Log in
E-mail
Password
Remember
Forgot password ?
Become a member for free
Sign up
Sign up
New member
Sign up for FREE
New customer
Discover our services
Settings
Settings
Dynamic quotes 
OFFON

MarketScreener Homepage  >  Equities  >  Nasdaq  >  TransAct Technologies Incorporated    TACT

TRANSACT TECHNOLOGIES INCORPORATED

(TACT)
  Report
SummaryQuotesChartsNewsCalendarCompanyFinancialsConsensusRevisions 
News SummaryMost relevantAll newsPress ReleasesOfficial PublicationsSector news

TransAct Technologies Incorporated : INC Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

share with twitter share with LinkedIn share with facebook
share via e-mail
05/22/2020 | 03:02pm EDT
Forward Looking Statements
Certain statements included in this Quarterly Report on Form 10-Q for the period
ended March 31, 2020 (this "Report"), including without limitation statements in
this Management's Discussion and Analysis of Financial Condition and Results of
Operations, which are not historical facts are "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended,
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and the Private Securities Litigation Reform Act of 1995. Forward-looking
statements generally can be identified by the use of forward-looking
terminology, such as "may", "will", "expect", "intend", "estimate",
"anticipate", "believe", "project" or "continue" or the negative thereof or
other similar words. All forward-looking statements involve risks and
uncertainties, including, but not limited to those listed in Part 1, Item 1A of
our Annual Report on Form 10-K for the year ended December 31, 2019, in Part II,
Item 1A of this report and in our other filings with the SEC. 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
Report and we assume no duty to update them. As used in this Report, unless the
context otherwise requires, references to "we", "us", "our", the "Company" and
"TransAct" refer to the consolidated operations of TransAct Technologies
Incorporated, and its consolidated subsidiaries.

Overview


TransAct is a global leader in developing and selling software-driven technology
and printing solutions for high growth markets including food service
technology, point of sale ("POS") automation and banking, casino and gaming,
lottery, and oil and gas.  Our world-class products are designed from the ground
up based on market and customer requirements and are sold under the BOHA!™,
AccuDate™, Epic®, EPICENTRAL™, Ithaca®, and Printrex® brand names.  Known and
respected worldwide for innovative designs and real-world service reliability,
our thermal and inkjet printers and terminals generate top-quality labels,
coupons and transaction records such as receipts, tickets and other documents,
as well as printed logging and plotting of data.  We sell our technology to
original equipment manufacturers ("OEMs"), value-added resellers, select
distributors, as well as directly to end-users.  Our product distribution spans
across the Americas, Europe, the Middle East, Africa, Asia, Australia, New
Zealand, Latin America, the Caribbean Islands and the South Pacific. We also
offer world-class service, support, labels, spare parts, accessories and
printing supplies to our growing worldwide base of products currently in use by
our customers. Through our TransAct Services Group ("TSG"), we provide a
complete range of supplies and consumables used in the printing and scanning
activities of customers in the restaurant and hospitality, banking, retail,
casino and gaming, government and oil and gas exploration markets.  Through our
webstore, www.transactsupplies.com, and our direct selling team, we address the
demand for these products.  We operate in one reportable segment, the design,
development, and marketing of software-driven technology and printing solutions
for high growth markets, and provide related services, supplies and spare parts.

Impact of COVID-19
In December 2019, a novel strain of coronavirus and the disease it causes,
commonly known as COVID-19, was first reported in China and has since widely
impacted the global public health and economic environment.  In March 2020, the
World Health Organization declared COVID-19, including all additional variations
and strains thereof, a global pandemic. Our business trends through the first
two months of the year were in line with internal expectations; however, the
challenges posed by the COVID-19 pandemic on the United States and global
economy increased significantly as the first quarter progressed in March 2020.
Unfortunately, massive disruptions across the world persist as of the date of
this Report due to COVID-19 and the measures implemented to mitigate its spread
continue to cause widespread business, government and school closures that
especially affect the casino and gaming and food service industries. We expect
such disruptions to continue to negatively impact our overall business for the
foreseeable future.

As a result of the COVID-19 pandemic and measures implemented to mitigate the
spread of COVID-19, we have experienced decreased demand for our products and
lower than anticipated sales in the second half of March 2020, particularly from
our food service and casino customers. This trend has continued through April
and into May 2020, and we expect it to continue for the remainder of the second
quarter of 2020, and likely through the end of 2020.  Based on sales orders
booked for the second quarter to date, we expect that sales for the second
quarter of 2020 will be significantly lower compared to the first quarter of
2020.  Below is a discussion of the impact of COVID-19 we have experienced and
believe we will continue to experience in each of our markets.

Food service technology and POS automation.  In both our food service and POS
automation markets, many restaurants and food service establishments are
currently closed, and those that remain open are doing so under restrictions
that limit them to providing drive through, take out or delivery service without
dine-in options, as well as limiting the volume of customers and employees on
site at any one time.  Though some are considering re-opening dine-in service in
the near term, we believe such service offerings will be gradual, beginning with
outdoor seating only, and progressing to indoor dining with seating limitations
based on social distancing guidelines.  In addition, many food service providers
will need to develop and implement new or enhanced policies and operating
procedures regarding cleaning, sanitizing and social distancing to ensure the
safety of their employees and customers.  As our customers begin to reopen and
recover from the financial impact of being closed for several months, we expect
new capital expenditures to be a lower priority for them in the near term, which
we believe will negatively impact sales of BOHA! hardware, software and label
products, as well as sales of POS printers.  However, we believe we have an
opportunity in the long run as our BOHA! software solutions could prove to be
helpful to our food service customers in efficiently and effectively managing
and complying with these new procedures, especially as many establishments will
likely be operating with reduced staff levels.
                                       15
--------------------------------------------------------------------------------
Casino and gaming.  In the casino and gaming market, most casinos and other
gaming establishments have closed worldwide and remain shut down.  However,
casinos in Macau have recently begun to open and a small number of U.S. casinos
have announced plans to begin to open later in May. Similar to restaurants, we
believe casino openings, when they begin, will be slow and measured, starting at
reduced capacity with limited game play based on social distancing guidelines,
and progressively increasing capacity over time.  As casinos begin to reopen and
recover from the financial impact of being closed for several months, we expect
that casinos' appetite for purchases of new slot machines will be diminished,
which we believe will negatively impact sales of casino and gaming printers
purchased by slot manufacturers for use in slot machines at casinos.  We believe
these effects will continue even after operating restrictions are lifted in the
event that the downturn in economic conditions persists.

