TransAct Technologies Inc (TACT) 2004 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. At this time, all participants have been placed in a listen-only mode. (Operator Instructions). As a reminder, this conference is being recorded today. A replay will be available after 8 p.m. EDT today through midnight EDT on August 2nd. The replay dial-in number is 973-341-3080 with passcode 4964950. The replay will also be accessible at www.TransAct-Tech.com. I would now like to turn the floor over to David Pasquale. Please go ahead, sir.

Thank you Operator. Good afternoon and welcome to TransAct's second quarter results call. Joining us from the Company today are Bart Shuldman, Chairman, President and Chief Executive Officer; and Steve DeMartino, Chief Financial Officer. The format of the call will be a brief business review by Bart, followed by Steve providing detail on the financials. We will then have time for any questions. If you have not seen a copy of today's results release, please call Moon Lee of The Ruth Group at 646-536-7001. Or, you can get a Company copy off of TransAct's Web site.

Before we begin the formal remarks, the Company's attorneys advise that this conference call contains statements about future events and expectations which are forward-looking statements. Any statement in this call that is not a statement of historical fact may be deemed to be a forward-looking statement. Actual results may differ materially depending on a number of risk factors.

For a full list of risks inherent in the business of the Company, please refer to the Company's SEC filings included on the Company's most recent annual report on Form 10-K. The Company undertakes no obligation to advise or update of any forward-looking statement changes to reflect events or circumstances after the date of this call. At this time, I would like to now turn the call over to Bart Shuldman. Please go ahead, sir.

Thanks David. Good afternoon and thank you for joining us on today's call. I'm going to quickly review the highlights of the quarter. And then Steve will run through the detailed financials.

This was another really strong quarter for us. We continued to benefit from the adoption of ticket in/ticket out technology in the casino market, which is driving our printer sales in our gaming and lottery market. And our POS and banking market is being led by the continued rollout of our BANKjet inkjet printers at financial institutions.

Combined, we posted second-quarter net revenue of 14.7 million, up 10 percent over a year ago. The key to TransAct is not only the top line growth in our revenue, but also the leverage we have established in our business. As a result of our sales growth and our efficiencies, we were able to expand our gross margin to 38 percent, hit an operating margin of 16 percent and increased our EPS by 100 percent over last year to 14 cents per share. This was above our guidance.

Our success with lean manufacturing and our focus on driving component and subassembly costs lower are key factors helping us to achieve our goal of 16 to 18 percent operating profit margins. This profit margin achievement is at lower revenue levels than we had previously thought. And of course, our increased operating profit is turning into cash as we manage our inventories, even with the increased production volume.

We are proud of these achievements. The fact is, that as we noted in our press release, our second quarter would have actually been even stronger if not for a shift in the timing of some orders from GTECH from the second quarter to the fourth quarter of 2004, and into the first quarter of 2005.

Steve will discuss in detail our financials in a few minutes. But you can see by our results that we believe not only are we executing by driving revenue and earnings higher, but we continue to improve our balance sheet as well.

Cash increased to over 5 million at the end of the second quarter. And we feel good about our ability to continue to turn increased sales into increased cash. Clearly, we feel encouraged about where we are in our business and our position in the market.

Trends in our core gaming market remained very solid. There were additional legislative measures taken at the state level during the second quarter, such as what happened in Pennsylvania, which would lead to well over 80,000 new slot machines in the U.S. alone. This would grow the available overall market for printers by over 11 percent.

And worldwide, there does not appear to be any slowing in the adoption cycle we are in, as we continue to see strong momentum in Australia and Europe. We are encouraged by what we are hearing from Australia in particular.

On the POS and banking side, we continued to make inroads with our BANKjet inkjet printers, as we see a lot of interest from banks across the U.S. as they get ready to adopt the Check 21 initiative. We believe that we remain the market leader with our inkjet technology for banks.

In the POS segment, we are encouraged by the quick market feedback we have received regarding our new KITCHENJet 1000 inkjet printer. This printer was designed specifically for kitchen applications, and the features seem to be of serious interest by both end-users and value-added resellers in the market. We did a lot of research as to the issues presented in the harsh kitchen environment. And our KITCHENJet 1000 printer is a great solution.

