Good day, ladies and gentlemen, and welcome to the TransAct Technologies Second Quarter 2013 Conference Call. [Operator Instructions] I would now like to introduce your host for today's conference, Richard Land at JCIR. You may begin.

Thank you, Nicole. Good afternoon, and welcome to TransAct Technologies 2013 second quarter conference call. Joining us today from the company are Chairman and CEO, Bart Shuldman; and President and CFO, Steve DeMartino. Today's call will include a discussion of company's key operating strategies, progress against these initiatives and details on the second quarter financial results. We will then open the call to participants 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 its reports on Form 10-K and 10-Q. TransAct undertakes no obligations to revise or update any forward-looking statements to reflect events or circumstances that occur after the call. Today's call and webcast will include non-GAAP financial measures within the meaning of SEC Regulation G. When required, a reconciliation of all non-GAAP financial measures to the most directly comparable financial measure, calculated and presented in accordance with GAAP, can be found in today's press release, as well as on the company's website. At this time, I'll turn the call over to Bart Shuldman. Bart?

Thanks, Rich. And let me start before we begin by welcoming JCIR to our team. TransAct has taken a proactive approach to our investor relations, and we look forward to JCIR stepping up our investor relation programs. So welcome, Rich. Welcome to the team. And welcome, everyone to joining us in this afternoon's conference call and webcast. The second quarter marked further progress for TransAct as we successfully executed against several important objectives, most importantly in the further rollout of new higher-margin products for high-growth markets. The transition we undertook in our business a few years ago is taking hold and today, TransAct is diversifying beyond its strong position to gaming -- in the Casino gaming sector. By combining new value-added products with customized solutions and best-in-class customer service, TransAct is successfully diversifying our customer base in the end markets we serve. Looking at the second quarter results of 2013, net sales were $15.8 million, and I'll start by highlighting the significant accomplishment in the quarter. We have previously discussed an inflection point where our Food Safety Terminal sales would overcome the planned transition away from our commodity point-of-sale legacy printers. This inflection point was reached in the second quarter of 2013, and it represents the first quarter during which our Food Safety Terminal sales more than offset the transitional decline of our low-margin POS printer sales. In fact, Food Safety Terminal revenues were more than 50% of the total sales in our POS banking and food safety market. Reflecting our product transition, gross margin in the second quarter improved 400 basis points versus the second quarter in 2012, which led to an increase in gross profit to $6.5 million. As a result, we generated net income in the second quarter of 2013 of $1.2 million compared to $500,000 in…

Thanks, Bart, and good afternoon, everyone. As Bart noted, for the 2013 second quarter, our revenue of $15.8 million was down slightly from revenue of $15.9 million in the year ago quarter. Looking at our sales by each sales unit, net sales in the casino and gaming market increased approximately 3% or $200,000 year-over-year to $7.3 million, reflecting modest domestic casino and gaming growth, and international casino and gaming growth of 8% year-over-year, which was primarily driven by a 34%, or $200,000 increase in international gaming revenue across Europe, Australia and Asia. In addition, our Q2 sales were aided by EPICENTRAL software sales as we completed our fourth EPICENTRAL installation in June. Lottery sales declined $1.2 million to $500,000 driven by a large order for GTECH fulfilled in the prior year that did not recur this year. As you recall, we previously stated that we expect to have a historically low year with GTECH this year. In fact, in the first half last year, we sold twice as many printers in lottery as we normally sell. However, we do expect Q3 lottery sales will be slightly above the Q2 run rate due to the timing of orders from GTECH. Revenue for the food safety POS and banking unit grew by 29% or $800,000 to $3.5 million. The growth was driven by our first quarter of volume sales of food safety terminals to McDonald's, as well as to several other restaurant brands. The growth in food safety more than offset lower sales of banking printers, which declined 65% to $300,000. As you may recall, in last year's second quarter, we shipped $600,000 worth of printers to RBS Citizens Bank for their bank tellers stations that didn't repeat this year. Revenue from our legacy impact POS printer sales also declined by approximately…

Thanks, Steve. I want to spend just a moment to highlight and summarize the important drivers why we believe TransAct is excellently positioned for consistent growth. First, as evidenced by the second quarter and first half results, our shifting product mix is driving consistent gains in market expansion, and its momentum is expected to continue through the rest of 2013 and, of course, into 2014. Second, we have a stable revenue base with solid and growing sales in both historical and new markets to which we are adding growing, recurring revenues from consumables service and maintenance. Third, our business model and largely fixed overhead offers compelling leverage for top line growth to be translated into higher increasing -- increases in profit and net income. In 2013, in our second quarter, we achieved an operating margin of over 11% and this will expand as revenue rises. Fourth, we have increasing visibility into future revenues as we gain market trend -- traction with our newest products, including EPICENTRAL, Printrex and the Ithaca food safety terminals. Fifth, our investment cycle to affect this transition in our business and drive sustainable growth has already been accomplished. While we are still laser-focused on the development of new innovative products for our key growth markets, the substantial investment needed to enter these markets with new products is largely behind us. Our job now is to continue to do right for our customers by bringing them the products they need and the service they demand. To that end, we are not done with our development of innovative product offerings as we plan to launch 2 new products in 2014. And sixth, we have a strong and improving balance sheet with a net cash position to both support our current product portfolio, to continue to invest so as to lead the innovation curve in the industries we serve and simultaneously, return capital to shareholders. With that, let's open the call to your questions. Operator?