Lottery.  We exited the lottery market at the end of 2019 and expect IGT to make
a final purchase of our lottery printer during the second quarter of 2020.
Therefore, we do not anticipate that COVID-19 will impact our lottery printer
sales.

Printrex.  The oil and gas market has been negatively impacted by the decline in
worldwide oil prices attributable to the COVID-19 pandemic.  Due to the
uncertainty of current and future market conditions, we believe sales of our
Printrex oil and gas printers will be negatively impacted until oil and gas
prices recover.

TSG.  Due to closures and reduced operating capacity of restaurants, food
service establishments, casinos and other gaming establishments resulting from
the COVID-19 pandemic, we expect sales of spare parts, service and consumable
products to also decline correspondingly due to lower usage while the pandemic
persists.

We also expect our gross margin to be negatively impacted by the COVID-19 pandemic. As a result of an expected significantly lower sales level, we believe our gross margin will decline due to fixed manufacturing overhead expenses (such as facility costs, depreciation, etc.) that cannot be reduced or eliminated even with the lower sales level.


We have also experienced supply chain disruptions, including delayed product
shipments from our two contract manufacturers located in China and Thailand that
conduct approximately 80% and 19%, respectively, of our printer and terminal
manufacturing, due to reduced operations at these facilities, which are not yet
operating at full capacity.  To date, these disruptions have only minimally
impacted deliveries to customers due to our high inventory levels and reduced
demand for our products.  However, if the delays are sustained, they could lead
to insufficient inventory levels and impair our ability to deliver products to
our customers on time or at all.

While it is difficult to predict the magnitude of the impact that the pandemic
and the responsive measures will have on our customers and our business, we have
taken several actions to manage our expenses during these turbulent and
uncertain times.  Such steps include:
• the temporary furlough of approximately 10% of our workforce prior to receiving

PPP loan proceeds;

• a 10% reduction in the salaries of all salaried, non-commissioned employees,

including executive officers,

• a reduction in sales commissions for all commissioned employees;

• a 10% reduction of cash retainer fees for all non-employee director; and

• the elimination of discretionary spending wherever possible.




In addition, we have taken further measures to increase liquidity, including the
following:
• PPP Loan - On May 1, 2020, the Company was granted a $2.2 million loan under

the Paycheck Protection Program (the "PPP Loan") administered by the Small

Business Administration ("SBA") established under the Coronavirus Aid, Relief,

and Economic Security ("CARES") Act, which has enabled us to return our

furloughed employees to full time employment.

• New Credit Facility - We also secured a new revolving credit facility with

Siena Lending Group LLC that provides a revolving credit line of up to $10

million, subject to a borrowing base

• Reduced Capital Expenditures - We also have limited capital expenditures until

  market conditions improve.



Since the onset of the pandemic, our top priority has been to ensure the health
and safety of our employees while continuing to provide our customers with
high-quality, personalized service. On March 20, 2020, we instituted
work-from-home for the majority of our employees to reduce the spread of
COVID-19 and to comply with government mandates.  Our existing remote work
capabilities, which include providing employees with laptop computers and remote
access to our IT systems, mitigated reductions in employee productivity and
costs related to the implementation of work-from-home practices in connection
with the COVID-19 pandemic.  In addition, even with the move to work-from-home,
our existing internal control structure remained operational and unchanged.

                                       16
--------------------------------------------------------------------------------
Our distribution centers, deemed an essential service, remain operational.  We
implemented a new COVID-19 policy to specifically address health and safety
guidelines for employees to adhere to and follow when at work or returning to
work.  This policy was based on the COVID-19 safety guidelines recommended from
the Centers for Disease Control and Prevention and includes:
• staggered shifts and a rotational/flexible work schedule to keep the number of

employees at a facility to a minimum;

• providing and requiring the use of protective equipment such as masks and

gloves when in common areas;

• spacing seating in workspaces such as manufacturing cells, lunch/break rooms,

conference rooms and other common areas to comply with social distancing

guidelines;

• requiring any employee who (i) shows symptoms of COVID-19 or (ii) has been

exposed to someone else who shows symptoms or has tested positive for COVID-19

not to return to work for fourteen days;

• prohibiting any visitors from entering any facility;

• implementing daily cleaning and disinfecting protocols at all facilities; and

• daily temperature taking of all employees before entering all facilities.




We have evaluated the recoverability of the assets on our unaudited condensed
consolidated balance sheet as of March 31, 2020 in accordance with relevant
authoritative accounting literature. We considered the disruptions caused by the
COVID-19 pandemic, including lower than previously forecasted sales and customer
demand, a decline in the price of our common stock and macroeconomic factors
potentially impacting accounts receivable, inventory, investments, intangible
assets, goodwill and other assets and liabilities.  Where forward-looking
estimates are required, we made a good-faith estimate based on information
available as of the balance sheet date. We have continued to monitor for
indicators of impairment through the date of this Report and reflected
accordingly in the accompanying condensed consolidated financial statements.