And our new iTherm 280 thermal printer is starting to gain momentum. The speed, color capabilities, internal power supply and other features of this printer, along within an aggressive price structure, has gained the interest of the market. We expect to see growth from these lines moving forward. And finally, our ITHACA® services group continued to drive revenue higher, as we sell more spare parts, services and consumables to our customers.

With the increased sales of our inkjet printers, our ability to continue to drive this business grows as the TIE ratio, the number of cartridges sold for every printer installed, stays at about 4 to 8 cartridges per year. In addition, we have been very focused on the repair services side of the business, as we aggressively pursue more service contracts. This business has the benefit of higher gross margins in our blended rate. So you can see why we're putting so much emphasis behind it.

Moving into the second half of the year, we expect the momentum will continue. As a result, we raised our earnings per share guidance for the full year 2004 in our release this afternoon. We now expect to achieve earnings per diluted share of approximately 53 cents to 55 cents, up from our previous guidance of 49 cents to 52 cents per share, on revenues of approximately $62 to $64 million. This compares to earnings of 13 cents per diluted share on a post-stock split basis, and revenues of 52.1 million for the full year of 2003.

For the third quarter of 2004, we expect earnings per diluted share of approximately 12 to 13 cents per share on revenues of approximately 15 million. We now expect our fourth quarter to be our strongest quarter, as GTECH shifted a significant portion of its forecast for thermal lottery printers from the second and third quarters of 2004 into the fourth quarter.

As noted in the release, while we are increasing our guidance for the year, our projections for both of third and fourth quarters of 2004 include additional costs related to our implementation of section 404 of Sarbanes Oxley. Our EPS projections for 2004 would have been even higher if not for the costs associated with our implementations of Sarbanes Oxley, some of which will not repeat next year.

Finally, we have applied for relisting on the NASDAQ national market from the NASDAQ small cap market. The additional cost for this listing, we are projecting will be spread over the next 2 quarters.

Before I turn this call over Steve, I would like to make a comment about the canceling of the acquisition of TPG. While disappointed that we cannot complete the acquisition, I feel we made the best decision for our shareholders and employees.

To recap what occurred, we signed a binding letter of intent that allowed us to perform a full due diligence of all aspects of TPG. During this due diligence process, we believe we uncovered a material issue between what we were given before we signed the LOI and what we eventually discovered.

We did try to renegotiate the terms of the acquisition. But, as we announced, we could not. And we felt it best that we cancel it. I want our shareholders to know I am extremely proud of the work our due diligence team did, as it was through their efforts we found the material issue. I also want our shareholders to know we will be very disciplined with any potential acquisition. At this time, I would like to turn to call over to Steve DeMartino, who is now our Chief Financial Officer. Steve?

Thanks Bart. As Bart just said, this was another strong quarter for us. And we continue to improve our operating metrics. Our focus on further leveraging our operating costs and improving efficiency throughout our organization has made TransAct a very profitable Company on a continuing basis. And we will continue to seek further improvements on a go forward basis.

Before I review our financials, I wanted to point out that our preferred shareholders converted all their preferred shares into common stock during the second quarter. This conversion will result in the cash savings of approximately $300,000 a year, as we will no longer have to pay out the required dividend. Now, onto the numbers.

Looking at our financial results for the second quarter, our net sales increased 10 percent to 14.7 million, compared to 13.4 million in the second quarter a year ago. Sales of our POS and banking products grew 30 percent over the second quarter of 2003, primarily the result of increasing shipments of our BANKjet line of inkjet printers to 2 major financial services companies, to upgrade bank teller stations.

Sales of our gaming products, which primarily includes slot machine printers used in casinos and racetracks, as well as related spare parts and service, increased 25 percent, led by continued strong demand related to the ongoing rollout of ticket in/ticket out printers in casinos worldwide.

Sales of lottery products decreased 43 percent, due to a shift in the timing of orders from GTECH from the second quarter of 2004 to the fourth quarter of 2004 and the first quarter of 2005. This simply was due to a schedule shift by GTECH, which happens from time to time.