[Operator Instructions] Our first question comes from the line of Todd Eilers with Eilers Research.

I wanted to ask a couple of questions on the casino and gaming segment. First off, I guess, on EPICENTRAL, I believe you indicated you had 1 installation in the quarter that you recognized revenue on. Can you say whether that's correct? And then also, I believe you mentioned you had 3 more scheduled to be installed through the remainder of the year. Can you give us a sense for -- do you expect more of those to hit in 1 quarter or the other? That might be helpful. And then also just, Bart, if you could speak just in general to kind of what you're seeing in the casino and gaming segment, both domestically and international. It's always helpful to kind of get your thoughts on what you're seeing out there.

Yes. So we did install 1 EPICENTRAL system in the second quarter and recognized revenue in the second quarter. So that's right, Todd. In the third quarter, we'll probably install 2 more systems and recognize revenue in the third quarter. And right now, we're expecting the last of the ones that we have announced that we've closed to be installed in the fourth quarter and recognize revenue in the fourth quarter. So we got 1 in the second, 2 in the third, 1 in the fourth, and that's as of what we've announced to date. Regarding the casino market and what we see, I guess that the most exciting thing is there's new casinos that are going to be opening up in Las Vegas, and that always makes us feel good that even Vegas is thinking that they can open up more casinos. Clearly, we're excited to see what's going to go on in Massachusetts. So we're excited to look at those opportunities and the other markets where the regional market -- as much as the operators might not like it as much, but clearly, when a new casino opens up, there's slot machines and printers. As for EPICENTRAL, Todd, we are really starting to see traction on the system, and that's mainly driven by the fact that after installing 4 systems and starting to have the results of those 4 systems, we can actually speak to the results that those systems are driving at those casinos. So when you sit across the table from somebody looking at the system and you can say, "Look, we can point to 100% increase in average daily theoretical based on that player getting a coupon while they're playing," when you talk to a casino operator about that, you really get their attention. And…

Okay. Great. And then I wanted to ask on the food safety and prep or at least on the line item or segment that you called point-of-sale banking. Booths also include the food safety and prep terminals there. It sounds like, obviously, over 50% of revenue now coming from some of the new products there. Was that all driven by McDonald's in the quarter? Or did you also have additional customers that you recognized revenue in the actual second quarter? It certainly sounds like you expect that going forward, but just kind of curious on the second quarter there. That would be helpful.

Yes. Actually, the good news, Todd, is most of that revenue is driven not by McDonald's. So if we -- we are working with many, many quick serve and casual restaurant chains, and most of that revenue that we got was outside of our McDonald's relationship. And I think that's been a big question that our -- some of our shareholders have had going back to the McDonald's days of doing the sticky printer and all that. A lot of people would ask us, "Okay, you're developing this technology for the restaurant industry. Again, you're going to get more customers than just McDonald's." And literally, our second quarter was driven by other customers, not McDonald's.

Okay. Great. Very helpful. And then on the oil and gas segment -- or the Printrex business, that was a bit lower than we were looking for in a quarter, but it does sound like some of the new products there, the color printer, is just starting to gain some traction. I don't know if you can share how much of the color printer is representative of the overall sales mix in the quarter. That might be helpful. And then maybe any additional color in terms of like how many trials you might have out there. And just expectations for the second half would be helpful as well.

So the good news is it's more of an integration story than a trial story. So all the printers that we've shipped on the color side are all being placed in the marketplace. So the good news is the traction that we're picking up are all real sales. As we've been talking about, this is an integration story. It's kind of like our 950. When we launched our 950 for the casino industry, it was -- it wasn't if, it was when the casinos would adopt our technology. And it's the kind of thing in the oil and gas market. We got to get through all of the integration on the different systems. We've got the big 4, and then from there, you've got truck manufacturers and drilling people and all that. So it's really just getting through all the integration. I think we've always said, the oil and gas will be a slow ramp-up, but the good news is, we continue to see gains in sales and gains in installations. On top of that, we are seeing gains in our sales of consumables, both the paper and the ink jet cartridges and the other -- the 980 uses not only ink jet cartridges, but waste buckets, it also uses print heads. The print heads have to be replaced. So we're also seeing traction there where we're seeing -- as we ship the product, if you think about the office product, it takes -- once we ship it, it takes a couple of weeks, if not a month, to get installed. They've got to put it on their network, they've got to get it up and running, then they transfer their files to be able to print on those printers. And once they get going, they're starting to drive the incremental consumable sales that we were expecting. Like I said, we think the average is going to be about $50,000 a year. So it is building, but as we said in our conference calls before, we expect food safety to be the early driver at this transition in sales growth, along with EPICENTRAL, and then behind that will be oil and gas.

