TransAct Technologies Incorporated (TACT) Q4 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the TransAct Technologies Fourth Quarter 2018 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 maybe recorded. I would now like to introduce your host for today's conference Mr. Jim Leahy with Investor Relations. Sir, you may begin.

Thank you, Darrell. Good afternoon, and welcome to TransAct Technologies 2018 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 its initiatives and details on the fourth quarter financial results. We'll 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 to everyone joining us on this afternoon's conference call and webcast. For the 2018 fourth quarter TransAct generated net sales of $11.8 million, operating income of $1.1 million and adjusted EBITDA of $1.3 million, delivering a quarterly gross profit margin of 50.1%. Diluted EPS for the fourth quarter was $0.12 per share. For the full year TransAct's gross profit margin expanded by 170 basis points while our net income and diluted earnings per share grew by 69% and 67% respectively. Steve will review the results in more detail in a few moments, but I'm sure everyone on the call will want to hear from me about our recent launch of BOHA!. So let me give you a quick overview of our gaming and casino market and then get right into BOHA!. For our global gaming and casino business, we generated 21% year-over-year sales growth in the 2018 fourth quarter on continued market share gains, particularly in Europe. In the US, we had first shipments of the new Epic Edge ticket-in/ticket-out printer to a large global casino operator in support of their new opening, which will come later this year. As a reminder, the Epic Edge printer offers casino operators next generation technology such as 300 DPI print resolution for shopper barcodes and better ticket acceptance as well as improved graphic imaging for our bonusing applications such as using our EPICENTRAL system. Internationally, our direct sales team in Europe remains a key driver of our business success as our customers respond to TransAct’s high level of service and attention, which has allowed our established Epic 950 printer to take additional share. For the full year, casino and gaming sales grew 43% to $26.6 million, and as we’ve said before, represented a key source of cash flow which we have deployed in our product development initiatives. We had a very good year in our gaming and casino market. Okay, now on to BOHA!, a few days ago, our team celebrated debut of BOHA!, a milestone that represents several years of complex development with a close eye on the evolving needs of the restaurant and food service industry. As we have said for some time, TransAct sees a significant opportunity in this market and we are excited to debut a full initial range of BOHA! solutions was clearly demonstrate to the industry that we listen to their needs and put significant thought to how to best address these needs. BOHA! is the transformation of our restaurant solutions business into a comprehensive ecosystem of cloud-based SaaS apps and hardware solutions that we believe will dramatically change how restaurant and food service companies manage the back of the house operations. As the industry is still in a launch of nine apps and four hardware offerings, we have come to market for the first time with the only single vendor suite of integrated software applications and hardware solutions that can bring automation and digitization to wide array of kitchen tasks. Importantly, by conversion, what we have historically been single -- which had historically been single task solutions that address only a portion of the market’s needs created by the spirit vendors. We have developed into a harmonized platform that will enable customers to easily and cost effectively deploy automation and technology into their complex back-of-house workflows. As they seek to devote more time it's creating a guest centric customer experience. Furthermore, it is no secret that back-of-the-house labor and food costs continue to rise for restaurants and food service operators. In fact very recently a Wall Street analyst that covers restaurant operators published a survey conducted of restaurant operators regarding labor issues. Among his key takeaways were: One, company see a very challenging environment with inflationary pressures intensifying as they struggle to keep the restaurants fully staffed and operating effectively. Two, asked about the implications of tightening labor market on the unit level execution, 64% of the survey samples acknowledged that their businesses are running with lower staffing levels compared to a year ago. And the majority of respondents agree that sub optimal staffing levels have had a negative impact on customer feedback scores. Three, survey respondents expect labor inflation of 3.5% in 2019, compared to a similar survey done in October, which suggests that only 3%. And finally, this analyst believes companies may have to lean in on labor staffing investments in order to protect same-store traffic trends in 2019. Well, our BOHA! solutions address this dynamic head on as they will enable restaurant and food service providers to operate more efficiently to better mitigate the rising costs and deliver increased profitability. To-date, the industry has put a lot of thought, effort and investment into front-of-house technology that helps them create better guest experiences and mitigate rising costs. Now with BOHA!, the industry for the first time to do the same thing in the back-of-the-house. The attention of our team to customers’ needs impresses me every day and I think it bears repeating here that we are coming to market with a very strong array of unique apps. BOHA! Inventory manages inventory accounts by allowing users to scan barcodes, tap do list or use voice recognition. It can create suggested reorders and also help to streamline the receiving process. BOHA! Temp streamlines the process of food temperature monitoring by providing a step-by-step easy to use, digitized guide for employees with the fluid to test, would not only show the food that is needed to be temperature tested, but we also provide a step-by-step procedure should the temperature be out of range. BOHA! Sense and its related hardware monitors interior temperatures for kitchen storage units like refrigerators, freezers and walk-ins sending alerts when temperatures are measured out of range. BOHA! Food Prep calculates how much food to prep each day based on sales and inventory metrics by connecting to the restaurant’s point of sale system. BOHA! Food Recall automates the food recalling with roll process ensuring increased compliance. BOHA! Checklist manages the scheduling of tasks, tracking completion and ensuring the work is completed from opening and closing procedures to daily and monthly preventive maintenance tasks. Together with BOHA! Service, we can provide an end-to-end solution for equipment, maintenance and service. BOHA! Labeling allows restaurants and food service operators to set up their menu with label designs in the cloud for easy setup and review and to show compliance with company standards. As an additional part of BOHA! Labeling a customer can also purchase an additional feature for menu and recipe videos. And BOHA! Service, operators can request equipment maintenance and receive, edit, approve and pay for service from approved service providers. Importantly, we have also developed BOHA! Delivery an app that pairs with the BOHA! Terminal to dramatically simplify the process of receiving and managing delivery orders that are received through multiple third-party delivery providers, each of whom operate their own technology platform. As BOHA! Delivery eliminates the need for multiple tablets and printers, we believe it will become a must have for operators and demanded by those operators. On the hardware side, our key offerings include BOHA! Terminal which revolutionizes food preparation and labeling, thanks to its two label printers and larger touch screen display. TEMS, the TransAct Enterprise Management System ensures that only approved apps and functions are available on the device while allowing TransAct to deliver over the year software updates and security updates directly to the terminal. The BOHA! Handheld is especially designed ruggedized handheld that is at home, in the restaurant and food service kitchens. IP67 compliance ensures that can handle water and food particles while its extended battery accommodates full shifts. BOHA! Sensor and the companion BOHA! Gateway allows for the monitoring of temperatures inside refrigerators and freezers and walk-ins with its Long Range WAN signal technology enabling real time communication to device casings made of steel and aluminum. We have developed BOHA! in a manner that enables TransAct to customize the solution for each customer who deploys it, ensuring that they get exactly what they need and driving a closer relationship between our software and our sales teams and our customers. Every customer manages the restaurant, the place of business differently, and we developed our apps with the capability to ensure we provide the solution they want and need. Now before turning the call over to Steve, I want to provide a bit of context around how we expect to see BOHA! rollout. If you've invested in and want software companies transition their business model from license sales to SaaS, you know that it takes time for signed contracts to manifest themselves fully in the financials. As a company that has historically built this business around traditional hardware sales. The transition to SaaS-based sales will see TransAct flow the value of new contracts through our financials over time instead of upfront. As a result, we fully expect to begin recognize a sales revenue from BOHA! in 2019 with those sales ramping up over the coming years as we expect to sign multiyear subscription agreements with new customers, begin deployments and then we record the associated recurring sales over the term of the agreements. We believe this is absolutely the right path for our company to pursue and expect the software heavy business model to drive greater long-term profitability. With that, I'll turn the call over to Steve for a review of the 2018 fourth quarter results. After which I'll make some summary remarks before opening the call for questions-and-answers. Steve?

