Good day, ladies and gentlemen, and welcome to the TransAct Technologies Fourth Quarter 2017 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 is being recorded. I would now like to introduce your host for today’s conference, Jim Leahy of JCIR. You may begin.

Thank you, Gigi. Good afternoon and welcome to TransAct Technologies 2017 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 for 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’d like to turn the call over to Bart Shuldman. Bart?

Thank you, Jim, and welcome to everyone joining us on this afternoon's conference call and webcast. Earlier this afternoon, we announced our 2017 fourth quarter, which included net sales of $13.2 million, operating income of $1.5 million and adjusted EBITDA of $1.8 million. Our results also included gross margins of 50.2%, which represented all-time quarterly rapid for TransAct. Steve will review the financial results in more detail in a few moments, but I’d like to begin by providing some high level comments about our business. Overall, we ended 2017 well-positioned for long-term growth and demonstrated throughout the year that the work we have undertaken to transform our business, has resulted in a powerful portfolio of high-value technology-driven solutions that will allow TransAct to generate attractive returns for our shareholders going forward. In particular, our ongoing efforts to offer more products with more technology, as we are doing in the restaurant solutions market, have resulted in record gross margins at levels we believe are sustainable going forward. Furthermore, we believe that for 2018, the building momentum for our restaurant solutions terminal and related software maintenance agreements, warranty support contracts and proprietary label sales will result in profitable top line growth over the course of the year. Our AccuDate restaurant solutions market is still in the early stages of what we expect will be a very large market opportunity for TransAct for years. Our AccuDate XL shipments to-date have been largely in support of trial activity and market awareness. And as customers are testing the functionality of the terminal, they are coming to us and engaging with our team to explore enterprise-wide deployments. In particular, the AccuDate XL is clearly demonstrating how we can benefit restaurant and food service operators by helping to grow revenue, lower costs and enhanced food safety throughout…

Thanks, Bart. Good afternoon, everyone. As Bart said, our fourth quarter 2017 net sales were $13.2 million, down 3% from $13.6 million in the fourth quarter last year. Looking at our fourth quarter sales by market, restaurant solutions sales were $1.4 million, down 15% or $249,000 from last year’s fourth quarter. The decline in the quarter was driven by lower sales to our distributor DayMark as we continue to take up more of the sales effort internally. Offsetting the DayMark sales decline was an uptick in sales of our AccuDate 9700 terminal to a large customer in support of the launch of a new menu item. As Bart mentioned, while it doesn’t show up in our fourth quarter numbers, our sales pipeline for the AccuDate XL continues to grow and we believe we are nearing the inflection point where momentum for this product will lead to higher and more consistent sales. POS automation and banking sales were down 26% or $541,000 to $1.6 million in the 2017 fourth quarter, as sales of Ithaca 9000 printers to McDonald’s continued to slow from the record pace we saw a year ago. Casino and gaming sales were down 8% or $400,000 year-over-year to $4.4 million in the fourth quarter of ‘17. Domestic casino and gaming printer sales grew 34% over the prior year as our shipment to U.S. OEMs remained relatively strong. Offsetting the strength in the domestic market was the international market where sales were down 69% over the prior year, as our decision late in the year to transition our European sales model to a direct team, drove a significant decline in shipments to our now former distributor. However, our new European direct selling efforts are now running at full steam and we have already secured a strong level of sales…

Thanks, Steve. Good job. We are confident that TransAct is favorably positioned to benefit from a major change in restaurant and food service operators investment priorities. Following years of investing in customer-facing technologies intended to drive sales growth, we believe operators are now looking towards back of the house solutions that will allow them to better manage their processes, enhance their operations to drive increased profitability and better protect their brands, through tighter controls on the supply chain and raw materials. TransAct has created a one-stop shop of easy to use AccuDate terminals and branded label products that are set up to ensure that our customers’ current and future needs are addressed. We believe that the restaurant solutions opportunity positions TransAct to generate higher revenue and attractive financial returns, while creating tangible long-term value for our shareholders. 2018 will be an exciting year for TransAct and we look forward to reporting our successes as the year moves forward. In closing, I’d like to express my sincere thanks to the work our TransAct team does day-in and day-out to grow and evolve our business. I’d also like to thank our shareholders, for your continued long-term support. And finally, I’d like to let everybody know that I’ll be attending the Roth Growth Investor conference next week and available for one-on-ones on Tuesday. And if that doesn't work, I can be available Monday, if that's better. So, I thank everybody for joining us on the call this afternoon. We look forward to reporting back to you on further progress in our business when we report our first quarter results in early May. At this time, operator, I'd like to turn the call over to questions and answers.

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

Hi. Good afternoon.

Hi, Kara.

So, with respect to the sales pipeline for the restaurant solutions, when they do, where do leads generally fall off in the sales cycle, and what's the pushback you're hearing?

