TRANSACT TECHNOLOGIES INC

Previous wording

Important factors and uncertainties that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include, but are not limited to, the following: the adverse effects of current economic conditions on our business, operations, financial condition, results of operations and capital resources, difficulties or delays in manufacturing or delivery of inventory or other supply chain disruptions, inflationary pressures, the Russia/Ukraine and Middle East conflicts, inadequate manufacturing capacity or a shortfall or excess of inventory as a result of difficulty in predicting manufacturing requirements due to volatile economic conditions, price increases or decreased availability of third party component parts or raw materials at reasonable prices, our ability to successfully develop new products that garner customer acceptance and generate sales, both domestically and internationally, in the face of substantial competition; our reliance on an unrelated third party to develop, maintain and host certain web-based food service application software and develop and maintain selected components of our downloadable software applications pursuant to a non-exclusive license agreement, and the risk that interruptions in our relationship with that third party could materially impair our ability to provide services to our food service technology customers on a timely basis or at all and could require substantial expenditures to find or develop alternative software products; our ability to successfully grow our business in the food service technology market; risks associated with the pursuit of strategic initiatives and business growth; our dependence on contract manufacturers for the assembly of a large portion of our products in Asia; our dependence on significant suppliers; our ability to recruit and retain quality employees; our dependence on third parties for sales outside the United States; marketplace acceptance of new products; risks associated with foreign operations; price wars, supply chain disruptions or other significant pricing pressures affecting the Company’s products in the United States or abroad; increased product costs or reduced customer demand for our products due to changes in U.S. policy that may result in trade wars or tariffs; our ability to protect intellectual property; exchange rate fluctuations; the availability of needed financing on acceptable terms or at all; volatility of, and decreases in trading prices of our common stock and other risk factors identified and discussed in Part I, Item 1A, Risk Factors, and Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”)and that may be detailed from time to time in the Company’s other reports filed with the Securities and Exchange Commission (the “SEC”).

Current wording

Important factors and uncertainties that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include, but are not limited to, the following: the adverse effects of current economic conditions on our business, operations, financial condition, results of operations and capital resources, difficulties or delays in manufacturing or delivery of inventory or other supply chain disruptions, inflationary pressures, the Russia/Ukraine and Middle East conflicts, inadequate manufacturing capacity or a shortfall or excess of inventory as a result of difficulty in predicting manufacturing requirements due to volatile economic conditions, price increases or decreased availability of third party component parts or raw materials at reasonable prices; our ability to successfully develop new products that garner customer acceptance and generate sales, both domestically and internationally, in the face of substantial competition; our reliance on an unrelated third party to develop, maintain and host certain web-based food service application software and develop and maintain selected components of our downloadable software applications pursuant to a non-exclusive license agreement, and the risk that interruptions in our relationship with that third party could materially impair our ability to provide services to our food service technology customers on a timely basis or at all and could require substantial expenditures to find or develop alternative software products; our ability to successfully grow our business in the food service technology market; risks associated with the pursuit of strategic initiatives and business growth; our dependence on contract manufacturers for the assembly of a large portion of our products in Asia; our dependence on significant suppliers; our ability to recruit and retain quality employees; our dependence on third parties for sales outside the United States; marketplace acceptance of new products; risks associated with foreign operations; price wars, supply chain disruptions or other significant pricing pressures affecting the Company’s products in the United States or abroad; increased product costs or reduced customer demand for our products due to changes in U.S. policy that may result in trade wars or tariffs; political and policy uncertainties with the approach of the U.S. presidential election; our ability to protect intellectual property; exchange rate fluctuations; the availability of needed financing on acceptable terms or at all; volatility of, and decreases in trading prices of our common stock and other risk factors identified and discussed in Part I, Item 1A, Risk Factors, and Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”)and that may be detailed from time to time in the Company’s other reports filed with the Se…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

The Company engaged an advisor in the fourth quarter of 2023 to assist in determining the best long-term strategy for its business and ensure the Company is maximizing the value of its operations for all shareholders and stakeholders. For information regarding the risks related to our engagement with an advisor, please see Part I, Item 1A, Risk Factors under the sub-caption “Our success may depend in part on our ability to identify and pursue the best long-term strategy for our businesses” in our 2023 Form 10-K.