Thanks Bart and good afternoon everyone. Fourth quarter 2018 net sales were $11.8 million, down 11% from $13.2 million in the fourth quarter last year. Looking at our fourth quarter sales by market. Casino gaming sales were up 21% or $917,000 year-over-year to $5.3 million in the quarter. Domestic casino game sales were down 10% from the prior year inclusive of the benefit of our first shipment of the new Epic Edge printer to a large domestic casino operator in support of upcoming new opening as well as one new installation of EPICENTRAL. Sales for international markets were up 223% over the prior year reflecting our continued success in driving direct sales of the Epic 950 to our international customers. Restaurant solution sales declined 32% year-over-year to $1 million. The decline was driven by lower sales of our AccuDate 9700 terminal. However we did see higher sales of newest AccuDate XL2e terminal as three existing customers continued deployment across their locations during the quarter. POS automation and back end sales were down 13% to $1.4 million in the 2014 fourth quarter. The decrease was driven by the expected slowdown in the pace of our sales of the Epic 9000 POS printer to McDonalds from what have been record levels for some times now. Sales of banking printers also declined to nearly zero in the quarter. As of the end of '18, we have completed our exit from the banking market and don't expect any future sales going forward. Lottery printer sales of $1.3 million were down from $1.9 million in the prior year quarter as we saw an expected decline in shipments to our primary lottery customer given our ongoing shift and focus away from this market and towards our higher growth markets. As a result, we expect sales of lottery printers continue to decline in 2019. Printrex product sales of $235,000 were essentially flat with sales of $234,000 a year ago. Despite a flat fourth quarter, we still expect sales in 2019 to grow as the modest recovery in oil and gas industry continues. TSG sales were down 31% year-over-year to $2.6 million on a 67% decline in domestic spare part sales to our large lottery customer as well as a continuing decline in sales of legacy consumable products. Offsetting these declines was an increase in spare part sales to international markets and crucially a fourfold increase in label sales for AccuDate terminals. As we noted last quarter, AccuDate label sales are expected to grow in line with shipments of AccuDate terminals. Overall TSG will be primary beneficiary of AccuDate terminal sales growth in 2019 and beyond as we support these terminals with labels and through service contracts. Our gross margin for the fourth quarter of 50.1% remain near all time quarterly highs, thanks to declining sales of lower margin products. As we’ve said for the past several quarters, TransAct’s improving gross margin is a clear demonstration of the profitability of our go forward business model, which is centered on sales of technology driven solutions such as our terminals and the ecosystem of BOHA! software and hardware products we're bringing to market around these terminals. Our gross margin could expand further over time as sales of our new BOHA! solutions build and take hold. Total operating expenses for the fourth quarter of '18 were $4.8 million, down 6% year-over-year. Engineering design and product development expenses declined $77,000 or 7% as lower contract design costs were partially offset by additional software engineering stat in support of our new restaurant solutions and casino and gaming products. Selling and marketing expenses for the fourth quarter were down $207,000 or 11% due to cost savings from the termination of our Suzo-Happ distribution agreement late last year offset in part by hiring to support our direct selling model for casino and gaming solutions in Europe. G&A expenses for the fourth quarter were essentially in line with the prior year's quarter. Operating income from the fourth quarter of '18 was $1.1 million or 9.1% of sales, compared to $1.5 million for 11.4% of sales in the year ago quarter. We recorded net income of $1 million or $0.12 per diluted share in the 2018 fourth quarter, compared to a net loss of $412,000 or $0.06 loss per diluted share in the year ago period. Like in the last few quarters of '18, the 2017 Tax Cuts and Jobs Act drove a nice benefit to our income taxes in the fourth quarter '18 as we recorded a small $24,000 tax benefit in the quarter. Conversely, with the signing of this new tax law on December of ‘17, our EPS in the 2017 fourth quarter was negatively impacted by $1.3 million or $0.18 charge to income tax expense as a result of the revaluation of our deferred tax assets to the new lower 21% corporate tax rate. Excluding this charge, we would have recorded diluted earnings per share of $0.12 in the fourth quarter of '17. So on an adjusted basis, EPS was $0.12 in both the fourth quarter of '18, and the fourth quarter of '17. Adjusted EBITDA for the fourth quarter of '18 was $1.3 million, compared to $1.8 million in the fourth quarter of '17. And finally turning to the balance sheet, we ended the 2018 fourth quarter with $4.7 million in cash and no debt. We returned a total of approximately $666,000 of capital to shareholders in the fourth quarter through our quarterly cash dividend of $0.09 per share. And for the full year of '18, we returned a total 4.7 million to shareholders through the dividend and share repurchases. We have approximately 3 million remaining under our current stock purchase authorization as of December 31, 2018. As we move into 2019, our future vision for TransAct is taking shape and the recent launch of BOHA! will be the company's most important long-term driver of growth. As SaaS-based software revenue becomes the largest contributor to our sales growth, over time, we expect to expand our operating margin and earnings per share. As Bart noted, it will take some time for BOHA! sales to ramp and drive top-line growth. But our transition to the TransAct of the future is underway and we're confident that we have positioned the company for significant long-term success. So at this point, I'd like to give the call back to Bart for some closing remarks. Bart?