Gross profit in the second quarter increased to 5.6 million, up approximately 1.4 million, or 33 percent, over the second quarter of 2003. Our gross margin also improved to 38 percent, from 31 percent a year ago and from 36 percent in the first quarter of 2004. The higher margin is primarily due to higher sales, a more favorable sales mix -- including increased sales of higher margin gaming and lottery printers and continued additional cost savings.

Operating expenses for the second quarter were 3.3 million, compared to 2.9 million a year ago. These expenses were higher during the quarter, due largely to professional fees and additional staff related to Sarbanes Oxley compliance initiatives.

We expect that on a full year basis, Sarbanes Oxley will cost us in the range of 6 to 700 thousand dollars. As a reference point, we expect that approximately 300,000 of these total estimated costs for Sarbanes Oxley will not repeat next year.

In addition, operating expenses for the second quarter of 2004 included approximately $100,000 of expenses related to due diligence for our proposed acquisition of TPG. These costs were expensed in the second quarter, as the deal was subsequently terminated in July.

Our operating income reached 2.3 million in the second quarter of 2004, compared to 1.3 million a year ago. As a percentage of sales, operating income in the second quarter was almost 16 percent, compared to almost 10 percent in the second quarter last year. This clearly highlights the operating leverage we continue to experience in our business, and marks the first quarter of achieving our goal of 16 to 18 percent operating margin.

Interest expense in the second quarter of this year was only $2000 compared to 76,000 a year ago. Since we have no debt outstanding, this expense represents only our unused credit line fee, offset by interest income earned on our available cash balance. With over 5 million of cash our balance sheet at the end of June, we expect to report net interest income beginning in the third quarter of 2004.

As to our income taxes, we recorded an income tax provision at an effective rate of 36 percent this quarter, compared to 33.4 percent in the second quarter of 2003. The lower effective tax rate in the 2003 period reflected a favorable outcome of a state tax audit.

Net income in the second quarter of 2004 was 1.5 million, or 14 cents per diluted share, compared to 800,000 or 7 cents per diluted share in the second quarter of 2003. This represents a 100 percent increase from diluted EPS year-over-year. It is important to note that the per-share data in the second quarter of 2004 and 2003 has been adjusted to reflect the 3-for-2 stock split, which was distributed in April 2004.

Turning to cash flow, during the first half of 2004, we generated $4.7 million of cash from operations. As a result, we repaid all our remaining outstanding debt in the first quarter. And we continue to build our cash balance.

Our working capital increased by almost $4 million or 33 percent, to 15.7 million at the end of the second quarter of '04, from 11.8 million at December 31, 2003. Our current ratio also improved to 2.7 to 1 at the end of June from 2.4 to 1 at the December 31, '03. Both metrics increased, due largely to our cash generation during the first half of 2004, and our conscious effort to maintain our inventory levels despite increasing sales.

Let's now take a look at our balance sheet at the end of Q2. Our total assets were 30.2 million compared to 26.4 million at December 31, '03. We ended the quarter with over $5 million in cash, compared to $500,000 at December 31. We believe we will continue to generate cash for the remainder of 2004, and expect to report net interest income beginning in the third quarter of 2004.

Receivables were 8.4 million, compared to 9.1 million at December 31, '03. And our day sales outstanding were about 45 days in the quarter. Our collection experience continues to be excellent.

Our inventories were 8.7 million, compared to 8.1 million at December 31, 2003 and 8.6 million at the end of Q1 2004. The small increase in inventory over year end is to support the increased level sales we're achieving in 2004 compared to 2003.

Shareholders' equity increased 8.8 million, or 85 percent, to 19.1 million at quarter end, compared to 10.3 million at year end. The significant increase over year end was primarily due to the conversion of approximately $3.9 million of preferred stock to common stock, our reported net income for the first half of 2004 and proceeds from stock option and warrant exercises.

Overall, we have a solid balance sheet that continues to strengthen each quarter, that we believe will be capable of supporting our expected growth. That includes the financial portion of the discussion. And with that, I will turn back over to you Bart.

Thanks Steve. That was a great job for the first conference call. I really appreciate that. At this time, I would like to turn the conference call open for questions and answers.

(Operator Instructions). Jeff Martin, Roth Capital Partners.

