Greetings. Welcome to TransAct Technologies Fourth Quarter and Full Year 2019 Conference Call. At this time, all participants are in listen only mode, a question and answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. At this time I'll turn the conference over to Marc Griffin with Investor Relations. Please go ahead, Marc.

Thank you. Good afternoon. And welcome to TransAct Technologies Fourth quarter and year end 2019 earnings call. Today, we'll be discussing the results announced in our press release issued after market close. 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 on these initiatives and details on the fourth quarter financial results. We'll open the call to participants for questions.As a reminder, this conference call contains statements about our 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 list of full risks inherent to the business and to the company, please refer to the company's SEC filings included its reports on Form 10-K and 10-Q. TransAct undertakes no obligations to revise or update these 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 Web site.With that, let me turn it over to Bart.

Thank you, Marc. And thank you to everyone for joining us on today's call. Before I begin, I'd like to mention to our shareholders that we have engaged a new firm ICR as both our investor and public relations firm for 2020. I thank Rich Land and Jim Leahy at JCIR for the work on behalf of TransAct the last few years. Rich and Jim, thank you. We have now moved to ICR and we look forward to working with them as they will be coordinating, both the IR and PR efforts together for TransAct.We look forward to working with Michael Bowen, Marc Griffin and Ryan Gardella on the IR side and Liz Tripato and Qaeda Savio Cannes with our public relations. As a quick note, we have made a lot of progress in growing our visibility in the food service market as ICR already arranged press interviews with national restaurant and convenience store magazines regarding our BOHA! food service technology, and they were extremely helpful in getting me recognized as one of the most influential restaurant CEOs in the U. S.Now onto the business. We are pleased with our execution throughout the year and into 2019 with strong momentum in our food service technology market. As Steve will discuss in detail later during this call, our preliminary fourth quarter total net revenue declined 5% year-over-year to 11.2 million. We recorded an operating loss of 1.1 million and adjusted EBITDA loss of 140,000.We delivered quarterly gross profit margin of 41.2% and diluted EPS loss for the fourth quarter of $0.11 per share, Steve will have more to speak about. In May of 2019 we launched BOHA!, our new food service technology ecosystem, sorry, I'm going to try and lower this. Okay. In May of 2019, we launched BOHA!, our new…

Thanks, Mark. Good afternoon, everyone. We're pleased with the progress TransAct has made in our most recent quarter. Just a quick note, in light of our ongoing internal controls remediation that we discussed with you last quarter, we're again presenting our fourth quarter results in a preliminary form as PwC completes their yearend audit procedures. We expect to report our final operating results for the fourth quarter '19 when we file our 2018 Form 10-K. Overall, our fourth quarter '19 net sales were $11.2 million, down 5% from $11.8 million in the fourth quarter last year.Looking at our fourth quarter sales by market, our food service technology market or FST, formerly referred to as restaurant solutions, was up 58% to $1.8 million from $1.2 million in the fourth quarter of last year. As a reminder, beginning of last quarter, we now include BOHA! Service and BOHA! Label sales in FST. Previously, we included those sales in TSG. FST hardware sales were up 21% to $1.1 million from $938,000 in the fourth quarter of '18, and we ended the quarter with 2,750 paid terminals.Our recurring sales, including software and service subscriptions as well as consumable label sales, reached $686,000 in Q4, which is more than triple the $212,000 we reported in the year ago period. The large increase in our recurring revenue demonstrates that BOHA! initiatives have begun to gain traction and are driving incremental sales with customers who already use our terminals.Casino and gaming sales were $5.3 million, which was flat from the fourth quarter of '18. Breaking this down a little further, our domestic revenues were down 4% from the prior year. Our U. S. casino ticket printer sales increased 5%, which was more than offset by a decline in Epicentral software sales as we didn't have any new…