Thanks, Steve. This is a very exciting time for TransAct. Now that our sales and marketing teams have the full BOHA! solution set to take to current and potential customers. But we have been working alongside certain customers. We needed to launch BOHA! before we could speak to the total market. And now as we begin to commercialize BOHA! our sales and marketing efforts will center around educating the industry on how the BOHA! ecosystem can truly benefit their business and we will be working tirelessly to convert interest to contracts and contracts to deployment. I can tell you initial feedback around BOHA! makes it clear to us that restaurant and food service operators see our ecosystem as a well thought out and well executed offer and something they want. At this time, we want to share with our investors the excitement around BOHA! Following what has been a multi-year process to reach this exciting inflection point for TransAct. We have planned a day in New York where we will showcase the BOHA! ecosystem for our investors. On April 23 we will have a full day investor meeting where anyone is welcome to come to view demonstrations of the BOHA! ecosystem and meet and members of the teams responsible for its development and commercialization. The demonstrations will begin at the top of each hour between 9:00 am and 4:00 pm at the Palace Hotel in Midtown New York. We encourage you to come see BOHA! and ask questions. I think this day will give a good view of this full scale of the opportunity BOHA! has opened up for TransAct. We will publicize additional information on the day shortly. And if you are interested in attending, I encourage you to reach out to Jim Leahy or Rich Land at our Investor Relations firm JCIR. They can be reached at 212-835-8500. I hope to see many of you there. The future is bright for TransAct and our ability to execute on our future vision will result in the creation of significant new value for our shareholders. As I do every quarter. I thank our shareholders for your support and your trust. I also thank the TransAct team for their great work. It is your passion that truly makes TransAct what it is. Operator, we are ready to take questions.

