Good day, and welcome to the TransAct Technologies First Quarter 2013 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. William Schmitt of ICR. Please go ahead, sir.

Thank you, Nancy. Good afternoon, and welcome to TransAct's First Quarter 2013 Conference Call. Joining us today from the company are Mr. Bart Shuldman, Chairman and CEO; and Mr. Steve DeMartino, President and CFO. The format of the call will be a brief business review by Bart, followed by Steve providing details on the financials. We will then have time for questions. As a reminder, this conference call contains statements about future events and expectations which are forward-looking in nature. Statements on this call may be deemed as forward-looking and actual results may differ materially. For a full list of risks inherent in -- to the business and the company, please refer to the company's SEC filings, including the company's most recent report on Form 10-K for the year ended December 31. The company undertakes no obligations to revise or update any forward-looking statements to reflect events or circumstances that happen after the call. At this time, I would like to turn it over to Mr. Bart Shuldman. Go ahead, sir.

Thank you, Bill. Good afternoon, everyone, and thank you for joining us on today's call. Welcome, everyone, to our first investor conference call for 2013, and what I would like to describe as our first investor call now that the transition we have been talking about is in place and the results starting to show in our financial reports. Our strategy of growing TransAct by investing in markets where we believe we could supply a solution, not just a printer, clearly comes through with the results in the first quarter of 2013, the new TransAct. As we normally do, I'll make some comments about our business and following my remarks, Steve DeMartino, our President and CFO, will review the financial numbers. But this afternoon, I want to spend a couple of minutes in greater detail regarding the transition and our results, specifically focusing on our new products from EPICENTRAL, Printrex oil and gas color printers to food safety. Having just spent the last month visiting with our new customers, who are either buying or testing our new technology, and traveling in these markets, I can say I am especially pleased with our decision to pursue these opportunities and feel good about our prospects. Now looking at the first quarter of 2013, it was a good start to the year for TransAct. As it should be a good indication to our shareholders of how our transition is positively affecting our financial results. But hopefully, you read in our first quarter 2013 press release, the financial results were led by a significant gross margin improvement of 410 basis points compared to the same period last year. We achieved 42.7% gross margin by completing and starting to sell our new higher value-added products in the growth markets we now serve. These results of…

Thanks, Bart. Let's go over the first quarter financials. Our net sales for the first quarter of 2013 were $15.1 million, down 14% from $17.6 million in the first quarter of last year. During the first quarter of 2013, we shipped into 37,000 printers and terminals, representing a 25% decrease in unit volume compared to 49,000 units we shipped in the first quarter of last year. Our unit buying declined largely due to lower international casino and gaming printer shipments, as well as lower banking printer shipments, which I'll explain later. The average selling price of our printers increased slightly by 2% to $287 per printer in the first quarter of this year compared to $283 per printer in the first quarter last year. The increase was primarily due to the initial sales contributions from our newly launched Printrex 920 and Printrex 980 printers and the Ithaca 9700 food safety terminal, all of which have higher average selling prices than our legacy products. Now looking at sales in each of our individual markets. Sales from our casino and gaming market were approximately $6.7 million for the first quarter of 2013, down 28% from the prior year's quarter. On the positive side, our domestic casino and gaming sales were actually up 2%. Though domestic printer sales were down because they were fewer new casino openings in the first quarter this year compared to the first quarter last year, our first quarter significant EPICENTRAL software sales more than made up for the decline in printer sales. In fact, we recognize revenue on 2 completed installations of EPICENTRAL at Northern Quest Resort & Casino in Washington state and Wind Creek Casino & Hotel in Alabama, both of which were accounted for under the purchase model, which allows us to recognize revenue upon completion…

Thanks, Steve. Great report. Operator, let's open up the call to questions.

[Operator Instructions] The first question comes from Todd Eilers with Eiler Research.

I wanted to ask 2 questions on EPICENTRAL. It looks like you guys had a nice contribution in the quarter. Bart, I think you mentioned you had 4,500 slots now connected to the system. Can you give us a sense or let us know how many actually have, I guess, under contract and maybe give us a sense to what the backlog might be for that product? And then you mentioned that it was, I guess, a meaningful contributor. Can you maybe share what the total value was in the quarter in terms of sales?

Okay, let me break it down. So from how many are on contract, I think if you add it up, it's getting close to 10,000 slot machines. That's through the contracts that we've won. We're getting close to 10,000. The 4,500 are live right now and, of course, I was able to let you know the success clearly when you hear things like 100% increase in ADT or the theo, that's really big. And as the 1 casino marketing person told me, he's trying to convince his bosses to double or triple the amount of coupons and promotions they're giving away because the effect to the bottom line has been just phenomenal. We really don't break out the revenue for the 2 contracts that we closed and we don't expect to do that. And it has a lot to do with being public and competitors looking at what we're doing, so we don't think that's a good idea on our behalf. But I think the gross margin story that you saw come through, Todd, in the first quarter, 400 basis points, 42% -- almost 43% gross margin, clearly, EPICENTRAL had a lot to do with that along with our oil and gas and food safety terminal. The backlog, the amount of customers we're talking to remains large. I think what's been very helpful to us is getting 3 casinos 4,500 slot machines up on the system and being able to now gather success stories from them, what the system is doing for them. I think when you're talking to a casino and they say how many people can you tell me about for the first year that we've had Red Wind go live, it was just 1 casino. And I think now being able to talk about 3, soon to be 4, 5, 6, 7 and more, we just won the one in London, which is right in Leicester Square, it's just a wonderful location, a real show place for us. It's going to allow us to really focus the casinos that we're talking to on the success that EPICENTRAL is bringing these casinos. And it's a lot different when you can point to 3, 4 and 5 casinos that are all experiencing significant growth revenue, carded players, uncarded turning into carded players. We've had an increase in 1 casino of 30% of lower tier players going to the next tier. We've had 1 casino talk about a 10% increase in their top tier players' ADT or theo. I mean, when you talk to casino owners about increasing their top tier players, 10% of the amount of money they're playing daily, that's just huge numbers. So the fact that we can talk to that now, and just not 1 casino, but many casinos, it really starts to build the story and we're very pleased with that and also looking forward to closing many more deals as we talk to these casinos in our pipeline.

