- Gross Margin Improves 600 Basis Points to
43.0%; Adjusted Operating Income Rises 87% to $2.1 Million; and
Adjusted EBITDA Increases 58% to $2.6 Million -
TransAct Technologies Incorporated (Nasdaq:TACT) (“TransAct’ or
the “Company”) today reported operating results for the third
quarter ended September 30, 2013, as summarized below:
Summary of 2013 Q3 Results
(In millions, except per share and
percentage data)
Three Months EndedSeptember 30,
2013 2012 Net
sales $ 16.8 $ 15.4 Gross profit $ 7.2 $ 5.7 Gross margin 43.0 %
37.0 % Operating income $ 1.9 $ 0.0 Net income $ 1.5 $ 0.0 Diluted
earnings per share $ 0.17 $ 0.00 Adjusted EBITDA(1) $ 2.6 $
1.6 Adjusted operating income(2) $ 2.1 $ 1.1 Adjusted net income(2)
$ 1.5 $ 0.7 Adjusted diluted earnings per share(2) $ 0.18 $ 0.08
(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
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 2013 third quarter operating results, including
significant year-over-year growth in revenue, gross margin, EBITDA
and diluted EPS, reflect the benefit of technology investments we
made that have resulted in new products for new market
opportunities. The Company’s expertise in the development of new
value added solutions for transaction-based businesses is allowing
TransAct to diversify its revenue base while simultaneously growing
our leadership position in established markets.
“For example, TransAct continues to extend its leadership
position in the global casino industry as reflected by consistent
market share increases for our Epic 950® thermal printer.
Similarly, we are seeing accelerated growth in the number of
casinos that recognize the value our Epicentral® promotional and
couponing system delivers in growing their revenues. Epicentral
continues to improve performance metrics at casinos where it is
deployed, driving increased visitation, new enrollment in loyalty
programs, and additional play which results in higher revenue and
solid investment returns for our customers. Thus far in 2013 we
have secured agreements with eight new casinos to deploy
Epicentral, bringing us to nine casinos that have or will install
the system on a total of over 12,000 electronic gaming machines. In
addition, during the quarter, the leading worldwide distributor of
gaming products, Suzo-Happ, selected TransAct to be their exclusive
provider of gaming printer solutions. We expect market penetration
of our Epic 950 printer and the Epicentral system to continue to
grow over the balance of this year and throughout 2014 as we
leverage our industry leading technology and solutions with
Suzo-Happ’s powerful distribution network.
“Our revenue and market diversification efforts are also
generating success as the 2013 third quarter marked the second
consecutive quarter in which sales of the Ithaca® 9700 food safety
terminal comprised over 50% of revenue generated by our food
safety, point-of-sale and banking unit. The Ithaca 9700 is
garnering strong industry interest and acceptance from a wide range
of restaurant and food service operators as reflected by sales to
over 20 customers to date and the growing number of product trials
currently underway. Our ability to work closely with restaurant and
food service operators to provide them with customized menus,
nutritional labels, food segmentation and other custom design
solutions has positioned the Ithaca 9700 as the leading solution
addressing a large, untapped global market opportunity. We expect
the level of trials for, and customer acceptance of, the Ithaca
9700 to remain consistent over the next several quarters before
accelerating in mid-2014 when we believe our over 120 trials will
begin converting to sales at a faster pace.
“We are also making continued progress in demonstrating the
value of our Printrex color printers for the global oil and gas
exploration industry. The Printrex 920 color truck and off-shore
logging printer is being tested and/or evaluated by over 20
operators and industry feedback and interest is growing; and the
Printrex 980 color office printer continues to gain traction and is
contributing to growth in recurring consumables revenue. We expect
to continue the process of integrating these color printing
solutions into our customers’ systems into 2014 and as customer
testing and evaluation continues, we expect to begin addressing the
multi-year replacement market opportunity for our large installed
base of black and white printers and to benefit from a related
acceleration in high-margin recurring revenue growth in 2015.”