Thanks, Steve, as always, great job. As we look towards 2020, we remain confident that BOHA! is on pace to become our largest ever revenue generating opportunity at TransAct. Our focus is on driving the success for BOHA! as we have determined to leverage our position in this emerging market to grow our business and create significant long-term value for our shareholders, while at the same time focusing on our casino and gaming business with a world-class leading printers and Epicentral software system.Now normally, I've been looking forward to meeting some of you at the Roth Capital Conference next week. Unfortunately, we are going through a strange time right now with the coronavirus and therefore, the Roth Capital Conference was postponed as I've been told about an hour ago, but also that they’d be trying to do something called a virtual one-on-one meeting. I have no details on how that's going to work, so I can’t share that with you. But unfortunately, we won't have the chance to meet and then talk about the company and the years ahead.So at this time, I'll open up the call to questions-and-answers. Thank you.

Thank you. We'll now be conducting the question-and-answer session [Operator Instruction]. Our first question comes from the line of Kara Anderson with B. Riley FBR. Please proceed with your questions.

Kind of on the last point, Bart, just wondering if you can discuss implications the coronavirus maybe having or could have on your business? I know your contract manufacturer in China and you are quite exposed in the casino and gaming industry in Asia. Just curious if you have some thoughts there you could provide. Thanks.

Sure, I got a couple of thoughts. First of all, unfortunately, we've had the cancellation of the Roth Capital Conference and we've also had the cancellation of McDonald's Worldwide. One was a selling opportunity for me to potential and existing shareholders and one was a potential for the company to sell to the McDonald's franchisees. As Steve spoke about, we are launching a new product shortly and it would have been given us a great opportunity to showcase that product at the McDonald's Worldwide.We're staying very close to the industries that we're in. I can say that I am very worried about what the American Gaming Association is doing. We have a tradeshow in Macau, China out of all places. And while it was postponed for May, they're telling us that they're going to try and hold it in July, and I think that's very dangerous for our employees. And when to asked my friends in the casino industry to join me and at the AGA and read exhibition to postpone or further and maybe even combine it with the Macau Gaming show in November, so we don't have to put our employees in harm's way.Just today, the governor of Connecticut announced state of emergency here. So we're dealing with reality of what's going on. As for our supply chain, clearly it was affected. But the wonderful news is if you look at our balance sheet, our inventory is up and up a lot as we prepared for our shipments of BOHA! terminals into the market for our customers and we'll be able to meet the demand as we see it today. And we have enough gaming and casino printers to meet the current demand that we see. And we have actually seen an opportunity to sell some more casino…

Just one follow up on the supply chain. Are your contract manufacturers up and running at this point?

There the Chinese manufacturer is coming back to Chinese New Year, and it's been a slower site than in a typical year, Kara, obviously because of the virus but they are coming back online. So it's been slow but they are coming.

Yes, we really just have one product left in China. It's a terminal. I think we can say that it’s a terminal that we manufacture there. Its life is short in regards to when we look out at BOHA! over the next many years. So it made no sense to move it, because it's very expensive. We are selling it though. So we need it. We do have inventory and that hence why you saw the charge in the fourth quarter for $200,000 for tariffs. Sorry, China didn't pay for those tariffs. TransAct paid for those tariffs. But the rest of everything, Steve, if I'm not mistaken, has been moved to Thailand?

It was still sourced at least…

So we should be -- when we met as a team last week and went over our forecast and what at the time actually before, I mean this week has really been a real change to the market. And we don't see any impact to shipping product to our customers this year based on our large amount of inventory that we have. We even, like I said, we even picked up an extra order because one of our competitors could not ship and we had it in stock, so we're able to fulfill that order.

And then on the, I think you called it out as $1.1 million in hardware sales for FST in the quarter. Is any part of that reflecting older versions like the AccuDate?

Yes, we continue to sell the AccuDate 9700. Remember McDonald's franchisees use that terminal for their food safety labeling. And we have a couple of other customers that continue to use it just for food safety labeling. But McDonald's is our biggest customer that uses it. Hence why we're a little, not little I'd say we're very disappointed that we weren't able to attend the Worldwide to show them something new.

