Good day, ladies and gentlemen and welcome to the TransAct Technologies Inc. fourth quarter 2016 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, this conference call may be recorded. I would now like to turn the conference over to Mr. Jim Leahy. Sir, you may begin.

Thank you operator. Good afternoon and welcome to TransAct Technologies 2016 fourth 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 fourth 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 for joining us on this afternoon's conference call and webcast. This afternoon, we reported 2016 fourth quarter net sales of $13.6 million, operating income of $1.9 million and adjusted EBITDA of $2.4 million. Of course, Steve will review the fourth quarter financials in more detail, but first I want to like to provide some high level comments about our results and our business as we enter 2017. Overall, we are very pleased with the way TransAct finished 2016, as our top and bottom line results clearly demonstrate that the decision to invest in developing and building out a robust AccuDate product line over the past several years. With the recent introduction of our AccuDate XL and the two software partners we have engaged to develop their software on to our Android terminals, the company has entered what I consider to be a very attractive rapidly expanding long-term large market opportunity. A rapidly evolving restaurant solutions market, formerly referred to as food safety, was the prime beneficiary of an active 2016 for TransAct. We grew the business 34% in the fourth quarter and 23% for the full year and gained significant traction for each of our AccuDate products as the marketplace has come to clearly recognize the value of our solutions in restaurant and foodservice settings. As we exited the year and set our plans for 2017, we recognized that are established lineup of AccuDate terminals is now offering capabilities that far exceeded anything we could have imagined when we first entered what we originally call the food safety market with the AccuDate 9700. This customer driven evolution has, we believe, significantly expanded the potential market for our terminal solutions as they are no longer a tool whose primary function is food safety labeling,…

Thanks Bart and good afternoon to everyone. 2016 fourth quarter net sales were $13.6 million compared to $12.1 million in the year ago quarter. Key drives of net sales growth in the quarter included increased demand for our AccuDate product line and improved sales in both our casino and gaming business and lottery business. I would like to note that as we mentioned in the press release issued this afternoon, the continued evolution of our AccuDate products over the last several years has turned these terminals into restaurant management solutions whose capabilities go far beyond the original food safety functionality of the AccuDate 9700. As Bart mentioned earlier, given this evolution we are now reporting this market as restaurant solutions. Looking at our sales by market for the fourth quarter.

Ladies and gentlemen, please standby. Your conference call will begin momentarily. Again, please standby. Your conference call will begin momentarily. You may begin.

Let me tell our shareholders that we make a much better damn terminal than the telephone system. So we apologize. Steve will continue. But we make a much better terminal than these telephone systems.

I apologize for the interruption. I am going to start back up where we started talking about the sales by market. So I apologize if I am repeating a little bit. Looking at our sales by market for the fourth quarter. Restaurant solutions sales were $1.7 million, up 35% or $400,000 from last year's fourth quarter. Sales in the quarter benefited from increased McDonald's demand for the AccuDate 9700 as well as from growing traction for the entire line of AccuDate products from a variety of new restaurant brands. POS automation and banking sales were down 24% or $700,000 to $2.1 million in 2016 fourth quarter, as we continued to see strong demand for our Ithaca 9000 POS printer at McDonald's, but not quite to the same record level that we experienced in the year ago period. It's important to note that McDonald's continued menu innovation and self-service initiatives remain the key drivers of Ithaca 9000 demand and we believe this trend will continue throughout 2017. In addition to lower McDonald's sales, sales of our legacy POS printers also declined in the quarter. Casino and gaming sales were up 6% year-over-year or $300,000 to $4.8 million in the fourth quarter of 2016. Domestic sales were flat with the year ago period as lower shipments of the casino gaming printers were offset by higher Epicentral software sales related to the expansion of an existing deployment at Foxwoods in the fourth quarter. International sales were up over the prior year as the market for sports wagering in Europe and Australia continued its expansion driving increased demand for our roll-fed gaming printers. Lottery sales were $2.6 million versus $700,000 in the fourth quarter last year as we experienced an unusually low level of shipments in the year ago quarter. Printrex product sales were…

Thanks Steve. I firmly believe that this is an extremely exciting time for our company as in 2017 we will continue to evolve and position TransAct to benefit from the large and growing opportunity for our AccuDate restaurant management terminals. New software partners have created an environment for these products that establish them as in-kitchen technology hub for restaurant and foodservice operators. This growth is made possible by the ongoing stability of our casino and gaming and lottery business and we will benefit from extended Epicentral capabilities and our new Epic Edge gaming device printer. I want to extend my thanks the hard working team at TransAct for their efforts, which have allowed our company to expand into new high-growth markets and really go after this restaurant solutions market. This is all new technology for us. And of course, thanks to our shareholders for your continued support as we further transform and grow our business. Operator, we are ready to take questions.

