Good day, and welcome to the TransAct Technologies Second Quarter 2020 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Marc Griffin. Please go ahead, sir.

Thank you. Good afternoon, and welcome to TransAct Technologies second quarter 2020 earnings call. Today, we'll be discussing the results announced in our press release issued after the market close. Joining us today from the Company are Chairman and CEO, Bart Shuldman; and President and CFO, Steve DeMartino. Today's call will include a discussion of the Company's key operating strategies, progress on these initiatives and details on the second quarter financial results. We will then open up the call to participants for questions. As a reminder, this conference call contains statements about future events and expectations which are forward-looking in nature. Statements on this call may be deemed as forward-looking and actual results may differ materially. For a full list of risks inherent in the business and the company, please refer to the company's SEC filings, including its reports on Form 10-K and 10-Q. TransAct takes no obligation to revise or update any forward-looking statements to reflect events or circumstances that occur after the call. Today's call and webcast will include non-GAAP financial measures within the meaning of SEC Regulation G. When required, a reconciliation of all non-GAAP financial measures to the most directly comparable financial measure calculated and presented in accordance with GAAP can be found in today's press release as well as on the company's website. With that, let me turn it over to Bart.

Thank you, Marc, and thank you to everyone joining us on the call today. Let me just start by about 20 minutes ago, we lost power in the building that we are in -- that we're doing the conference call from. So we're on cell phones. Should it get a little fuzzy, we apologize but we have no electricity as Connecticut was hit very hard with the storm. But before I begin, I'd like to say a few words of thanks. First, I thank our TransAct employees who've had -- who have had to endure the most unfortunate spread of the virus and the tough changes we had to make at TransAct. You did not cause this horrible virus yet you stayed committed to the work we needed to get done and you made the necessary adjustments with working from home to keep us going. No words can thank you enough. Second, I'd like to thank our shareholders. Nobody understands the impact on your portfolio as much as I do, as I spent a fair amount of money -- of my own money this year buying in my options, not handing back any stock to pay the taxes, which I did at about $10 a share, and doing outright purchases of TransAct stock. So I know what you're feeling. I thank you for your commitment to TransAct. And finally, I want to thank our Board. You have been diligent in your approach to your role and holding us as a management team accountable. You have done it in a way that gave us confidence in what we were doing and one which gave us a lot of respect. I thank you. Now on to the business of the conference call. Our second quarter performance was relatively solid, given the significant…

Thanks, Bart. Good afternoon, everyone. Before I get into the details of our second quarter results, I'd like to highlight the steps we've taken to decrease our operating expenses to manage our liquidity. On our last earnings call in May, we discussed the pivot we made in late March as COVID first caused most of our customers to shutter their businesses. We went from accelerating spending to support the growth of our BOHA! solution to halting all new spending and executing a detailed plan to reduce expenses. During the first quarter, we lowered our operating and manufacturing overhead expenses by approximately $700,000 from the levels we projected internally for the first quarter. Then early in Q2, we took additional steps that we estimated will reduce our total expense run rate by $1.1 million compared to the first quarter. I'm pleased to report that we ended up nicely exceeding that estimate with a total savings of approximately $1.7 million sequentially, consisting of savings in operating expenses of $1.2 million and manufacturing overhead expenses of $0.5 million. You should also note that we achieved the $1.7 million of Q2 savings even with adding back the payroll cost for our furloughed employees we were happily able to return to work for most of May and June as a result of receiving the proceeds from the Paycheck Protection Program administered by the SBA. We also temporarily removed the 10% salary reduction we put in place in April for most of our employees, except for senior management, in order to fully take advantage of the PPP program. As a reminder, we received almost $2.2 million of PPP funds in early May that we used to pay payroll costs and help fund our facility leases and utilities for the eight week period ending June 30. But…

Thank you, Steve. Well done. The outlook for 2020 remains a bit challenged, but we are clearly optimistic about the momentum we are seeing in the restaurant industry and with the uptick in order activity. It's interesting our Food Service Technology industry market will now drive our revenue growth. We're confident in the resilience of our business and employees and believe we will come out on the other side of these times even stronger. At this point, I'd like to open up the call to questions.

