forward-looking
statements. Forward-looking statements generally can be identified
by the use of forward-looking terminology, such as "may," "will,"
"expect," "intend," "estimate," "anticipate," "believe" or
"continue" or the negative thereof or other similar words. All
forward-looking statements involve risks and uncertainties,
including, but are not limited to, customer acceptance and market
share gains, both domestically and internationally, in the face of
substantial competition from competitors that have broader lines of
products and greater financial resources; our competitors
introducing new products into the marketplace; our ability to
successfully develop new products; our dependence on significant
customers; our dependence on significant vendors; dependence on
contract manufacturers for the assembly of a large portion of our
products in China; our ability to protect intellectual property;
our ability to recruit and retain quality employees as the Company
grows; our dependence on third parties for sales outside the United
States, including Australia, New Zealand, Europe, Latin America and
Asia; the economic and political conditions in the United States,
Australia, New Zealand, Europe, Latin America and Asia; marketplace
acceptance of new products; risks associated with foreign
operations; the availability of third-party components at
reasonable prices; price wars or other significant pricing
pressures affecting the Company's products in the United States or
abroad; risks associated with potential future acquisitions;
our new line of food safety and oil and gas products will drive
increased adoption by customers; the outcome of the lawsuit between
TransAct and Avery Dennison Corporation; and other risk factors
detailed from time to time in TransAct's reports filed with the
Securities and Exchange Commission. Actual results may differ
materially from those discussed in, or implied by, the
forward-looking statements. The forward-looking statements speak
only as of the date of this release and the Company assumes no duty
to update them to reflect new, changing or unanticipated events or
circumstances.
TRANSACT TECHNOLOGIES INCORPORATED CONDENSED CONSOLIDATED
STATEMENTS OF INCOME (Unaudited) Three
Months Ended Six Months Ended (In thousands,
except per share amounts)
June 30, June 30,
2013 2012
2013 2012 Net sales
$
15,788 $ 15,853
$ 30,845 $ 33,412 Cost of
sales
9,336 10,011
17,960 20,792 Gross profit
6,452 5,842
12,885
12,620 Operating expenses: Engineering, design
and product development
995 952
2,007 2,165 Selling
and marketing
1,857 1,674
3,643 3,275 General and
administrative
1,736 1,903
3,770 3,903 Legal fees
associated with lawsuit
57 471
256 471 Business
consolidation and restructuring
- 63
- 117
4,645
5,063
9,676 9,931
Operating income
1,807 779
3,209 2,689
Interest and other income (expense): Interest, net
- 2
(1 ) 4 Other, net
(4 ) 13
33 (11 )
(4
) 15
32 (7 )
Income before income taxes
1,803 794
3,241
2,682 Income tax provision
588 286
866 966 Net income
$ 1,215 $ 508
2,375
$ 1,716 Net income per common share: Basic
$ 0.14 $ 0.06
$ 0.27 $ 0.19 Diluted
$ 0.14 $ 0.06
$ 0.27 $ 0.18
Shares used in per share calculation: Basic
8,728 9,084
8,722 9,256 Diluted
8,802 9,189
8,803 9,357
SUPPLEMENTAL INFORMATION – SALES BY SALES UNIT:
Three months ended Six months
ended June 30, June 30, 2013 2012
2013 2012 Food safety, point-of-sale and banking
$ 3,453 $ 2,676
$ 5,437 $
5,012 Casino and gaming
7,322 7,112
14,062 16,523
Lottery
499 1,728
1,864 2,758 Printrex
1,050
1,174
2,375 2,413 TransAct Services Group
3,464 3,163
7,107
6,706 Total net sales
$ 15,788 $ 15,853
$ 30,845 $ 33,412
TRANSACT
TECHNOLOGIES INCORPORATED CONDENSED CONSOLIDATED BALANCE
SHEETS (Unaudited) June 30,
December 31, (In thousands)
2013 2012
Assets: Current
assets: Cash and cash equivalents
$ 8,828 $ 7,537
Accounts receivable, net
11,640 15,927 Inventories
12,787 10,321 Deferred tax assets
1,443 1,443 Other
current assets
666 471 Total
current assets
35,364 35,699
Fixed assets, net
3,105 3,302 Goodwill
2,621
2,621 Deferred tax assets
1,113 1,172 Intangible assets, net
2,113 2,328 Other assets
79 106
9,031 9,529 Total assets
$ 44,395 $ 45,228
Liabilities
and Shareholders’ Equity: Current liabilities: Accounts payable
$ 5,603 $ 6,422 Accrued liabilities
2,391
2,927 Income taxes payable
121 629 Accrued contingent
consideration