And then on the customer that you've talked about in the past with the potential 10,000 locations, just wondering if there's any update there on the progress with that?

No, kind of steady as she goes. Clearly, you know we're trying to stay in touch with them over the coronavirus issue. You know, it's going to -- they've got their schedule, their construction schedule. We will follow their construction schedule and the shipments. We're really, you know, it'll ramp up this year because they've got a pretty big construction schedule. We do believe it's going to be somewhere around 2,000 terminals this year, probably a little more in the back half than the first half of the year. I would say almost definitely a little more in the back half than the first half.But from what we can see what they've shown us in regards to their construction schedule and the different things because it's not just one kind of venue that they're doing, one item that they're doing, they're doing multiple different items that they're adding to different stores. Each one of those stores needs a BOHA! solution. So other than you know them shutting down or deciding to wait to get through the coronavirus, we feel very positive that 2000 terminals will leave this year.

And then one last question from me just housekeeping, and I'm sorry if I missed it. Did you call out the current recurring revenue run rate?

Yes. Actually I said, it was more than 675 and Steve gave the exact number of 686…

Yes, 686,000 was the quarter. So if you annualize that, it’s around 2.7 million annualized.

And just so you know, those numbers have been pulled out at TSG. So anybody looking at TSG realized that those numbers are no longer inside a TSG. We're going to put that into the food service, the FST market, but we're running a little over. If you look at what we presented today, Kara, 2,750 terminals in the marketplace that are paying, we do have more because the trials and all that recurring revenue above 2.7 million. So we're averaging, you know, almost a thousand dollars of terminal and recurring revenue once they're out there -- recurring revenue, annual recurring revenue per year. So we're very pleased with those numbers.

Thank you. Our next question is from the line of Mitchell Sacks with Grand Slam Asset Management. Please proceed with your question.

Just to follow-up in terms of what you were just talking about with respect to understanding the recurring revenue. So just to make sure I understand it correctly, the 2,750 paid terminals or I would use $1,000 a year in recurring revenue?

Yes, just a little under it, Mitch, that's right. And remember, since we haven't shipped as many of our -- one of our customers has already -- we're already kind of forecasting at 1,700 but we haven't shipped many of those terminals into the market yet. But yes, it's running a little under $1,000 per terminal.

And then you were talking earlier in the presentation, you were listing some of the companies that you'd headwinds with. And I thought I heard you say in one of the companies was 2,000 unit order. Was that correct? And if so, can you just give me the parameter, because I was looking through my list of wins, I didn't see anybody with that size. So I must've missed it.

No Mitch, what we said was this is a, and I'll get it out. So maybe what I said wasn't -- so it's a regional office. So we want a regional office of a national convenience store chain. This regional office has 72 locations. And our BOHA! solution will allow this customer to manage as we have seen Mitch across the country convenience stores are rushing into fresh food and they have to be FDA compliant with their labeling and kind of running to us for a solution. Now that's just a regional part of a national convenience store.We believe as fresh food is rolled out to more regions within this national convenience store chain that would provide an additional 2,000 locations for our BOHA! solution. So this is just a regional chain that started with us. But as you know, we have heard some fantastic numbers about the convenience store market revenue increase. I mean there's an article out there that talks about 30% increase in revenue. We have one convenience store that actually told us that they've seen revenue go up almost 60%, because of their fresh food offering, a smaller regional firm. But you are seeing convenience stores rush the fresh food.And if you think about it, Mitch, we don't know what the world's going to be like the next quarter or two, let's be honest. Do we all have to live at home for a couple of weeks as you know, states, and cities, and towns tried to deal with the coronavirus. But at some point you got to go get food, right? I mean, now, do you go to your supermarket, which might not have food or do you go to your local convenience store and get some fresh food? So it could turn into be a windfall for convenience stores. We don't know.But there is the likelihood that that could happen, there's always winners and losers and things like this, I kind of wish we sold face mask right now, because we'd be sold out. But there are winners and losers in this type of environment and just maybe convenience stores are a winner as people go in and get different things that they need for the house instead of going to the local supermarket with big store lots of people, they go to a local convenience store, so we'll see.