Good question. We set up this T [ph] week in the office, where we track all of the sales opportunities. And really haven't fallen off, I would say, like what we're doing right now with the two big installations that we're working on. There is a bit of integration that has to go on. So, it takes a fair amount of time once the company has made the decision to roll out thousands of terminals to many of their restaurants and brands, then they have to sit back and say okay, now we've got to integrate the computer system, the system that we're going to use with one of our partners with their existing system. They got to get that working, so, all of the ingredients and menu items and recipes and all that all have to get loaded into the system. And then, once that's done, then they've got a trial it. And then once that's done, then they've got to set up all the Ethernet drops and all the capability, so that the terminal can talk to the cloud in regards to working with the system that they're going to use. So, it's pretty lengthy process. And that's where we see most of the work right now is a lot of the technology process that has to go on to ensure that once they roll this out -- and once it rolls out, it will roll out pretty quickly. We're going to do a couple of thousand terminals over a couple of quarters pretty quickly that the system is really tried and true and ready to go and that the equipment and all that is ready at each and every restaurant. So, that's really where we see it. I kind of harked on it a little, Kara, in…

Okay. Thank you for that. And then, just for clarification, you may have said this. Were you introduced to the large national restaurant chain in food service brands that you are planning to roll out via your software partners or is that a relationship that you I guess generated?

Yes. So, it’s a combination. So one was introduced to us through one of our software partners and actually one was introduced to us by the company itself that heard about our terminal, bought it, and actually started using it for almost very ingenious way to use the terminal which will not only help them with food safety but actually grow their revenue. And so, they took it upon themselves to look at how to use the terminal and then came back to us. And this is really without one of our software partners other than labeling side and fond an ingenious way to use it. And it’s a pretty large opportunity. And then, we’ve got a couple of more in the pipeline that are more towards enterprise solution kind of stuff where they’re going to roll it out across all of their restaurants. But the two that we are working on right now, one was brought to us by the customer themselves and one was brought to us by CrunchTime.

Got it. And then, shifting to casino and gaming, did the 34% increase include any sort of large roll out or new casino openings or anything in particular to call out for behind that?

Not really. No.

Okay. Can you quantify how much was lost in terms of international printer sales for the European segment in the quarter, so we can kind of get a sense of how big that is?

Yes. The sad thing is that we lost a lot of sales in Europe. And we saw this happening, and I reported it as soon as we really started getting our arms around it to the shareholders that we did have a problem. And I am not kidding, what I am saying that we’ve won commitments already, and actually it was a couple of weeks ago when we added all up to realize that we have sold or we have commitments for sales that already exceed our European business all of last year. So, it was a fair amount. I don’t Steve, if you’ve got anything?

The international printer sales were down $1.3 million, just in the quarter.

So, kind of a sad story about our distributor, and a good story about how we quickly rectified the situation, and we’re really excited about what’s going on in Europe. The customers have come back. In fact, there were some customers that we didn’t even know about that have contacted us to buy our printer. And we’re very pleased with the fact. We didn’t think it was really going to happen to the second half of the year. In fact, we weren’t really ready for all the orders here. But, we’re really pleased to see it come back and come back this quickly. So Europe should not be a problem anymore.

Our next question is from Phil Bernard from Eilers & Krejcik. Your line is now open.

One quick question. Bart, elaborate a little more on the sales and marketing strategy in Europe. Maybe size the sales team now and what you view as an optimal size of that sales team mix?

Yes. You saw the cost of us adding the sales people in the fourth quarter. I mean, clearly, we had to bring them on-board and get them trained before we took it over on January 1, 2018. So, we’re very happy with the staff that we have now. We also added -- we moved our facility in Europe to a newer facility. Where we can stop the product, we can service the product. Steve added a couple of portfolio in the warehouse because now we’re shipping directly to the -- we will be shipping directly to the customer from our warehouse, from our facility in Europe. I don’t think the cost will go up much more from here. They are mostly loaded in the -- you saw that in the fourth quarter where our sales and marketing costs did go up. And that was on the casino and gaming side that was specifically for Europe. So, we’re at a good level right now. And the orders are coming in.

[Technical difficulty] we’re seeing an uptick in sales replacement sales. And I’m just curious how you guys are seeing it?

Could you ask the question again, Phil? You cut off. I’m sorry.

So, I’m traveling at the moment. With respect to domestic casino gaming sales, what is your view on that going forward following a strong period?