Mr. Shuldman concluded, “Our 2013 new product acceptance and
operating and financial progress has established a solid foundation
for TransAct’s future growth. Our strategic focus on developing
industry-leading solutions that help our customers grow their
revenue and operate more efficiently has positioned TransAct with
growth opportunities in established and new addressable markets
including casino promotional and couponing systems, food safety,
and oil and gas exploration. In addition, we expect to continue our
new product introduction momentum with three new planned product
launches in 2014. We remain focused on building on the momentum
achieved so far in 2013 as we believe an increasing level of sales
of our newest products will drive sustainable gains in industry
market share, revenue, gross margin and diluted EPS, and create new
value for our shareholders in 2014 and beyond.”
Summary of 2013 Third Quarter Operating Results
TransAct generated 2013 third quarter net sales of $16.8 million
compared with net sales of $15.4 million for the 2012 third
quarter. Casino and gaming revenue increased $1.4 million, or 23%,
to $7.5 million from $6.1 million in the prior year period, driven
by a 72% year-over-year rise in domestic casino and gaming sales,
including higher Epicentral software sales. Food safety,
point-of-sale (POS) and banking net sales increased 101%, or $1.9
million, to $3.7 million compared to $1.8 million in the prior year
period. The increase is attributable to the benefit of the second
consecutive quarter of volume sales of the Ithaca® 9700 food safety
terminals for quick service and casual restaurant franchises, as
well as a modest increase in revenue from sales of TransAct’s
thermal printers to McDonalds. Lottery sales for the 2013 third
quarter declined to $1.0 million from $2.5 million in the 2012
third quarter reflecting the timing of orders from GTECH. Printrex®
oil and gas printer net sales were down slightly to $1.1 million in
the 2013 third quarter from $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 compared
to net sales of $3.8 million in the year-ago period.
Reflecting the Company’s strategic shift toward higher value
products, gross margin improved 600 basis points to 43.0% from
37.0% in the third quarter of 2012. The higher quarterly revenue
and gross margin resulted in a 27% increase in gross profit to $7.2
million compared to gross profit of $5.7 million in the year-ago
quarter. Total operating expenses for the 2013 third quarter
declined to $5.3 million from $5.6 million a year ago. Selling and
marketing expenses increased $0.5 million to $2.1 million,
reflecting the timing of the annual G2E trade show which took place
in the third quarter this year compared to the fourth quarter in
2012, and 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 increased by
$0.1 million primarily due to higher costs related to the
recruitment of new sales and support staff. In addition, TransAct
incurred approximately $0.1 million in legal fees related to the
lawsuit with Avery Dennison Corporation in the 2013 third quarter
compared to $1.0 million in the year-ago period.
Operating income for the 2013 third quarter was $1.9 million
compared to $0.0 million in the 2012 third quarter. Excluding the
impact from several items (see details later in the release),
TransAct generated adjusted operating income of $2.1 million, or
12.3% of net sales, compared with adjusted operating income of $1.1
million, or 7.2% of net sales, in the year-ago period. Net income
in the 2013 third quarter was $1.5 million, or $0.17 per diluted
share, compared to break-even results in the prior-year period.
Adjusted net income was $1.5 million, or $0.18 per diluted share,
compared to $0.7 million, or $0.08 per diluted share, in the 2012
third quarter.
Consistent Cash Generation Supports Growth Initiatives and
Return of Capital to Shareholders
As of September 30, 2013, TransAct had approximately $2.8
million of cash and cash equivalents and no debt. In the first nine
months of 2013, the Company generated cash from operating
activities of $2.0 million and free cash flow (cash from operating
activities less capital expenditures) of $1.4 million. TransAct
repurchased 490,000 shares of its common stock, or approximately
5.6%, of the Company’s outstanding common stock at the time of the
transaction, in the 2013 third quarter at an average price of $8.79
per share for total consideration of $4.3 million, and has
repurchased approximately 604,200 shares of its common stock in the
first nine months of 2013 for total consideration of approximately
$5.2 million. The Company also paid a dividend to shareholders of
$0.07 per share during the third quarter. Reflecting the share
repurchase activity and the quarterly dividend, TransAct returned
$4.9 million to shareholders in the 2013 third quarter.