Current wording

The Company engaged an advisor, Roth Capital Partners, LLC (“Roth”), in the fourth quarter of 2023 to assist in determining the best long-term strategy for its business and ensure the Company is maximizing the value of its operations for all shareholders and stakeholders. The Company continues to actively access strategic alternatives with the assistance of Roth while continuing to pursue its business growth and development initiatives on a parallel track. The Company has engaged with a number of outside parties and is in various stages of discussion with such outside parties. The Company is committed to pursuing an optimal outcome for all its stakeholders and maximizing shareholder value. For information regarding the risks related to our engagement with an advisor, please see Part I, Item 1A, Risk Factors under the sub-caption “Our success may depend in part on our ability to identify and pursue the best long-term strategy for our businesses” in our 2023 Form 10-K.

Previous wording

After strong demand during most of 2023 due in part to our primary competitor’s struggle to deliver products in the face of supply chain constraints, in late 2023, we began to see indications of a temporary slowdown in demand in the casino and gaming market, as customers that had built up excess inventory due to supply chain concerns advised us that they would temporarily reduce orders until their stock normalized. This slowdown impacted our results in the fourth quarter of 2023 and the first quarter of 2024, and we expect this trend to continue to impact results during 2024 until these customers are able to sell their on-hand inventory. Further, our primary competitor in the casino and gaming market has resumed supplying product and continued to increase volume at what we believe is full capacity, which has resulted in the beginning of downward pricing pressure in that market and could exacerbate the demand slowdown, which has negatively impacted our worldwide casino and gaming sales. In addition, we have experienced cost increases as a result of current economic conditions, most of which we have been able to offset by increasing prices of our products. However, there can be no guarantee that we will be able to increase prices sufficiently to offset any future such cost increases that cannot be predicted, and we may be further impacted by supply chain disruptions, inflationary pressures and other global economic conditions that may affect the markets we serve and from which we source our supplies and parts.

Current wording

After strong demand during most of 2023 due in part to our primary competitor’s struggle to deliver products in the face of supply chain constraints, in late 2023, we began to see indications of a temporary slowdown in demand in the casino and gaming market, as customers that had built up excess inventory due to supply chain concerns advised us that they would temporarily reduce orders until their stock normalized. This slowdown impacted our results in the fourth quarter of 2023 and the first half of 2024, and we expect this trend to continue to impact results during 2024 until these customers are able to sell their on-hand inventory. Further, our primary competitor in the casino and gaming market has resumed supplying product and continued to increase volume at what we believe is full capacity, which has resulted in some limited downward pricing pressure in that market and could exacerbate the demand slowdown, which has negatively impacted our worldwide casino and gaming sales. In addition, we have experienced cost increases as a result of current economic conditions, most of which we have been able to offset by increasing prices of our products. However, there can be no guarantee that we will be able to increase prices sufficiently to offset any future such cost increases that cannot be predicted, and we may be further impacted by supply chain disruptions, inflationary pressures and other global economic conditions that may affect the markets we serve and from which we source our supplies and parts.

Previous wording

Balance Sheet, Cash Flow and Liquidity. During the third quarter of 2023, we began a cost reduction initiative to reduce our overall level of operating expenses that included reducing employee headcount, trade show, advertising and other promotional marketing expenses, certain third party engineering resources and other expenses, and to a lesser extent, certain general and administrative expenses. We saw the full impact of these actions in the first quarter of 2024 and expect they will result in approximately $3 million of annualized savings compared to 2023 levels, partially offset by typical annual inflationary and cost of living increases in operating expenses. Notwithstanding the foregoing, there is no assurance that the cost-cutting efforts we have taken to bring expenses in line with our revenue and mitigate the impact of global economic conditions such as supply chain disruptions and inflation, and conditions in our markets will be sufficient or adequate, and we may be required to take additional measures, as the ultimate extent of the effects of these risks on the Company, our financial condition, results of operations, liquidity, and cash flows are uncertain and are dependent on evolving developments which cannot be predicted at this time.

