TransAct Technologies Incorporated (TACT) Q2 2013 Earnings Report, Transcript and Summary

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 the year ago period, while diluted EPS was up 133% year-over-year to $0.14. Overall, we are very pleased with the second quarter financial results as we've made significant progress with margin improvements, increased sales of our new terminals, casino software and color oil and gas printer sales, and it all drove growth to the bottom line. And we continued to invest to support the business. Steve will provide more details on the second quarter financial results in a few minutes. I'd like to spend a few minutes reviewing the progress we have made since initiating the transition in our business. The key driver in this transition has been our focus on leveraging our research and development efforts to bring new value-added software and hardware technology to market for blue chip customers in multiple growth industries. The results for our shareholders should be a greater diversification of revenue in higher-growth industries, higher-margin product sales and a higher amount of recurring revenue. Over the last several years, this focus has allowed TransAct to further grow our market share in the casino and gaming industry, while also diversifying into several high-growth markets, such as food safety terminals, colored printers for oil and gas exploration and software for the worldwide casino market. As a result, we now have multiple paths to deliver consistent organic top line growth, and thanks to our shifts to higher-margin products and more recurring revenue. And our overall sales mix translates to top line growth into significant increases in net income and diluted earnings per share. So what are the significant market opportunities where we are beginning to gain success? First, the worldwide casino market is and has been a core market, and we have a current installed base of approximately 500,000 Epic printers in close to 1,800 casinos. In this market, which has been capital-constrained for quite some time, we believe our EPICENTRAL Print System is a notable differentiator, and one we expect will be a driver of consistent growth in recurring and overall revenues going forward. And it has led to increase in printer sales as casinos that are preparing for EPICENTRAL purchases, they purchased our Epic 950 printer. Since EPICENTRAL's introduction about 3 years ago, capital constraints to certain casino operators have clearly impacted adoption. However, we are encouraged that customer adoption is beginning to gain some momentum, particularly as the product continues to earn high praise from our initial customers and the performance is meeting and even exceeding our collective initial estimates. EPICENTRAL is now integrated with the gaming industry's 3 leading slot management system, and including a recent installation is now live at 4 casinos, running at over 5,000 slot machines. We expect to go live at 3 additional properties over the balance of the year, including at Resorts World in New York this October. This will bring our installed base and gaming machines running EPICENTRAL to almost 10,000 by year end. And we expect to extend this momentum in 2013 and 2014, with current sales projections calling for additional software sales to casinos around the world. EPICENTRAL is firmly established within the worldwide casino market as a software product that can drive consistent improvement and performance metrics for those casinos running the system. I mentioned that an important driver of our momentum with EPICENTRAL is the performance it has generated to date. The performance includes data that shows EPICENTRAL's ability to drive top-tier player visits and new player enrollment. As we know, particularly in regional gaming markets where reported revenues have been weak, increasing visits from higher-rated players and driving new enrollment in player's clubs offer significant advantages to casino operators. In fact, data from one of our customers shows that their use of EPICENTRAL is resulting in a 100% increase in average daily theoretical play. A clear indication of just how powerful EPICENTRAL can be in for casino operators. We're excited that increased usage of EPICENTRAL is giving us more and more performance data to demonstrate and highlight the excellent value proposition this product brings to casino operators. We also believe there exist solid opportunities, both domestically and internationally, for our world-class Epic printers, both ticket style and rollset. In the U.S., we're excited about VLT markets such as Illinois, as well as markets such as Maryland, Ohio, and Massachusetts where an acting legislation is bringing new casinos online. We are even seeing plans for new casinos to open in Las Vegas. In the international market, we see opportunities in the Asia-Pacific region and in markets such as Eastern Europe and Greece, where large new VLT deployments could come to bear. Moving to the oil and gas exploration market, we are making inroads with our Printrex colored printers from both the field and in office markets. We have an installed base of approximately 10,000 total black and white printers in the field and believe our Printrex 920 colored printer will provide a multiyear upgrade replacement market opportunity to this install base. The Printrex 920 is the industry's first colored printer for logging trucks and offshore platforms, and is designed for rugged environments. We are continuing to work with customers to make the upgrade progress as seamless as possible, and recent results suggest we're on the right path. Further adoption of this product will bring healthy higher-margin recurring revenue with our proprietary thermal colored paper, so we're very excited to see order flow beginning to pick up. For the office market, we see a smaller, but still potentially very attractive markets for the Printrex 980. In our initial installations, annualized run rates for recurring revenue are meeting our initial projections. Each printer that gets installed in this market has the opportunity to drive $50,000 per year in recurring revenue for the inkjet cartridges, waste buckets and other consumable products the printer uses. We're still in the early stages of deployment for both these printers, but the market opportunity is sizable, and I believe our marketing and sales efforts are beginning to make inroads in the market as evidenced by growing industry interest. Turning now to the food safety market. The Ithaca 9700 terminal is really beginning to gain traction. As we have stated in prior calls and in meetings with the investment community, this new product line will drive sales early in our transition. Volume sales of the Ithaca 9700 food safety terminal began in earnest in the second quarter and included our initial shipments to many different quick-serve and casual restaurant chains. In addition, we have expanded our relationship with McDonald's to other countries outside the U.S. The contribution from these sales more than overcame the year-over-year declines from the sales of our lower margin point-of-sale printers. And if you don't mind me repeating, the Food Safety Terminal sales was more than 50% of all the sales in our POS banking and food service market. This is a very significant market opportunity for TransAct as we really don't see another product like the Ithaca 9700 in the market. And we can easily identify a worldwide opportunity of approximately 700,000 terminals. We're not expecting this market to ramp up overnight, so we want to make sure we remain conservative with expectations. However, you understand the market opportunity that gross margins as product delivers and the growing industry interests and the demand for the 9700. We're confident that over the next several years, this will become a significant contributor to our top and bottom line. Our pipeline for the Ithaca 9700 continues to grow, and we expect sales momentum in the second half of 2013 and into 2014 will continue. The pipeline consists of many different quick-serve and casual restaurant chains. We're working closely with all of these companies with specific solution each one needs to drive their successful trials to sales. The successes of some of the work, clearly came through in sales in the second quarter of 2013. Finally, our TransAct Services Group, which provides after-the-sale offerings, represents another channel of high-margin recurring revenue and prospects for growth. Our team of salespeople are focusing on this lucrative oil and gas colored printer opportunity and inkjet and other consumable opportunities that are tied to our Printrex 980 and 920. The second quarter demonstrates that the transition in our business is beginning to drive momentum in our financial results. Our diversified product portfolio is proving invaluable to customers and their ability to operate more efficiently and grow their businesses. We believe that our solutions for various emerging global markets provide industry-leading technology and functionality for our customers, and believe that they are essential for our customers' day-to-day operations. At the same time, our newest solutions are the key drivers behind our consistent margin and EBITDA expansion. In fact, when you compare our full year gross margin in fiscal 2010 when we first began our product and market transition strategy, our gross margin for the first 6 months of fiscal -- comparative -- the first 6 months of fiscal 2013, the nearly 600 base -- basis point improvement to approximately 42% is a clear indication of the tremendous benefit we are realizing from our market diversification initiatives. We expect these trends to continue as higher-margin new products, such as our food safety and EPICENTRAL offerings replaced declining sales of our lower-margin products, such as our point-of-sale financial and medical industry terminals. With that, I'll turn the call over to Steve for a deeper review of the second quarter results. After which, I'll make some summary remarks before we open the call to questions and answers. Steve?