Steve DeMartino, President and Chief Financial Officer of
TransAct, commented, “Our investments in value adding technology
solutions have positioned TransAct to achieve continued revenue,
operating income and EBITDA growth. In addition, our disciplined
management of operating expenses is contributing to solid cash flow
from operations and allowing us to invest in new products that will
benefit future operating results as we address new market and
revenue opportunities across multiple verticals while
simultaneously continuing to return capital to shareholders.
Through opportunistic share repurchases and the quarterly dividend,
we returned nearly $5 million to shareholders in the 2013 third
quarter and over the last seven quarters we have returned a total
of over $13.4 million to shareholders including the repurchase of
approximately 14% of our common stock.”
2013 Third Quarter Conference Call and Webcast
TransAct is hosting a conference call and webcast today,
November 7, 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 Nine Months Ended
(In thousands, except per share amounts)
September 30,
September 30, 2013 2012
2013
2012 Net sales
$16,768 $15,358
$47,613
$48,770 Cost of sales
9,562 9,679
27,522 30,471 Gross profit
7,206
5,679
20,091 18,299 Operating
expenses: Engineering, design and product development
1,041
1,087
3,048 3,252 Selling and marketing
2,059 1,571
5,702 4,846 General and administrative
2,049 1,919
5,819 5,822 Legal fees associated with lawsuit
142
1,036
398 1,507 Business consolidation and restructuring
- 23
- 140
5,291
5,636
14,967 15,567 Operating
income
1,915 43
5,124 2,732
Other income (expense): Interest, net
(8
) 3
(9 ) 7 Other, net
(22 ) (10
)
11 (21 )
(30 ) (7 )
2
(14 ) Income before income taxes
1,885 36
5,126 2,718 Income tax provision
434 13
1,300 979 Net income
$1,451 $23
3,826 $1,739 Net income per
common share: Basic
$0.17 $0.00
$0.44 $0.19 Diluted
$0.17 $0.00
$0.44 $0.19 Shares used in per
share calculation: Basic
8,582 8,822
8,675 9,110
Diluted
8,695 8,911
8,759 9,205
SUPPLEMENTAL INFORMATION – SALES BY
SALES UNIT:
Three months ended Nine
months ended September 30, September 30,
2013 2012
2013 2012 Food
safety, point-of-sale and banking
$3,670 $1,829
$9,107 $6,841 Casino and gaming
7,511 6,100
21,573 22,623 Lottery
1,025 2,454
2,889 5,212
Printrex
1,111 1,209
3,486 3,622 TransAct Services
Group
3,451 3,766
10,558 10,472 Total net sales
$16,768 $15,358
$47,613 $48,770
TRANSACT
TECHNOLOGIES INCORPORATED CONDENSED CONSOLIDATED BALANCE
SHEETS (Unaudited) September
30, December 31, (In thousands)
2013 2012
Assets: Current assets: Cash and cash equivalents
$2,755 $7,537 Accounts receivable, net
15,561 15,927
Inventories
12,896 10,321 Deferred tax assets
1,443
1,443 Other current assets
534 471 Total current assets
33,189 35,699 Fixed assets, net
2,946 3,302
Goodwill
2,621 2,621 Deferred tax assets
1,104 1,172
Intangible assets, net
1,984 2,328 Other assets
67
106
8,722 9,529 Total assets
$41,911 $45,228
Liabilities and Shareholders’ Equity: Current liabilities:
Accounts payable
$5,847 $6,422 Accrued liabilities
3,120 2,927 Income taxes payable
26 629 Accrued
contingent consideration
230 136 Deferred revenue
155
93 Total current liabilities
9,378 10,207 Deferred
revenue, net of current portion
170 168 Deferred rent, net
of current portion