Thank you. [Operator Instructions] And we'll take our first question from Mitchell Sacks of Grand Slam LLC.

Hey, guys, how are you?

Good, Mitch.

Hi, Mitch.

Good. So with respect to the convenience store market, I see in your website that was Seven-Eleven is it primarily mentions as one of your customers. Your thoughts on the Speedway acquisition. And second comment there would be just kind of talk about -- I know you mentioned one of your large customers was getting active again. Would it be safe to assume that would be them?

Yes. So the good news, Mitch, I got a couple of stories in there. First of all, we are seeing the orders to start -- return from our large convenience store customer and, as we all know, that they had planned on rolling out 10,000 terminals. And so while we lost the last, call it, six months, four or five months as they were starting to roll out terminals in January and February that stopped in March, April, May and June, clearly, we're starting to see that come back. The other really good news, Mitch, is that we just received a very large label order from them. And we're trying to understand what that means in a kind of monthly run rate for how many terminals we have out there because as we had previously explained to the shareholders, we believe between labels and software and service, we would be somewhere around $1,700 per terminal per year in recurring revenue. Based on the latest label order that we received, there could be significantly more. So we're getting ready to ship. We'll work closely with their -- they have a -- kind of a master distributor that does this for them. And then we'll pay close attention to the sell-through rate to see what a real number would be because not only do we think we're going to have 10,000 units out there by the time they finish the rollout, but as you said, they bought Speedway and we do expect that they will roll out their fresh food initiative at Speedway also, which will add around 3,900 more stores to their population. So that would put us close to 14,000 stores. And also, with a higher potential average revenue per unit, that could be pretty significant, Mitch. And so over…

And then in your notes that you talked about the business environment being uncertain to the fact that you're starting to see orders moving, can you just kind of walk us through or talk us through what you're seeing from your potential customers?

We have to break it out between the casino market and then the Food Service Technology market. The casino market, we did see an uptick in orders in June, and that flowed through into July. And as July is normally our lightest month in a quarter, especially in casinos -- in the casino market because our slot manufacturers, the last month of the quarter, are trying to get as many slot machines out the door as they can. So normally, the first month of the quarter, it's very quiet. Well, that was a lot different this year. So clearly, we saw a fair amount of orders that came through and shipped. So we remain optimistic there. I also think that Barry Jonas from Truist, he's looking and talking to casinos and mainly focused on the locals market, which is about 95% of the casinos in the US, and he's starting to hear good things about the capital budgets coming back in 2021. Now that's clearly positive for us. We have 50% of the market. So whatever happens, we're going to get 50% of it. So we're excited there. We do see some openings that are coming across the world and we're working like hell to get those openings, but we are starting to see the order flow, flow through more. I could tell you that when you look at the orders that came in April and May and then look at June, now granted April and May were horrible, the orders that came in, in June were 3x what we got in either April or May. So that was very positive. What's got me really positive though, Mitch, is really Food Service technology. We are seeing customers -- we've got many trials going on right now where new customers are…

Awesome. Thank you very much.

You got it.

We'll now take our next question from Jeff Bernstein with Cowen.

Hi guys, congratulations on doing a great job, walking through the valley of death here. It was really quite a quarter, and it's impressive what you guys were able to do. So another positive surprise to me, it sounded like on the balance sheet, you have -- you list long-term debt of $2.17 million and I thought I heard you say that most of that is the PPP loan or government loan and only $300,000 or so is out under your line of credit. Is that right?

No, Jeff, the whole, the whole amount that shows up on that line item is all the PPP loans.

Yes. Yes, we have really no debt.

All PPP, okay. And then how much is out under your line of credit?

$6,000.

$6,000.

And that's just -- that's it.

Okay.

And $3 million in cash.

And $3 million cash. Oh, that is really a magic trick. Congratulations. That's awesome. All right. So there's some fuel in the tank here to get through this and you cut expenses significantly. I guess we can talk off-line a little bit more of just how that models out because obviously, some of the savings are in the run rate in Q2 and some is new, et cetera. But it sounds like you're really getting this down to where we're going to have some pretty good -- some flexibility to be able to get through this.