Bart, could you point characterize the point-of-sale market as you're seeing it pick up in leads, or conversions of potential leads, and if you see that really rebounding towards the second half of this year and into 2005?

Well, we're having the -- a good year in POS and banking this year. We have said we had a 30 percent increase in sales. Our new KITCHENJet is picking up a lot of interest. Our new iTherm -- we just actually closed a new VaR with the iTherm printer. Actually we probably closed 2 VaRs in the last 2 months with the iTherm printer.

The POS market is remaining strong for us. We went through the downturn in 2000 and 2001 through 2002. Now we're seeing much more interest -- a lot of that interest turning in sales. We've had some pretty significant bids that we're working on. We've got bids both in the banking sector and the POS sector.

We've got some pretty large OEMs that we're talking to. We've got some end-users. So it's really been a good, solid POS year for us this year. We've added 2 new product, of course. We've got our POSjet -- we've got our KITCHENJet 1000. We've got our new iTherm thermal printer, which is one of the -- if not the best in the industry right now. It has gotten us in front of our customers again.

Supported with that is our services and consumables. And that TIE ratio of 4 to 8 cartridges per year -- every time we ship out an inkjet printer from the recurring revenue model that we've built. So, we see it as steady, strong, and our position much better considering the additional products that we have.

Okay great. What was the mix of service, spare parts and consumables during the quarter?

It's about 10 to 15 percent of our quarter sales Jeff.

Yeah, we average right around that 15 percent, Jeff -- 15, 17, 14, depending on the sales. So, it's running still around that 15 to 17 percent range.

Okay. And you mentioned you are stepping up the services offering on that. Do you expect the services component to ramp over the second half of the year? Or where do you see that going?

Yes, I clearly see the services side -- what we call now the services group -- our consumables, spare parts and repair services. Based on the forecasts that we have right now, we clearly see that continuing to ramp up Q3 and Q4.

And, you know a lot of that is just driven by all the inkjet printers we have out there, and that all that recurring revenue off of the cartridges. But recently we have spent a considerable amount of time and effort on the service -- on the repair services side. That has really turned into a great business for us.

In fact, in one case, we're repairing a competitor's product. And we're making a lot of money at it. So, we've got two groups now working on it -- our group here in Wallingford, our group in Ithaca. We are looking at plans -- at opening up a West Coast service center. One, to support our initiative in the casino industry. But just as important, so that we could have more local service to the West Coast.

We've got our service in Duncaster -- in England up and running. And that's handling our European business. And we've actually got a service partner in Latin America that's been working with us. So, it's a major focus.

And we've put in this new pivotal system, the CRM system. And our database of where our customers are and where our printers are -- if you think about it Jeff, 50 to 60 percent of our sales go through distribution. So we sell it to a distributor, they sell it to a VaR; they sell it to an end-user. A lot of times we don't even know where our printers are.

But, there is a good chance that they will call us. A light on the printer might be on; they might have a question about the printer. We've developed a software program on all that information. When somebody calls, we enter in the customer, where they're located, what printer they have, and more importantly the serial number, because that serial number gives us the warranty date. And then we are running monthly reports with what printers are coming out of warranty. And we've got the name and the telephone number and the contact information. And we're aggressively going after that from the services side as just as important as the consumables side.

Okay. Should we see margins continue to be higher? You mentioned that you had a large order to -- for a legacy product -- a legacy printer that would fall in this quarter. So we expected a small decline in margins for this quarter. But do you see continued strength in the high 30s? Or will we kind of revert back to the mid-30s?

No. We see it continuing. The -- we -- in our forecasts for Q2 with that legacy product, we really thought the margin would come down in the second quarter. But we had a couple of things happen. One, our mix was wonderful. We sold more high margin product than low margin that we had forecasted.

And even though that low margin product went through our factory -- the fact that we had the higher margin products go through the factory was wonderful. But our cost reduction program -- the fact that we're now producing so many more printers, we're able to go back to our vendors and negotiate lower piece par (ph) and subassembly costs. And it's just driving our margin up.

So we're doing a really good job at lean manufacturing and our cost cutting. And we should see our margin stay in this 37, 38 percent range that were running at. And then you can see, as the revenue continues to grow, what the operating profit is going to continue to grow.

