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Overview of Financial Performance

TransAct Technologies Incorporated, a leading global provider of software-driven technology and printing solutions for high-growth markets, reported its financial results for the year ended December 31, 2024. The company’s net sales decreased by 40.3% to $43.4 million, down from $72.6 million in the prior year. This decline was driven by lower sales across all of TransAct’s major markets, including food service technology (FST), point-of-sale (POS) automation, casino and gaming, and the TransAct Services Group (TSG).

Gross profit decreased by 44.1% to $21.5 million, with gross margin declining to 49.5% from 52.9% in the prior year. The decrease in gross profit and margin was primarily due to the significant drop in sales volume, particularly in the higher-margin casino and gaming market, as well as competitive pricing pressures.

Operating expenses decreased by 23% to $25.1 million, driven by cost reduction initiatives implemented by the company. However, the significant decline in sales outpaced the reduction in expenses, resulting in an operating loss of $3.6 million compared to operating income of $5.7 million in the prior year.

After accounting for net interest income and other expenses, TransAct reported a net loss of $9.9 million, or $0.99 per diluted share, compared to net income of $4.7 million, or $0.47 per diluted share, in the prior year. The company also recognized a $7.3 million discrete income tax charge related to the write-down of its U.S. net deferred tax assets, which contributed to the unusually high effective tax rate of (176.4%) for the year.

Revenue and Profit Trends

TransAct’s revenue decline was broad-based, with decreases across all of its major market segments:

• Food service technology (FST) revenue decreased 1.3% to $16.1 million, driven by a 3% decline in software, labels, and other recurring revenue, partially offset by a 2.9% increase in hardware sales. This was impacted by the loss of a significant customer that terminated its BOHA! software subscriptions and label sales.

• POS automation revenue decreased 51.4% to $3.4 million, primarily due to a 50.6% decline in domestic sales as the company faced renewed competitive pressure and a return to more normalized demand levels after unusually high sales in the prior year.

• Casino and gaming revenue decreased 50.6% to $20.3 million, with both domestic and international sales declining significantly. This was due to a slowdown in customer orders as they worked through excess inventory built up during supply chain constraints, as well as overall softness in demand in the industry.

• TransAct Services Group (TSG) revenue decreased 56.5% to $3.6 million, largely due to a 60.9% decline in domestic sales of replacement parts and accessories, as well as a 57% decrease in consumable sales as the company shifts away from legacy products.

The decline in revenue across all segments, particularly the higher-margin casino and gaming market, was the primary driver of the 44.1% decrease in gross profit and 340 basis point decline in gross margin.

Strengths and Weaknesses

Strengths:

• Diversified product portfolio spanning multiple high-growth markets
• Strong market positions in casino and gaming, and food service technology
• Recurring revenue from software, labels, and maintenance/service contracts
• Proactive cost reduction initiatives to align expenses with lower sales volumes

Weaknesses:

• Significant revenue and profit declines across all major market segments
• Reliance on a few large customers, as evidenced by the loss of a key FST customer
• Competitive pressures leading to pricing concessions and market share losses
• Write-down of U.S. net deferred tax assets resulting in a large one-time tax charge

Outlook and Future Prospects

Looking ahead, TransAct expects some improvement in its financial performance in 2025, but challenges remain:

• The company anticipates FST revenue to be higher in 2025 as it focuses on growing its installed base of terminals and related recurring revenue. However, the loss of the significant FST customer will continue to impact this segment.

• POS automation sales are expected to be lower in 2025 as the company continues to face competitive pressures in this market.

• Casino and gaming sales are expected to improve in 2025 compared to 2024, as the company believes its major customers have largely worked through excess inventory. However, the return of a key competitor and ongoing softness in demand may continue to negatively impact this segment.

• TSG sales are expected to decline further in 2025 as the company phases out its legacy consumable products.

Overall, TransAct anticipates gross margins to be in the mid to high 40% range in 2025, an improvement from the 49.5% reported in 2024 but still below historical levels. The company also expects operating expenses to increase in 2025 due to inflationary pressures and higher incentive/share-based compensation.

The company’s strategic review process remains active, and management is focused on exploring options to increase and/or deliver shareholder value. However, the outcome and timing of this process remain uncertain, and the risks associated with it could continue to impact the company’s performance.

In summary, TransAct faced significant challenges in 2024, with declines across all of its major markets leading to a substantial drop in revenue, profitability, and cash flow. While the company has taken steps to reduce costs and position itself for a potential recovery, the road ahead remains uncertain, and the company will need to navigate a competitive landscape and address the loss of key customers to return to sustainable growth and profitability.