230 136 Deferred revenue
197
93 Total current liabilities
8,542 10,207 Deferred revenue,
net of current portion
166 168 Deferred rent, net of current
portion
278 308 Accrued acquisition consideration, net of
current portion
530 824 Other liabilities
383
352
1,357 1,652
Total liabilities
9,899 11,859
Shareholders’ equity: Common stock
110 109
Additional paid-in capital
26,732 25,940 Retained earnings
25,956 24,708 Accumulated other comprehensive loss, net of
tax
(82 ) (55 ) Treasury stock, at cost
(18,220 ) (17,333 ) Total shareholders’ equity
34,496 33,369 Total liabilities
and shareholders’ equity
$ 44,395 $ 45,228
TRANSACT TECHNOLOGIES
INCORPORATED
RECONCILIATION OF GAAP EARNINGS
FINANCIAL MEASURES TO CORRESPONDING
NON-GAAP FINANCIAL MEASURES
(Unaudited)
(In thousands, except percentages and per
share amounts)
Three months ended
June 30, 2013
Adjusted
Reported
Adjustments(1)
Non-GAAP
Operating expenses $ 4,645 $ 143 $ 4,788 % of net sales 29.4 % 30.3
% Operating income 1,807 (143 ) 1,664 % of net sales 11.4 %
10.5 % Income before income taxes 1,803 (143 ) 1,660 Income
tax provision 588 (48 ) 540 Net income 1,215 (95 ) 1,120 Diluted
net income per share $ 0.14 ($0.01 ) $ 0.13
(1) Adjustments include (i) $200 of income related to an
adjustment to accrued contingent consideration from the Printrex
acquisition and (ii) $57 of legal and other expenses related to the
lawsuit with Avery Dennison Corporation. Such adjustments were tax
effected using an effective tax rate of 33.5%.
Three months ended
June 30, 2012
Adjusted
Reported
Adjustments (2)
Non-GAAP
Operating expenses $ 5,063 $ (534 ) $ 4,529 % of net sales 31.9 %
28.6 % Operating income 779 534 1,313 % of net sales 4.9 %
8.3 % Income before income taxes 794 534 1,328 Income tax
provision 286 192 478 Net income 508 342 850 Diluted net income per
share $ 0.06 $ 0.04 $ 0.09 (2)
Adjustments include (i) $471 of legal and other expenses related to
the lawsuit with Avery Dennison Corporation and (ii) a
restructuring charge of $63 for employee termination benefits and
moving expenses associated with the closing of the Printrex
manufacturing facility in San Jose, CA during 2012, tax effected
using an effective tax rate of 36.0%.
TRANSACT TECHNOLOGIES
INCORPORATED
RECONCILIATION OF GAAP EARNINGS
FINANCIAL MEASURES TO CORRESPONDING
NON-GAAP FINANCIAL MEASURES
(Unaudited)
(In thousands, except percentages and per
share amounts)
Six months ended
June 30, 2013
Adjusted
Reported
Adjustments(3)
Non-GAAP
Operating expenses $ 9,676 $ (56 ) $ 9,620 % of net sales 31.4 %
31.2 % Operating income 3,209 56 3,265 % of net sales 10.4 %
10.6 % Income before income taxes 3,241 56 3,297 Income tax
provision 866 19 885 Net income 2,375 37 2,412 Diluted net income
per share $ 0.27 $ 0.00 $ 0.27 (3)
Adjustments include (i) $200 of income related to an adjustment to
accrued contingent consideration from the Printrex acquisition and
(ii) $256 of legal and other expenses related to the lawsuit with
Avery Dennison Corporation. Such adjustments were tax effected
using an effective tax rate of 33.5%.
Six months ended
June 30, 2012
Adjusted
Reported
Adjustments (4)
Non-GAAP
Operating expenses $ 9,931 $ (588 ) $ 9,343 % of net sales 29.7 %
28.0 % Operating income 2,689 588 3,277 % of net sales 8.0 %
9.8 % Income before income taxes 2,682 588 3,270 Income tax
provision 966 212 1,178 Net income 1,716 376 2,092 Diluted net
income per share $ 0.18 $ 0.04 $ 0.22 (4)
Adjustments include (i) $471 of legal and other expenses
related to the lawsuit with Avery Dennison Corporation and (ii) a
restructuring charge of $117 for employee termination benefits and
moving expenses associated with the closing of the Printrex
manufacturing facility in San Jose, CA during 2012, tax effected
using an effective tax rate of 36.0%.
TRANSACT TECHNOLOGIES
INCORPORATED
RECONCILIATION OF NET INCOME TO
ADJUSTED EBITDA
NON-GAAP FINANCIAL MEASURES
(Unaudited)
Three Months Ended (In thousands)
June
30, 2013 2012 Net income
$ 1,215 $
508 Interest (income) expense, net
- (2 ) Income tax
provision
588 286 Depreciation and amortization
432 438 EBITDA
2,235
1,230 Share-based compensation expense
142 127 Legal
fees associated with lawsuit
57 471 Business consolidation
and restructuring
- 63
Adjustment to accrued contingent
consideration
(200
)
-
Adjusted EBITDA
2,234
1,891
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