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; 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.

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; any system outages, interruptions or other disruptions to our software applications, including as a result of unexpected errors or mistakes in connection with over-the-air updates; 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 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 in connection with 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…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

TransAct is a global leader in developing and selling software-driven technology and printing solutions for high-growth markets including food service technology, point of sale (“POS”) automation and casino and gaming. Our world-class products are designed from the ground up based on market and customer requirements and are sold under the BOHA!™, AccuDate™, Epic, EPICENTRAL®, and Ithaca® brand names. During 2019, we launched a new line of products for the food service technology market, the BOHA! hardware solutions and companion branded suite of cloud-based applications. The BOHA! software and hardware products help restaurants, convenience stores and food service operators of all sizes automate the food production in the back-of-house operations. Known and respected worldwide for innovative designs and real-world service reliability, our thermal printers and terminals generate top-quality labels, coupons and transaction records such as receipts, tickets and other documents. We sell our technology to original equipment manufacturers (“OEMs”), value-added resellers, and select distributors, as well as directly to end users. Our product distribution spans across the Americas, Europe, the Middle East, Africa, Asia, Australia, New Zealand, the Caribbean Islands and the South Pacific. We also offer world-class service, support, labels, spare parts, accessories and printing supplies to our growing worldwide base of products currently in use by our customers. Through our TransAct Services Group (“TSG”), we provide a complete range of supplies and consumables used in the printing activities of customers in the restaurant and hospitality, retail, casino and gaming, and government markets. Through our webstore, www.transactsupplies.com, and our direct selling team, we address the demand for these products. We operate in one reportable segment: the design, development, and marketing of software-driven technology and printing solutions for high growth markets, and provide related services, supplies and spare parts.

Current wording

TransAct is a global leader in developing and selling software-driven technology and printing solutions for high-growth markets including food service technology, point of sale (“POS”) automation and casino and gaming. Our world-class products are designed from the ground up based on market and customer requirements and are sold under the BOHA!™, AccuDate™, Epic, EPICENTRAL®, and Ithaca® brand names. During 2019, we launched a new line of products for the food service technology market, the BOHA! hardware solutions and companion branded suite of cloud-based applications. The BOHA! software and hardware products help restaurants, convenience stores and food service operators of all sizes automate the food production in the back-of-house operations. Known and respected worldwide for innovative designs and real-world service reliability, our thermal printers and terminals generate top-quality labels, coupons and transaction records such as receipts, tickets and other documents. We sell our technology to original equipment manufacturers (“OEMs”), value-added resellers, and select distributors, as well as directly to end users. Our product distribution spans across the Americas, Europe, the Middle East, Africa, Asia, Australia, New Zealand, the Caribbean Islands and the South Pacific. We also offer world-class service, support, labels, spare parts, accessories and printing supplies to our growing worldwide base of products currently in use by our customers. Through our TransAct Services Group (“TSG”), we provide a complete range of supplies and consumables used in the printing activities of customers in the restaurant and hospitality, retail, casino and gaming, and government markets. Through our webstore, www.transactsupplies.com, and our direct selling team, we address the demand for these products. We operate in one reportable segment: the design, development, and marketing of software-driven technology and printing solutions for high growth markets, and provide related services, supplies and spare parts. The Company’s chief operating decision maker, who is the company’s chief executive officer, in consultation with the company’s chief financial officer, utilizes a consolidated approach to assess the performance of, and allocate resources to, the business. Accordingly, management has concluded that the Company consists of a single operating segment and single reportable segment for accounting and financial reporting purposes.

Previous wording

Solely for convenience, some of the trademarks, service marks, trade names and copyrights referred to in this Form 10-Q are listed without the ©, ® and ™ symbols, but we will assert, to the fullest extent under applicable law, our rights to our trademarks, service marks, trade names and copyrights.

Current wording

Solely for convenience, some of the trademarks, service marks, trade names and copyrights referred to in this Report are listed without the ©, ® and ™ symbols, but we will assert, to the fullest extent under applicable law, our rights to our trademarks, service marks, trade names and copyrights.