Yes. Jeff, now is with the resurgence of the FST business again, you know the talk in the restaurant market today right now, I'm hearing it across the board, is that the restaurants now need technology. When you add a person, you add a liability now. You add a potential person that could come to work sick. And technology doesn't get sick. So we are seeing some real, good requests for how technology can help them out. And if you think about it, if you break the restaurant into three things, the front of the house has their technology. They have their POS. They have their kiosks. They have whatever. The middle of the house has the financial package, has their inventory package. The back of the house has nothing. And what we are starting to hear from the restaurants is, how can you help me? The wellness program that we developed was developed because a restaurant company called us and said, I've got a problem. I laid off my waiters and waitresses. I'm now opening again and there's -- they want to come back to work. And if they don't feel well, they know they got to stay home but they're not going to make money. So they're at risk, the restaurant, of having an employee show up, not feel well but that employee needs the money. So how can we use our Checklist app because -- right, we got a Checklist app. How can we use that to help them? Now there is complexity in that. You've got all the medical record laws that would have to protect the individual from who sees their medical records. So we went to work and figured out how to do that. And in another week, we'll be finished with the technology.…

And it sounds like -- so this -- should seamlessly also integrate with any kind of testing program that anybody does and goes, okay. well, you got this, not the other. you can't come back until you get your test. And here, we're going to set you up immediately with your test or whatever it is, so all that kind of stuff.

Yes, the big question is as they walk in the door, how do we -- how does the restaurant make sure that the employee is healthy enough to come to work? That's the big question that's going through their minds. And right now, there's no true integrated solution like we believe that we've put like the one that we've put together. And it marries that with Checklist.

So between Food Service and the Clean2Play casino thing, you would think that guys would be highly motivated and kind of knocking down your door to get this stuff in place. Is it just that they were -- now they're ready to start doing things after they've applied tourniquet kind of thing, and that's where we were in the last couple of months, and now it's finally like, all right, how do we go forward? Or where are these people in decision making?

So, I think I've said it a couple of different times. I believe that what went on is restaurants and casinos had to figure out what they were going to do going forward. So put technology up to the side, what they needed to do is figure out, how am I opening? How can I open? How do I space my counters? How do I space my tables? Where -- how do I do QR codes so I don't have to have menus? So they had to figure that all out. And they did, right? So they're open. Now what they're saying is, okay, now how can I use technology? So I believe it's exactly what I thought would happen, which is, okay. I'm closed. I'm going to open. What's the first four or five things I got to do? Let's get through that. Let's open. Now let's go find some solutions that will make this a lot more efficient and productive. Casinos are a little different, Jeff. I think casinos, I think, were a little ahead of opening up. And I think a couple of casinos got in trouble because they opened up and people were sick and their employees were sick, and they had to go back and shut down. I mean there's no bar tops allowed in Vegas. You can't play a bar top machine right now. So I think the industry is now starting to figure out, okay. Got to take it serious, can't shut down again, what technology can I use? So, I think the casino industry is just getting to the point where I think the restaurant, the convenience store industry was about four weeks ago, which is, hey, we got to start again. we've got to look at technology. I think the casino industry is just getting there.

Got you. Okay. All right. Well, listen, thanks to both you guys and the team for a job well done in a really tough environment.

Thank you.

So please let everybody know that your shareholders are grateful.

Thank you. Thank you, Jeff.

[Operator Instructions] As there are no further telephone questions, I'd like to turn the conference back over to our presenters for any additional or closing remarks.

Yes. So again, I started the call by -- with a bunch of thank you's. I thank our employees. I thank our shareholders. I thank our Board. Clearly, nobody was expecting something like we're going through. And I just really appreciate the support that we got from all three employees, shareholders and our Board. And we're working very hard in your behalf, shareholders. And we have a path forward, and the good news is we're starting to see the markets open; and that recurring revenue, sure, does help. So thanks, everybody, for being on the call. And we'll talk to you in a couple of months. Bye-bye.

And once again, that does conclude today's conference. And we thank you all for your participation. You may now disconnect.