Okay. My last question is, could you give us an update on the international gaming market, timing of shipments, and how you see that ramping?

Well, we've had our first large shipment go to Australia. And the feedback we're getting is very positive. One, they just like the thermal printer. There's about a third of the -- maybe 25 percent of the population out there that is already using impact printers. Not in the ticket in/ticket out application, more in just the receipt printer application. They really like the thermal printer over the impact printer. So we're getting a lot of positive feedback.

The big gaming show in Australia is at the end of August. And we should really see the momentum pick up at the gaming show. Europe has really turned into a hotbed of quotes and customers looking, casinos -- VOTs, Racino's looking at using ticket in/ticket out, or if anything just the thermal printer as the receipt printer. So we are encouraged -- in fact we're looking at putting on additional staff in Europe because of the increased interest that we're getting. And of course we've got our partner in Australia who is handling our Australian business.

We really think, Jeff, it's an '05 story. But, the momentum is wonderful. That will carry our growth. You know if you think about it, if Australia has got 240,000 machines between Australia and New Zealand, if 20 or 30 or 40,000 of those machines turn over, that's significant revenue growth for us for next year. You add in a little of Europe, and the rest of the business could stay flat and we would have a fabulous year next year. So, we are encouraged by it all.

And of course, domestically, we've got now Pennsylvania and California -- the momentum behind that. We really believe that now Maryland and Ohio are going to have to look at it. Florida has now put it on the ballot. So there's a lot of initiative.

Then you got everything that is going on in the casino industry, with the mergers and the action that's going on there. Actually Jeff, we've got a new product we're launching -- we're on schedule, if not ahead of schedule, with our launch.

It should be an exciting G2E show for us with our new product launch. We've actually started to show it to customers already. And the feedback has been wonderful. It is clearly going to be an industry leader. It's got many features in it. That's going to -- we think it's going to drive more market share growth for us here in the US.

Great. You guys have done a great job in the last year. Keep it up Bart.

Daniel Dykens, Clipper Capital Management.

Congratulations on a great quarter. Just with regard to acquisitions, how important are acquisitions in your strategy going forward? And are you looking more towards gaming or towards banking to make those acquisitions?

You know, we look at acquisitions as being opportunistic. And our decision to try to buy TPG was an opportunistic opportunity for us. It was a situation where we approached them, and it would have been a wonderful combination. By the way, I still feel the combination makes sense.

So, it's not a foundation of our growth strategy going forward. It can be a node of that growth strategy. And clearly the gaming and lottery market is a market we like. It's a market we've got a great position in. We've got great relationships with the OEMs. We've got great relationships with the casinos. It's a market with that we know very well.

So, it would be wonderful if there was something out there that we could take in and put through our distribution or our channel -- do what we do well, managing operations, driving cash, driving margins. But it's really going to be opportunistic. It's where the acquisition makes sense.

You can see the margins that we're driving through the business. And it's all about growing our revenue and EPS. So, if it's accretive, if it makes sense for the markets that we're in, clearly we're going to look at it. But it's not something that we're sitting back and analyzing every day and saying, we've got to do an acquisition to grow.

We've got a lot on the table. We've got a new product coming out for the gaming industry this year. We've got some new initiatives. We've got a couple of real interesting initiatives in the POS market that we're working on. So, it's going to be where the opportunity comes to us and it makes sense to us and we can take it in, and just -- that would accelerate our revenue and accelerate our earnings more than have to do it for our growth.

Okay. Thank you.

Greg Weaver, Kern Capital Management.

Just a clarification. So, on that $2 million GTECH impact order, that's run through your P&L already? You said you made it. But I didn't know whether you had shipped it all.

Yes. The GTECH, we have 2 GTECH -- actually we have many GTECH printers. But the 2 major printers are an impact version and a thermal version. The impact version is the legacy one. And that one went through the factory. All -- most of their new orders are their thermal printer. And that's the one that we saw a decrease in orders, based on their forecast. They change their forecast from Q2, Q3 to Q4.

Okay. So do you expect any GTECH revenue in Q3?

Oh yes, we've got some thermal and some more of the impact to go through. But Q4, we've got a big forecast right now for Q4. They took a lot of Q2 and a lot of Q3 and they put it into Q4.