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 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.

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 nine months of 2024. During the third quarter of 2024, we believe all customers, with the exception of one large customer, were able to sell through their on-hand inventory and resumed ordering again. As a result, we expect this trend to continue to impact results at least through the end of 2024 until this one remaining customer is 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 their full capacity, which has resulted in downward pricing pressure in that market and could exacerbate the demand slowdown, which has negatively impacted our worldwide casino and gaming sales. In addition, during 2023, we experienced cost increases as a result ofsupply chain constraints, 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 experienced 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 the 2023 levels, partially offset by typical annual inflationary and cost of living increases in operating expenses.

Current 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. Webegan experiencing the full impact of these actions in the first quarter of 2024 and expect they will result in approximately $3 million of annualized savings during 2024 compared to the 2023 levels, partially offset by typical annual inflationary and cost of living increases in operating expenses.

Previous 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.

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 were realized beginning in the third quarter of 2024 are expected to be approximately $2 million on an annualized basis. 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 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

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.

Current wording

Net sales for the third quarter of 2024 decreased $6.3 million, or 37%, compared to the third quarter of 2023. Printer, terminal and other hardware unit sales volume decreased 38% to approximately 21,000 units, due primarily toa 50% unit sales volume decrease in the casino and gaming market anda 15% unit sales volume decline in the POS automation market, partially offset by a 69% unit sales volume increase in FST hardware. For more information about the sales volume changes 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 down 3% in the third quarter of 2024 compared to the third quarter of 2023 due to increased competition, primarily in the POS automation market. FST software, labels and other recurring revenue decreased $257 thousand, or 8%, in the third quarter of 2024 compared to the third quarter of 2023.

Previous 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.

Current wording

International sales for the third quarter of 2024 decreased $1.8 million, or 44%, from the same period in 2023 due primarily to lower sales in our casino and gaming market.

Previous wording

Food service technology (“FST”). Our primary offering in the FST market is our line of BOHA! products, which can combine our latest generation terminal and workstation, which include one or two printers, with our BOHA! labeling, timers, and media software. In addition, customers may individually purchase cloud-based software applications that connect to an application on a separate mobile device into a solution to automate back-of-house operations in restaurants, convenience stores and food service operations. The additional software offering of BOHA! consists of a variety of individually purchased software-as-a-service (“SaaS”)-based applications for both Android and iOS operating systems, including applications for temperature monitoring, temperature taking and checklists and task lists. These applications are sold separately, and customers purchase the applications they need for their back-of-house operations. Customers may also purchase associated hardware, such as tablets, temperature sensors and gateways. The BOHA! Terminal and newly launched Terminal 2 combine an operating system and hardware components in a device that includes a touchscreen and one or two thermal print mechanisms that print easy-to-read food rotation labels, grab-and-go labels, and nutritional labels for prepared foods, and “enjoy by” date labels. The BOHA! WorkStation uses an iPad or Android tablet instead of an integrated touchscreen. The BOHA! Terminal, Terminal 2 and WorkStation are equipped with the TransAct Enterprise Management System to ensure that only approved touchscreen functions are available on the touchscreen device and to allow over-the-air updates to the operating system. BOHA! helps food service establishments and restaurants (including fine dining, casual dining, fast casual and quick-service restaurants, convenience stores, hospitality establishments and contract food service providers) effectively manage food safety and grab-and-go initiatives, as well as automate and manage back-of-house operations. Recurring revenue from BOHA! is generated by software sales, including software subscriptions that are typically charged to customers annually on a per-application basis, as well as sales of labels, extended warranty and service contracts, and technical support services.