Okay. Okay. Perfect. And then just last question. I don't know if you guys gave this already, so I apologize if you did. But do you have a total number of printers or units shipped for the quarter?

I can give that to you. Just give me a second to look it up, Todd.

Okay.

Yes. I don't think we -- you got another question while he looks it up?

Sure. A couple of others. Normally, I think you guys kind of give -- and I might have missed this, but cash flow from ops and CapEx for the quarter also.

Printer units sold is 38,000 for the quarter, Todd.

And then cash flow from operations and CapEx. I think cash flow from operations is in the...

Cash flow from operations for the 6 months is $3.3 million, and CapEx is $0.5 million for the 6 months.

$0.5 million. Okay. All right.

[Operator Instructions] Our next question comes from the line of Mitchell Sacks of Grand Slam Assessment Management -- Asset Management.

Just a quick question on the food service printer, but if you could just talk a little bit also about activity with potential new customers on the printers and just how do we think about that business over the next few quarters.

So Mitch, thanks. The activity has been to the point that we actually added more people. Each chain or each venue has their own needs, have their own ways of doing business. And basically, we're customizing a solution for each one of them. And then the trial begins and then the trial leads to the close. To date, every trial is either continuing or has turned into sales. So to date, everything has been 100% leading to sales. And I think the way to track it is to track the percentage. And we'll keep talking about it in our point-of-sale and banking and food safety market that we talked about, what the percentage sales of our food safety will be. It's in a ramp-up stage. The trials go on with these customers, some take a month, some take 4 months. But like I said, so far, everyone is either continuing or led to a sale. So I think you just track how we're doing in that market and what the percentage of sales is. We're really, really pleased with the market adoption of the technology, and we're also really pleased with how many different venues we're dealing with. It's just about every restaurant chain that you could think of is either trialing it or is starting to buy it. So I think the price points were perfect. I think the technology is. I mean, we've literally added a ton of software to the product to be able to handle the multiple different tasks that these restaurant chains wanted to do. I think our engineering team has just done a phenomenal job at adjusting the technology so that we can provide the exact solution that these customers want. And it's just exciting to see the use of the terminal, the different ways they're using the terminal and what it's driving towards. And we're doing nutritional labels, we're doing use by labels, enjoy by labels. We've got certain customers that are now segmenting their food and doing different color labels based on food. We're doing things with color labels in regards to day of the week when it expires. It's just really exciting to see what the customers want to do with it and how our engineering department has reacted to it and really met the customer need. So I would just watch as it flows through the business. We've got a lot of trials going on out there, and then as they turn into sales, you'll see it through our results.

With respect to the Printrex business, do you think part of the slowdown there is from people waiting to see whether they want to go to the print, the color? Or is it their need to test or make sure that the color actually works with their control systems? If you could just walk us through why you think that might have slowed down a bit.

Yes. Well, really -- it's not really a slowdown. Really, the black-and-white printers in the international market were lower this quarter than they were a year ago, and that's got nothing to do other than how many trucks and rigs went out. And so it's -- we're definitely a part of the oil and gas market and the ebb and flow of when a new truck gets out there or a new well gets drilled. And so that drives some of our legacy product, especially in places like China where we sell a lot of black-and-white printers. From a color standpoint, the office market uses color today. And what we're going in is we're selling and marketing a better mousetrap to the industry. And it just takes time for them to bring it in and buy 1 and run it through its printing and all that. Seeing the benefit of the speed and the color, our consumable sale -- our consumable prices, total cost of ownership of the unit is much less than our competitors. So they buy 1, then they like it, then they buy 2, we've had 1 national firm now buy 7 or 12 of them, placing them in all different offices. So it's just a matter of getting that -- proving to them it works and it gets integrated on their network and then using it and then seeing the benefit and then buying more. From the field printer, really, what we're dealing with is they're focused on getting their trucks out, getting the oil -- getting the drilling going. And it's just a matter of getting in their purchasing cycle. So there are places in the world, like if you go up to Canada, where this time of year, there's no purchases going on because…

Okay. And then you had mentioned, I think, previously in the call, you had a couple of products you're hoping to introduce next year. What verticals are those in?