Current wording

We also began an additional cost reduction initiative in the second quarter of 2024 focused largely on further reducing employee headcount and other external third party resources. Savings from this initiative are expected to be approximately $2 million on an annualized basis and realized beginning in the third quarter of 2024. Notwithstanding the foregoing, there is no assurance that the cost-cutting efforts we have taken to bring expenses in line with our revenue and mitigate the impact of global economic conditions such as supply chain disruptions and inflation, and conditions in our markets will be sufficient or adequate, and we may be required to take additional measures, as the ultimate extent of the effects of these risks on the Company, our financial condition, results of operations, liquidity, and cash flows are uncertain and are dependent on evolving developments which cannot be predicted at this time.

Previous wording

Our discussion and analysis of our financial condition and results of operations are based upon our unaudited Condensed Consolidated Financial Statements, which have been prepared by us in accordance with accounting principles generally accepted in the United States of America. The presentation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and the disclosure of contingent assets and liabilities. Our critical accounting estimates include those related to revenue recognition, accounts receivable, inventory obsolescence, goodwill and intangible assets, the valuation of deferred tax assets and liabilities and share-based compensation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. There have been no material changes in our critical accounting estimates from the information presented in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in the 2023 Form 10-K.

Current wording

Our discussion and analysis of our financial condition and results of operations are based upon our unaudited Condensed Consolidated Financial Statements, which have been prepared by us in accordance with accounting principles generally accepted in the United States of America. The presentation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and the disclosure of contingent assets and liabilities. Our critical accounting estimates include those related to revenue recognition, accounts receivable, inventory obsolescence, goodwill and intangible assets, the valuation of deferred tax assets and liabilities and share-based compensation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. There have been no material changes in our critical accounting estimates from the information presented in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” since the filing of the 2023 Form 10-K.

Previous wording

Net sales for the first quarter of 2024 decreased $11.6 million, or 52%, compared to the first quarter of 2023. Printer, terminal and other hardware unit sales volume decreased 62% to approximately 19,000 units, due primarily toa 63% unit sales volume decrease in the casino and gaming market, a 57% unit sales volume decline in the POS automation market and a 50% unit sales volume decline in FST hardware. For more information about the sales volume decreases described above, please refer to the results of operations for each of our markets discussed further below. The average selling price of our printers, terminals and other hardware was relatively flat in the first quarter of 2024 compared to the first quarter of 2023. In addition, FST software, labels and other recurring revenue increased $0.1 million, or 3%, in the first quarter of 2024 compared to the first quarter of 2023.

Current wording

Net sales for the second quarter of 2024 decreased $8.3 million, or 42%, compared to the second quarter of 2023. Printer, terminal and other hardware unit sales volume decreased 49% to approximately 22,000 units, due primarily toa 55% unit sales volume decrease in the casino and gaming market, a 27% unit sales volume decline in the POS automation market and a 25% unit sales volume decline in FST hardware. For more information about the sales volume decreases described above, please refer to the results of operations for each of our markets discussed further below. The average selling price of our printers, terminals and other hardware was relatively flat in the second quarter of 2024 compared to the second quarter of 2023. FST software, labels and other recurring revenue increased $0.3 million, or 12%, in the second quarter of 2024 compared to the second quarter of 2023.

Previous wording

International sales for the first quarter of 2024 decreased $1.8 million, or 38%, from the same period in 2023 due primarily to lower sales in our casino and gaming market.

Current wording

International sales for the second quarter of 2024 decreased $0.4 million, or 13%, from the same period in 2023 due primarily to lower sales in our casino and gaming market.

Previous wording

The decrease in food service technology sales in the first quarter of 2024 compared to the first quarter of 2023 was primarily driven by a decrease in hardware sales. Hardware sales decreased 21% in the first quarter of 2024 compared to the first quarter of 2023 due primarily to 89% lower sales of our AccuDate 9700 terminals which we discontinued at the end of 2023. This decrease was partially offset by a 43% increase in sales of our BOHA! terminals and Workstation, led by strong sales of our newly launched BOHA! Terminal 2 to a large international quick serve restaurant (“QSR”) customer. FST software, labels and other recurring revenue increased 3% compared to the prior year period due largely to the overall increased base of installed terminals.