Current wording

Food service technology (“FST”). Our primary offering in the FST market is our line of BOHA! products, which can combine our latest generation terminal and workstation, which include one or two printers, with our BOHA! labeling, timers, and media software. In addition, customers may individually purchase cloud-based software applications that connect to an application on a separate mobile device into a solution to automate back-of-house operations in restaurants, convenience stores and food service operations. The additional software offering of BOHA! consists of a variety of individually purchased software-as-a-service (“SaaS”)-based applications for both Android and iOS operating systems, including applications for temperature monitoring, temperature taking and checklists and task lists. These applications are sold separately, and customers purchase the applications they need for their back-of-house operations. Customers may also purchase associated hardware, such as tablets, temperature sensors and gateways. The BOHA! Terminal and newly launched Terminal 2 combine an operating system and hardware components in a device that includes a touchscreen and one or two thermal print mechanisms that print easy-to-read food rotation labels, grab-and-go labels, and nutritional labels for prepared foods, and “enjoy by” date labels. The BOHA! WorkStation uses an iPad or Android tablet instead of an integrated touchscreen. The BOHA! Terminal, Terminal 2 and WorkStation are equipped with the TransAct Enterprise Management System to ensure that only approved touchscreen functions are available on the touchscreen device and to allow over-the-air updates to the operating system. BOHA! helps food service establishments and restaurants (including fine dining, casual dining, fast casual and quick-service restaurants (“QSRs”), convenience stores, hospitality establishments and contract food service providers) effectively manage food safety and grab-and-go initiatives, as well as automate and manage back-of-house operations. Recurring revenue from BOHA! is generated by software sales, including software subscriptions that are typically charged to customers annually on a per-application basis, as well as sales of labels, extended warranty and service contracts, and technical support services.

Previous 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.

Current wording

The increase in food service technology sales in the third quarter of 2024 compared to the third quarter of 2023 was primarily driven by an increase in international hardware sales. Hardware sales were strong in the third quarter of 2024, up 30% compared to the third quarter of 2023, due to sales of our newly launched BOHA! Terminal 2 (that replaces our BOHA! Terminal 1) to a large international QSR. Hardware sales were partially offset by a 96% decrease in sales of our AccuDate 9700 terminals which we discontinued at the end of 2023 and 81% lower sales of our legacy BOHA! Terminal 1. Despite the loss of a significant customer (explained further below), FST software, labels and other recurring revenue only decreased 8% compared to the prior year period due toincreased label sales to several of our larger existing customers.

Previous 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 of 2023, as we expect revenue from new customers, including those from our newly announced international QSR customer, to largely offset those from this 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 did not have any hardware sales, and minimal label and software sales, to this customer in the third quarter of 2024, but we expect to continue to servicea small percentage ofongoing units and may have some additional sales to this customer in the future. Despite the loss of this customer, we expect overall FST revenue for the remainder of 2024 to be relatively consistent with the comparable period of 2023, as we expect revenue from new customers, including those from our newly announced international QSR customer, to largely offset sales from this lost customer.

Previous wording

POS automation: In the POS automation market, we sell our Ithaca 9000 printer, which utilizes thermal printing technology. Our POS printer is used primarily by McDonald’s, and to a lesser extent, other quick-service restaurants either at the checkout counter, grill station or within self-service kiosks to print receipts for consumers or print on linerless labels. In the POS automation market, we primarily sell our products through a network of domestic and international distributors and resellers.

Current wording

POS automation: In the POS automation market, we sell our Ithaca 9000 printer, which utilizes thermal printing technology. Our POS printer is used primarily by McDonald’s, and to a lesser extent, other QSRs either at the checkout counter, grill station or within self-service kiosks to print receipts for consumers or print on linerless labels. In the POS automation market, we primarily sell our products through a network of domestic and international distributors and resellers.

Previous 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.

Current wording

The decrease in POS automation sales in the third quarter of 2024 compared to the third quarter of 2023 was driven by a 27% decrease in domestic sales largely due to unusually high sales during 2023, as we increased production and began to fulfill our large backlog of sales orders following supply chain slowdowns in 2022. During the third quarter of 2024, we experienced renewed competitive pressure that has resulted in a return to a more normalized level of sales as well as a reduction in our average selling prices.