Okay, great. That's helpful, Bart. I also wanted to ask about gross margins as well. Obviously, a nice step function up in the quarter with the higher mix of some of these new products. Is this level sustainable, this kind of 42%, 43% margin, is that sustainable going forward? And I don't know if -- I mean, I would think as you kind of get more of these products as part of the overall volume that you could potentially even seek further expansion. I mean, any sort of kind of color you can share with us in terms of maybe what the range of outcomes could be in terms of gross margin? For instance, maybe the low-end and high-end of what you think you can achieve going forward under the kind of the new business model would be helpful.

Yes, let me break up the question into 2. I'm going to let Steve talk about the low and high end because I think we can share that with you, but let me tell you how I see the business. What you saw in the first quarter was if you take our food safety, banking and POS business, what you saw was we have talked about it for the last year or 2 that we're going to see the decline of our commodity POS business. We aren't spending time there. We're not investing in it. We're not marketing in it. We clearly have customers that are using those products. And I'm talking about everything less McDonald's because McDonald's is a specific customers using some of our products that we support. But if you look at the rest of the POS business, that business will continue to decline. That was very low margin business and what's taking its place is the food safety terminal. Now a couple of things are going on. One, the food safety terminal sells at about 3 to 4x what the POS printers is sold for, so 1 food safety terminal takes care of 3 or 4 POS printers, but at the same time, the margin is significantly different. So as -- what you saw in the first quarter was basically, our legacy products were declining and food safety was increasing and over the next couple of quarters, the amount of revenue that will be generated from food safety will overcome the revenue loss from declining legacy, so what we'll have is the same revenue or higher revenue, which we're expecting, but much higher gross margins. So what you will see is that food safety business overcoming the -- and on purpose, decline of that legacy POS business and you'll see that revenue start to increase and then the margins, of course, pick up nicely. What you'll also see is as we continue to sell more oil and gas printers, all of that recurring revenue starts to build because we have more and more printers out there and all of those consumables are at higher margin and the oil and gas color printer is at higher average selling prices and higher margins. So you'll see that all take an effect. Now as for what we'll see in the margin standpoint, Steve, I think we'll see this low 40s, but what kind of range would you like -- could you tell Todd you'd see?

Yes, so I think for the next probably quarter or maybe 2, as we continue to transition, this will probably be roughly the level we'll be at. And then after that, the new products become a bigger portion of our overall sales, you can see the margin climb into -- probably into the mid 40s. That would be a reasonable estimate over time. I think you have to keep in mind, though, that the EPICENTRAL deals, a lot of them are purchase deals and those will pop in and out from quarter-to-quarter and those would impact our quarterly margins, so those are good margin deals. So in the quarter, where we have a significant number of those, the margin -- you'll see our margin pop in that quarter. Where we have a lower amount, you might see a slight decline.

But the one thing that I can say, Todd, is the amount of venues or restaurants that we're working with, with the 9700 is, in all fairness, more than we thought when we first get into the business that we would be talking to this early in the game. I mean, literally, while we work with McDonald's up until their approval of the terminal, we did not work with other restaurant chains or companies around the world until that product was launched, officially launched, which happened in the October-November time frame. So we're only talking 5, 6 months after officially really bringing that into the marketplace and the amount of customers that we're trialing the product right now is much more than we thought. In fact, we've talked about having to hire more people so we can get all of this work done. If those start hitting or once those start hitting, those will have a meaningful impact to our gross margins also. So you've got a lot of dynamics but you -- as Steve said, this 42% range is probably where we'll sit. And as these things keep rolling in, you'll see that pick up.

[Operator Instructions] And it does appear that there are no further questions at this time. I'd like to turn the conference back to management for any additional or closing remarks.

Thanks, everybody, for joining us today in the conference call. Clearly, we're pleased. We want to thank our shareholders for their support. We want to thank our employees at TransAct for the hard work. We've clearly been through a major transition with the business. We've got software products out there. We've got terminals now with software and hardware and firmware and touchscreens and we're really pleased with the work our team has done. We are going to be attending the National Restaurant Association Show in the next couple -- at the end of next week. We invite our shareholders to attend. We'll be at the Global Gaming show in Asia and we also ask our shareholders that want to go out to Macau to attend and we also invite our shareholders to our Annual Shareholders' Meeting, I believe, on May 28 at 10:00 here in our office and we'd be happy to demonstrate our new technology and products. We thank you for joining us tonight. Again, thank you for your support.

That concludes today's presentation. Thank you for your participation.