Good day, ladies and gentlemen, and thank you for standing by. And welcome to the TransAct Technologies Second Quarter Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, today’s conference maybe recorded. I would now like to turn the conference over to Mr. James Leahy of JCIR. Sir, the floor is yours.

Thank you, Eli. Good afternoon, and welcome to TransAct Technologies 2016 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 the 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 maybe deemed as forward-looking and actual results may differ materially. For a full list of risks inherent 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 would like to turn the call over to Bart Shuldman. Bart?

Thank you, Jim, and welcome to everybody joining us on this afternoon’s conference call and webcast. This afternoon we reported 2016 second quarter revenue of $14.4 million, operating income of $900,000, and EBITDA of $1.4 million. Steve will review the financials in more detail in a few minutes, but first I want to provide some high level comments about the quarter and about our business. Let me start by highlighting two changes we made in way we report revenue for our businesses as noted in this afternoon’s press release. Additionally, we reported revenue for our food safety PoS and banking business as a single line item. Beginning with this afternoon’s release, we are now disclosing revenue for our food safety terminals sales separately. As we have discussed in prior calls, we see tremendous opportunities for this business and believed that transaction is uniquely positioned to provide a comprehensive portfolio of solutions that can address restaurant kitchens and back in the house operations of all sizes and with varying degrees of complexity. We also know that many of you are acutely focused on tracking our progress in this business. So going forward, we’ll disclose separately the quarterly revenue related directly to sales of our AccuDate 9700 and AccuDate Pro and new AccuDate XL. The second change is how we describe our point-of-sale, or PoS, product line. You will note in today’s press release this product line is now called PoS automation. This change is not just rebranding the category, instead it reflects the emerging opportunity we see in this market as customer facing kiosks gaining interaction in the food service industry, particularly as food service operators seeks to matters the cost and adopt the changes of consumer purchasing behavior driven by increased comfort with automated transactions. Our PoS automation solutions include…

Thanks Bart, thanks for the kind words. Our 2016 second quarter net sales were $14.8 million compared to $17.2 million in a year ago quarter. As Bart mentioned, we made good progress during the quarter in executing against our long term growth opportunities. Namely sales of our AccuDate terminals as well as the advancement of several Epicentral placements that will contribute to revenue later this year. While gross margin in the quarter was negatively impacted by lower Epicentral revenue and strong sales of our lower margins Ithaca 9000 printers to McDonald’s. We continue to move forward with the pair of Epicentral installations that should go live later this year and help provide a nice lift to gross margin in the second half. Looking at our sales by market for the second quarter, food safety sales were up 70% or $700,000 or $1.7 million over last year second quarter. Sales of our food safety terminals were also up on a sequential basis, quarterly sequential basis as we continued to execute against our current market opportunities. As Bart highlighted we see significant growth potential for this business and we’re still early in the sales cycle of what will be a multiyear roll out of our AccuDate terminals. PoS automation and baking sales were up 33% or $800,000 to $3.2 million in the second of quarter 2016, as we continue to benefit from McDonald’s ongoing and accelerated rollout of our Ithaca 9000 grill and receipt printer in support of their ongoing menu expansion and enhancement initiatives. We expect the sales strength in McDonald’s to continue to at least through remainder of 2016. Casino and gaming sales were down 29% or $2.1 million year-over-year to $5.2 million in the second quarter 2016. As we’ve seen in recent quarters, choppy domestic and international demand for…

Okay. Steve, thank you. Before opening up the call to your questions, I want to again highlight the building excitement we have for our long term growth. We are seeing significant attention for AccuDate food safety portfolio with the recent debut of the AccuDate XL and our partnership with CrunchTime, taking the solution to a whole new level. In particular, our ability to create a more software centric ecosystem for this product offering is resulting in a myriad of new possibilities. At the same time casino operators are increasingly of the view that real time promotions and bonusing is the way of the future. And we believe that Epicentral is well-positioned to help our customers put their viewpoint into practice. The TransAct today is a dramatically different company than the TransAct at even two three years ago or what I talked about way back in 1994 and we believe that this transformation will continue only – not only benefiting our customers but also helping to generate the value that our shareholders demand. As we open the call to questions I want to extend my thanks to the hard working team at TransAct for their efforts, which have allowed our company to expand it to new high growth markets. And of course thanks to our shareholders for their continued support, as we further transform [ph] and grow our business. And for those attending the Global Gaming Exhibition in Las Vegas at the end of September, I look forward to seeing you and presenting some exciting things in our tradeshow booth. Operator, we’ll now open for questions.