[Operator Instructions]. Our first question comes from Kara Anderson. Your line is now open.

Hi. Good afternoon.

Hi Kara.

Hi Kara.

I am wondering if you could talk about the recurring revenue component of AccuDate Pro and XL, whether you started booking any of that?

We booked a little in the fourth quarter but the AccuDate XL will provide us with a recurring revenue stream just about for every terminal we sell. So we are really targeting that product because of its technology and support. So as we ramp those sales up over the year, we will see a higher component of recurring revenue with the AccuDate XL.

And then, I am sorry if I missed it, but can you talk about the sales pipeline for food safety terminals in 2017 or restaurant solutions?

As in customers?

Just in what you have in the pipeline, what you are thinking as far as how you think the segment will perform versus 2016, knowing that some of these sales cycle can be quite long?

Clearly, we think that we are going to see growth in 2017. It will ramp-up as we go through the year, especially with the increased sales presence that we will have, but also given the companies that we are working with right now that are trialing the system. We are getting a fair amount of leads from both Jolt and CrunchTime customers. CrunchTime is out selling their software and representing their side and speaking with restaurant companies and CrunchTime already has an enterprise system out there and you just add the app and buy our terminal and then you get their software on the terminal at every prep station. So we will see that ramp up. The exciting thing that we did between Jolt and CrunchTime is we have got all ends of the back of the house now covered with the terminal. So this hub, this XL, can become pretty much the hub for the restaurant, both in managing its people, its equipment, managing the operations of the restaurant and then with the complementary programs that CrunchTime has developed we now can do menu management, we can do prep, we can do inventory control. So we really handle from the left side to the right side of the restaurant all the activity that's going to go on and create this management hub sitting there and then put a terminal at every prep station. So the size of the market, Kara, has grown tremendously just because as we get the XL out and as we teach the market about it and our software partners, where McDonald's, we put one terminal per store, we could see two, three, four terminals per store. You could see one just for the management of the restaurant and then one at every prep station. So by the way, the market has taken us in this direction and these wonderful entrepreneurial software companies are entering the market and the good thing is, they are now developing their software applications for our terminals. So we will be the terminal that everybody will need because they can load these software programs on it. So we will see this ramp-up as the year goes on, but the restaurant solutions market, the available market for our terminal has grown significantly.

Great. Thank you for that. And then shifting a little bit to Epicentral. Correct me if I am wrong, but you did four installations in 2016?

I don't remember.

I think you are right, Kara.

And you expect to 2017 to be greater than that?

We do.

And then I don't know if I missed it, but did you provide an outlook for lottery?

No.

No. We never really do. It's pretty consistent though, other than the spare parts business is going to grow a lot.

So I mean, could we a retreat to a year, like 2013 or 2014 where the business was, call it, $4.5 million from what we saw almost $10 million in 2016? Or is that not a concern?

It's not a concern for us.

For lottery?

Yes.

Lottery sales will remain fairly consistent, Kara.

I mean, once in a while we have an off-year, but it's not a worry for us.

Okay.

Look, I mean, Kara, the reality is, the company is breaking, it is looking at two distinct markets for the growth, right. We are using the cash flow from our gaming, lottery and casino business where we are expecting growth. We are expecting high margin growth because of the Epicentral sales. We are seeing a little bit of a better market in the casino market. So we are optimistic that we are going to see increased sales of our gaming printers also on two fronts, both of them, the domestic market and what's going on in Europe with these sports betting machines. So you will see growth there, but then you will see some pretty good growth with our food safety business, especially with the AccuDate XL, which is our highest priced product. So we are pretty not only excited about the top line growth, but the continued growth of our gross margins as we really focus on our high-technology solutions.

Great. Thanks. That's it for me.

Thank you. And our next question comes from Phil Bernard. Your line is now open.

Hi guys. Thanks for taking my call. Congrats on a solid quarter, especially with respect to the margins. Well done.

Thank you.

Thank you.

Yes. With respect to product development on the restaurants side, are you guys happy with where the product AccuDate XL and Pro, are you happy with the work that you have done? Or do you still anticipate further need for development there?