[Operator instructions]. Our first question comes from Kara Anderson with B Riley, FBR. Your line is now open.

Hi, good afternoon. So with respect to the restaurant solutions business in the fourth quarter, just wondering if you pulled back in sales efforts at all on the other terminals that you have in the market ahead of the BOHA! launch?

No, I don't think we pulled back, it's just most of our customers outside are the ones that were buying the 9700, were interested in a multi-solution. We've been talking about this for quite some time that customers were talking to us about not just having a terminal to do labeling, they want to solve other issues in the back-of-the-house, they want to deal with the high cost of labor, the high cost of food and what can be done to help digitize and automate more of the back-of-the-house. So some of the sales that would have occurred turned into actually wonderful opportunities for us for BOHA!, so some of the customers that we're starting to work with became trials for our BOHA! technology. So it was really -- and I’ve said this many times on the call, it was really the restaurant industry that said, look, we just don't want a terminal, we want more. And so of course over the last almost two years behind the scenes, we were developing more for the restaurant industry.

So then should we think about the BOHA! ecosystem kind of replacing the AccuDate XL2e. It's going after the same customer and rather than being sort of an additive product to your lineup?

No BOHA! XL2e is part of the solution now. So if you remember about a year ago we announced that the XL -- the reason why we brought out the XL2e was to be able to have a cloud-based terminal that would bring just labeling into the cloud but allow us to do more than just a single solution 9700 with everything inside the terminal. So the XL2e began our migration to a cloud-based SaaS based solution. In fact, TEMS, which is our TransAct enterprise management system is a SaaS-based model. So when somebody buys the XL2e, they must buy a SaaS based system called TEMS. And that's our ability to monitor every terminal in the marketplace and being able to upgrade them should they -- above or security issue come to our attention. So the XL2e is now part of the solution, not the only solution.

Got it. Thank you for the clarification. And then just thinking about sort of the target customer for the full BOHA! ecosystem. Can you talk a little bit about what type of customer you would be targeting within the restaurant space? And maybe the number of terminals if that changes at all, given the new functionality?