[Operator Instruction] And our next question is coming from the line of Jeff Bernstein with Cowen Prime Advisers. Please proceed with your questions.

Just a quick question on the restaurant solutions breakout, 1.8 million in this quarter, 1.2 million or 1.15 million for last year, but is this apples and oranges, because this year has the recurring stuff that would have previously been in the TSG piece? And can you give me the apples-to-apples number?

No, we reclassified both periods, Jeff, so they’re both -- they're apples-to-apples. So this quarter there's [686,000] and last year [Multiple Speakers]…

Last year, I remember now as I was filling it in, it had been like 800k or something. So, you reclassified both. So that's great. That's a 58% growth year to year, which is great. And then just the sequential --- you were down slightly. What was the story sequentially? Or what was that also it should be the September would need to be restated?

Well, if you're looking at that because we haven’t. No, September we reclassified, so September should be apples-to-apples, yes.

So what's the September number for restaurant solutions?

I don't think I have that in front of me, Jeff.

I mean it looks like just even before reclassification that's down sequentially a little bit. And I was just curious as to what drove that?

Just the terminal might be. What was our terminal sales -- because our recurring revenue was up sequentially. I think sequentially, the terminals might be down a little.

It was just McDonald's terminals, Jeff. The BOHA! terminals were up but McDonald's was down. And look, we're going to face that, because we rolled out a lot of terminals to McDonald's, but the BOHA! terminals will clearly up and the recurring revenue was up. I forget what it was in the September quarter, but…

Yes, recurring revenue was definitely up…

So the McDonald's is split between the POS automation and the food safety. There's still, because you still have the food safety terminal that you sell to them, some McDonald's revenue is in the restaurant solutions.

And the only thing that's in POS, the printer that we sell to McDonald's that’s used in the front [Multiple Speakers] one that you guys receive [Multiple Speakers] receive the coffee cup…

So now to McDonald's, we have year-to-year and sequential growth in restaurant solutions., that's terrific…

And then if you look at BOHA! itself, Jeff, BOHA! is growing. There's no doubt. BOHA! recurring revenue is growing and BOHA! terminals is growing. It's just our legacy, the 9,700.

And then just real quick on the Canadian opportunity where you've already kind of gone back in and seen more content demand into customer you had already sold. I think you talked about over 2,000 unit chain or something. What was the exact description?

No, Canada is about 1,000 units and the total recurring revenue used to be like 375 and now up to like 850 based on the new software sales…

And the 1,000 units what you have won so far?

No. So in typical QSR fashion, it's a license to sell to their franchisee [Multiple Speakers] the franchisees have already bought the BOHA! Terminal, Labeling and TEMS based on our work -- with corporate, we were able and really corporate requesting from us our Timer and TEM taking and TEM sensing apps. They just approved it. They approved it right before their worldwide or their Canadian franchisee conference. So they had all the franchisees in where we were able to present to them the new solution, which is what we call our BOHA! food safety bundle, which includes all the software.So as we sign up more franchisees outside of the first 90, we'll be trying to sell them the full bundle plus labels and service. And so the 90 we've already sold we're now cross-selling the new apps. I think the good news about the whole thing was here we were starting a lot with labeling as everybody has said and everybody asked. Yes, labeling is the easiest thing to start with and all that but there is not a customer that we're not working with that isn't looking at TEM taking or TEM sensing or Checklist or Timers.These are the apps that they take a little longer. There's a whole process that you have to go through, labeling is a lot easier. But I think the really good news is here they were, you know, wanting it, driving it, you know through their testing and in a very short time they approved it and did it in time enough for us to present it to all their franchise owners last week at their national franchise meeting.