Notwithstanding the foregoing, there is no assurance that the actions we have
taken in response to the pandemic are sufficient or adequate, and we may be
required to take additional preventive or responsive measures, as the ultimate
extent of the effects of the COVID-19 pandemic on the Company, our financial
condition, results of operations, liquidity, and cash flows are uncertain and
are dependent on evolving developments which cannot be predicted at this time.
See the Part II, Item 1A, 'Risk Factors" of this Report for further discussion
of risks related to COVID-19.

Critical Accounting Judgments and Estimates
Our discussion and analysis of our financial condition and results of operations
are based upon our Condensed Consolidated Financial Statements, which have been
prepared by us in accordance with accounting principles generally accepted in
the United States of America. The presentation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenue and expenses, and the disclosure of contingent
assets and liabilities. Our estimates include those related to revenue
recognition, inventory obsolescence, the valuation of deferred tax assets and
liabilities, depreciable lives of equipment, warranty obligations, and
contingent liabilities. We base our estimates on historical experience and on
various other assumptions that we believe to be reasonable under the
circumstances.

Goodwill and Intangible Assets - We acquire businesses in purchase transactions
that result in the recognition of goodwill and intangible assets. The
determination of the value of intangible assets requires management to make
estimates and assumptions.  In accordance with ASC 350-20 "Goodwill", acquired
goodwill is not amortized, but is subject to impairment testing at least
annually and when an event occurs or circumstances change, which indicates it is
more likely than not an impairment exists.  As a result of the effect of
COVID-19 on overall economic trends, the Company's operating results and the
decrease in the Company's share price as of March 31, 2020, management
determined that potential impairment triggers had occurred and performed
impairment testing as of March 31, 2020.  We have determined that no goodwill or
intangible asset impairment has occurred and the fair value of goodwill was
higher than our carrying value based on our assessment as of March 31, 2020 when
the impairment review was performed.

For a complete description of our accounting policies other than goodwill and
intangible assets, see Part II, Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Critical Accounting Policies and
Estimates," of our Annual Report on Form 10-K for the year ended December 31,
2019. We have reviewed those policies and determined that they remain our
critical accounting policies for the three months ended March 31, 2020.

Results of Operations: Three months ended March 31, 2020 compared to three months ended March 31, 2019


Net Sales. Net sales, which include printer, terminal and software sales, as
well as sales of replacement parts, consumables and maintenance and repair
services, by market for the three months ended March 31, 2020 and 2019 were as
follows (in thousands, except percentages).  We have reclassified sales of
labels and other recurring revenue items, which includes extended warranty and
service contracts, and technical support services related to our food service
technology market, previously included in TSG, to Food service technology for
all periods presented in this Report.

                                       17
--------------------------------------------------------------------------------
                                Three Months Ended            Three Months Ended
                                  March 31, 2020                March 31, 2019            $ Change       % Change
Food service technology      $     1,371          13.4 %   $     1,213          10.5 %   $      158           13.0 %
POS automation and banking         1,558          15.2 %         1,277          11.1 %          281           22.0 %
Casino and gaming                  4,931          48.1 %         5,483          47.4 %         (552 )        (10.1 %)
Lottery                                -           0.0 %           697           6.0 %         (697 )       (100.0 %)
Printrex                             117           1.1 %           342           3.0 %         (225 )        (65.8 %)
TSG                                2,270          22.2 %         2,538          22.0 %         (268 )        (10.6 %)
                             $    10,247         100.0 %   $    11,550         100.0 %   $   (1,303 )        (11.3 %)

International *              $     2,832          27.6 %   $     2,543          22.0 %   $      289           11.4 %


* International sales do not include sales of printers and terminals made to

domestic distributors or other domestic customers who may, in turn, ship those

printers and terminals to international destinations.




Net sales for the first quarter of 2020 decreased $1.3 million, or 11%, from the
same period in 2019. Printer, terminal and other hardware sales volume decreased
12% to approximately 25,000 units, driven primarily by no sales volume of
lottery printers due to our decision to exit the lottery market at the end of
2019 and a 10% decrease in unit volume in the casino and gaming market,
partially offset by a 22% increase in unit volume from the POS automation and
banking market for the first quarter of 2020 compared to the first quarter of
2019. The average selling price of our printers, terminals and other hardware
decreased 4% for the first quarter of 2020 compared to the first quarter of 2019
due primarily to higher POS automation and banking sales, which sell at a lower
price than our other products.

International sales for the first quarter of 2020 increased $0.3 million, or 11%, from the same period in 2019 primarily due to increased sales in the international casino and gaming market.


Food service technology. The primary offering in the food service technology
market is our BOHA! ecosystem, which combines our latest generation terminal,
cloud-based software applications and related hardware into a unique solution to
automate back-of-house operations in restaurants and food service operations.
The software component of BOHA! consists of a suite of software-as-a-service
("SaaS")-based applications, including applications for inventory management,
temperature monitoring of food and equipment, timers, food safety labeling, food
recalls, checklists and procedures, equipment service management, and delivery
management.  These applications are combined into a single platform with the
associated hardware, which includes the BOHA! terminal, handheld devices,
tablets, temperature probes and temperature sensors. The BOHA! terminal combines
the software and hardware components in a device that includes an operating
system, touchscreen and one or two thermal print mechanisms that print
easy-to-read food rotation labels, grab and go labels for prepared foods, and
"enjoy by" date labels.  The BOHA! terminal is equipped with the TransAct
Enterprise Management System to ensure that only approved applications and
functions are available on the device and allows over-the-air updates to the
applications and operating system.  BOHA! helps food service establishments and
restaurants (including fine dining, casual dining, fast casual and quick-serve
restaurants, convenience stores, hospitality establishments and contract food
service providers) effectively manage food safety and grab-and-go initiatives,
as well as automate and manage back-of-house operations.  Recurring revenue from
BOHA! is generated by software sales, including software subscriptions that are
charged to customers upfront on a per-application basis, as well as sales of
labels, extended warranty and service contracts, and technical support
services.  Sales of our worldwide food service technology products for the three
months ended March 31, 2020 and 2019 were as follows (in thousands, except
percentages):