Yes. So great questions, Kara, thank you. Every customer in the restaurant industry is a potential customer for TransAct. And in fact, it's not just the restaurant industry now, it’s food service providers, it’s cruise ships, it’s convenience stores, it’s supermarkets. Anybody that is preparing food goes -- a lot of them go through the same issues. Yes, they need to do labeling. But do they need to do temperature taking? Are they taking the temperature food while it’s being cooked? Great example is fried chicken, you can't serve. Once you fry the chicken, you have to wait five to 10 minutes before serving it because it's too hot. Do you want your refrigerators and freezers monitor? Should a refrigerator or freezer lose its refrigeration? That's $10,000, $20,000 worth of loss food. So every customer is a potential -- every restaurant, every convenience store, every cruise ship is a potential customer of ours. The nice thing about BOHA! is you can start with one or two apps. You could start with our labeling app, you might add what I’d call media manager, you might add the ability to do videos, that's an extra charge for a labeling software. You might say at the same time, I'd like to do just what, let's put sensors in our refrigerators and freezers because that's a simple solution that could save us a lot of money. Let's start with that. Then let's talk about doing preventive maintenance and service. Two totally different apps that can combine to do an end-to-end solution for preventive maintenance and then if something should break an automation of how they're going to go call their service provider. So we are in discussions with companies right now that are starting with one or two apps and then who are talking to us about let's roll that out first and then might add another app and another app because we want to do inventory management. We like that idea. We like being able to do, we'd like to do recall, we can automate the recall. So it's an ecosystem that allows you to mix and match whatever apps you want today with the ability to add the other apps tomorrow. And right now there's nobody that doesn't care. You can find the temperature taking app out there. You can. There could be a checklist company out there. But every restaurant told us that they've met with a lot of these and they don't want five different tablets, five different portals, think about. Think about it. You got to go and you want to search hey, did the people do the opening and closing right? Well that could be one app that you got to go and one portal that you got to go. So I'm going to do temperature taking, I'm going to go to a different portal and a different app with a different tablet. Delivery is a great example, pop in a subway and see five tablets in the back of the restaurant, five to handle online ordering. Now we can help automate that. So we feel very good about it, we need the restaurants to drive that. So every customer from McDonald’s that we have today all the way through the customers that we're talking to, from quick-serve, the fast-casual, casual restaurants find on they can do it too, the convenience stores, the supermarkets, the cruise ships, whoever is preparing food is a potential customer of TransAct.

And from the restaurant operator's perspective, like how should we think about the switching costs, if they are using five different solutions with five different devices in the back, what -- I guess what's the hurdle for them to switch over to TransAct to one solution if you can talk about that at all?

So right now nobody's really doing anything in the back of the restaurant, right? I mean there’s a very little automation going on in the back of restaurant. So while they've had people call on them and offer different solutions, most the restaurant companies, if not all the restaurant companies we’ve talked with, not implemented anything because it's too cumbersome. The delivery is different though. Those restaurant companies that are doing delivery you might notice they might be only using one company, because they don't want to have multiple tablets in the back of the restaurant. Some restaurant companies are using four and five tablets. So there, yes, we would replace that, but we would simplify it. For the other apps Kara, tab, sensing, labeling, inventory, preventive maintenance, tablets and all that, that's all new, nobody has this, nobody has the ecosystem that we have and most of the restaurant companies that we are talking to have not implemented anything.

And then just wondering if you could provide any further details on the initial order secured?

No. Not yet. It's a nice opportunity. We got our first, I think six terminals in that order. We're going to wait until we get through this first bid of order. And then see if they roll it out to all of their locations. And at that point, we hope to say something to our investors of what that opportunity looks like. We'll probably stay away from mentioning the customer name, but we'd like to give some clarity and color on how many apps they're buying. And if you think about it, this is going to be -- these are going to be long term contracts right? 3, 5, 7 even 10-year contracts that we’re talking to people about. So we want to over time be able to explain to our investors that yes, this one is 5 years, this one could be 7, this one could be 3. How many terminals, how many apps? What the financial metrics of that contract would be?

And should we think about BOHA! as really kind of a combination of development. And then from here further development would be in the way of adding additional features through app?

Yes. So, we're pencils down now from a standpoint of the apps that we've developed. In talking to multiple companies that have worked alongside of us, we think we've addressed the needs of the restaurants. So we don't see right now what other app we would need, what we need to do is to work with the customers every -- the way we designed the app Kara is it's got a base function that everybody gets. But no restaurant runs their restaurant the same way, every company does -- they have different temperatures, they've different methods, they have different procedures, should they need be under or over tempt or cooked. So our team is now geared towards working with those customers that we've already highlighted and then the new ones to be able to customize each solution. If you think about it, think about it this way: Like when we put in Oracle we bought a software system from Oracle but then we had a find a VAR to install it. We will play VAR and software company. And what that does is our sales team is inside those restaurant companies learning exactly how they do their tasks, how they tempt take, how they -- what kind of sense the temperature sensing, they want to do, how they want to do preventive maintenance, and then we they take that information back to our engineers our software engineers so that we can craft that exact solution just for them. We want every restaurant company have the capability of using our system the way they want to. Now we were able to create the app in that way in being flexible. So right now I wouldn't say you should see another app from us in a while. I think 9 apps is enough right now. And let me tell you it wasn’t our decision for nine, it was the market that told us they want it nine. So if they would attempt when they wanted, we would have done it also. But these are the nine functions that the restaurant industry told us they want.