Current wording

The increase in food service technology sales in the second quarter of 2024 compared to the second quarter of 2023 was driven by an increase in software, labels and other recurring revenue. Domestic sales increased 4%in the second quarter of 2024 compared to the second quarter of 2023, while hardware sales were relatively flat in the second quarter of 2024 compared to the second quarter of 2023 decreasing by less than 1%. Hardware sales were impacted by a 97% decrease in sales of our AccuDate 9700 terminals which we discontinued at the end of 2023 and 78% lower sales of our legacy BOHA! Terminal 1. These decreases were almost entirely offset by strong sales of our newly launched BOHA! Terminal 2 (that will replace our BOHA! Terminal 1) to a large international quick serve restaurant (“QSR”) customer as well as increased sales of Workstations. Despite the loss of a significant customer (explained further below), FST software, labels and other recurring revenue increased 12% compared to the prior year period due largely to increased label sales to several of our larger existing customers.

Previous wording

The decrease in POS automation sales in the first quarter of 2024 compared to the first quarter of 2023 was largely driven by a 64% decrease in domestic sales. During the second quarter of 2022, due to production limitations caused by the worldwide supply chain slowdown at that time, we could not produce enough POS automation printers to fulfill customer orders. However, by the first quarter of 2023, we successfully managed through the shortage, significantly increased production and began to fulfill our large backlog of sales orders which resulted in unusually high sales for this period. During 2024, due to the fact that many of our customers have built up higher than normal levels of inventory of our product as described above, we have seen a slowdown in their order and shipment rates as well as a reduction in our average selling prices due to renewed competitive pressure.

Current wording

The decrease in POS automation sales in the second quarter of 2024 compared to the second quarter of 2023 was driven by a 40% decrease in domestic sales. During the second quarter of 2022, due to production limitations caused by the worldwide supply chain slowdown at that time, we could not produce enough POS automation printers to fulfill customer orders. However, by the first quarter of 2023, we successfully managed through the shortage, significantly increased production and began to fulfill our large backlog of sales orders which resulted in unusually high sales in the first half of 2023. During the second quarter of 2024, we experienced renewed competitive pressure that has resulted in a a return to a more normalized level of sales as well as a reduction in our average selling prices.

Previous wording

The decrease in domestic sales of our casino and gaming productsfor the first quarter of 2024 compared to the first quarter of 2023 of $8.3 million, or 72% is due to the fact that many of our customers have built up higher than normal levels of inventory of our product accumulated as a hedge by our customers during the worldwide supply chain crisis during 2022 and 2023. As a result, we have experienced a slowdown in their order and shipment rates that we expect to continue during 2024 until they are able to sell through their on-hand inventory. We expect this dynamic to continue through at least the second quarter of 2024 with order rates and sales expected to steadily improve as we move through the second half of 2024. In addition, we expect an overall more competitive environment in 2024 as our largest competitor has resumed volume shipments.

Current wording

Domestic sales of our casino and gaming productsfor the second quarter of 2024 declined by $6.3 million, or 67%, compared to the second quarter of 2023. Sales during the second quarter of 2023 were unusually high due to our largest competitor’s inability to supply product due to the supply chain issues. In addition, two of our larger customers continue to hold higher than normal levels of inventory of our product accumulated as a hedge during the worldwide supply chain crisis during 2022 and 2023. As a result, we have experienced a significant slowdown in their order and shipment rates that we expect to continue for the remainder of 2024 until they are able to sell through their on-hand inventory. We expect this dynamic to improve by the end of 2024 and into 2025. In addition, we expect a normalized competitive environment to continue through the second half of 2024 as our largest competitor has resumed volume shipments.

Previous wording

The decrease in international casino and gaming sales during the first quarter of 2024 compared to the first quarter of 2023 was due to a 42% decrease in sales of our thermal casino printers. Similar to our domestic customers, our international customers also began to slow their order rates for the first quarter of 2024 due to higher-than-normal inventory levels. We expect this to continue to impact our international sales during 2024.