Yes sir. [Operator Instructions] And it looks like our first question will come from the line of Kara Anderson with B. Riley & Company. Please go ahead. Your line is now open.

Hi, good afternoon. I’m wondering if you can talk…

Hello, welcome.

Hi, there. If you can talk at all about sort of the Epicentral pipeline for next year, if you can provide any color there?

I can’t really tell you what we’re doing with our customers and all that. But I thought it was quite interesting. I was in Las Vegas a couple of weeks ago and there was a casino marketing show going on. And somebody who I’ve known for many years was on a panel, who is pretty high up in one of the companies – one of the slot companies out there, system companies. And he made a comment that couponing – paper couponing and promotions will become a norm in the casino industry. And for a company that has been trying to promote this for so many years and I’m sure our shareholders that have been with us for a while will say they’ve heard it before but it’s the first time I really heard an endorsement or somebody actually talking about the fact that he believed and that couponing was going to be become the norm. That somebody getting that piece of paper was important. So I think the future looks bright. It’s a lengthy sells process. Because of all the systems that have to be set up in the servers and the wiring the casino doesn’t have all of our printers it might take a year or two for the casino to change out by our printer to replace our competitor’s printer. But we really sense a movement in the casino industry where promotions coupons and promotions are going to become very important to the casinos. And Kara, we are the only one that has a true enterprise system whereby you can sit at computer and run multiple, multiple promotions at the same time on the floor of the casino without an issue. You can – you have a coupon generator, you have a schedule of program. You’ve got all of the software in front of you, tied now to the player tracking system and every slot company has given us access into their player tracking system. And you can sit there and just run promotion after promotion and like I said you can run multiple promotions at the same time. So we’re starting to feel – very bullish about the opportunity, it’s taken a long time. But what ticket-in, ticket-out started in 1980’s and finally took hold in 2004. So it’s an industry that moves very slowly but we are starting to hear the right things from the industry and to be honest we will have a lot more to say about it at the Global Gaming show.

Okay. On the new AccuDate XL is there any recurring revenue opportunities associated with that?

Great question. Great question, Kara. There is actually recurring revenue that will occur with the Pro and the XL. So it’s part of our sales model. There will be recurring revenue for every Pro and XL that we sell going forward there will be a portion of the sell price that will be recurring revenue. And it’s going to range between 10% and 20% of the price of the terminal will be recurring revenue.

Okay. Great and then…

And maybe I should help explain that a little Kara.

Sure.

What is happening with both the Pro. Let’s start with the Pro. The terminal is not being used only for food rotational labeling. We have customers asking us to literally help to automate the back of the house for them. There’s so – when you’re working in an Android or Linux environment. There is so much more that you can add to the terminal and Pro is running Linux and XL is running Android. And it allows us to do much more with the terminal whereby we can actually help the restaurant company eliminate some devices that they have. Because you can program it on our terminal and by us getting much more involved with the restaurant company in their operation, in the types of technology that we’re adding to the terminal, we’re going to have to provide ongoing support for those restaurants for the life of the terminal. So it’s kind of like when we buy, we run Oracle here and we pay Oracle a yearly maintenance fee. And that allowed us if we have a problem with the system we can call them up and they can help us with it. We’re going to be doing the same thing with our customers because they need that from us. Not because we want to do it. We have one customer where we are literally eliminating cards, let’s call them cards and a card system that they use. And so whenever they add a new menu item, we’re going to have to get involved with them to add it to the software and to add it to their payload. So we’ll be involved with them from the time they roll it out all the way through the time that it’s being used. There’s also people that have asked actually asked…

With the Pro, you generating any maintenance fees today.

No. Because we really haven’t sold any yet, all of our Pro applications, all the restaurants that will working with the Pro and we have many – we have not launched yet.

Okay. As per gross margin expectations, I heard on the call you said that – you expected it to get a lift from Epicentral in the back half of the year. I think previous expectations were to end the year in the mid-40% range. Correct me if I’m wrong and whether or not that expectations still hold.

Well, in the first half, Kara because of the drag caused by all the 9,000 printers we shipped from McDonald’s. They probably is not going to reach the mid-40% this year.

But the margin will improve in the back half, because the newer products sales are going to be a larger portion the sales as we move through year. So the margin should improve as we go through the rest of 2016.

What is surprising Kara, is the amount of printers, McDonald’s is buying from us. So in our modeling we had that dropping off well AccuDate grows and Epicentral grows and that’s at much higher margin. We don’t – we now don’t expect McDonald’s to drop off. So it’s just all it’s a lot of business and look we’re happy to take it. They’ve been wonderful to us but it is at lower margins in the company average. So everything outside of that AccuDate, Epicentral, gaming printers even Printrex are higher than the corporate average. So we’ve got this big business that’s flowing through that lower that we didn’t expect. But it’s been wonderful. We are shipping a lot of printers to McDonald’s.

Okay. Fair enough. And then last one for me. Also I guess with McDonald’s, since you brought it up and the customer taking order options or solutions that you are – I guess in discussions with them, would that be to insert a printer within someone else’s terminal or are you going to get into I guess the kiosk terminal business as well.

No, no. So McDonald’s – look the restaurant industry has been hit pretty hard with the new medical plans that they have to offer Obamacare and then the minimum wage increases. So the restaurants are looking at ways to reduce labor costs and kiosk is a great solution and kiosk have been around for years. But the cost versus benefit wasn’t there. Now that the restaurant is seeing a lot of headwinds in their costs because of Obamacare, because of the minimum wage, now kiosk’s are becoming a benefit, they actually can justify it. So we are seeing – in fact, we are shipping printers right now to McDonald’s that go in kiosk and not just in this country. The other thing also is the Baleno’s also like to order off their iPhone or their iPad or go into the restaurant and order off a screen, and that is driving more kiosk. So we’ve got a bit of – push going on from our customers. We make for better works kiosk printers because we make gaming printers, our gaming printers are kiosk printers. When we put a roll printer into a gaming machine, the gaming machine is a kiosk. So what we had to do is we had to make some adjustments with those printers, we want to – it’s not just going to print out kind of a ticket, it’s going to print out more information. So we made some pretty cool adjustments to the printers. And now we’re going to launch that into the into the POS business because kiosk are becoming a major conversation that the restaurants.

Okay. Thank you for the clarification.

One more point. Okay, it’s kiosk printers.

Got it. That’s it for me.

Okay. Thanks, Kara.

Thank you, Kara.

Thank you. [Operator Instructions] We do have an additional question. It will come from the line of Phil Bernard with Eilers & Krejcik Gaming. Please go ahead. Your line is now open.

Hi, guys. Good afternoon. First congratulations on the 20 years in the public eye. And on behalf of Todd, we appreciate the kind words.

Thank you, Phil.

Yes.

Yes. I’ve known Todd for many years.

You are a good man, good man, absolutely. I will continue. One more question on food safety since we’re on that topic. So with the expanded portfolio of AccDate printers, I’m wondering if you guys are adopting or evolving with your focus within the restaurant industry. You mentioned you guys now have exposure to pretty much all of it, QSR, casual, fine dining, convenience. Is there any potential area of opportunity that you see as the largest and where you’re focusing most of your energy?