                  Three Months Ended          Three Months Ended
                    March 31, 2020              March 31, 2019          $ Change       % Change
Domestic        $    1,239         90.4 %   $    1,117         92.1 %   $     122           10.9 %
International          132          9.6 %           96          7.9 %          36           37.5 %
                $    1,371        100.0 %   $    1,213        100.0 %   $     158           13.0 %



                           Three Months Ended            Three Months Ended
                             March 31, 2020                March 31, 2019            $ Change       % Change
Hardware                $      755           55.1 %   $      903           74.4 %   $     (148 )        (16.4 %)
Software, labels and
other recurring
revenue                        616           44.9 %          310           25.6 %          306           98.7 %
                        $    1,371          100.0 %   $    1,213          100.0 %   $      158           13.0 %



                                       18
--------------------------------------------------------------------------------
The increase in food service technology sales for the first quarter of 2020
compared to the first quarter of 2019 was driven primarily by sales of our BOHA!
software, labels and other recurring revenue.  Sales of BOHA! software,
recognized on a SaaS subscription basis, labels and other recurring revenue
increased by 99%, including an 88% increase in label sales and a 385% increase
in software sales, compared to the prior year period, though such sales had a
low base for first quarter of 2019 following the launch of BOHA! in March 2019.
Hardware sales declined approximately 16% primarily due to the initial impact
from the COVID-19 pandemic that resulted in widespread store closings and/or
substantially reduced operations.

POS automation and banking. Revenue from the POS automation and banking market
includes sales of thermal printers used primarily by quick serve restaurants
located either at the checkout counter or within self-service kiosks to print
receipts for consumers or print on linerless labels. Prior to 2020, revenue
included sales of inkjet printers used by banks, credit unions and other
financial institutions to print deposit or withdrawal receipts and/or validate
checks at bank teller stations. We exited the banking market during 2019.  Sales
of our worldwide POS automation and banking products for the three months ended
March 31, 2020 and 2019 were as follows (in thousands, except percentages):

                  Three Months Ended          Three Months Ended
                    March 31, 2020              March 31, 2019          $ Change       % Change
Domestic        $    1,554         99.7 %   $    1,259         98.6 %   $     295           23.4 %
International            4          0.3 %           18          1.4 %         (14 )        (77.8 %)
                $    1,558        100.0 %   $    1,277        100.0 %   $     281           22.0 %



The increase in POS automation and banking product revenue for the first quarter
of 2020 compared to the first quarter of 2019 was driven primarily by a 25%
increase in  sales of our Ithaca® 9000 printer, in large part from increased
sales to McDonald's.

Casino and gaming. Revenue from the casino and gaming market includes sales of
thermal ticket printers used in slot machines, video lottery terminals, and
other gaming machines that print tickets or receipts instead of issuing coins at
casinos and racetracks and other gaming venues worldwide. Revenue from this
market also includes sales of thermal roll-fed printers used in the
international off-premise gaming market in gaming machines such as Amusement
with Prizes, Skills with Prizes and Fixed Odds Betting Terminals at non-casino
gaming establishments. Revenue from this market also includes royalties related
to our patented casino and gaming technology. In addition, casino and gaming
market revenue includes sales of the EPICENTRAL™ print system, our software
solution (including annual software maintenance), that enables casino operators
to create promotional coupons and marketing messages and to print them real-time
at the slot machine. Sales of our worldwide casino and gaming products for the
three months ended March 31, 2020 and 2019 were as follows (in thousands, except
percentages):

                  Three Months Ended          Three Months Ended
                    March 31, 2020              March 31, 2019           $ Change       % Change
Domestic        $    2,558         51.9 %   $    3,424         62.4 %   $     (866 )        (25.3 %)
International        2,373         48.1 %        2,059         37.6 %          314           15.3 %
                $    4,931        100.0 %   $    5,483        100.0 %   $     (552 )        (10.1 %)



The decrease in domestic sales of our casino and gaming products for the first
quarter of 2020 compared to the first quarter of 2019 was primarily due to a 24%
decrease in domestic sales of our thermal gaming printers driven primarily by
industry-wide weakness resulting in lower sales to our OEMs as they began to
experience the impact of casino closures due to the COVID-19 pandemic in late
March.  We had no new EPICENTRAL™ software installations during the first
quarter of 2020 or 2019.  Sales of domestic EPICENTRALTM are project based and
as a result, may fluctuate significantly quarter-to-quarter and year-to-year.

International casino and gaming product sales increased for the first quarter of
2020 compared to the first quarter of 2019 due to a 17% increase in sales of our
thermal casino printers largely from resumed sales to a large OEM in Europe who
had substantially reduced sales during 2019.  This increase was somewhat offset
by lower sales to an Asian OEM.