Current wording

The decrease in international casino and gaming sales during the second quarter of 2024 compared to the second quarter of 2023 was due to a 19% decrease in sales of our thermal casino printers. Similar to our domestic customers, our international customers also began to slow their order rates in the first quarter of 2024 due to higher-than-normal inventory levels. We expect this to continue to impact our international sales for the remainder of 2024.

Previous wording

TransAct Services Group (“TSG”): Revenue generated by TSG includes sales of consumable products (POS receipt paper, ribbons and other printing supplies for non-FST legacy products), replacement parts and accessories, maintenance and repair services, refurbished printers, and shipping and handling charges. Sales in our worldwide TSG market for the three months ended March 31, 2024 and 2023 were as follows (in thousands, except percentages):

Current wording

TransAct Services Group (“TSG”): Revenue generated by TSG includes sales of consumable products (POS receipt paper, ribbons and other printing supplies for non-FST legacy products), replacement parts and accessories, maintenance and repair services and shipping and handling charges. Sales in our worldwide TSG market for the three months ended June 30, 2024 and 2023 were as follows (in thousands, except percentages):

Previous wording

The decrease in both domestic and international revenue from TSG during the first quarter of 2024 as compared to the first quarter of 2023 was due largely to 31% lower sales of legacy replacement parts for lottery printers, partially offset by a 32% increase in service revenue.

Current wording

The decrease in both domestic and international revenue from TSG during the second quarter of 2024 as compared to the second quarter of 2023 was due largely to 68% lower domestic sales of legacy replacement parts for lottery printers, and to a much lesser extent, lower legacy consumables sales and service revenue.

Previous wording

Gross profit is measured as revenue less cost of sales, which includes primarily the cost of all raw materials and component parts, direct labor, manufacturing overhead expenses, cost of finished products purchased directly from our contract manufacturers, expenses associated with installations and support of our EPICENTRAL print system and BOHA! products and royalty payments to third parties, including to the third-party licensor of our food service technology software products. For the first quarter of 2024, gross profit decreased $6.6 million, or 54%, and gross margin decreased 240 basis points to 53% due primarily to a 52% decline in overall sales including a 64% decline in sales of higher margin casino and gaming printers. We expect this downward trend in gross margin to continue for much of 2024 due to the continued expected slowdown in order rates from many of our casino and gaming and POS customers until they sell through higher-than-normal levels of inventory of our product. As a result, we expect gross margin for the remainder of 2024 to be in the mid-40% to high-40% range.

Current wording

Gross profit is measured as revenue less cost of sales, which includes primarily the cost of all raw materials and component parts, direct labor, manufacturing overhead expenses, cost of finished products purchased directly from our contract manufacturers, expenses associated with installations and support of our EPICENTRAL print system and BOHA! products and royalty payments to third parties, including to the third-party licensor of our food service technology software products. For the second quarter of 2024, gross profit decreased $4.7 million, or 44%, and gross margin declined 180 basis points to 53% due primarily to a 42% decline in overall sales including a 56% decline in sales of higher margin casino and gaming printers. We expect this downward trend in gross margin to continue for the second half of 2024 due to the continued expected slowdown in order rates from certain of our casino and gaming customers until they sell through higher-than-normal levels of inventory of our product. As a result, we expect gross margin for the remainder of 2024 to be in the mid-40% to high-40% range.

Previous wording

Engineering, design and product development expenses primarily include salary and payroll-related expenses for our hardware and software engineering staff, depreciation and design expenses (including prototype printer expenses, outside design, development and testing services, supplies and contract software development expenses including those payments to third-party licensor of our food service technology software products). Engineering, design and product development expenses decreased $303 thousand, or 13%, for the first quarter of 2024 compared to the first quarter of 2023 due to cost reduction initiatives taken during the latter part of 2023, including a reduction of contracted software development expenses. As a result of these initiatives, we expect that engineering expenses will continue to be lower for the remainder of 2024 compared to 2023.