Phil, great question. The real challenge was getting the Android terminal done. And Android is a great platform for kind of cloud-based solutions. It just comes with a lot of burden of things like GPS and cell and all that. So did a lot of lot of work. We have some developers around the world that worked with us on it. And so we are really pleased with the progress we made with the XL and the launch and the work that we did with both CrunchTime and Jolt. And if you have a chance to go to Jolt, you will see the type of cloud-based labeling solution that they came up with. It's very elegant and very good for our customers. I would expect us to have one more terminal out but not this year. We have three good terminals, the 9700 really goes after that McDonald's type business, simple menu, just labeling. And the Pro and the XL really go after that enterprise and systems solution. We will be focusing a lot of the business though on the XL sales, just because of the capability and actually the questions we are getting from our restaurant companies. We have worked with a lot of restaurant companies over the last couple of years and they keep challenging us to have the terminal do more and more. And now with the XL and Android and Jolt and CrunchTime, it really does meet what the market wants. But I would expect us to have some enhancements this year, but really potential new terminal next year.

Great. Switching gears over to the international, well the casino side, especially with respect to the international and with the large OPAP install finally underway. I am curious if you guys have any part in that?

I don't think they are going out with printers. I mean Greece is Greece. And they have decided, my understanding is they have decided to go with a non-printer solution, much different than Italy did. We will see. Yes. It's kind of crazy, but we are not expecting any sales in Greece.

I am sorry to hear that. But it sounds like the rest of the European businesses are still strong.

Yes. We came out of ICE feeling really good. The sports betting business market has really grown and we are one of the only suppliers of roll-fed printers. There's a couple of small companies out there. But we were quite excited about what we are hearing out there. Overall, the European market for ticket printers is pretty stable, but the roll-fed printer looks like another growth area for us. And we got wind of a project that could close in the fourth quarter that could be quite large. So we are pretty excited about what it looks like in Europe this year.

Okay. Great. And then finally down to sales and marketing and this is my fault, I may have misheard it. You guys mentioned with respect to guidance a $2 million bump. Is that for the full year or is that just within the first quarter?

Full year, Phil.

Full year. Okay. Great. All right. That's it for me, guys. Thanks.

Okay. Thanks Phil.

[Operator Instructions]. Our next question comes from Mitchell Sacks. Your line is now open.

Hi guys. Congratulations on a nice quarter. My question is around the sales and marketing push over the next 12 months. Can you frame it a little bit better? You were talking a little about selling software and hardware? Could you kind of give me a little more framework around that?

Yes. So we are really into a technical sale. So we are selling what we call Jolt for TransAct, which is a software. A good way to look at it, Mitch, is think of the XL as an iPhone and apps being sold on the iPhone or apps being sold on the XL. In the case of Jolt, we are going to be selling or including their cloud-based labeling software on the XL. And it's a really -- it's a wonderful program. You literally can redesign a label and see it pop-up on the XL screen as you are designing it and then finishing it. You can do regions, restaurant companies can break up their restaurants into regions, certain locations. It's a really sophisticated system that Jolt designed. So we are going to be including that software or that app on our XL. So think of TransAct as selling kind of this iPhone with this app on it call Jolt for TransAct. And then also speaking to customers about if they want to do the food side of the business, we won't be selling the CrunchTime system, but informing them of the opportunity of CrunchTime and adding CrunchTime to the terminal. We also have other customers that are using CrunchTime that now really appreciate the fact that you got this XL and they can use it now for both sides of the house, the operations and the menu management and food management. So we are really selling this system capability and then the app that Jolt is giving us for the labeling side of the application of the sale.

Okay. Cool. Thank you very much.

Yes.

And our next question comes from Jeff Bernstein. Your line is now open.

Hi guys. Just a couple of questions. Just to continue on the restaurant opportunity. Is this going to be primarily directed now at the quick service restaurant segment? Or is fast casual now a target for the product area?

No. It's all of it, Jeff. We are going after it all. We are going after casual, fast casual and quickserve. The big opportunity clearly is fast casual and casual as you look at the amount of prep stations they have, the ability to manage their operations through a terminal temperature management. We can manage what's going on with their walk-ins and their freezers. We can put a terminal at every prep station, have a separate terminal we call the hub for the restaurant manager. We are going after foodservice suppliers, people that actually prepare food and run locations. We are going after convenience stores, anybody that now preps and labels. The grab and go side is important. Doing grab and go labels, we are seeing a lot more in casual restaurants where you can call up, get a meal and take it home. So we are going after it all. And you know, Steve talked about this marketing program. We want to get this out and we want to let the world know or the U.S. know what we have because we have had certain customers who have trialed the product or used our Pro, not the XL, tell us that it pays back in a couple of months. So we really, now that we are done with Jolt, got it integrated, got the software, got the app on the terminal, now we have got the operations side, the food management side. Now we want to tell the world what's going on. And in all fairness, if you think about how we went to market, we had some direct sales like McDonald's, but then we use this DayMark company that was a label supplier because basically we were doing late no label turns, right. We were doing full rotational…

So there is a workflow change that's going to happen here for a lot of these stores. Are you selling primarily to the franchisor and then later there is a waterfall down to the franchisees? Or are you going to go directly to large franchisees? How do we think about that?