Great, and then just shifting gears quickly. Can you -- and I'm sorry if I missed it Steve. I'm not sure if you spoke about it. But can you speak to your expectations in 2019 for casino and gaming as you kind of lap the sort of catch up, maybe benefit you've been seeing from taking the European sales function direct?

Steve, you want to address that?

No, we didn't -- well I didn’t mention anything on the call about it, Kara. Bart, you want to talk about the sales side?

Sure, I think that we've gained significant market share in Europe. And I wouldn't expect to see that kind of gain again. I think we should all be honest about what the gaming or what's called the casino market is all about. It's a slow growth industry right now with a lot of consolidation, a lot of issues around that consolidation. Clearly we're seeing some of those issues in regards to customer payments and things like that. So I would expect our casino industry to go back to normalized growth levels considering the market share gains we've had in Europe. We are planning on more EPICENTRAL deals, but we'll see how that rolls out. It's always up to the casino to decide. SO Kara that's why we got into this industry, right. That's why we got into the restaurant solutions. Casino and gaming is a great cash flow business for us, great. But it's not going to grow to the level that it had over the last many years. And that's why restaurant solutions is so important to us and so exciting to us because not only is it a growth industry but it's truly is over $1 billion opportunity in sales for TransAct. It truly is that large. When you start adding how many apps a restaurant can have, how many terminals can be out there? Just in the US that market is over $1 billion. Now it doesn't make much for somebody to look at how many restaurants and how many convenient stores and how many supermarkets and how many cruise ships that are out there? You’d say okay how many terminals are going to be and then how many apps could they buy? So it's a very, very large opportunity for us, and that’s why we're so focused on it. We are very pleased with our gaming and casino business. We gained back our share in Europe. We've done a fantastic job in Asia. We haven't lost a new opening in Asia in five, six years. And in fact there were things going on in Asia that could affect our other businesses too, that can be very positive. We've done great in the US, but I think if we're all honest with each other it's not a growth industry. And we've gained a lot of market share against our competitor, so that's why we're so excited about restaurant solutions and why we are so focused on it.

Thank you. [Operator Instructions] Our next question comes from Jeff Bernstein with Cowen. Your line is now open.

Yes. Hi, Bart. You touched on EPICENTRAL for a minute there, but can you just give a little bit of an outlook what kind of pipeline is having there and a little more granular detail?

Yes. And the pipeline looks little bit better, Jeff, it does. I'm not sure, I couldn't put a reason why other than we're back at what kind of regular market again and spending on marketing makes sense. So we are looking at more opportunities. Again it's one of those differences where it's not a must have like I see in the restaurant industry, it's kind of nice to have, and it is working. And it has been successful excuse me. So if the pipeline looks better, I'm sorry?

Your partnerships, have those expanded with the game vendors or is it still the same?

Yes well we have a nice partnership with one slot system company where we develop the EPICENTRAL SE and we rolled out a couple of systems with them. And that proving to us that there is part of our backend that not only casinos wants but system providers need. Most people don't have to talk to a printer they don't know how to communicate to a printer. They don't add a set up a promotion and the ticket and how to design it. Those are all things that are inside of our EPICENTRAL system. Now what we did with one system companies, they had a small but a decent bonusing system. So with their bonusing system and our design manager and print manager we're able to drive incremental play at certain casinos and they were owned b year a company that decided to rollout to multiple casinos. We're also seeing some things Jeff, on responsible play. And that's become a big topic in Europe. And thus somewhat of a topic in the US. And there is a way to use EPICENTRAL for responsible play, for its responsible gaming. So that has become something that is also driving people to look at the system, because there are things that the system can do that can meet the regulators or that country’s requirements for responsible gaming.

Okay. And EPICENTRAL SE anything else to add about that?

No, no, it was a good successful project for us. We rolled out a couple of systems.