Previous wording

We expect POS automation sales to continue to be lower in 2024 compared to 2023 as our competitors have resumed volume shipments and we therefore anticipate our sales volume and average selling price to return to more normalized levels.

Current wording

We expect POS automation sales to continue to be lower during the remainder of 2024 compared to the same period 2023 as our competitors have resumed volume shipments and we therefore anticipate our sales volume and average selling price to remain at levels relatively consistent with thethird quarter of 2024.

Previous wording

Casino and gaming. Revenue from the casino and gaming market includes sales of thermal ticket printers used in slot machines, video lottery terminals, and other gaming machines that print tickets or receipts instead of issuing coins at casinos, racetracks and other gaming venues worldwide. Revenue from this market also includes sales of thermal roll-fed printers used in the international off-premise gaming market in gaming machines such as Amusement with Prizes, Skills with Prizes and Fixed Odds Betting Terminals and kiosks for sports betting at non-casino gaming and sports betting establishments. Revenue from this market also includes royalties related to our patented casino and gaming technology. In addition, casino and gaming market revenue includes sales of the EPICENTRAL print system, our software solution (including annual software maintenance), that enables casino operators to create promotional coupons and marketing messages and to print them in real time at the slot machine. Sales of our worldwide casino and gaming products for the three months ended June 30, 2024 and 2023 were as follows (in thousands, except percentages):

Current wording

Casino and gaming. Revenue from the casino and gaming market includes sales of thermal ticket printers used in slot machines, video lottery terminals, and other gaming machines that print tickets or receipts instead of issuing coins at casinos, racetracks and other gaming venues worldwide. Revenue from this market also includes sales of thermal roll-fed printers used in the international off-premise gaming market in gaming machines such as Amusement with Prizes, Skills with Prizes and Fixed Odds Betting Terminals and kiosks for sports betting at non-casino gaming and sports betting establishments. In addition, casino and gaming market revenue includes sales of the EPICENTRAL print system, our software solution, currently sold both directly and through certain casino system providers on a subscription basis, that enables casino operators to create promotional coupons and marketing messages and to print them in real time at the slot machine. Sales of our worldwide casino and gaming products for the three months ended September 30, 2024 and 2023 were as follows (in thousands, except percentages):

Previous 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.

Current wording

Domestic sales of our casino and gaming productsfor the third quarter of 2024 declined by $2.7 million, or 49%, compared to the third quarter of 2023. Sales during the third quarter of 2023 were unusually high due to our largest competitor’s inability to supply product due to the supply chain issues. In addition, one of our larger customers continues 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, this customer has not ordered any product through the first nine months of 2024 and we expect this to continue at least through the end of 2024 until they are able to sell through their on-hand inventory. We also believe our sales were negatively impacted by softness in overall demand in the industry which we expect to continue for the remainder of 2024. We expect a normalized competitive environment to continue going forward as our largest competitor has resumed volume shipments and our customers begin to return to more normalized buying levels.

Previous 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.

Current wording

Our international casino and gaming sales were down 51% during the third quarter of 2024 compared to the third quarter of 2023. Like our domestic customers, our international customers also began to slow their order rates in the first half of 2024 due to higher-than-normal inventory levels andin response to softness in overall demand in the industry. This slowdown continued into the third quarter of 2024 and we expect this to continue to have an impact our international sales at least through the end of 2024.

Previous 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.

Current wording

The decrease in both domestic and international revenue from the TSG during the third quarter of 2024 as compared to the third quarter of 2023 was due largely to 72% lower sales of legacy replacement parts for lottery printers, and to a much lesser extent, lower legacy consumables sales and service revenue.

Previous wording

We expect TSG sales to be lower in 2024 compared to 2023 as we experienced an unusually high level of sales of legacy lottery printer replacement parts in 2023 that we do not expect to repeat at the same level in 2024 as the installed base of these printers continues to decline.

