Good day, ladies and gentlemen and welcome to the TransAct Technologies first quarter 2017 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct the question-and-answer session and instructions will follow at that time. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to turn the call over to Mr. Jim Leahy, Investor Relations. Sir, you may begin.

Thank you, operator. Good afternoon and welcome to TransAct Technologies 2017 first 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 first 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 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 everyone joining us on this afternoon's conference call and webcast. Earlier this afternoon, we reported 2017 first quarter net sales of $14 million, operating income of $1.4 million and EBITDA of $1.7 million. Steve will review the first quarter financials in more detail in a few minutes, but I'd like to begin by providing some high level comments about the results and our business. We believe TransAct is off to a good start in 2017 as we laid the foundation for full year growth and continue to enhance the profitability of our business, thanks to the ongoing shift in our sales mix towards higher margin software driven technology solutions. We also made progress on two fronts in our restaurant solutions market during the quarter, which we believe positioned TransAct to take full advantage of what we see as a large and growing market opportunity. First, we made several strategic fine tuning adjustments with planned marketing campaign in our restaurant solutions market that we detailed back in March. The adjustments pushed our spending for these initiatives into the second and third quarters from the first and second quarters and we believe it better positions the program to have a meaningful benefit to our sales efforts. We call this type of move inaudible. We just recently initiated the extensive direct marketing campaign for AccuDate terminals, which is aimed at raising industry awareness for these solutions and elevating TransAct as the clear market leader. The start to the campaign was changed by about six weeks to better align it with the restaurant and food service industries’ largest worldwide convention, the National Restaurant Show, NRA, in May of 2017 which will begin in a couple of weeks. We believe by more closely tying together the marketing campaign and trade…

Thanks, Bart. Good afternoon, everyone. First quarter 2017 net sales were 14 million compared to 14.4 million in the 2016 first quarter. The 3% decline in net sales resulted from lower restaurant solutions and casino and gaming sales, partially offset by an increase in both POS automation and banking sales and TransAct services group sales. First looking at our sales for the first quarter by market. Restaurant solutions sales were $527,000, down 36% or $295,000 from last year's first quarter. Sales in the quarter were impacted by a decline in sales to our distributor and as Bart noted, a shift in customer interest towards the new AccuDate XL, particularly following the recent announcement of our partnership with Jolt. As Bart noted, this new relationship with Jolt has driven many of our existing and potential customers to re-evaluate their buying decision, as they consider moving up to purchase the AccuDate XL instead of the AccuDate 9700 or PRO to gain the additional features and benefits the XL offers. Though this is having a temporary impact on our sales in the near term, we believe this shift in customer interest to the XL will bear fruit for TransAct in the long run. POS automation and banking sales were up 6% or $143,000 to 2.5 million in the 2017 first quarter, as we continued to benefit from strong shipments of our Ithaca 9000 printers to McDonald's for their many new initiatives. Casino and gaming sales were down 6% year-over-year or $321,000 to 5.1 million in the first quarter of ‘17. Domestic sales declined 7% from the prior year as increased casino printer shipments, including 2500 Epic 950s we shipped for the new ilani casino, up in the Washington State. We’re more than offset by a decline in Epicentral sales. In the prior year…

Sure. Thanks, Steve. Great job. As I said, when we reported our 2016 fourth quarter results, 2017 is a year of significant opportunity for TransAct, particularly as we move -- as we more fully embrace our software driven solutions in several key markets. Importantly we have today a very large and growing restaurant solutions market opportunity, which we are addressing with our suite of AccuDate terminals. By pursuing attractive software partnerships with companies such as Crunchtime and Jolt, we’re also creating an ecosystem that is establishing the AccuDate XL as a must have solution for restaurant operations. Furthermore, we continue to innovate with Epicentral, the newest version 3.8 adds new features such as the ability to run multiple promotions concurrently, create games within games and/or promote these site promotions and even segment players. In addition, our unique new Epic -- Epicentral SE version allows operators to leverage the existing bonusing capabilities of their slot management systems along with several modules in Epicentral to offer bonuses as a printed coupon, while providing an upgrade path to a full Epicentral deployment. In closing, I want to extend my thanks to the hardworking team at TransAct for their efforts to expand our company into new high growth markets. And of course thanks to our shareholders for the continued support as we further transform and grow our business. But before I turn the call over to question and answers, I want to let you know about a couple of key dates coming up. The first one as we talked about is the National Restaurant Show, NRA, which will take place in Chicago, May 20 through 23. If you happen to go, please stop by our booth. On May 22, we’ll have our shareholders -- annual shareholders meeting here in Hamden. And on May 25, I will be attending the B. Riley investor conference and we’re doing one on ones in a presentation of the business. I hope some of you can attend. At this time, operator, we're ready to take some questions.