Lottery. Revenue from the lottery market includes sales of thermal on-line and other lottery printers primarily to International Game Technology and its subsidiaries ("IGT"). Sales of our worldwide lottery printers for the three months ended March 31, 2020 and 2019 were as follows (in thousands, except percentages):


                  Three Months Ended          Three Months Ended
                    March 31, 2020              March 31, 2019           $ Change      % Change
Domestic        $     -             0.0 %   $    697          100.0 %   $     (697 )      (100.0 %)
International         -             0.0 %          -            0.0 %            -           0.0 %
                $     -             0.0 %   $    697          100.0 %   $     (697 )      (100.0 %)



                                       19
--------------------------------------------------------------------------------
Our sales to IGT are directly dependent on the timing and number of new and
upgraded lottery terminal installations that IGT performs, and as a result, may
fluctuate significantly quarter-to-quarter and year-to-year.  Our sales to IGT
are not indicative of IGT's overall business or revenue.  On December 31, 2019,
we allowed our non-exclusive agreement to provide lottery terminal printers to
IGT to expire as we have decided to exit the lottery market and to shift our
focus towards our higher-value, technology enabled food service technology and
casino and gaming products.  As a result, we expect IGT to make a final purchase
of our lottery printers during the second quarter of 2020 and we expect full
year 2020 lottery sales to be less than 2019 full year lottery sales.

Printrex. Printrex branded printers are sold into markets that include wide
format, desktop and rack mounted and vehicle mounted black/white thermal
printers used by customers to log and plot oil field, seismic and down hole well
drilling data in the oil and gas exploration industry.  It also includes
high-speed color inkjet desktop printers used to print logs at the data centers
of the oil and gas field service companies.  Sales of our worldwide Printrex
printers for the three months ended March 31, 2020 and 2019 were as follows (in
thousands, except percentages):

                  Three Months Ended          Three Months Ended
                    March 31, 2020              March 31, 2019           $ Change       % Change
Domestic        $     61           52.1 %   $    297           86.8 %   $     (236 )        (79.5 %)
International         56           47.9 %         45           13.2 %           11           24.4 %
                $    117          100.0 %   $    342          100.0 %   $     (225 )        (65.8 %)



The decrease in sales of Printrex printers for the first quarter of 2020
compared to the first quarter of 2019 resulted primarily from lower domestic
sales in the oil and gas market which was negatively impacted by the decline in
worldwide oil prices attributable to the COVID-19 pandemic.  Due to the
uncertainty of current and future market conditions, attributable to the
COVID-19 pandemic, we are unable to reasonably estimate the ultimate impact to
our Printrex market, but we expect Printrex sales in fiscal year 2020 to be less
than Printrex sales in fiscal year 2019.

TSG. Revenue generated by our TSG includes sales of consumable products (inkjet
cartridges, ribbons, receipt paper, and other printing supplies), replacement
parts, maintenance and repair services, testing services, refurbished printers,
and shipping and handling charges.  TSG sales for all periods presented in this
Report exclude the sales of labels, extended warranty and service contracts, and
technical support services related to our food service technology market, which
have been reclassified to Food Service Technology.  Sales in our worldwide TSG
market for the three months ended March 31, 2020 and 2019 were as follows (in
thousands, except percentages):

                  Three Months Ended          Three Months Ended
                    March 31, 2020              March 31, 2019           $ Change       % Change
Domestic        $    2,003         88.2 %   $    2,213         87.2 %   $     (210 )         (9.5 %)
International          267         11.8 %          325         12.8 %          (58 )        (17.8 %)
                $    2,270        100.0 %   $    2,538        100.0 %   $     (268 )        (10.6 %)



The decrease in domestic revenue from TSG for the first quarter of 2020 as
compared to the first quarter of 2019 was primarily due to a 58% decline in
consumable sales due largely to lower sales of HP inkjet cartridges used in our
banking printers, as we exited the banking market at the end of 2018, and to a
lesser extent, lower sales of legacy POS printer paper.  This decrease was
partially offset by 42% higher sales of replacement parts, primarily from higher
lottery printer spare parts to IGT which can vary significantly from quarter to
quarter.  We expect TSG sales to decrease for the full year 2020 compared to
2019 due to lower expected sales of lottery printer spare parts to IGT as we
exited the lottery market at the end of 2019 and lower service sales related to
a service contract with a banking customer that is expected to end in 2020.

Internationally, TSG revenue decreased for the first quarter of 2020 compared to the first quarter of 2019 primarily due to a 30% decrease in sales of replacement parts and accessories to international casino and gaming customers.

Gross Profit. Gross profit information for the three months ended March 31, 2020 and 2019 is summarized below (in thousands, except percentages):

  Three Months Ended
       March 31,            Percent            Percent of               Percent of
   2020          2019        Change        Total Sales - 2020       Total Sales - 2019
$    4,918$ 6,086        (19.2 %)                   48.0 %                   52.7 %



                                       20
--------------------------------------------------------------------------------
Gross profit is measured as revenue less cost of sales, which includes primarily
the cost of all raw materials and component parts, direct labor, manufacturing
overhead expenses, cost of finished products purchased directly from our
contract manufacturers and expenses associated with installations and support of
our EPICENTRALTM print system and BOHA! ecosystem.  For the first quarter of
2020, gross profit decreased $1.2 million, or 19%, due largely to a sales
decrease of 11% for the first quarter in 2020 compared to the first quarter of
2019 and tariffs on imports from our contract manufacturers located in China.
Our gross margin decreased 470 basis points, to 48% for the first quarter of
2020 compared to 52.7% for the first quarter of 2019.  The decreased gross
margin resulted from higher sales of POS printers, which carry lower margins
than our other products, higher tariff expense incurred during the first quarter
of 2020 and the impact of fixed overhead expenses on lower sales volume as a
result of the initial effects of the COVID-19 pandemic.