So we are going to after it all but we are talking to corporate right now because if you look at the casual side, there is a lot more corporate influence on the stores because of the menu management, the food management and all that. And so we are a lot at the corporate level. I mean, clearly, we have worked at the franchise level in the quickserve market. There is a lot of them out there, but the value of the XL is fast casual and casual and there we are talking to corporate. They are talking to us about the technology that they want to add to their stores to help them manage the stores better. And now we can talk to them about a world class solutions that if they just wanted to do operations management, we have got the Jolt solution. If they want to talk about menu management and inventory and all that, we have got the CrunchTime solution. All that now is integrated onto the XL. So we are really targeting the corporate headquarters and then large franchisees and all that. But with the XL, we are really at the corporate level.

So do you think this cycle is a six months thing? Is it a year? And are you contemplating any kind of leading indicators you can give us in number of trials or logos that you do sign even if you can't say who the logo is or whatever?

Well, the XL actually allows us to enter the market quicker because the label management, the menu, the food prep items is a lot easier to add to the terminal through this cloud-based system. So the sales cycle should be quicker. Now we have been into the sales cycle, but we needed the Jolt software. We needed the work between the two companies to finish. So clearly, we will see it grow over the year, but we have already been in contact with certain customers and certain restaurant companies and they led us to develop the XL. They have led us to do, hey we want more, we want to manage our operations better and so they have led us in this direction. So some of the leads are already there. And then, by having this larger sales force, direct sales force as we run this marketing program which will run over a couple of months and it's a direct marketing program by the way. It's not advertising and hoping somebody reads it. It's a direct marketing program. We are going to have the people that can follow-up, do the demonstrations, work through the types of work that they want and the types of use that they want to do with the XL. So we will see this ramp-up as the year goes on.

All right. And then I wanted to just circle back on lottery. You guys, a couple years ago, with the new IGT deal got the ability to sell nonexclusively, right? You can sell to other people. What's going on there? Have you gotten any traction?

Look, we talk to every probably lottery company in the world. I got to tell you, Jeff, that the focus of the company is the restaurant solutions business. It dwarfs anything that we could get a lottery printer and another lottery supplier. It's just, we are taking our resources, redirecting them, getting our engineering to redirect towards our food, our restaurant solutions business. Jeff, it's just much, much larger. So you know, there is just such a big difference between the restaurant solutions opportunity and anything else that we are looking at.

Understood. All right. And then I guess gaming is going to eventually come to Japan. Your competitor is now Japanese, your main competitor right? Is that going to be a problem or an issue? Is that 2018 or 2019 business? Or is that 2017 business? Just talk about that a little bit?

Yes. Well, casinos aren't built yet. So I think it's 2020, 2021, maybe 2022. I am sure Phil Bernard probably could help us all understand when that's going to happen. But we are making the moves to have the right representation in Japan, not to allow our Japanese competitor to have an advantage over us. So we have already got that emotion. I am very pleased with what our plans are and we will make sure that we are well represented there and can give them a good battle.

Great. Thanks very much.

Sure.

And that concludes the question-and-answer session for this call. I would now like to turn the call back to Mr. Bart Shuldman for any further remarks.

Well, I would like to thank everybody for joining us on the call this afternoon. Again, if you are going to be at the ROTH Capital, please say hello and we will meet or come see the presentation. We have got a new presentation now. We also look forward to reporting back to you on our further progress in our business when we report our first quarter results in early May. And also we will be doing the B. Riley conference in May. So for those that attend the B. Riley conference, I would normally talk about that at the May timeframe in our May call, but just in case you think about going to B. Riley, we will be at the B. Riley conference also. So we look forward. If you are not going to be at ROTH, hopefully you will be at B. Riley and stop by and say hello. We really appreciate the support. It's an interesting time for TransAct. I haven't seen an opportunity like this since we entered the gaming market. I think this could be a lot larger and we are really excited about it and making the right moves. So we maintain our leadership and get the sales going. So I really appreciate your support and talk to you in May. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.