Current wording

Engineering, design and product development expenses primarily include salary and payroll-related expenses for our hardware and software engineering staff, depreciation and design expenses (including prototype printer expenses, outside design, development and testing services, supplies and contract software development expenses including those payments to the third-party licensor of our food service technology software products). Engineering, design and product development expenses decreased $706 thousand, or 28%, for the second quarter of 2024 compared to the second quarter of 2023 due to cost reduction initiatives taken during the latter part of 2023, including a reduction of contracted software development expenses. As a result of these initiatives and additional cost-cutting initiatives taken in the second quarter of 2024 as discussed above under the heading “Current Business Trends,” we expect that engineering expenses will continue to be lower for the remainder of 2024 compared to 2023.

Previous wording

Selling and marketing expenses primarily include salaries and payroll-related expenses for our sales, marketing and customer success staff, sales commissions, travel expenses, expenses associated with the lease of sales offices, advertising, trade show expenses, public relations, e-commerce and other promotional marketing expenses. Selling and marketing expenses decreased by $674 thousand, or 24%, in the first quarter of 2024 compared to the first quarter of 2023 due to cost reduction initiatives including reduced headcount, trade show and other marketing expenses. As a result of these initiatives, we expect selling and marketing expenses will continue to be lower for the remainder of 2024 compared to 2023.

Current wording

Selling and marketing expenses primarily include salaries and payroll-related expenses for our sales, marketing and customer success staff, sales commissions, travel expenses, expenses associated with the lease of sales offices, advertising, trade show expenses, public relations, e-commerce and other promotional marketing expenses. Selling and marketing expenses decreased by $487 thousand, or 18%, in the second quarter of 2024 compared to the second quarter of 2023 due largely to cost reduction initiatives including reduced headcount, trade show and other marketing expenses. As a result of these initiativesand additional cost-cutting initiatives taken in the second quarter of 2024 as discussed above under the heading “Current Business Trends,” we expect selling and marketing expenses will continue to be lower for the remainder of 2024 compared to 2023.

Previous wording

General and administrative expenses primarily include salaries, incentive compensation, and other payroll-related expenses for our executive, accounting, human resources, corporate development and information technology staff, expenses for our corporate headquarters, professional and legal expenses, information technology expenses, board of director expenses and other expenses related to being a publicly traded company. General and administrative expenses decreased $540 thousand, or 16%, during the first quarter of 2024 compared to the first quarter of 2023 due largely to reduced legal fees, lower bad debt expense and the impact of cost reduction initiatives taken during the latter part of 2023. We expect general and administrative expenses for 2024 to be slightly lower compared to 2023.

Current wording

General and administrative expenses primarily include salaries, incentive compensation, and other payroll-related expenses for our executive, accounting, human resources, corporate development and information technology staff, expenses for our corporate headquarters, professional and legal expenses, information technology expenses, board of director expenses and other expenses related to being a publicly traded company. General and administrative expenses decreased $1.9 million, or 43%, during the second quarter of 2024 compared to the second quarter of 2023. The decline was largely due to a severance charge of $1.5 million incurred during the second quarter of 2023 in connection with the resignation of TransAct’s former Chief Executive Officer in April 2023. In addition, we incurred lower bad debt and incentive compensation expense, as well as benefited from cost reduction initiatives taken during the latter part of 2023. We expect general and administrative expenses to continue to be lower for the second half of 2024 as compared to 2023.

Previous wording

Operating (Loss) Income. Operating (loss) income information for the three months ended March 31, 2024 and 2023 is summarized below (in thousands, except percentages):

Current wording

Operating (Loss) Income. Operating (loss) income for the three months ended June 30, 2024 and 2023 is summarized below (in thousands, except percentages):

Previous wording

Interest, net. We recorded net interest income of $48 thousand in the first quarter of 2024 compared to $66 thousand of net interest expense in the first quarter of 2023. For both periods, we incurred interest expense on the minimum$2.3 million of borrowings pursuant to the terms of the July 2022 amendment of our credit facility – see Note 5 to the accompanying condensed consolidated financial statements. During the first quarter of 2024, we earned more interest income than in the first quarter of 2023 due to higher levels of cash on hand combined with a higher interest rate environment.