Operating Expenses - Engineering, Design and Product Development. Engineering,
design and product development information for the three months ended March 31,
2020 and 2019 is summarized below (in thousands, except percentages):

  Three Months Ended
       March 31,             Percent           Percent of               Percent of
   2020          2019        Change        Total Sales - 2020       Total Sales - 2019
$    1,385$ 1,165          18.9 %                   13.5 %                   10.1 %



Engineering, design and product development expenses primarily includes salary
and payroll related expenses for our hardware and software engineering staff,
depreciation and design expenses (including prototype printer expenses, outside
design, development and testing services, supplies and contract software
development expenses).  Engineering, design and product development expenses
increased $220 thousand, or 19%, for the first quarter of 2020 compared to the
first quarter of 2019, primarily due to continued and expanded development for
our food service technology products.

Operating Expenses - Selling and Marketing. Selling and marketing information for the three months ended March 31, 2020 and 2019 is summarized below (in thousands, except percentages):

  Three Months Ended
       March 31,             Percent           Percent of               Percent of
   2020          2019        Change        Total Sales - 2020       Total Sales - 2019
$    2,208$ 1,854          19.1 %                   21.5 %                   16.1 %



Selling and marketing expenses primarily include salaries and payroll related
expenses for our sales and marketing staff, sales commissions, travel expenses,
expenses associated with the lease of sales offices, advertising, trade show
expenses, public relations, e-commerce and other promotional marketing
expenses.  Selling and marketing expenses increased by $354 thousand, or 19%,
for the first quarter of 2020 compared to the first quarter of 2019 primarily
due to the impact from the hiring of food service technology positions during
2019 and new and expanded marketing programs and promotions to support our food
service technology products that were implemented prior to the COVID-19
outbreak.  In response to the COVID-19 pandemic, we have postponed further
increases in spending and have implemented a number of cost reduction
initiatives that will reduce selling and marketing expenses in the near term.

Operating Expenses - General and Administrative. General and administrative information for the three months ended March 31, 2020 and 2019 is summarized below (in thousands, except percentages):

  Three Months Ended
       March 31,             Percent           Percent of               Percent of
   2020          2019        Change        Total Sales - 2020       Total Sales - 2019
$    2,620$ 2,290          14.4 %                   25.6 %                   19.8 %



General and administrative expenses primarily include salaries, incentive
compensation, and other payroll related expenses for our executive, accounting,
human resources and information technology staff, expenses for our corporate
headquarters, professional and legal expenses, telecommunication expenses, and
other expenses related to being a publicly-traded company.  General and
administrative expenses increased $330 thousand, or 14%, for the first quarter
of 2020 compared to the first quarter of 2019 due primarily to higher
professional and legal expenses.

                                       21

--------------------------------------------------------------------------------

Operating Income (Loss). Operating income (loss) information for the three
months ended March 31, 2020 and 2019 is summarized below (in thousands, except
percentages):

  Three Months Ended
       March 31,            Percent            Percent of                Percent of
    2020          2019       Change        Total Sales - 2020        Total Sales - 2019
$     (1,295 )$ 777       (266.7 %)                  (12.6 %)                    6.7 %



Our operating income decreased $2.1 million, or 267%, in the first quarter of
2020 compared to the first quarter of 2019 due to a decrease in sales of 11%,
increase in operating expenses of 17% related to investments made in our food
service technology market during 2020 prior to the COVID-19 outbreak, and a
decrease in our gross margin of 470 basis points.

Interest. We recorded net interest income of $3 thousand for the first quarter
of 2020 compared to net interest expense of $6 thousand for the first quarter of
2019 due to interest income earned on the note receivable during the 2020 period
partially offsetting interest expense. We expect interest expense to increase in
the full year 2020 compared to the full year 2019 due to anticipated borrowings
from our revolving line of credit in 2020 resulting from the COVID-19 pandemic
and the ramping up of investment in our food service technology market compared
to no borrowings during 2019.

Other, net. We recorded other expense of $165 thousand for the first quarter of
2020 compared to other income of $90 thousand for the first quarter of 2019. We
incurred other expense in the 2020 period primarily due to foreign currency
exchange losses recorded by our U.K. subsidiary for the first quarter of 2020
compared to foreign currency exchange gains in the first quarter of 2019.  Going
forward, we may continue to experience more foreign exchange gains or losses
depending on the level of sales to Europe through our U.K. subsidiary and the
fluctuation in exchange rates of the Euro and Pound Sterling against the U.S.
dollar, which may be impacted by volatility in global economic conditions due to
the COVID-19 pandemic.

Income Taxes. We recorded an income tax benefit for the first quarter of 2020 of
$465 thousand at an effective tax rate of 31.9%, compared to an income tax
provision during the first quarter of 2019 of $115 thousand at an effective tax
rate of 13.4%.  The effective tax rate for the first quarter of 2020 was higher
as it included the impact of net operating loss ("NOL") that we expect to carry
back to prior years.  The CARES Act was enacted on March 27, 2020 and permits
NOLs incurred in 2018, 2019 and 2020 to be carried back to each of the five
preceding taxable years to generate a refund of previously paid income taxes.
We expect to generate a NOL for 2020 which we will carry back to tax years that
had a federal statutory tax rate of 34% compared to 21% in 2020.

Net Income. We reported a net loss for the first quarter of 2020 of $992 thousand, or $(0.13) per diluted share, compared to net income of $746 thousand, or $0.10 per diluted share, for the first quarter of 2019.

Liquidity and Capital Resources


Cash Flow
For the first three months of 2020, our cash and cash equivalents balance
decreased $3.6 million, or 85%, from December 31, 2019. We ended the first
quarter of 2020 with $0.6 million in cash and cash equivalents, of which $0.1
million was held by our U.K. subsidiary, and $0.8 million of outstanding
borrowings under our revolving line of credit.

Operating activities: The following significant factors affected our cash used
in operating activities of $3.6 million for the first three months of 2020 as
compared to cash used in operating activities of $1.6 million for the first
three months of 2019:

During the first three months of 2020:

? We reported a net loss of $1.0 million.