Current wording

We expect TSG sales tocontinue to be significantly lower in 2024 compared to 2023 as we experienced an unusually high level of sales of legacy lottery printer replacement partsdue to a customer’s last buyin 2023. We therefore do not expectany future sales of these spare parts beyond 2023.

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 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.

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. Inthe third quarter of 2024, gross profit decreased $3.7 million, or 41%, and gross margin declined 380 basis points to 48% due primarily to a 37% decline in overall sales, including a 50% decline in sales of higher margin casino and gaming printers. We expect this trend in gross margin to continue for the remainder of 2024 due to the expected continued softness in the casino and gaming market. As a result, we expect gross margin for the remainder of 2024 to remain 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 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.

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 $869 thousand, or 35%, for the third quarter of 2024 compared to the third quarter of 2023 due to cost reduction initiatives taken during the latter part of 2023, and again in the second quarter of 2024, including a reduction of contracted software development expenses in the second quarter of 2024. As a result of these initiatives 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 $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.

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 $517 thousand, or 22%, in the third quarter of 2024 compared to the third quarter of 2023 due largely to cost reduction initiatives including reduced headcount, trade show and other marketing expenses. Though we expect to continue to realize cost savings as a result of these initiatives as discussed above under the heading “Current Business Trends,” we expect selling and marketing expenses for the remainder of 2024 to be relatively consistent compared to 2023 due to incremental costs we expect to incur related to a program to continue to improve our go-to-market strategy during the fourth quarter 2024.

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 $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.

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 $275 thousand, or 10%, during the third quarter of 2024 compared to the third quarter of 2023. This decrease was due to lower bad debt and incentive compensation expenses in the third quarter of 2024 compared to the same period in 2023, and from the impact of cost reduction initiatives taken during the latter part of 2023 and the second quarter of 2024. We expect general and administrative expenses to continue to be lower for the remainder of 2024 compared to 2023.

Previous wording

Our operating income decreased $1.7 million, or 136%, in the second quarter of 2024 compared to the second quarter of 2023 due largely to a 42% decline in sales and a resulting $4.7 million decrease in gross profit (including a 180 basis point decline in gross margin). This was partially offset by a reduction in operating expenses of $3.1 million, or 32%, 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.

Current wording

Our operating income decreased $2.0 million, or 170%, in the third quarter of 2024 compared to the third quarter of 2023 due largely to a 37% decline in sales and a resulting $3.7 million decrease in gross profit (including a 380 basis point decline in gross margin). This was partially offset by a reduction in operating expenses of $1.7 million, or 22%, primarily due to cost reduction efforts commenced in the latter part of 2023 and the second quarter of 2024.

Previous 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.

Current wording

Interest, net. We recorded net interest income of $42 thousand in the third quarter of 2024 compared to $73 thousand of net interest expense in the third 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, Borrowings, to the accompanying condensed consolidated financial statements. During the third quarter of 2024, we earned more interest income than in the third quarter of 2023 due to higher levels of invested cash on hand.

Previous 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.

Current wording

Other, net. Other, net primarily includes foreign exchange gains and losses by our UK subsidiary. During the third quarter of 2024 we recognized $96 thousand of foreign exchange gains compared to a $43 thousand foreign exchange loss in the third 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 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.

Current wording

Income Taxes. We recorded an income tax benefit in the third quarter of 2024 of $148 thousand at an effective tax rate of (21.2%), compared to an income tax expense during the third quarter of 2023 of $169 thousand at an effective tax rate of 15.7%.

Previous 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.

Current wording

Net (Loss) Income. We reported a net loss for the third quarter of 2024 of ($0.6) million, or ($0.06) per diluted share, compared to net income of $0.9 million, or $0.09 per diluted share, for the third quarter of 2023.