And just to follow up on that a little bit, because I know you guys have been in some trials with some you know the bigger guys and obviously, those things take time and there's some -- there's organizational hurdles and you know the cultural stuff that happens. When you go to change people's behavior of how their employees are going to work in the store. Is that sort of part of the hurdle here that that there's essentially policies on how people are supposed to do stuff and before you can give them this new tool that's going to change their workflow, they just have to kind of write a policy around it?

Yes. I mean, what we're doing is we're actually shortening their policies, because if you look you've got a whole book that you've got to go through and then you've got the sheets you've got to fill out. So really the work -- the really heavy lifting -- if you think about TEM taking, you have to get into the operation and you have to get into the corporate headquarters, and you've got to list every food that gets TEM taking. How do they TEM take it, when did they TEM take it, where do they TEM take it and that takes months to go through every item, because it's in a huge book in the back of the restaurant. You know there's procedures for the first of the day when they first fire up the grill, they lay out a bunch of stuff, then they TEM take it, is the grill hot enough? So that's the heavy lifting.The labeling was so easy because everybody labels, and this is just such an easy thing to do. But there is a lot of work to getting their procedures into the cloud, now on our system. So that's what takes a little longer. The thing that's got our attention, we launched it in May, we started working with new customers in June and you know, in January, February this year, we closed five new customers. We had one QSR that we're working with from the beginning that expanded the relationship.Clearly, the convenience store market is running very fast and that -- we're going after the low hanging fruit, so convenience stores. These kiosks in supermarkets is another area where fresh food labeling is critical and controlled and demanded by the FDA, so we're in numerous conversations on some other customer -- another customers that supply types of food in kiosk type operations in supermarkets. And restaurant companies will take longer, because not only do we -- we've got to get into their operation we got to get all that into the cloud. We've got to get it tested in their lab, then test it in a couple of stores, then test it in a couple more stores and then write an agreement around it. So I believe that sales process is still about 18 months for those types of restaurants…

But the positive part of that is, no pun intended, this is going to be very sticky. Once you get in there and you're the guy that they rewrote all the procedures around and they started throwing away books. It's kind of hard for somebody else to come in and say, you should allow your franchisees to buy this one too and nobody wants to go back and kind of redo all that work.

There's no doubt and this is a very sticky business. We are in -- and that's why, Jeff, we're focus on operations, because as you know, once you're in the operations and they're doing their procedures with your technology and your cloud and you've done all the work, it's not just handing them an app and saying make it work. We're in there using our app and for better words, customizing, putting their way of taking temperature and what their temperature takings got to be and what their temperature is and all that. We're in there doing that customization for them.Yes, we are then part of their operations. And the cost is not that dramatic to them, because of the savings. We've had one CEO tell us that he thinks his food quality is up using our technology. The temperature's right. They're turning their food quicker in the walk in. They're not using old food that was in the walk in. So they're turning -- they're using that food quicker. So yes, it's going to be -- it's very sticky. And we expect that our -- the churn rate, how many times we redo the contract to be pretty high considering we're so involved inside their restaurant, you've got it.

Thank you. We've reached the end of our question-and-answer session. I'll turn the call back to Bart Shuldma for closing remarks.

Well, we thank you everybody for joining us on today's call. We've had the question about the coronavirus and clearly, it's on our minds. We do send our thoughts to all of our shareholders and your families and your loved ones in regards to staying safe and healthy. We've been through this before. We've been through SARS, we've been through the great recession, it is a large bump in the road. But we are going to stay very, very focused on this very large sales opportunity for us. As Jeff said, it's very sticky, it's recurring revenue, we're starting to feed you more data and what it looks like. Right now, we're a little under $1,000 a terminal in recurring annual recurring revenue per year that looks very good to us. And remember a lot of that is still with just one app. So as our customers go to two, three and four apps, we believe that number's going to grow.We thank you for your thoughts. We thank you for your support of the company. Hopefully, whether it's the next conference call or conference call after that, we want us to talk about coronavirus anymore. We do send our best wishes to everybody's family and your loved ones in regards to staying healthy and we'll talk to you again. Thank you.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.