? We recorded depreciation and amortization of $0.2 million, and share-based

compensation expense of $0.2 million.

? Accounts receivable decreased $0.1 million, or 1%, primarily to lower sales

volume during the first three months of 2020.

? Inventory increased $0.6 million, or 5%, due to the purchase of inventory

during the first quarter of 2020 to support anticipated sales that did not

occur due to the impact of the COVID-19 pandemic on our sales in March.

? Other current and long-term assets increased $0.3 million, or 26%, due largely

to advance payments made in the first quarter of 2020 for annual ERP software

maintenance.

? Accounts payable decreased $1.2 million, or 42%, due primarily to inventory

purchases made towards the end of the fourth quarter of 2019 that were

subsequently paid in the first quarter of 2020.

? Accrued liabilities and other liabilities decreased $0.8 million, or 11%, due

   primarily to the payment of 2019 annual bonuses in March 2020.



                                       22

--------------------------------------------------------------------------------

During the first three months of 2019:

? We reported net income of $0.7 million.

? We recorded depreciation and amortization of $0.3 million, and share-based

compensation expense of $0.2 million.

? Accounts receivable decreased $1.2 million, or 15%, due to the collection of

receivables for 2018 sales.

? Inventory increased $1.5 million, or 12%, due to the buildup of inventory on

hand to support future anticipated sales of BOHA! hardware product for the food

service technology market.

? Prepaid income taxes decreased $0.1 million during the first quarter of 2019.

? Other current and long-term assets increased $0.4 million, or 65%, due

primarily to an advanced payment of royalty fees.

? Accounts payable decreased $1.3 million, or 36%, due primarily to inventory

purchases made towards the end of the fourth quarter of 2018 that were

subsequently paid in the first quarter of 2019.

? Accrued liabilities and other liabilities decreased $1 million, or 27%, due

primarily to the payment of 2018 annual bonuses in March 2019.




Investing activities: Our capital expenditures, including capitalized software
were $0.3 million for the first three months of both 2020 and 2019. Expenditures
in 2020 were primarily for computer and networking equipment, new product
tooling equipment and leasehold improvements at our Las Vegas facility.
Expenditures in 2019 were primarily for new product tooling equipment and, to a
lesser extent, computer and networking equipment and leasehold improvements at
our Ithaca facility.  Additionally, during the first quarter of 2020, prior to
widespread shutdowns in the United States in response to the COVID-19 pandemic,
we loaned an additional $0.6 million to an unaffiliated third party.

Capital expenditures and additions to capitalized software for 2020 were
expected to be approximately $1.1 million, primarily for new product tooling,
new computer software and equipment purchases and leasehold improvements to
support our food service technology market.  In response to the COVID-19
pandemic we have curtailed portions of our planned capital expenditures until
market conditions improve.

Financing activities: Financing activities provided $0.9 million of cash during
the first three months of 2020 from net borrowings of $0.8 million from our
Siena Credit Facility (defined below) and proceeds of $0.4 million from stock
option exercises, partially offset by the payment of financing costs associated
with signing our Siena Credit Facility.  During the first three months of 2019,
we used $0.9 million of cash from financing activities to pay dividends of $0.7
million and $0.2 million related to the relinquishment of shares to pay for
withholding taxes on stock issued from our stock compensation plan.

Credit Facility and Borrowings
On March 13, 2020, we signed a new credit facility (the "Siena Credit Facility")
with Siena Lending Group LLC and terminated our TD Bank Credit Facility.  The
Siena Credit Facility provides for a revolving credit line of up to $10 million
expiring on March 13, 2023.  Borrowings under the Siena Credit Facility bear a
floating rate of interest equal to the greatest of (i) the prime rate plus
1.75%, (ii) the federal funds rate plus 2.25%, and (iii) 6.50%.  The total
deferred financing costs related to expenses incurred to complete the Siena
Credit Facility was $234 thousand.  We also pay a fee of 0.50% on unused
borrowings under the facility.  Borrowings under the facility are secured by a
lien on substantially all the assets of the Company.  Borrowings under the Siena
Credit Facility are subject to a borrowing base based on (i) 85% of eligible
accounts receivable plus the lesser of (a) $5 million and (b) 50% of eligible
raw material and 60% of finished goods inventory.

The Siena Credit Facility imposes a quarterly financial covenant on the Company
and restricts, among other things, our ability to incur additional indebtedness
and the creation of other liens.  The first period we will be subject to the
financial covenant, which require the Company to maintain a minimum EBITDA, is
the three months ending June 30, 2020.  As of March 31, 2020, we had $0.8
million of outstanding borrowings under the Siena Credit Facility.

On May 1, 2020 (the "Loan Date"), the Company was granted a loan (the "PPP
Loan") from Berkshire Bank in the aggregate amount of $2.2 million, pursuant to
the PPP administered by the SBA and established under Division A, Title I of the
CARES Act, which was enacted March 27, 2020.
The PPP Loan, which is evidenced by a Note dated the Loan Date issued by the
Company (the "Note"), matures on May 1, 2022 and bears interest at a fixed rate
of 1.0% per annum, accruing from the Loan Date and payable monthly. No payments
are due on the PPP Loan for six months from the date of first disbursement, but
interest will continue to accrue during the deferment period.  The Note is
unsecured and guaranteed by the SBA.  The Note may be prepaid by the Company at
any time prior to maturity with no prepayment penalties.  The Note provides for
customary defaults, including failure to make payment when due or to fulfill the
Company's obligations under the Note or related documents, reorganizations,
mergers, consolidations or other changes to the Company's business structure,
and certain defaults on other indebtedness, bankruptcy events, adverse changes
in financial condition or civil or criminal actions.  The PPP Loan may be
accelerated upon the occurrence of a default.
                                       23