Previous wording

Net Sales. Net sales, which include printer, terminal and software sales, as well as sales of replacement parts, consumables and maintenance and repair services, by market for the six months ended June 30, 2024 and 2023 were as follows(in thousands, except percentages):

Current wording

Net Sales. Net sales, which include printer, terminal and software sales, as well as sales of replacement parts, consumables and maintenance and repair services, by market for the nine months ended September 30, 2024 and 2023 were as follows(in thousands, except percentages):

Previous wording

Net sales for the first six months of 2024 decreased $19.9 million, or 47%, from the same period in 2023. Printer, terminal and other hardware sales unit volume decreased by 56% to approximately 41,000 units for the first six months of 2024 driven primarily by a 59% decrease in units within our casino and gaming market. For more information about the sales volume decreases described above, please refer to the discussion below of the results of operations for each of our markets. The average selling price of our printers, terminals and other hardware remained relatively flat for the first six months of 2024 compared to the first six months of 2023. FST software, labels and other recurring revenue increased $0.4 million, or 8%, in the first six months of 2024 compared to the first six months of 2023.

Current wording

Net sales for the first nine months of 2024 decreased $26.2 million, or 44%, from the same period in 2023. Printer, terminal and other hardware sales unit volume decreased by 51% to approximately 62,000 units for the first nine months of 2024 driven primarily by a 57% decrease in units within our casino and gaming market, and to a much lesser extent, a 33% decline in units from our POS automation market. For more information about the sales volume decreases described above, please refer to the discussion below of the results of operations for each of our markets. The average selling price of our printers, terminals and other hardware remained relatively flat for the first nine months of 2024 compared to the first nine months of 2023. FST software, labels and other recurring revenue increased $112 thousand, or 1%, in the first nine months of 2024 compared to the first nine months of 2023.

Previous wording

International sales for the first six months of 2024 decreased $2.2 million, or 27%, from the same period in 2023 due primarily to a 33% decrease in the international casino and gaming market.

Current wording

International sales for the first nine months of 2024 decreased $3.9 million, or 33%, from the same period in 2023 due primarily to a 39% decrease in the international casino and gaming market.

Previous wording

Food service technology. Sales of our worldwide food service technology products for the six months ended June 30, 2024 and 2023 were as follows(in thousands, except percentages):

Current wording

Food service technology. Sales of our worldwide food service technology products for the nine months ended September 30, 2024 and 2023 were as follows(in thousands, except percentages):

Previous wording

The increase in food service technology sales of $0.1 million, or 2%, in the first six months of 2024 compared to the first six months of 2023 was driven by an 8% increase in sales of BOHA! software, labels and other recurring revenue, partially offset by 10% lower sales of FST hardware. Despite the loss of a significant customer (explained further below), FST software, labels and recurring revenue increased compared to the prior year period primarily due to higher label sales to several of or our larger existing customers and, to a lesser extent, increased software sales due principally to the growth of the installed base of our BOHA! terminals and workstations. Hardware sales were impacted by a 94% decrease in sales of our AccuDate 9700 terminals which we discontinued at the end of 2023 and 69% lower sales of our legacy BOHA! Terminal 1 (including those from a lost customer explained further below). These decreases were largely 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.

Current wording

The increase in food service technology sales of $205 thousand, or 2%, in the first nine months of 2024 compared to the first nine months of 2023 was driven by a 1% increase in sales of BOHA! software, labels and other recurring revenue, as well as a 3%increase in sales of FST hardware. Despite the loss of a significant customer (explained further below), FST software, labels and recurring revenue increased slightly compared to the prior year periodas sales tothe lost customer were more than offset by increased software sales due principally to the growth of the installed base of our BOHA! terminals and workstations (excluding those from the lost customer) as well as higher label sales to several of our larger existing customers (excluding those from the lost customer). Hardware sales were impacted by a 95% decrease in sales of our AccuDate 9700 terminals which we discontinued at the end of 2023 and 72% lower sales of our legacy BOHA! Terminal 1 (including those from a lost customer explained further below). These decreases were offset by strong sales of our newly launched BOHA! Terminal 2 (that replaced our BOHA! Terminal 1) to a large international QSR customer as well as increased sales of Workstations.