Mitch, I appreciate the question, but we like to let our investors know that we're not stopping. A couple of years ago, when we said we were developing some really neat technology for a couple of different markets, then we launched it, at this point, it would not be in our best interest to inform the market because we've got competitors that like to listen to the call and find out what we're doing. So in due time, you'll see what we consider to be some pretty fantastic technology. I can say though -- yes, I can say this though, what you're seeing from us is either software or the mixture of hardware and software. And whatever we do, we'll be in that vein because what we are -- what we have been able to do is move up on the technology curve to offer our customers more technology using software and/or hardware and software. And what that does is bring up our average selling prices, really bring up our margins and provide a pretty cool technology to these industries. And we're very focused on looking at these markets and using now our R&D to either bring out more software or more hardware with software because, one, what it's doing to the business; and two, the types of solutions we can provide these industries.

Okay. And then do you know what the average selling price was last quarter for printers?

It was a little over $300, Mitch.

Our next question comes from the line of Mark Glass, a private investor.

I'm just wondering if you can give an update on Avery Dennison. And it seems to drag on forever.

Yes. Well, you know what -- yes. I mean, based on our lawyers, we can't really talk about it. But the appeal was heard, and now we're just waiting for the appeals court ruling.

Well, it feels it's on the TRO thing, I'm guessing. But is that the end of it? Or is there still...

I can't. I have no idea. All I can say is we're not focused on it. Our lawyers are. We're focused on driving our Food Safety Terminal into the marketplace. We've got the industry's best technology. It's taken the market by storm. If you really think about what's going on at the restaurant industry today, you're reading all about, now we've got an outbreak of -- before -- something to this latest thing with lettuce. There's food issues every day in the restaurant industry. We're helping them to protect their customers and manage their food. It also helps them manage their costs to the food, so they know when it's going to expire, so they could either -- sell it. So we're just focused on driving our revenue with our great technology.

Do you pick up any business from the requirements that show caloric content in fast food and that kind of thing to the consumer?

Yes, a great question, Mark, because I think there's going to be a big move in the industry to print nutritional labels on just about everything, in a restaurant. By the way, our Food Safety Terminals are being looked at in hospitals. We're being looked at in convenience stores, schools. So it's not just, by the way, the casual and fast food market. That's why we think it's at least 700,000 terminals. Hospitals that need to feed people, where people need to know what the ingredients are, we can print that.

Can you print like a barcode for a hospital, scan it because they can put a patient number? Is that something that would be feasible?

Yes, we can. Oh yes. Yes, we can. Yes. So we're looking at all those opportunities. And the big challenge, if you think about it, I mean, we've seen Mayor Bloomberg try to stop large sodas to be sold. So there is clearly not only a move at the restaurant level but on the political level to think about how do we control the caloric intake. And when you think about making a sandwich and holding the ketchup or holding the mayonnaise or a pizza with different ingredients, you have got to think about how do you do a nutritional label that can handle that. Well, with our software, if you just type in or you just press the button what the ingredients are, we can automatically print out that nutritional label because we store all that information in our software. So for us to be able to do that is pretty easy. And as the industry starts to take it seriously, we believe that we have a wonderful opportunity to print those nutritional labels and information.

That's exactly what I was asking.

Yes. And look, I have a daughter who's not lactose intolerant. She's allergic to dairy. So I know the impact of what it -- how important it is to see a label and understand the ingredients. My daughter lives with it every day. So we are looking at that as a major opportunity as our terminal continues to get endorsed and accepted in the industry. What we want our terminal to be is the de facto standard in the back of the house. And we want the restaurant to use it for all these things because the capability is there. And I talked about on the conference call, our engineers, we've hired these software engineers and all that, they were able to design that into the technology, so all that exists there. And it's just a matter of working with our customers to teach them the capabilities to say, "We can handle that for you." And personally, it means a lot to me because I deal with it every day. So Mark, those are wonderful questions. Thank you.

I'm showing no further questions at this time. I'd now like to transfer the call over to Bart Shuldman for any further remarks.

Well, thank you, everyone, for joining us on this call this afternoon. We want to thank our shareholders for their support. We also want to thank all of our team members at TransAct. It's through their hard work and commitment to develop, market, sell and support products, to help our customers conduct their operations more efficiently and help grow their businesses that TransAct is better positioned today to penetrate new, emerging global markets. We're looking forward to reporting back to you on further progress in our business when we report the third quarter results in November. Also, we will be at the annual gaming industry trade show, G2E, from September 23 to September 26 in Las Vegas, and welcome any analysts and investors to visit us at our booth, number 2617, for firsthand demonstration of EPICENTRAL and even our other products, our food safety product. Our new IR firm, JCIR, can coordinate these visits, and Rich Land can be reached at (212) 835-8500. Thank you for joining us on today's call.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may now disconnect. Have a great day, everyone.