--------------------------------------------------------------------------------

Under the terms of the PPP, the PPP Loan may be forgiven to the extent that
funds from the PPP Loan are used for payroll costs and costs to continue group
health care benefits, as well as for interest on mortgage obligations incurred
before February 15, 2020, rent under lease agreements in effect before February
15, 2020, utilities for which service began before February 15, 2020, and
interest on debt obligations incurred before February 15, 2020 (collectively,
"qualifying expenses"), subject to conditions and limitations provided in the
CARES Act.  At least 75% of such forgiven amounts must be used for eligible
payroll costs. The Company intends to maximize the use of PPP Loan proceeds for
qualifying expenses and intends to apply for forgiveness of the PPP Loan in
accordance with the terms of the CARES Act.  Whether forgiveness will be granted
and in what amount is subject to an application to, and approval by, the SBA and
may also be subject to further requirements in any regulations and guidelines
the SBA may adopt.
Shareholder Dividend Payments
In 2012, our Board of Directors initiated a quarterly cash dividend program
which was subject to the Board's approval each quarter. Our Board of Directors
declared an increase to the quarterly cash dividend from $0.06 to $0.07 per
share in May 2013, from $0.07 to $0.08 per share in May 2014, and from $0.08 to
$0.09 per share in May 2017. Dividends declared and paid on our common stock
totaled $0.7 million or $0.09 per in the three months ended 2019.  On January
23, 2020, our Board of Directors announced the cessation of the quarterly cash
dividend on the Company's common stock to accelerate the investment in sales and
marketing, continued product development and infrastructure of the BOHA!
ecosystem.  The final dividend payment was made in December 2019.

Stock Repurchase Program
Prior to its expiration on December 31, 2019, we maintained a stock repurchase
program (the "2018 Stock Repurchase Program") whereby we were authorized to
repurchase up to $5 million of our outstanding shares of common stock from time
to time in the open market at prevailing market prices based on market
conditions, share price and other factors.  We use the cost method to account
for treasury stock purchases, under which the price paid for the stock is
charged to the treasury stock account. Repurchases of our common stock are
accounted for as of the settlement date.  During the three months ended March
31, 2020 and 2019, we did not repurchase any shares of our common stock.  As of
March 31, 2020, we did not have an authorized stock repurchase program.

Resource Sufficiency
Given the unprecedented uncertainty related to the impact of the COVID-19
pandemic on the food service and casino industries, the Company is closely
monitoring its cash generation, usage and preservation including the management
of working capital to generate cash. The Company does not currently anticipate
requiring any additional credit facilities within the next twelve months beyond
our Siena Credit Facility and the PPP Loan, which are discussed above, nor does
it anticipate a material change in the terms or covenants pertaining to its
current facilities. To better align costs with the current business environment,
on March 24, 2020 the Company announced several cost reduction actions.  Such
actions included the furlough of approximately 10% of the Company's workforce, a
10% reduction in the salaries of all salaried, non-commissioned employees,
including the executive officers, a reduction in sales commissions for all
commissioned employees, a 10% reduction of cash retainer fees for all
non-employee directors and the elimination of discretionary spending wherever
possible.  Upon receipt of the PPP Loan, management was able to bring back the
furloughed employees and intends to apply for forgiveness by maximizing the use
of the PPP Loan proceeds for qualifying expenses.

We believe that our cash and cash equivalents on hand, our expected cash flows
generated from operating activities, borrowings available under our Siena Credit
Facility and PPP Loan, and savings from the cost reduction actions discussed
above will provide sufficient resources to meet our working capital needs,
finance our capital expenditures and meet our liquidity requirements through at
least the next twelve months.

Contractual Obligations / Off-Balance Sheet Arrangements
The disclosure of payments we have committed to make under our contractual
obligations is set forth under Part II, Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Contractual
Obligations" of our Annual Report on Form 10-K for the year ended December 31,
2019.

On February 28, 2020, we entered into an amendment to extend the lease on our
facility in Ithaca, New York.  The lease, which was last amended on January 14,
2016, was scheduled to expire on May 31, 2021.  The lease amendment provides for
an extension of the lease for four additional years from June 1, 2021 to May 31,
2025.  Other than the extension of the Ithaca facility lease, there have been no
material changes in our contractual obligations since December 31, 2019.

© Edgar Online, source Glimpses

share with twitter share with LinkedIn share with facebook
share via e-mail
Latest news on TRANSACT TECHNOLOGIES INCO
05/27TRANSACT TECHNOLOGIES INC : Submission of Matters to a Vote of Security Holders ..
AQ
05/26TRANSACT TECHNOLOGIES INCORPORATED : Announces the Launch of Epicentral® Clean2P..
BU
05/22TRANSACT TECHNOLOGIES INCORPORATED : INC Management's Discussion and Analysis of..
AQ
05/07TRANSACT TECHNOLOGIES INC : Results of Operations and Financial Condition, Finan..
AQ
05/07TRANSACT TECHNOLOGIES INCORPORATED : Reports Preliminary First Quarter 2020 Fina..
BU
05/06TRANSACT TECHNOLOGIES INC : Other Events (form 8-K)
AQ
05/05TRANSACT TECHNOLOGIES INC : Entry into a Material Definitive Agreement (form 8-K..
AQ
05/05TRANSACT TECHNOLOGIES INCORPORATED : Receives Loan under Paycheck Protection Pro..
BU
04/21TRANSACT TECHNOLOGIES INCORPORATED : to Report 2020 First Quarter Results On May..
BU
04/02TRANSACT TECHNOLOGIES INCORPORATED : BOHA! Offers Checklist and Timer Tools Free..
BU
More news