Previous 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.

Current wording

During the second quarter of 2024, a significant customer notified us that they 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 did not have any hardware sales, and minimal label and software sales, to this customer in the third quarter of 2024, but we expect to continue to servicea small percentage ofongoing units and may have some additional sales to this customer in the future. 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

POS automation. Sales of our worldwide POS automation products for the six months ended June 30, 2024 and 2023 were as follows(in thousands, except percentages):

Current wording

POS automation. Sales of our worldwide POS automation products for the nine months ended September 30, 2024 and 2023 were as follows(in thousands, except percentages):

Previous wording

Sales of POS automation printers decreased $1.9 million, or 51%, for the first six months of 2024 compared to the first six months of 2023. 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 first six months 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.

Current wording

Sales of POS automation printers decreased $2.4 million, or 45%, for the first nine months of 2024 compared to the first nine months of 2023, largely due to unusually high sales during 2023, as we increased production and began to fulfill our large backlog of sales orders following supply chain slowdowns in 2022. During the first nine months of 2024, we experienced renewed competitive pressure that has resulted in a return to a more normalized level of sales as well as a reduction in our average selling prices.

Previous wording

In addition to the slowdown in customer order and shipment rates described above, we expect POS automation sales to continue to be lower in 2024 compared to 2023 due to the resumption of volume shipments by our competitors and we therefore anticipate our sales volume and average selling price to return to more normalized levels.

Current wording

We expect POS automation sales to continue to be lower during the remainder of 2024 compared to the same period 2023 as our competitors have resumed volume shipments and we therefore anticipate our sales volume and average selling priceto remain at levels relatively consistent with the third quarter of 2024.

Previous wording

Casino and gaming. Sales of our worldwide casino and gaming products for the six months ended June 30, 2024 and 2023 were as follows(in thousands, except percentages):

Current wording

Casino and gaming. Sales of our worldwide casino and gaming products for the nine months ended September 30, 2024 and 2023 were as follows(in thousands, except percentages):

Previous wording

Domestic sales of our casino and gaming products declined by $14.6 million, or 70%, for the first six months of 2024 compared to the first six months of 2023. Sales during the first half of 2023 were unusually high due to our largest competitor’s inability to supply product due to the supply chain issues. In addition, many of our customers built up, and two 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.

Current wording

Domestic sales of our casino and gaming products declined by $17.3 million, or 65%, for the first nine months of 2024 compared to the first nine months of 2023. Sales during the first nine months of 2023 were unusually high due to our largest competitor’s inability to supply product due to the supply chain issues. In addition, entering 2024, many of our customers built up 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, during the first nine months of 2024, we experienced a significant slowdown in their order and shipment rates. As of the end of the third quarter 2023, we believe all significant customers have resumed buying (though not all at normalized levels yet), with the exception of one larger customer. This customer has not ordered any product through the first nine months of 2024 and we expect thisto continue at least through the end of 2024 until they are able to sell through their on-hand inventory. We also believe our sales in the third quarter of 2024 were negatively impacted by softness in overall demand in the industry which we expectto continue for the remainder of 2024. We expecta normalized competitive environment to continue going forward as our largest competitor has resumed volume shipments and our customers begin to return to more normalized buying levels.

Previous wording

International sales of our casino and gaming products decreased by $2.3 million, or 33%, in the first six months of 2024 compared to the first six months of 2023. Similar to our domestic customers, our international 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 impact our international sales during the remainder of 2024.

Current wording

International sales of our casino and gaming products decreased by $4.1 million, or 39%, in the first nine months of 2024 compared to the first nine months of 2023. Similar to our domestic customers, our international customers also began to slow their order rates in the first half of 2024 due to higher-than-normal inventory levels andin response to softness in overall demand in the industry. This slowdown continued into the third quarter of 2024 and we expect this to continue to impact our international sales at least through the end of 2024.