Current wording

Interest, net. We recorded net interest income of $26 thousand in the second quarter of 2024 compared to $68 thousand of net interest expense in the second quarter of 2023. For both periods, we incurred interest expense on the minimum$2.3 million of borrowings pursuant to the terms of the July 2022 amendment of our credit facility – see Note 5 to the accompanying condensed consolidated financial statements. During the second quarter of 2024, we earned more interest income than in the second quarter of 2023 due to higher levels of cash on hand combined with a higher interest rate environment.

Previous wording

Other, net. Other, net primarily includes foreign exchange gains or losses by our UK subsidiary. During the first quarter of 2024 we recognized $60 thousand of foreign exchange losses compared to $21 thousand offoreign exchange gains in the first quarter of 2023. Going forward, we may continue to experience more foreign exchange gains or losses depending on the level of sales to European customers through our UK subsidiary and the fluctuation in exchange rates of the euro and pound sterling against the U.S. dollar.

Current wording

Other, net. Other, net primarily includes foreign exchange gains and losses by our UK subsidiary. During the second quarter of 2024 we recognized $7 thousand of foreign exchange gains compared to no net foreign exchange gain or loss in the second quarter of 2023. Going forward, we may continue to experience more foreign exchange gains or losses depending on the level of sales to European customers through our UK subsidiary and the fluctuation in exchange rates of the euro and pound sterling against the U.S. dollar.

Previous wording

Income Taxes. We recorded an income tax benefit in the first quarter of 2024 of $277 thousand at an effective tax rate of (21.1%), compared to an income tax expense during the first quarter of 2023 of $629 thousand at an effective tax rate of 16.7%. In periods with pre-tax income, such as the first quarter of 2023, the R&D credit has the effect of lowering the effective tax rate. In periods with pre-tax losses, such as the first quarter of 2024, the R&D credit has the effect of raising the effective tax rate.

Current wording

Income Taxes. We recorded an income tax benefit in the second quarter of 2024 of $86 thousand at an effective tax rate of (21.2%), compared to an income tax expense during the second quarter of 2023 of $391 thousand at an effective tax rate of 33.8%. The effective tax rate for the second quarter of 2023 of 33.8% was abnormally high as a result of the non-tax deductibility of a portion of the severance of the Company’s former CEO.

Previous wording

Net (Loss) Income. We reported a net loss for the first quarter of 2024 of $(1.0) million, or ($0.10) per diluted share, compared to net income of $3.1 million, or $0.31 per diluted share, for the first quarter of 2023.

Current wording

Net (Loss) Income. We reported a net loss for the second quarter of 2024 of $(0.3) million, or ($0.03) per diluted share, compared to net income of $0.8 million, or $0.08 per diluted share, for the second quarter of 2023.

Previous wording

Recently, a significant customer notified us that it would be terminating service, including its BOHA! software subscriptions and label sales, for its existing installed base of BOHA! terminals by the middle of June 2024. Total sales to this customer were approximately $4.0 million in 2023. Despite the loss of this customer, we expect FST revenue for the remainder of 2024 to be relatively consistent with 2023, as we expect revenue from new customers, including those from our newly announced international QSR customer, to largely offset those from the lost customer.

Current wording

During the second quarter of 2024, a significant customer notified us that it would be terminating service, including its BOHA! software subscriptions and label sales, for its existing installed base of BOHA terminals by the middle of July 2024. Total sales to this customer (including hardware, software, labels and other recurring revenue) were approximately $4.0 million in 2023. We do not expect any significant sales to this customer beyond the second quarter of 2024. Despite the loss of this customer, we expect FST revenue for the remainder of 2024 to be relatively consistent with the comparable period 2023, as we expect revenues from new customers, including those from our newly announced international QSR customer, to largely offset those from this lost customer.

Previous wording

Our operating income decreased $5.1 million, or 134%, in the first quarter of 2024 compared to the first quarter of 2023 due largely to a 52% decline in sales and a resulting $6.6 million decrease in gross profit (including a 240 basis point decline in gross margin). This was partially offset by a reduction in operating expenses of $1.5 million, or 18%, primarily due to cost reduction efforts commenced in the latter part of 2023.