So is most of the delta we're seeing between Q3 and Q4 in terms of your guidance here the GTECH?

Yes, you know normally our Q4 is actually our lowest quarter. POS kind of slows down right after the Thanksgiving holiday, because most retailers don't want to put out a new POS system after Thanksgiving. But, based on the forecast we received from our sales managers, Q4 is really ramping up.

One -- because our new thermal product, our new casino printer hits the market in early October. And two, GTECH has shown us a forecast with a lot more printers in Q4 than actually Q2 and Q3.

Okay, because I was just trying to understand in terms of what GTECH was down in the September quarter, maybe year-over-year from '03 to '04, just because year-over-year you're flat revenue-wise. But you're obviously growing. So I figured that's mostly GTECH.

It's mostly GTECH, if not all GTECH. Yes, I mean last year in Q3, we had a large GTECH order go through. So it's mostly, if not all GTECH. That's because of the shift of their thermal printer from Q2, Q3 into Q4. That's all it is.

Okay. And for some -- you had I guess a large operator that you were rolling out for? Has that operator reordered? Or you're still working on the first load?

I'm not sure I understood the question, Greg. Could you repeat it?

Right. You disclosed in your 10-Q that Harrah's Entertainment had provided a large order for conversion to ticket in/ticket out.

Yes. Harrah's is one of our largest -- in fact Harrah's uses our printer 100 percent.

Right. I guess I was wondering whether or not they had reordered, or kind of what the time frame was for that job?

Oh, that's ongoing. Greg, that's ongoing. Harrah's has got -- I don't know 50, 55,000 slot machines now. And not only is it an upgrade of their existing slot machines, but it's -- when they buy a new slot machine, it's only our printer. Based on what Harrah's has told us, they will only use our printer on their properties. So, that's just ongoing all the time.

Okay. And I guess just lastly on the financial front here, with your two main customers there. You had a big order from them again. That runs throughout all of 2004?

Yes, that's going to come to -- it'll probably slowdown in Q4. But we've got one that we're working on right now which should be early '05. And we've got couple of others in the hopper.

Are these with new guys or --(multiple speakers)

New guys, new banks. Yes, everybody is converting over to Check 21. And it's all happening at different times. Certain banks are doing the software first, then the hardware. The two banks that we worked on at first did the software and the hardware together. This new bank looks like they're going to do the same. So, it's all coming in -- because, it's bank by bank specific. So, it looks like we've got one more and --that should close. And we're working on a couple of others.

Great. Thank you.

Andrew Weiner (ph), Burnham Asset Management.

Bart, I just wanted to make sure I understood it -- I think Steve, in the comments, said that some of the order from GTECH will slip out actually into the first quarter of '05. Is that correct? Or is -- and sort of what do you figure the split between Q4, Q1 will be?

It's really that some went from Q2, Q3 -- most of it went to Q4 and some went into Q1 of '05. So most of it is in Q4. But some of it did go into Q1 '05.

Okay. Secondly, I was wondering if you had any -- enough experience yet with printers at the two large banking customers to determine whether the BANKjet usage differs at all from the sort of traditional POSjet view of 4 to 8 cartridges.

Right now, that's what we're averaging. So, we don't have enough experience, because most of the printers have been out there for 6 months. And we're still rolling them out. I think we'll get a better feel as we end this year, get into Q1, Q2 of next year and start seeing all the printers out there, and start seeing what the cartridge sales will be like.

I hate to put you guys on the spot like this. But you've mentioned a couple of things that were somewhat unusual -- $100,000 for due diligence related to TPG, you had 300,000 over the course of the year for Sarbanes Oxley, preparing for -- stocks for '04 compliance.

So if you figure there was maybe an extra 75 or $100,000 in the quarter, that 2 percent -- 2 points of operating margin right there, perhaps in the quarter. And you had the lower margin shipment to the legacy customer, or legacy product. So that would have put you really, frankly, at the high end of your operating margin -- near-term goal. Are you guys prepared at all to talk about maybe where you think operating margins can go looking out into the future?

You know, your analysis is correct. The Sarbanes Oxley -- the nonrecurring piece of Sarbanes Oxley will be about 300,000 in cost this year that will not reoccur next year. And clearly the $100,000 and we spent on the TPG due diligence won't be recurring unless we do another acquisition.

So that's 400,000. So, you know, you've got 2 to 3 cents right there. And then if you put it back in, you could say our operating margin starts approaching 17, 18 percent. That's been our goal -- I mean 16 to 18 percent. So, with revenue growth next year and adding that back in, yes you're going to see our operating profit margins continue to expand next year. Your math is correct.

Secondly, could you talk -- I think at the annual meeting, you talked about how you have pretty good visibility into the gaming growth. And that you know -- you've now started to shift resources to growing the point-of-sale business, where there is an even larger opportunity over time.

Could you maybe elaborate a little bit on some of the things you're doing to get to that sort of long-term goal of 15, 20 percent market share?

Yes, I mean there are a lot of initiatives going on. Some I can talk about, some I cannot. TPG was one of them. When we sat back at the end of last year -- and one of the things that we said is we needed a combo printer -- a hybrid printer it's called. We knocked on TPG's door. And like I said, I still think the acquisition makes sense. It's just they've got to clean up some problems they have.

The hybrid printer is an area that we look at seriously, and say we need a hybrid printer. Now, we thought we'd get it through the TPG acquisition. We're going to spend the next 4 to 5, 6 weeks analyzing -- don't forget in the due diligence of TPG, we got to see their books. So we know what their costs are. We know what the margins are on the product. And we know what we need to do to be successful.

We're going to do some work over the next 4 to 6 weeks. We're going to look at that. To be honest, we might even knock on TPG's door again and say -- look, do you want to get together? If they don't, then there is a good chance we will come out with our own hybrid printer, which will be important for us for the market share growth the we need.

We've got a couple of other initiatives I can't talk about, where we are looking for opportunities to grow our revenue through our channels that we have. We are out looking for a dedicated Senior Vice President of POS sales. And we're looking for somebody that has the experience and can help us drive that business forward.

What we think -- it's product and market related. So we are going to -- we need to have a couple more products. And we're looking at seriously. We need to expand our markets. We're looking at Europe right now. We clearly have moved into Latin America. We're looking at the Far East. And we've got some initiatives that I cannot talk about there.

So at the end of last year, we looked at POS and banking and said, that's an '06, '07 -- we got get there. We've got to grow our business so '06 and '07, we continue the growth rate that were on. '04 and '05 we can see the gaming and lottery business. We've got a very strong product coming out in October of this year. We've got a market that's growing.

So we can see the growth. But we've got to do -- we've got to get ready for '06 and '07. And one of them is going to be that hybrid printer. If we cannot do it with TPG, we're going to do it without TPG and have that product ready for early '06. We're doing it with a realignment of our sales force. So, I think we're doing the right initiative to get our 10, 12, 15, 20 percent of the market.

But Bart, you talk a lot about this new printer for the casino markets -- or ticket in/ticket out market, coming out this fall. Have -- I know you said you've been showing it to some of the gaming equipment vendors. But have the operators seen it?

And are the features and functions you're talking about so significantly superior or enhanced to the offerings currently on the market that -- is it possible you might even get some sort of very vast upgrades from existing operators, where they put maybe printers and slot machines over the last couple of years and would switch them out on a much shorter replacement schedule than you would get for the machines themselves?

You know, I think -- we've done a lot of research, Andrew, on what the market needs and what the market is requesting that a printer do. And there were some technical hurdles. There are some issues with some things that we saw that we thought we could solve with a printer.

It's -- the key -- the problem is, I cannot talk about it yet, because we're going to launch it in October. We are a public Company, and my competitor is private. And so I don't want to give away the story. We will gladly talk about it on the October conference call when we announce our third quarter earnings. But it has some features in it that clearly the operators and the OEMs -- there are some features and the printer that really benefit the OEMs from how they integrate their printer with their slot machine.

We look at printing money out of a slot machine very seriously. And that's what we're doing. There are things that we did with the printer that make that transaction do some things that we think the OEMs are really going to enjoy having as part of the feature set. And, there are features of the product that are much better than anybody else's that help the OEMs.