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

Hi. Good afternoon. I’m hoping that you can help us get more comfortable with the lighter restaurant solutions revenues in the quarter. Specifically, what makes you comfortable to state that the lighter quarter is a reflection of, call it, maybe a delay to purchase the AccuDate XL, maybe some commentary around that would be helpful?

Yeah. Kara, there's a couple of things going on and one, the reason why I feel comfortable is we're using salesforce as our mechanism to track the activity of our opportunities in the restaurant solutions market and we've worked very hard as part of our program to do this major marketing campaign and of course have our own direct sales force. We've done a lot of work here at structuring sales force, so we can actually see on a daily basis what's going on with the business. In fact, in the middle of our office is a TV screen that literally scrolls through the sales people and their opportunities and we can literally see what the opportunities are, at what stage of the sales process they're in and the size of the opportunity. And what makes me comfortable is that I won't go into the details of it, but when we look at our reports, when we look at the TV screen, the amount of opportunities is significant. So this isn't done on a back of an envelope or guessing, this is a structured approach to sales process that we can track, where we are in the sales process, how many terminals that particular customer is looking at and where in the sales process we are. So I feel very good about the opportunity But a couple other things have gone on. One is with the XL, it just has so many more capabilities that it was important for us to go back to customers we are working with and show them what those capabilities are. For instance, if you have a national restaurant company, you can actually regionalize your menus. So that if headquarters wants to control the menu, but has regionalize types of menus, headquarters can literally section…

And then any additional color on the AccuDate XL with Jolt sale in the quarter, how many terminals that might be, yeah start there maybe.

We're not going to break out individual customer orders, this is not something we're going to do. We kind of launched the product in March. We already got our first order. The order is of a nice size order. It came with our first service contract, our ongoing work with that customer to support them and also came with our first order for TransAct labels. We will be a supplier of labels for the AccuDate XL which was one of our goals to build the recurring revenue piece of the AccuDate product line especially the XL. So we're really pleased with it, it happened pretty quickly as we launched the product. So that was a pretty big surprise to us in regards to how quick they wanted to roll it out considering it wasn't too far after we announced the integration of Jolt with the XL.

And then can you help me reconcile the solid gross margin growth despite I guess greater contributions from lower margin POS to moderate and then really fewer sales and higher margin restaurant products.

Look there's a couple things in the business that actually have really good margins for us. One, the AccuDate terminals. Another one is our spare parts and one of the things that is happening in TransAct that we've talked about now for at least two years is the fact that our commodity inkjet printhead business is declining as we walked away from the banking market and the POS market using inkjet printers [indiscernible] and substituting that business with spare parts business. As we said, oh it's got to be two years now, the lottery business is changing and it's actually changing that's helping us with extra sales in regards to the states and jurisdictions around the world keeping the terminals out longer which drive more spare parts business which has had some pretty good margin. So what you're seeing is a shift of our spare parts business growing, shift down of our low margin inkjet printhead business which will continue to decline, but be replaced as Steve said, the second half of this year should see some increase actually in spare parts business for a lottery business and also in the second half we will be seeing some more AccuDate terminal sales. So what you're seeing is this transition to TransAct over to a much higher gross margin business model and profile for TransAct.

[Operator Instructions] Our next question comes from Mitchell Sacks with Grand Slam Asset Management. Your line is open.

Hey guys I might have missed this. With the Ithaca 9000 printer, I know you are sort of expecting at the tail off at some point this year, do you have a better idea of when that starts to happen?

You know, Mitch, the first quarter was brilliant. Lot of printers were shipping, look there's a lot of things going on with McDonalds that continues to drive printer sales for us and we'll see, it looks like a pretty good second quarter for us and we'll go quarter to quarter. We would have expected to have dropped off in the first quarter but it didn’t and we're expecting a pretty healthy second quarter. We're quite impressed with the initiatives they're undertaking which drives terminal sales and printer sales.

And can you talk a little bit about the G&A cost and what's driving those up a bit?

It’s really just professional fees, Mitch.

And then the final question has to do with the label sales. Can you just kind of walk us through that a little bit, this is obviously a new business line for you guys. Can you kind of walk us through the thought process on it and how we should think about it going forward?