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 $400,000 from the year ago quarter, as we continue to de-emphasize our focus on this lower margin POS market. Instead, as Bart noted earlier on the call, we are now placing a lot of attention and focus on the higher-margin food safety industry. Interest and demand for the Ithaca 9700 Food Safety Terminal continues to accelerate as we initiate more trials to demonstrate firsthand the value this product brings to the back-office operations of quick-serve and casual restaurants. Overall, Printrex net sales declined a little more than $100,000 to $1.1 million as sales of our new Printrex colored printers could not overcome lower sales of black and white oil and gas printers and medical mobile printers. Although we're still in the early selling stages for the colored printers, we're beginning to make progress and believe this will represent a sizable, profitable opportunity for us as our customers convert from black and white to colored over the years to come. Finally, net sales for our TSG unit improved 10% or $300,000 to $3.5 million. The growth was driven by higher sales of spare parts and service sales, as well as revenue contribution from consumables from our Printrex colored printers. These increases were offset in part by lower consumables revenue from HP inkjet cartridges that are used in our bank tellers station printers, as we continue to de-emphasize this business. As Bart mentioned, gross margin remains a great story, increasing 400 basis points to 40.9% from 36.9% in the year ago quarter. The improvement reflects the transition in the sales mix to more food safety terminals in EPICENTRAL software, and we expect this trend will continue. Our higher gross margin also led to an over 10% increase in gross profit to $6.5 million. Total operating expenses in Q2 declined by 8% or $400,000 to $4.6 million. On an adjusted basis, after excluding legal fees for the Avery Dennison lawsuit, restructuring expenses and a $200,000 reversal of expense to adjust the Printrex contingent consideration accrual in both periods, operating expenses were $4.8 million in this year's second quarter compared to $4.5 million last year, or up $300,000 or 6%. Engineering expenses were up slightly by about 5%, reflecting higher compensation cost for the additional staff we brought on over the last year to support our new product development efforts. Selling and marketing expenses increased about $200,000 or 11%, due largely to the addition of new sales staff, as well as increased marketing spend, both to support our newly launched food safety and Printrex products. G&A expenses declined about 9%, largely reflecting the $200,000 reduction on the accrued earnout for Printrex. As a result of higher gross margin and lower operating expenses, we reported 132% rise in operating income to $1.8 million or 11.5% of net sales compared to just $800,000 or 4.9% net sales in the year ago period. Excluding the unusual items in both periods, our adjusted operating margin was still up nicely, 10.5% in Q2 '13 compared to 8.3% in Q2 2012. Depreciation and amortization totaled $432,000 in 2013 second quarter, comparable to the $438,000 we recorded in the second quarter last year. EBITDA grew 82% to $2.2 million compared to $1.2 million in the 2012 second quarter. Adjusted EBITDA, which adds back share-based compensation expense and excludes the impact of acquisition expenses, restructuring expenses and legal fees related to the Avery Dennison lawsuit in both periods, was up 18% year-over-year to $2.2 million, compared to $1.9 million in the 2012 second quarter. And on the bottom line for the second quarter, we recorded diluted EPS of $0.14, representing a rise of 133% compared to the $0.06 in the comparable prior year quarter. Adjusted diluted EPS, which excluded the unusual items, rose 44% to $0.13, which is also up from $0.09 in the second quarter last year. Turning to the balance sheet, we ended the second quarter with $8.4 million in cash and we continue to have no debt. And our current ratio also remains very healthy at 4.1x. During the second quarter, we repurchased 25,261 shares of our common stock at an average price of $7.72 for a total consideration of $195,000 under an existing 10b5-1 plan. Our stock repurchase program expired at the end of May. In addition, we paid a total of $608,000 towards a quarterly dividend in the second quarter. So in total, through share repurchases and the dividend, we returned just over $800,000 back to our shareholders during the second quarter 2013. Now looking forward, as we have previously indicated, 2013 will be a year marked by tremendous progress in the transition of our business as we continue to focus our efforts on our more profitable, recently launched products for the food safety market, colored Printrex oil and gas printers and their related consumables, and further penetration of our EPICENTRAL promotional couponing system. Through the first half of 2013, we've seen the benefit of these efforts as our gross profit, operating income, EBITDA and diluted EPS have all increased, even as total net sales declined by about 8% as the first half of last year benefited from several large orders that didn't repeat this year. Importantly, we expect sales to ramp in the second half of the year, and we are particularly enthusiastic about the growing traction we're seeing for our Food Safety Terminal. We also expect our gross margin to continue to expand and as a result, we expect the top line growth generated by more sales of higher-margin products, will drive higher levels of net income and EPS over the balance of 2013 and into 2014. So now before we go to the Q&A, I'd like to give the call back to Bart for some closing remarks. Bart?

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 what we've seen is, especially at the lower tier, let's take a player that their normal ADT is $15 to $20, so that means if they play $15 to $20, they're done. If they get a $15 coupon for free play, they not only play that $15, but they go and play another $15. So their ADT actually doubles. And we don't include the coupon in that doubling. So that's actually money out of their pocket. So they're playing longer and they're playing more. We've also seen a pretty good uptick in the casinos running at about 70% carded play. And those are big numbers when you start talking to casinos about that type of level and being able to drive that much carded play and how many players sign up for cards. And then we're also seeing the players move from silver level to gold level to platinum level, as an example, and that's also a good statistics to talk to the casino owners about. So the fact that we have real numbers to share and show them the results, and by the way, some of them have even called these casinos themselves, just to ask their own questions, I think that's what's driving a lot of momentum behind us because there are real numbers that they can look at and point to and say, "That's what's happening to our casino." We have 1 casino that's running tickets. And they do these kind of coupon tickets where the more you play, the more coupon tickets you get. And this past weekend, that casino did over 250,000 tickets that were generated by players staying and playing that long. And that's just huge numbers. So when you consider crossing a casino operator and show them and explain that to them, it really starts to finding the benefit of EPICENTRAL, and we clearly see the momentum in the excitement from our customers talking about implementing EPICENTRAL.

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 it's all melted, the ground is all melted. And their purchasing cycle really starts in the October-November time frame. But it's really following the industry. And when they're ready to add more trucks or change over. The big thing for us was to get integrated with all the software programs. And like SDS is one of the big ones and we're integrated, you can go to their website. You can see the printer on their website. So it's really just a timing of getting in their cycle and getting them to say, "Okay, I'm going to move over now to color." We've always said it's going to take some time. This is more integration and getting into their buying cycle. And food safety will come first. You're already starting to see that. And then as we ramp up the color printers and the oil and gas, you'll see that. But it's really just -- we're kind of -- I wouldn't call it hostage, but we follow the market. And when they're ready to really move to more trucks and drilling more, if you think about it, somebody that's drilling today or about to drill today probably closed the contract 6 months ago. And so they're just bringing the trucks out based on the contract. So it's a matter of getting into new contracts, the new wells that are going to get drilled and then saying, "Okay, now we're going to use the color." So it's just -- it's really timing.

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.