261 308 Accrued contingent consideration,
net of current portion
530 824 Other liabilities
163
352
1,124 1,652 Total liabilities
10,502 11,859
Shareholders’ equity: Common stock
110 109 Additional
paid-in capital
27,096 25,940 Retained earnings
26,796 24,708 Accumulated other comprehensive loss, net of
tax
(66) (55) Treasury stock, at cost
(22,527)
(17,333) Total shareholders’ equity
31,409 33,369 Total
liabilities and shareholders’ equity
$41,911 $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
September 30, 2013
Reported
Adjustments(1)
Adjusted
Non-GAAP
Operating expenses $5,291 ($142 ) $5,149 % of net sales 31.6 % 30.7
% Operating income 1,915 142 2,057 % of net sales 11.4 %
12.3 % Income before income taxes 1,885 142 2,027 Income tax
provision 434 48 482 Net income 1,451 94 1,545 Diluted net income
per share $0.17 $0.01 $0.18 (1)
Adjustment includes $142 of legal and other expenses related to the
lawsuit with Avery Dennison Corporation, tax effected using an
effective tax rate of 33.5%. Three months
ended
September 30, 2012
Reported
Adjustments (2)
Adjusted
Non-GAAP
Operating expenses $5,636 $(1,059 ) $4,577 % of net sales 36.7 %
29.8 % Operating income 43 1,059 1,102 % of net sales 0.3 %
7.2 % Income before income taxes 36 1,059 1,095 Income tax
provision 13 381 394 Net income 23 678 701 Diluted net income per
share $0.00 $0.08 $0.08 (2) Adjustment
includes (i) $1,036 of legal and other expenses related to the
lawsuit with Avery Dennison Corporation and (ii) a restructuring
charge of $23 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, thousands of dollars,
except percentages and per share amounts)
Nine months ended
September 30, 2013
Reported
Adjustments(3)
Adjusted
Non-GAAP
Operating expenses $14,967 $(198 ) $14,769 % of net sales 31.4 %
31.0 % Operating income 5,124 198 5,322 % of net sales 10.8
% 11.2 % Income before income taxes 5,126 198 5,324 Income
tax provision 1,300 66 1,366 Net income 3,826 132 3,958 Diluted net
income per share $0.44 $0.01 $0.45 (3)
Adjustment includes (i) $200 of income related to an adjustment to
accrued contingent consideration from the Printrex acquisition and
(ii) $398 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%. Nine
months ended
September 30, 2012
Reported
Adjustments (4)
Adjusted
Non-GAAP
Operating expenses $15,567 $(1,647 ) $13,920 % of net sales 31.9 %
28.5 % Operating income 2,732 1,647 4,379 % of net sales 5.6
% 9.0 % Income before income taxes 2,718 1,647 4,365 Income
tax provision 979 593 1,572 Net income 1,739 1,054 2,793 Diluted
net income per share $0.19 $0.11 $0.30 (4)
Adjustment includes (i) $1,507 of legal and other expenses
related to the lawsuit with Avery Dennison Corporation and (ii) a
restructuring charge of $140 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)
September 30, 2013 2012 Net income
$1,451 $23 Interest (income) expense, net
8 (3
) Income tax provision
434 13 Depreciation and amortization
428 429 EBITDA
2,321 462
Share-based compensation expense
121 118 Legal fees
associated with lawsuit
142 1,036 Business consolidation and
restructuring
- 23 Adjusted EBITDA
$2,584 $1,639
Investors:TransAct Technologies IncorporatedSteve
DeMartino, 203-859-6810President and Chief Financial
OfficerorJCIRRichard Land, Joseph Jaffoni, Jim
Leahy212-835-8500tact@jcir.com
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