And then in lottery and gaming, it was a couple of years ago, maybe three, four years ago, you went non-exclusive with GTECH. Are they now buying for -- IGT, I guess now, are they now are buying from someone else and your parts and service revenue has been pretty good from there, is going to now start to go away or is this quarter just a blip or how should we be thinking about that?

Yes, yes. They have a second supplier in there. We were not interested in meeting the price points that they wanted to be perfectly honest and open about it. Selling a printer was very, If not no margin, made no sense to us. And I think the company that took the order is probably regretting it, because of some of the problems that they're having. But Jeff, it's such a low margin business and as we kept talking about the contracts were being extended and extended and extended. So they weren't buying that many new printers, but they were buying a lot of spare parts and will continue to buy that spare parts. But looking forward and thinking about doing a new design for them versus restaurants solutions, which is at much different margins, recurring revenue software, it just didn't make any sense to us anymore. So -- and that occurred during the time that we were starting to do BOHA!, so it made a lot of sense to us to just say no, thank you.

So -- but the supply of spare parts, is that going to kind of fall off slowly or how should we be modeling that?

I would look at it that way. We have, I don’t know 0.5 billion, 500,000, 600,000 printers out there. So it all depends on timing every large mega jackpot and powerful is good for us. because our printers are doing 25,000 tickets a day or a weekend. But it'll keep running out, it's not going to go away.

And then on BOHA!, I understand that need to explain to build out how the SaaS revenue model works. And obviously, we're going to all be looking at billings and deferred revenues and that kind of thing to get a forward look on what those subscription values look like. But is there really any reason that we -- you're not renting them the terminals, doing any kind of financing with terminals. We should be getting terminal revenue like right upfront cash pay, right? That we can see as we get into this?

Yes. So most if not all the hardware will be sold. We have one customer that's asked us to roll it all up in the deal, in a monthly deal, we would be happy to do that. Nothing wrong with selling hardware over a five-year period or seven-year period. So we would do that. It is our -- we believe that the market is just going to want to buy the hardware and then do the SaaS on the software. But I can’t say that there wouldn't be a deal, because I've already looked at one where they wanted us to roll up the hardware with the software in a monthly [figure].

And just the -- obviously there’s transition here et cetera. But in recent years, the food safety segment has been up to $2 million kind of worth of revenue. When do we think we get back just to where it was couple of -- three years ago?

Well, you know what, Jeff, this is all going to roll in, right? So the difference will be that, we're going to have software sales that we're going to build over 3, 5, 7 or 10 year period, right? So I think if you go out two or three years I think where we were before will seem very small compared to where we could be three years from now because it all builds on itself and you know, we're selling multiple apps. So I think the potential is to see that business be a lot larger than what it was.

Yes no I'm just obviously in such a big market. Eventually right, it'll be many multiples but I'm talking about just from hardware standpoint, is it 12 months before we get back to selling 2 million a quarter worth of hardware kind of thing or, what are your thoughts?

Jeff, I don't think it's a good thing for us right now to put out a projection. Look, I appreciate that this is a major change to the business and we're going to ask our shareholders to if they want to stay in the game to hold on and to follow us through this significant transition. I've never been involved in an opportunity this large before. This is a very large opportunity and it's not in our best interest to give you some number I am missed by a quarter or something, it's this large of an opportunity. So I think you'll see us just sit back, do our job, work with the customers get to NRA. This was a launch that was planned a long time ago so that we could get -- one, we could get the news out about what we have and get prepared for NRA. National Restaurant Association is a major trade show that we need to be at and show all that we have and the customers that we've talked to so far not one has said we made a mistake. They all said Wow! This is dealing with the problem of what we have been seeing, we've got an inventory problem, we've got tempt taking problem, but we don't want all of these different vendors doing it. You've thought about it. Now we need to go sell, and I think that's what's important to us right now. And if we can get when we've done some calculations, 5% of the market that we're looking at is going to be a major change to TransAct and think about it it's going to be recurring revenue. I wake up January 1st, and sell another down for dinner, we're going to wake up and turn the lights on and have a backlog of recurring revenue.

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Bart Shuldman for any closing remarks.

Look I appreciate everybody joining us on the call this afternoon. We do look forward to reporting back to you on further progress. I also hope to see a lot of you at our April 23 investor day where we will be displaying and showing the product and let you kick the tires and see why we're so excited. So I thank you for joining us on today's call. Thanks everyone.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today’s program and you may all disconnect. Everyone, have a wonderful day.