There are features of the product that are much better than anybody else's that helps the operator, or what we would call the operator -- the casinos. There are so many new features in this product that -- and it goes after both sides, both the OEM and the casino side. I mean, could we see a very quick uptick? What we're trying to do is get printers to our OEMs so they can submit them to the jurisdictions for approval, so that they are ready by the time the G2E show comes about -- that they have at least got their printers in, and have started, if not finished, the jurisdiction approvals.

It's really going to be up to them to get that done. We're working very closely with them. Their printer is totally backward-compatible with our existing 850. So the ability to plug in the new printer and have it work like the old printer is there. It's just a matter of going to GOI and the different gaming boards and getting the approvals.

So we put together a pretty detailed action item list that we've got to get done before the first week in October for G2E. Could we see an uptick in November, December? Sure we could. But what we're really excited about is it's another technology announcement from TransAct that's going to lead the market. And as you know, it's a wonderful market and it's growing.

Thank you.

(Operator Instructions). Chad Hooper (ph), Roth Capital Partners.

I was wondering if you had any color or perspective on your gaming market. And A -- what percentage you view in terms of existing slot machines that have been converted. And then B -- any change from the operators in terms of their pace of upgrading existing slot machines on the floor?

I would have to say probably 50 percent of the market is now done. The pace has been steady as she goes. Clearly, people like Harrah's went very quickly. I think with Harrah's buying Caesar's, I think the conversion -- and it's just my guess that all of the Caesar's property will convert very quickly, which I believe will be a strong benefit to us because we do all Harrah's business. So, it's been steady as she goes. And the conversion is going.

Okay. And then switching over to the banking and POS side, are you seeing any increase or decrease in RFPs? Or are the sales calls that you're going on generated I guess organically at TransAct? Or are you seeing more activity from the potential customer standpoint coming and seeking you out?

You know what we're seeing -- the market clearly went through a lull in 2000 and 2001 and 2. So, the market is in a mode to buy printers again -- to buy hardware again. What we have been able to do is use our new printers, our POSjet, our KITCHENJet and our iTherm, to get back in front of the customers with industry-leading technology. And that has driven more interest in our products. And more interest turns into more quotes, and eventually turns into more orders.

So, you start with the market -- the sentiment in the market is clearly much more positive. It's bullish -- they are buying again. You add our technology that we added -- I mean, our KITCHENJet has had wonderful, wonderful response from the customers. Now, what happens is, they kick the tires, they test it out, they trial it.

You know, there are some features in the KITCHENJet that are wonderful. Let me explain one. One of the issues that we found in the kitchen market was a chef who has got dirt -- he's got grease all over his hand, and goes to grab the receipt and jams the printer. What normally happens is, the receipt that is jammed inside the printer -- when they unjam it, the ticket is never printed. So the order is lost. So, the customer who is waiting for their dinner -- the dinner never gets cooked, because the chit is lost.

We have a feature in the printer that actually can tell that the ticket is jammed. It stores that information in the memory. And once the paper is unjammed, prints out a new chit. So they never lose an order. We found that to be a huge benefit to the kitchen market. And people are just excited about a printer that finally does that.

The fact that it's got a shroud over it so you can't pour grease in it -- it's got a casing cover that melts at much higher temperatures, so the printers that are sitting near the heat lamps don't melt. I will guarantee if you walk into a kitchen today in a nice restaurant, you'll see most of the printers melting over time. So it's just got those features.

Now, it takes time to turn those into orders. But we were getting in front of those customers with features and benefits that they say -- you know what they really helps us out. That solves a problem for us. And you know what you do, you get away from a price conversation. And now you're into -- hey, you're helping me out. And then the orders flow. So, it's the market being better, and our product offerings are much better.

Thank you.

(Operator Instructions). There appear to be no further questions at this time. I would like to turn the floor back over to Mr. Bart Shuldman for any closing comments.

Once again, we thank you for joining us on our second quarter 2004 conference call. I also congratulate Steve on his first conference call as our new CFO. We look forward to talking to everybody at the end of our third quarter. Thank you for joining us this afternoon.

Thank you for your participation, that does conclude this afternoon's teleconference. You may disconnect your lines at this time, and have a great day. Thank you.