Wow. Phil, we’re talking to just about every restaurant company out there. However the Pro – if you look at restaurants with simple menus, you pretty much going to see the 9700. But even our 9700 customers and we have a few that have come to us that want to migrate over to the Pro, in fact, we’ve had 9700 out of three years and they’re talking about changing them out and buying our Pro instead. So if you’ll – it’s hard to say just one segment, but if you look at fast-casual and casual, that’s where you’re going to see the Pro and XL take off. And that’s where you’re going to see multiple terminals per restaurant. If you look at the XL, what we’re doing with CrunchTime, CrunchTime has a fantastic program called Net-Chef and it does all of this stuff for the restaurant. It manages their inventory. It tells them what – when they should – what they should prep for when they need to order inventory. But it’s all done with paper, it’s all done in a General Manager’s office. We take all of that information and we now can transfer it out to every prep station. So instead of a General Manager walking in and turning his computer on and handing out the orders to the prep chefs and all that, and hopefully getting the orders back, signed off that they’re completed. And then the General Manager entered it all into the computer, our terminal does it all. So the prep chef walks in the morning, turns the terminal on, all the orders come down including videos of everything they have to make. Then when they complete the prep order, they close it out on the screen and we feedback through what’s called the KitchenSync app back to Net-Chef that we completed the order. And then we’ll do real-time inventory, real-time inventory control. So when you look at a casual restaurant, where you will have many more prep chefs and much more to prep for the day. You could see two, three, four terminals per restaurant. So our attention has been across the restaurant spectrum – Duane Toro, we kind of look at the ones that want to close quickest and spend a lot more time trying to get their application done because there’s so much we’re doing for these restaurant companies not just rotational labeling. But it’s really across the spectrum, and by the way it’s not just restaurants, it’s convenience stores. I mean that today a lot of people are talking about that – people are buying their food at convenience stores and even supermarkets because you can buy prepared food there. And with food costs going up or they cheaper or not. So we’re working across the spectrum in restaurants, but we don’t stop just at restaurants anymore.

Got it. So hopefully one of these chains you’re able to get by and they validate and then you can start to canvas the rest of the spectrum. Great, and then transferring over to casino gaming, on our end we’ve seen maybe a moderate uptick in replacement sales, just wondering what you’re seeing on your side going forward in the custody domestic I should say clarify the domestic casino industry.

Look, I hope you’re right, Phil. What caught my eye was our casino company that announced the other day that said they had a floor of 2,100 slot machines that did $200 million. They took it down to 800 slot machines and they’re doing $200 million. So it took 20% to 15% of the floor out and they’re doing $10 million more dollars in EBITDA. So I think the casino industry is it just coming to grips with the better utilization of the floors. I see a lot of action in regards to hotels and nightclubs and restaurants and all that. I hope you’re right. We don’t see it and what we see is that Epicentral’s going to drive incremental printer sales because they have to use our printer or for new opening – is opening and they want to use Epicentral then they specify our Epic 950 because it’s only way that they can use Epicentral. But I hope you’re right. I hope the uptick is happening. I mean – we saw our ITTs results the other day I wouldn’t call it Stellar, we’ll see, I don’t see it.

Got it, got it. Well, that’s it for me, guys. Thanks.

Okay.

Thank you Phil. And gentlemen at this time I’m currently showing no additional questioners in the phone queue. I would now like to turn the program back over to Bart Shuldman for any additional or closing remarks.

Okay. Thank you, everybody for joining us on this call this afternoon. Of course we look forward to reporting back to you on further progress in our business when we report our third quarter earnings call in November. And again I would like to remind you that if you want to go to Las Vegas and see the industry’s biggest and best tradeshow, well say hello at our G2E booth in Las Vegas at the end of September. I’ll be available to meet, we will also have a fair amount to say at the show also. So either please reach out to me or reach out to JCIR, Rich and Jim and Joe and set up some time. I thank you for your attention today and thank you for joining us on this call.

Thank you, presenters, and thank you ladies and gentlemen for joining us today. This concludes today’s conference. Thank you for your participation and have a wonderful day. You may all disconnect.