The thought process was pretty easy from a standpoint of, now that we're going away from our distributor who had labels could we capture that business. What would it take to capture the business, would it be profitable, would it add to our business, and then who would be our partner, who would help us. So this is something that actually, Steve, spearheaded it with the operations team because we knew if we could get the right price, if we knew we could get the right labels, we're in negotiating on the terminal. So it would be brilliant - it would be really nice if we could offer our labels instead of making it a jump ball and having others come in and bid on the label business. So the challenge was for us was finding the right label partner that could supply its labels at the right price so we can make the margins that we want to make. And it all came together, Mitch, and we know the customer, we're working with the customer, we're now going to be direct selling to that customer. And to us there are four pieces of the sale, right, there is the software, which both Jolt and CrunchTime will get. There is the terminal sale, we'll get. There is the support of the terminal both technology side and also the service side. And then there's the ongoing label business and the ongoing label business is large. We have a certain accounts that are using a lot of labels a day. So we didn’t want to give that up, and the question is could we find a partner that would allow us to make the margins that we wanted and we found a great partner, we’re in the process of going through a qualification process. There's a lot of different style labels, Mitch, if disposable, you have removable, you got dissolvable, day of the week labels. So we're going through the approval process internally testing it through our terminal, but truth we are really excited about this because the first time we had a chance to close an XL order, we offered the labels and they gladly bought into the whole program. So not only did we get the terminal sale but we're going to get the ongoing revenue from the service contract and the ongoing revenue from the label usage and the label contract.

Where will that revenue show in your income statements?

It will go into the TSG group.

From the sales side, you’ll see it in TSG. So you'll see that with our service contract, you'll see that flow through. So from a building block standpoint, Mitch, now we've got three out of the four, right. Jolt and CrunchTime are going to do their work, which they're out there very aggressively selling. And one of the things that I didn't mention with Cara question, which was a very good question, really appreciate the thought of okay, how do we feel good about our business. We talk to Jolt and CrunchTime also and they're very excited about their initiatives now that the terminal been released now that their software has been released. So they're out selling on our behalf. So we get three out of the four pieces now, Mitch, that is lucrative from the standpoint its ongoing revenue and the margins look very good.

It's obviously going to be hard for us to project the number for what it does to TSG, is there any way for us to think about it or to model it kind of going forward.

It's a great question, we call that the tie ratio, right for every terminal how many labels will we sell. We have not calculated that yet because customers will be different. There are different size labels, I mean we have one customer that's using the 12-inch long label, which sells for a lot more money. Now that's not one of our labels we're selling right now because that was sold with our older terminals. So you got to give us a little time, Mitch, to try and figure that out. But the good news is we know that labels are sold for every terminal and we're now with the XL going to be offering the label solution.

Thank you. [Operator Instructions] Our next question comes from Phil Bernard with Eilers & Krejcik. Your line is open.

One quick question on the casino gaming side just switch to another vertical really quick. On the international casino, looks like there are a few decent sized projects coming in the next year, two in Macau MGM Cotai, potentially [indiscernible]. Wondering if you guys have seen any developments there or can provide any color on international.

We feel very good about our Macau situation.

Okay good, great. That's it from me. Thanks.

The other thing Phil that we are seeing and I don't know if you guys are seeing this in some of your reports is the gaming side of the business seems to be picking up, not the casino. In Macau, clearly we've got a couple openings and that you know we all know what they are and we feel very good about our position in Macau. But in the European market, we're seeing a lot of interest in the different countries for what we call gaming machines either sports betting machines or a AWPs and things like that. And that appears to be more of a growth market then the casino market in Europe. I don't know if you guys are hearing anything about that.

We do a little bit of work in that space, and yeah, we’re seeing that. And also domestically some resistance to - with respect to the replacement market as well, I don't know if you guys are feeling that domestically.

It’s ongoing, there's nothing good or bad in the domestic market other than the Epicentral SE is getting a lot of attention from the system suppliers which has been good for us as they look to figure out ways to enhance their sales and do more with their systems. That's been a real active part in our business. But the pockets that we're seeing is clearly Macau, no mystery, there are two big openings coming. But the European gaming side is been interesting to us because of the activity that we're seeing.

Thank you. I'm showing no further questions at this time, I'd like to turn the conference back over to Bart Shuldman for closing remarks.

So thanks everybody, thanks for attending our first quarter 2017 conference call. Again, three events over the next couple of weeks, we have NRA, we've got the Annual Shareholders Meeting and I do invite you on behalf of [indiscernible] to come see us at B. Riley, should be a great day in California. Thank you for your interest and your support at TransAct and we'll talk to you on the next call. Thanks.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone have a great day.