Current wording

Our operating income decreased $6.8 million, or 135%, for the first six months of 2024 compared to the first six months of 2023 due largely to a 47% decline in sales and a resulting $11.4 million decrease in gross profit (including a 210 basis point decline in gross margin). This was partially offset by a reduction in operating expenses of $4.6 million, or 25%, primarily due to cost reduction efforts commenced in the latter part of 2023 as well as a $1.5 million severance charge incurred during the second quarter of 2023 in connection with the resignation of TransAct’s former Chief Executive Officer in April 2023.

Previous wording

For the first three months of 2024, our cash and cash equivalents balance decreased $1.7 million from December 31, 2023. We ended the first quarter of 2024 with $10.6 million in cash and cash equivalents, of which $0.5 million was held by our U.K. subsidiary.

Current wording

For the first six months of 2024, our cash and cash equivalents balance decreased $1.2 million from December 31, 2023. We ended the second quarter of 2024 with $11.1 million in cash and cash equivalents, of which $0.1 million was held by our U.K. subsidiary.

Previous wording

Operating activities: The following significant factors affected our cash used in operating activities of $1.5 million for the first three months of 2024 as compared to cash used in operating activities of $0.8 million for the first three months of 2023:

Current wording

Operating activities: The following significant factors affected our cash used in operating activities of $0.9 million for the first six months of 2024 as compared to cash provided by operating activities of $3.7 million for the first six months of 2023:

Previous wording

Investing activities: Our capital expenditures were $106 thousand for the first three months of 2024 compared to $378 thousand for the first three months of 2023. Expenditures for both periods were primarily for computer and networking equipment and new tooling equipment.

Current wording

Investing activities: Our capital expenditures were $243 thousand for the first six months of 2024 compared to $689 thousand for the first six months of 2023. Expenditures for both periods were primarily for computer and networking equipment and new tooling equipment.

Previous wording

Financing activities: Financing activities used $71 thousand of cash during the first three months of 2024 and used $86 thousand in cash during the first three months of 2023. These amounts relate to cash used to pay withholding taxes on stock issued from our stock compensation plans.

Current wording

Financing activities: Financing activities used $71 thousand of cash during the first six months of 2024 and used $86 thousand in cash during the first six months of 2023. These amounts relate to cash used to pay withholding taxes on stock issued from our stock compensation plans.

Previous wording

We have been impacted by global supply chain issues, increased shipping costs, increased interest rates and inflationary pressures. Our operating results and operating cash flow improved significantly during 2023 due largely to certain competitors’ inability to supply products in both the POS automation and casino and gaming markets. Our customers also began to slow their order rates for the first quarter of 2024 due to higher-than-normal inventory levels. We expect this to continue to negatively impact our sales during 2024. Nevertheless, given the continued uncertainty related to the demand slowdown and pricing pressure on the food service and casino industries, including the loss of a major customer described above, we continue to monitor our cash generation, usage and preservation including the management of working capital to generate cash.

Current wording

We have been impacted by global supply chain issues, increased shipping costs, increased interest rates and inflationary pressures. Our operating results and operating cash flow improved significantly during 2023 due largely to certain competitors’ inability to supply products in both the POS automation and casino and gaming markets. Certain large customers also began to slow their order rates for the first half of 2024 due to higher-than-normal inventory levels. We expect this to continue to negatively impact our sales during the remainder of 2024. Given the continued uncertainty related to the demand slowdown and pricing pressure on the food service and casino industries, including the loss of a major customer described above, we continue to monitor our cash generation, usage and preservation including the management of working capital to generate cash.

Previous wording

As of March 31, 2024, we had $2.3 million of outstanding borrowings under the Siena Credit Facility and $3.0 million of net borrowing capacity available under the Siena Credit Facility.

Current wording

As of June 30, 2024, we had $2.3 million of outstanding borrowings under the Siena Credit Facility and $4.3 million of net borrowing capacity available under the Siena Credit Facility.