Transact Technologies Inc LD Micro 20th Annual Main Event Conference

Good afternoon. I should have registered earlier because I see that I am at lunchtime on the second day. Going to talk a little bit about TransAct. Many of the people here know the company. It has been around for a long time, and I am a recently appointed chief executive, and I got into the company, and I have said in the past that it was a turnaround. There were a lot of challenges that we had. I am just going to talk a little bit about the company. I do have to say that there is a safe harbor warning, so if I say something really enthusiastic, and it could have been, it might have, or possibly or projected, I am going to try not to say a lot of that stuff.

They already told me that I have to say, and if I talk, I have to say as of June 30th, which was our last quarter. In any event, here we go, and I got to find the button on this thing. That is not it. It is a PC. I do not know how to operate it. Do I have a clicker? Yeah. I bet the button to the right makes it go to the next slide. There is a safe harbor warning. I will go past that. The company started in 1996, and it was a merger of a company that was spun out with a small public company, and they did an IPO in 1996. We are smaller today than we were then, I think, certainly in real dollars, real terms. We started out as a printing company, and that makes a lot of sense.

A bunch of people came out of NCR, and they developed the first standalone point-of-sale printer. It was pretty easy. They had a lot of experience in it. They did not patent it, and point-of-sale printer is now pretty much a commodity. Today, we focus on gaming and casino. Those are both vertical markets. We do not segment the company, which frustrates investors because you cannot really tell where the money is coming from and where the money is going. I have looked in the economics of segmenting the company, and for a small company like that, it is really complicated. Internally, we are working through that, and eventually at some point, I am hoping to be a little more forthcoming with what we do. The gaming business is one of the verticals. We make printers that go into slot machines. We make roll-based printers that are used in sports betting.

In the past, we used to make lottery printers. That relationship was blown up some years ago. We might get it back at some point. That is just sort of an accident. Really down deep, the company is an ODM, an original design and manufacturing company. Years ago, we used to make printers for banking tellers, things like that, but we happen to be strong in this one. What is interesting is it is a very strong business that has good margins. A TITO printer is a ticket in, ticket out printer. If you go to a slot machine and you sit down and you are done playing and you got any money left, they will give you a little ticket, and it is like a paper debit card. We do that, and we do it really well. It is a duopoly. That means there are two companies in there that do it.

We've probably got about a 35% global market share. Pretty hard to pin down. A bit of information that you probably wouldn't know about the gaming industry. First of all, the slot machines make all the money in a casino. It makes about 70% of the profit. It's better than all the other machines combined, and yet it's sort of mindless. I just was in Las Vegas last week, and there's lots of people playing slots. What's interesting is a casino gets rid of or replaces 5%-8% of the machines on the floor every year. It's sort of a replacement business, and there's about 1 million slot machines in North America alone, so we get our share of that. Then we go out and try to find new casinos, new openings, this, that, and the other thing. That's that business. It's steady.

The customers are loyal, and the duopoly basically means that it's pretty darn good business. There's pretty good barriers to entry, pretty good moat around that business. In any event, if I go to the food service business, we call it Food Service Technology, FST. We started out with point-of-sale printers, and we sold those to anybody who wanted them. One of our large clients was McDonald's, and when they started getting more aware of food service as an important thing, they asked us if we could build a date code printer. A date code is just what it sounds like. It's the date. It's the date when some food item expires or needs to be used.

When you go to the grocery store and you look at maybe a can of soup or something like that, it says when you should use it by, but it doesn't change until you open it. A can of tuna fish could sit on the shelf for a year, but when you open it, you probably got maybe a week, and you better be using it. So we built a printing system for McDonald's, and it's a unique system. We designed it. They helped us figure out what to do, and that's how we got into it. Date code is simple. There are a lot of other things that have to happen in the back of the house, as we call it, BOH. The back of the house doesn't have to be a house. It just means a facility where food is prepared.

The systems that we built are fully, in my opinion, buzzword enabled. We've got everything in it. It's got touchscreens. It's got software. It's got IoT, telematics, which is Wi-Fi, internet connectivity, cloud connectivity. We always do printing because we're really, really, really good at that. We know a lot about it. That's sort of our strong suit. That's how we got to what we call the fourth generation BOH system. It's sophisticated, and it's integrated. Think of it as a platform. It's a platform that eventually it will do anything in the back of the house that you need done. This is what the stuff looks like. It's not just that printing system that's on the right. There's a lot of nuances with labels, things like that. We have software that designs labels.

Most of our customers pre-print the labels with logos, things like that. Labels cost money. Next time you go get grab-and-go sushi, you might take a look at that nice label that is around the package. They use that label to seal the package. If you are a grab-and-go vendor and you have more than 10 stores in the country, you have to do nutritional labeling. Nutritional labeling is complex because you have to go out to an official federally regulated database and go, "What ingredients do I have? How much of each do I have? What is in the label?" There is a lot of other things that happen with the labeling. It is not that exciting, candidly. The reason this matters a lot is that there is a lot of cost pressure in the industry.

You have got labor wage rates, you got labor turnover, you got food safety as a consideration. Bottom line, it is the costs that are the biggest issue. Food costs, food waste. The marketplace is large, and currently the back-of-the-house TAM, total addressable market, is about $4 billion. That is from AGC Partners, not the AGC that is here, a different AGC. It is early days. The food service industry is kind of late to the party for digital transformation. That was the buzzword we were throwing around before we got all hyped up on AI. That was where you were going to hook everything up, and you are going to have one version of the truth. The reality is, hospitality is a complicated business because you got to delight your customers, but fundamentally, you got to make a profit. If you do not make a profit, you are out of business.

They are paying a lot of attention to this. They are kind of late to it. We know how to do it. The idea here is that this market is big. The TAM estimate for by the time we get to about 2032 is about $12 billion. Little TransAct is not going to grab 50% of that for sure, but there is a really wide-open market. There is a lot of greenfield, and it could be a lot bigger in the long run. We are excited about that. I will point out that if you segment it, there is a lot of buzzwords in this field. You got full-service restaurants. A QSR is a quick-service restaurant, like a McDonald's is quick service. A&W is a quick service. You have got the other categories, fine dining. You have got food service management companies, which are people like Sodexo and Aramark and Compass Group.

These are all clients of ours, and they go out and do things like baseball stadiums, college campuses, factories. We have got a BMW factory near Spartanburg that has 17,000 employees, 24 hours a day, and they feed them. They go out and win these contracts, and those people use the technology that we make, but the reality is it is a big part of the market. When I talk about what you might do with the back-of-the-house platform, there is basic labeling. Within basic labeling, there is made to order. There is also grab-and-go labeling, and there is end of the day.

You might go, "What's end of the day?" Well, if you're making sushi, at the end of the day, you got a bunch of stuff left, and you go like, "I might as well make a new roll." You make it, but you don't know what the nutritional requirements are. So you go, "This is what I have. This is what I'm going to put in this thing." The system will basically print a label that gives you all the nutritional information. So it gets complicated pretty quickly. We do things like food prep applications that include checklists, timers, menu management. Like if you're going to change a menu in a McDonald's, they can add a chicken sandwich that wasn't on the menu. They can push it down to every one of the machines in the Southwest. They can change the price. They can change the ingredients.