Look, we’re probably gaining a bunch of market share. I don’t think the domestic market -- because slot machine shipments were up 34%. So, we’re clearly gaining market share. And that’s from a couple of areas. But we’re also seeing a clearly healthier market. And we talked about that on the last conference call that we believe that we were starting to see a more firming up of the market from where we’ve been. And clearly we saw that in the fourth quarter. But, we also see more casinos getting ready for Epicentral. So, we see some of that coming from casinos wanting our 950 to get ready for that. We have been such a reliable supplier of the Epic 950 into the marketplace. That product was introduced with the opening of the Wynn Casino in 2005. The casinos have trusted it. When a casino has a floor of older and newer machines, they don’t have to worry about having different versions of our 950. Our competitor tends to have three or four different versions of product. Now, they’re trying to bring out another version. So, I think the casinos have learned to embrace what we’ve done, we just kept the 950 going; been tried and true and works and reliable, but we have seen a firming up of the business, no doubt.

Thank you. [Operator instructions] And our next question is from Mitchell Sacks from Grand Slam. Your line is now open.

With respect to the international, you talked about the orders you have to-date being greater than they were for the previous year. In that business, can you just kind of walk me through how that order process works? And so, maybe as I think about the year continue to go on, does that imply that we can continue to add more orders?

Yes. So, we’ve got a combination of orders that are in-house, but also long-term commitments from slot manufacturers. So, slot manufacturers have come to us and said, we want to buy the 950 all year, we want to negotiate this that and the other, and if you will do that, we’ll give you the business all year. So, when you add that all up, orders in-house. And by the way, it’s across both gaming and casino. So, it’s both our roll fed and our ticket printer. We have got orders in-house, we have got orders for all three printers that we have, and we have also got long-term commitments throughout the year to continue to buy the printer. So, when you add that all up, it’s adding upto a fair amount of business, and we expect to close more business. So, it’s going to keep going. We entered the business January 1, 2018 with our sales force and then of course we had ICE, we had the International Casino Exhibition which turned out to be a very successful show for us where we started dealing with some more customers that want to make commitments to us. So, we feel very good about the year, Mitch.

Okay. And then, with respect to the AccuDate terminals, you talked about the two large orders that you expect to start filling in 2Q or aimed be around 2Q. And so, those couple of thousand possible terminals. That’s on top of whatever you’re doing for your regular business, correct?

Yes, yes.

Okay. And then one thing we’re still trying my hands around in its attach rates for the labels. Do you have any more feel around that that if we could kind of use as sort of a methodology to try to project yourselves?

Yes, so there’s going to be three components, Mitch, as we go forward. There is going to be three components of recurring revenue. There is going to be a software maintenance contract. There is going to be a warranty, which is optional. The software maintenance contract going forward not with some of the accounts we have now, but going forward, and we’ll have more to talk about this in the next couple of months about what we are doing. But, the warranty contracts, which a lot of our customers are signing up to because the terminal is becoming such an important piece to their operations, and then there is the label. And we are starting to roll that up as to what min and max of the tie ratio will be. I think we’ll have more to say about that over the next couple of months. Clearly, we know that’s important to the investors to be able to share that. I want to wait until we do some more things on the software maintenance and to get a feel for how that rolls out to be able to give you a good sense of what we believe the average tie ratio will be for every terminal we ship and will be as percentage of the sale price.

And then, sort of back piggybacking on Kara's question, with respect to gaining these types of relationships, if you guys give us kind of a high-level picture about from initial contact with the customer till they decide to move forward with [still rollout], how long that sales process took?

I would say a minimum 12 to 16 months all the way to two years. It's not just us. What everybody has to realize is now that all the software is being added to the back of the house, it's an integration -- McDonald's was easy. McDonald's, we got their menu, we loaded their menu on the machine, we field trialed it, and that's it. Machine sits there, plugs in, not plugged into the internet, it's not plugged into the cloud or anything. And the training was easy. And by the way, we have McDonald's worldwide this year. So, we'll see a little drop in McDonald's sales as we get ready for worldwide, because worldwide is a buying show. So we'll see that pickup as we get through worldwide. But, now that we’re doing this enterprise work, there is a lot of work to taking big companies, multi-brand restaurants, getting them on to the system, getting the ingredients on to the system, getting the recipes on the system, getting the process on the system, trialing that and then rolling it out. So, it's a lengthy process, it's a very in depth process. But the value to the customer is there. And there has been no pushback, it's just a lengthy process. It's kind of like what we went through here when we put Oracle, and we thought we'd be done in like a year and half and two and half years later, we turned it on. But, this is part of the process that's now being in a full suite of product offerings and solutions to the restaurant.

Thank you.

So, Mitch, the first couple are starting to come through the pipeline.

[Operator Instructions] At this time, I am showing no further questions. I would like to turn the call back over to Bart Shuldman, Chairman and CEO, for closing remarks.

Bart; you can say it anyway. Thank you everyone for joining us on the call this afternoon. We do look forward to reporting back to you on our further progress in our business when we report our first quarter results in early May. I do hope I see some of you at the ROTH Capital Growth Conference next week and looking forward to answering your questions there and doing some one-on-ones. And thank you for joining us today. Thank you for your support. And we'll talk to you in May. Thank you very much.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect.