TransAct Technologies Inc (TACT) 2004 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. At this time all participants have been placed on a listen-only mode. Later we will conduct a question-and-answer session. At that time if you have a question you will need to press "*", "1" on your touchtone telephone. As a reminder, this conference is being recorded today. A replay will be available after 8 p.m. Eastern Daylight Time today through midnight Eastern Daylight Time on November 4. The replay dial-in number is 973-341-3080 with the pass code 526-0180. The replay will also be accessible at www.transact-tech.com. I would now like to turn the conference over to Mr. David Pasquale. Please go ahead, sir

Thank you, operator. Good afternoon and welcome to TransAct's Third 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 details on the financials. We will then have time for any questions. If you have not yet received a copy of today's results release, please call Mike Cram (phonetic) of the Ruth Group at 646-536-7001 or you can get a copy at TransAct's website.

Before we begin the formal remarks the Company's attorneys advise that this conference call contains statement about future events and expectations, which are forward-looking statements. Any statement on this call that is not a statement of historical facts 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 including the Company's most recent annual report on Form 10-K. The Company undertakes no obligation to revise or update and forward-looking statements to reflect events or circumstances after the date of this call.

At this time I would now like to 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 am going to review the highlight of the quarter and then Steve will run through the detailed financials after that we will open up the conference call to questions. This was another really strong quarter for us many sectors of our business draw revenue on profit growth in the quarter and we are extremely pleased with the continued growth of our gaining business as we experience an almost 50% growth on printed revenues in to the casino market.

Even with the projected shift in GTECH orders from the third quarter into the fourth quarter and first quarter next year we posted third quarter net revenue of $15.5 million, up 3% over the last year. And the key to TransAct remains both top-line growth in revenue and the leverage we have established in our business. As a result of our sales growth and our efficiencies we are able to expand our gross profit margin at 38%. And an operating profit margin of 16% and increase our EPS or earning per share by 50% over the last year to 15 cents per share. The revenue and EPS results were all above the guidance we previously provided you.

As I said our gaming and lottery business units sales was driven by sales of our thermal printer into the casino market, which grew by almost 50%, as we continue to gain share, continue to see growth with TransAct and in addition shipped more printers into the international markets. And these sales occurred with our existing model, our Series 850. As most of you know we launched our latest printer into the Casino market in early October. At the Global Gaming Exposition or G2E. We launched our Epic 950 to a wonderful reception, as customers from every aspect of the casino industry showed sheer interest and excitement with this new product. In a few minute I will discuss the launch in a bit more detail.

Now trends in our core gaming and lottery market remained very strong, our revenue growth continues to be driven by sales in the casino market which again was up almost 50% over the previous year. Sales in our gaming and lottery market benefit as demand in the US for casino thermal printer continued to grow.

And now moving to the international market proved fruitful in the third quarter, as we experience growth in our gaming sales in both Australia and Europe. Now sales in this market would have actually increased more if not for the previously anticipated order shipped by Gtek from second quarter and third quarters of this year into the fourth quarter of 2004 and the first quarter of 2005. In addition to the growth of our gaming sales we experience growth in our POS market lead by our new iTherm 280 POS thermal printer.

We are now seeing many more customers starting to buy this printer which adds to portfolio of leading POS printers for this market. Customers continue to adopt this printer due to the technical and cost benefits it provides them.

On our banking side, of our POS in banking business, we performed as we expected. As the two large banks, basically finished their installation of our BANKJet 1500 inkjet printer from orders we won last year. We continue to see great interest in the BANKJet 1500 inkjet printer from banks across the United States. As they get ready to adopt the Check 21 initiative which went into effect today.

We believe that we remain the market leader with our inkjet technology for banks. And it's only a matter of time before we close our next set of orders. And finally, our TransAct services group continue to drive revenue higher, as we sell more spare parts services and consumables to our customers. Each area of this business, spare parts, services and consumables delivered revenue growth in the third quarter. Something we are all quite pleased with. The increased sales of our inkjet printers to our POF customers and our banking customers, coupled with what we call our tie ratio, the number of cartridges sold for every printer installed drives our revenues everyday in our TransAct services group.

This recurring revenue will only continue to increase, as well sell it in store more inkjet printers everyday. In addition we have been very focused, on the repairs services side of the business as we aggressively pursue more service contracts and repair business. In total, this business unit or TransAct services group has the benefit of higher gross margins in our blended rate, so you can see why we are putting so much emphasis behind it. And why we are so pleased with the results that we got out of this business unit.

Now let me spend a few minutes while we are talking about what I see in our future in our business. First in our gaming and lottery business, the launch of our new Epic 950 Thermo Casino Printer I believe was a huge success. So those that were at the Global Gaming Show in early October, you saw our trade show booth packed with customers from every segment of the casino business. The printer we believe is now the best on the market. With features and functions that meet or exceed the many needs of the market. In addition, this new printer comes with a dual port feature, allowing casino operators to connect the printer to both the slot machine for vouchering or payment and also the slot data system, for couponing and promotion.

This patent pending feature we believe, solves the last issue needed for casino operators, can now use the printer as promotional device. And we just didn't stop with that feature, as we launched our new Epic 950. We added the ability to print in two colors, something that was not available before. We work for the leading paper company to engineer and produce Ithaca color thermal paper, so we could supply and sell the casino industry, two color thermal paper, to turn the coupons they want to print into eye capturing promotions in coupons.

There were so many other features we showed the industry with our new Epic 950, including the ability to truly hot swap the print on a slot machine, while the printer in slot machine is live. No cables to disconnect, no unnecessary screwdrivers or pliers, just the ability for a casino technician to quickly remove the printer and replace it with another. We also added a download port. We call it import, allowing a casino operator or the slot manufacturer the capability of downloading [similar] changes or graphic right to the printer without having to remove any memory device or circuit board, a clear need we solved.

Our printer comes with 4 megabytes of true graphic memory, allowing casinos to add many coupons and promotions, right to the printer, eliminating wait to time to download any of these during customer play. And we added what we call smart suit. The ability for the printer to communicate directly to either the slot machine or the engineer, who has integrated our printer into the many platforms they have. This features gives instant feedback to the slot machine as to what is occurring during printing allowing the casino to know exactly what's happening, when it is happening.

And the benefits of slot machine manufacture this printer becomes an either easy integration process for them as the printer is communicating back to the programmer letting them know whether the firmware encode is working correctly with the printer, no more guessing. There were so many advantages to this printer we are extremely optimistic about its success in the market. The customer response at the trade show was almost overwhelming, as our booth was very crowded very crowded everyday.

You can tell why I'm excited about the future of our gaming business as we watch the response from the casino industry to the launch of our Epic 950. So we see the future of gaming driven by the adoption by the industry of our new Epic 950, and we are also starting to see the international markets grow. We started off slowly in Australia just like we projected, just like what happened in the U.S. market as Australia adopts thermal printing. As the third quarter progressed we saw the order rates start to pick up and we are hopeful that this will continue to accelerate as we move into 2005.

Remember we won all of the aristocrats business in Australia as we announced that in February of 2004 and they have 70% of the Australian market. And I'm also pleased that we are experiencing growth in our gaming sales in Europe also. We are also optimistic about Europe adding to our sales over the next few years. Russia is starting into a real potential market and the news out of the U. K. is starting to become positive. If they adopt a ticket-in, ticket-out concept this should expand our available market considerably. To get ready for this market opportunity we added 15 year casino veteran to manager sales activities in this exciting region.

And finally we are expecting our domestic market to continue to grow. Pennsylvania approved slots which will add approximately 61,000 potential printer sales to our current base. This state alone will grow the overall market by 8% Add to that the projected growth in California, the additional expansion in places like Los Vegas and the opportunity that other states will either add racinos or casino's and our addressable market will have grown from the original 600,000 potential slot machines, that if you remember we spoke about back in 2002 to over 1 million by 2006.

At this time in our company's life, as I look at all the opportunities in all of our market and I say listen to our sales people talk I had never seen such opportunity for the company before. It is not just gaming, there are some very interesting things going on in our lottery business and we have some real opportunities in our POS and banking market

In POS alone we are seeing some huge opportunities and working hard every day to close them. Keeping what I see is the most exciting and rewarding time here it TransAct and of course for our share holders, giving the potential strength in all three of our core business units we announces a major organization change today.

For those of you have a not a time to review the release, we announces a new business structure to maximize these growth opportunities. By formally establishing three business units within TransAct. Each business unit will be led by a senior vice president business manager who will report to me. Scott Carter will lead our point of sale and banking business, Jon Berkley will lead our lead our gaming and lottery business and Jim Stetson will head the TransAct services group. There is a lot of work ahead of us, a lot of exciting opportunity for us to close.

This new organization structure for TransAct will allow each manager to focus on the respective market potential. With responsibility to drive not only the revenue growth we expect but continue the profitable growth we have established. Scott, John and Jim have the experience we need in each market and have shown their ability to lead. I have the highest confidence in each of these executives, which is why I am charging them with direct responsibility for achieving revenue and profit growth for the respective business units.

Over the past two years our business has evolved and grown dramatically by design, because of our business unit have each achieved the critical mass and now make sense to implement a new structure to position TransAct to even more aggressively, penetrate each market. We believe we have the products, the technology and the opportunities. We are excited about our new structure and we are very optimistic about our business and our future growth prospects.

Finally moving into the fourth quarter of this year, we expect the momentum will continue, as a result we again raises the earning per share guidance for the full year 2004 in our release this afternoon. We now expect to achieve earning per diluted share of approximately 54 cents to 56 cents, up from our previous guidance of 53 cents to 55 cents per diluted share.

This compares to the earnings of 13 cents share per diluted share on a post stock split basis for the full year of 2003. As noted in the release while we are inclosing our guidance for the year, our projection includes additional cost in the fourth quarter versus the third quarter relating to our implementation of Section 4 of Sarbanes-Oxley. Our EPS projection for 2004 would have been even higher, if not for the cost associated with our implementation of Sarbanes-Oxley which will not repeat next year.

And finally in September we announce that our common stock moved back on to the NASDAQ national market for the NASDAQ small cap market. We believe this move will help increase TransAct's liquidity for our share holders and help introduce TransAct to a even broader base of institutional and retail investors. At this time I would like to turn the call over to Steve DeMartino for financial summery. 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 efficiencies throughout our organization has made TransAct a very profitable company on a continuing basis. And we will seek to further improve if this on a go-forward basis.

Looking at our financial results for the third quarter, our net sales increased 3% to 15.5 million compared to 15 million in the third quarter year ago. Sales of our POS and banking products decreased 4% over the third quarter of '03 primarily the result of completion of almost all shipments of our BANKjet line of inkjet printers to two major financial services companies to upgrade bank teller stations.

Sales of our gaming products which primarily includes slot machine printers used in casinos and race tracks as well as spare parts and service, increased almost 50% led by continued strong demand related to the ongoing rollout of ticket-in, ticket-out printers for casinos worldwide.

Sales of lottery products decreased 28% or 1.3 million due to the expected shift in orders by GTECH from the second and third quarters of '04, the fourth quarter of '04 and the first quarter of '05 that we announced last quarter. This was simply a schedule shipped by GTECH which happens from time to time.

Gross profits in the third quarter increased to 5.9 million, up approximately 1.1 million or 22% over the second quarter of '03. And so the third quarter of '03. Our gross margin also improved to 38% from 32% a year ago. The year-over-year increase in gross margins is primarily due to a more favorable sales mix, including increase sales of higher margin in gaming and lottery printers and continued additional product cost savings.

Operating expenses from the third quarter was 3.4 million, compare to 2.8 million a year ago. These expenses were higher during the quarter, due largely to professional fees and additional staff, related to Sarbanes-Oxley compliance. We expect that on a full year basis, Sarbanes-Oxley will cost us in the range of $600,000-700,000. As a reference point, we expect that approximately 300,000 of the total estimated cost for Sarbanes-Oxley will not repeat in next year.

In addition, operating expenses for the third quarter of '04, included approximately, $100,000 of listing fees incurred, as we move back after the NASDAQ national market from the NASDAQ small cap market. Our operating income reached 2.5 million in the third quarter of '04, compared to 2 million a year ago. As a percentage of sales, operating income in the third quarter, was 16% compared to 13.1 in the third quarter last year. This clearly highlights, the operating leverage that we continue to experience in our business. It marks the second quarter of achieving our goal of 16-18% operating margin.

We earned $4000 net interest income in the third quarter this year, compared to concurrent 61,000 of interest expense, a year ago. This marks the first quarter, we have reported net interest income, since 1997. Since we have no net debt outstanding, and over $6 million of cash in our balance sheet at the end of the September, we expect to continue to report increasing net interest income in the fourth quarter and into 2005.

As to our income taxes, we record in income tax provision at an effective rate of 34.5% this quarter, compared to 36% in the third quarter of '03. The lower effective tax rate in the '04 reflects the reversal of tax reserves, related to certain tax credits. Net income in the third quarter of '04, was 1.6 million or 15 cents per diluted share, compared to 1.1 million or 10 cents per diluted share in the third quarter of '03. This represents a 50% increase in diluted EPS year-over-year.

Its is important to note that the per share data in the third quarter of '03 has been adjusted to reflect the three for two stocks, that was distributed in April '04, as well as, the application of new accounting guidance requiring the allocation of net income to both common and participating preferred stock for the purposes of computing EPS.

Turning to cash flow, during the first nine months of 2004 we generated $6.2 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.

And for the first nine months of '04 our EBITDA almost doubled, to 8.3 million from 4.2 million for the first nine months of '03. Our working capital increased by 6.9 million or 58% to 18.7 million at the end of the third quarter of '04 from 11.8 million at December 31, 2003. Our current ratio also improved to 3.25 to 1at end of September from 2.4 to 1 at December 31, '03. Both metrics increased, due largely to our cash generation during the first nine months of '04 and our conscious effort to maintain or reduce our inventory levels despite increasing sales.

Now let's take a look at our balance sheet at the end of Q3. Our total assets were 31.8 million compared to 26.4 million at the end of last year. We ended the quarter with over $6.3 million in cash, compared to only $0.5 million at December 31. We believe that we will continue to generate cash for the remainder of ''04, and into '05.

Receivables stood at 9.3 million compared to 9.1 million at December 31 ''03. And our day sales outstanding were about 44 days in the quarter. And our collection experience continues to be excellent. Our inventories stood at 8.5 million up slightly from 8.1 million at December 31 '03, but down from 8.7 million at the end of the second quarter '04. The decrease in inventory from the second quarter of '04 demonstrates our continued focus and success in driving lower inventory levels, despite the increased level of sales that we are achieving in 2004.

Share holder equity increased by $11.1 million over a 100%, to $21.5 million at quarter end, compare to $10.3 million at year end. The significant increase over year end was primary due to the conversion of approximately $3.9 million of preferred stock to common stock. Our reporting net income for the first nine month of '04, and proceed from stock option and warrant exercises.

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

Thank you, Steve, Operator at this time we would like to open up the call for questions.

Thank you sir. The floor is now open for questions. If you do have a question, please press "*" followed by "1" on your touchtone telephone. If at any point your question is answered, you may remove yourself from the queue by pressing the "#" key. The questions will be taken in the order that they are received. We do ask that while posing your question, you please pick up your handset to ensure proper sound quality. Once again, if you do have a question at this time, please press "*" followed by the "1" on your touchtone telephone. Please hold your line, while we poll for questions.

Our first question today is coming from Jeff Martin of Roth Capital Partners. Please go ahead with your question.

Thanks, Hi, Bart. Hi, Steve.

Hi, Jeff.

How is everything?

I am doing well, thanks. How are you?

Good.

Great, well with the effectiveness of Check 21, I think it's relevant that perhaps you discuss a little bit more about your strategy there, I know you've talk about it in the past, but could you give an update, and if you can quantify or give us an idea what kind of contribution in '05, it could give and if that's incremental to what's your traditional banking business could be, or if that's partially would be a replacement of that kind of business?

You know, today was a big day for Check 21. It made to the cover of the market section of the Wall Street Journal, in fact, I woke up and scored on the early news this morning about Check 21, really going into effect today. The news that we hear from the banks is just the matter of time, when they convert over to the ability to scan the checks and do what they need to do, at the teller station. And, you know, when we -- when our sales people are talking to the banks, and the wards that are implementing the system. All this feedback that we get is, that once they go and implement all the things that they have to do to implement Check 21 and the way we look at it is- you got a big software change, because you got to be able to transmit this image, this front and back image of the check; and two, you got to replace, or put in what's called the doubled sided scanner, because you have got to not only read the marker, but you got to scan the front and back of the check. And the first thing that has to happen, when do in Check 21, is you got to validate the back of the check paid to the order of XYZ bank plan something. That process is driving the banks to upgrade not only the software but all the hardware, which means, they are going to buy a high speed scanner that they didn't really have before. I' don't think any bank really use the high speed scanner, and they are putting in new printers, and everybody that we talk to is just not if, it's just when they decide to make the hardware changes and implement all this. As, you know, we have got two banks done and we are in the process as that's just finishing as we speak. We are in conversion with many more banks. We expect to close them, we really do believe we've got the best technology out there, and not only uses the best from the standpoint of what it does and printing on the back of the check, but happens to be the low price [indiscernible] also because we only use one print media, we use inkjet technology. We don't have to use two print media like our competitors do, which drives the cost up significantly. So we feel pretty good about this, about the future. You know, with two out of the top 10 bank that have gone and if'05 turns out to be as strong as we think it could be, we will clearly see incremental business in '05, in our POS Banking business, with our BANKjet product line, and then the other good news out of it all, as you know, Jeff, is the ability -- is the cartridge sales that will come as these banks continue to install the inkjet printer, the tie ratio is 48 cartridges per year. So, not only will we see that printer sales occur in ''05, but our Transact services group will continue to see growth in the cartridge sales because of the installed base of printers that keeps going up.

Okay. Great. If you think Steve, that you think your banking business will up year over year in 2005?

Well, we haven't given in it, any guidance out, right now. And I don't think, from Reg FD and everything like that, I am allowed to say anything, right now. We are rolling up the plan, as we talk, Jeff. There are so many moving parts right now in the business, pretty much off to good side, I would like to say. That we haven't given out any guidance yet, until we get through all of the roll ups of the forecast. We are now only seeing in banking and POS but the 950, the Epic 950 has just been a huge homerun for us. And we are rolling up everything that we are hearing from the market as to how quickly, we are going to see the orders. So I would rather wait, to discuss how we see the year, next year, when we are ready to talk about the whole year.

Ok. So, we should look then first in 2005 guidance. What at the end of the fourth quarter?

Yes. Yeah, toward the end of this year, beginning in next year. As we normally do Jeff.

Okay.

Nothing different then what we normally do. It's just, there is so many moving part right now, with some of the real interesting things going on that we are going to wait till, we get all the forecast from our OEM's, from sales people, and then we will put out like we normally do, towards the end of this year, beginning of next year.

Okay, fair enough, speaking to the point of sale side of the business. How are the new products in the hospitality and restaurants industries coming along?

You know, we had a good quarter in '03 led by, you know, POS banking -- led by our POS printers. It was nice to see our POS business backup again. On the KITCHENjet and iTherm and POSjet 1000, clearly are running the show right now for our POS business. One of the real interesting thing is, one of our legacy printers, that we actually raised price a couple of time. We actually saw some growth at that printer too, which was kind of interesting to see that happen. But if you look at the sales that are coming in, it's all led by our 3 new printers or 4 new printers. The iTherm 280, the thermal printer that we came out with. And, you know, it normally take us, 12-18 months, by the time we launch it, until we see the sales, and we launch the iTherm about a year ago. So we starting to see that kick-in. We have got some wonderful large customers that are starting to buy it, so we are very please with that. The KITCHENjet is getting a lot of attention. Clearly, we solve the lot of issues in the kitchen remember to Inkjet, so we get the cartridge sales. The PJ 1000, we sell everyday, it's a product we sell everyday, and we actually make a POSjet 1500 that we are selling also, so all four printers are leading basically our sales, going forward.

Okay. And maybe, you could help us, you did mention, you know, the importance of the cartridge sales. Are you able to give us some perspective on how many units are going out, now as a total percentage of point of sales units, that are inkjet versus, maybe, some legacy printers, you know, third quarter, and nine months, to date, versus last years period?

We haven't broken out PJ sales, and that's something that we can discuss internally and see if it is something we want to do. What we try to do is, stay away from talking about our inkjet sales because of cartridge business. We have stayed away from breaking away out the individual products, but its having a wonderful effect on our bottom line and our revenue, because you can just see what's going on in the TransAct Services Group. I mean that business had a wonderful third quarter. Each segment of that business was up, but clearly we are very pleased with the cartridge sales. I mean, the nice thing about the cartridge sales, its just recurring revenue every day.

Right. And then my final question would be on the distribution side of things. If I would call correctly, you have mentioned in the past that you're going to try additional distribution channels aside from just their distributor's channels. Could you give us an update there?

The way that we go to market is, we let the industry decide, how the industry wants to buy. So, if you look at our point of sale business, we sell to VARs, we sell to end-users, and we have had situations when an end-user told us, they want to buy the printers direct from us. We sell through distribution, we have a couple of wonderful distributors. Our VAR program, we have this momentum program that we launched, which is a VAR program. It either ties us directly with the VAR or ties us to their distributor, and it built rewards to the VAR to buying our products. There is some financial incentives to buying our product. They get some downloads; they get some things back from us. So, the way we go to the market is, we let the market decide how the market should buy our product. We have been spending a fair amount of time on the VARs because of their influence it's kind of the arm hand theory, we call on one VAR has many customers, many end-users. And clearly, the list of VARs that are buying our product either direct from us or through distribution is growing the interest is growing, clearly our KITCHENjet allowed us to get into VARs, into certain restaurant bars that we weren't in before. So, that you know, with our new structure too with Scot [ph] running the POS and banking business, you know, before Jim ran it all, he ran all of solid sales, and the size that each business unit is right now, it allowed us and the profitability that we were getting. It allowed us to put a senior executive in charge of each one of these business, so they could charge a head with the growth we expect. And in the POS banking business, there are many different areas that we can grow it. It could be VARs, it could end-users, and it could be distributors. In the banking industry a lot of times the banks are calling us in, and we do kind of this product demonstration direct with the bank, and actually they are buying the printer direct from us. Even though you could have a large VAR, they could even have somebody like an IBM putting in the system, the bank is buying it direct from us.

Okay.

I hope that answers the question.

That was a great answer. Actually, I do have one additional question. Simple one always, CapEx for the quarter?

Steve CapEx?

Year to date, it's about 500,000-600,000, Jeff.

Okay. Great. Thanks. Good job, Bart.

Thanks, Jeff.

Once again, to ask a question at this time, please press "*" followed by "1" on your touchtone telephone. Thank you. The next question today is coming from Andrew Lino (phonetic) of Burnham Asset Management. Please go ahead with your question.

Hi, good afternoon, Bart.

Hello, Andrew.

I was hoping to get a little bit, maybe, more color on either the geography, you know, or something on the casino printer market, because based my numbers you had very good sequential revenue growth, and good year-over-year growth, which is somewhat in conflict with, sort of, overall industry shipping units of slot machines, so maybe, you can give us a little more colors, sort of, where you are taking share, or what market have opened up to you. You mentioned, international option, give some color on, what percentage overall casino printer revenues that is, and what the potential opportunity, sort of, as a ratio it could be?

There is lot of part to that question. Let's address the international question. We had a wonderful third quarter in the casino international market, both Australia and Europe came in with surprising results. It's was bit ahead of where we thought it would be. We are seeing business in Australia pick up, and we are seeing business in Europe. And it's not just casinos in Europe, they have VLTs, video lottery terminals. If you go back, the past couple of years, and go back to the mid 90s, the early 90s, you know, VLTs have been out there for years, and customers in order to do the way most of states, most the countries that did VLTs use impact, the only matter of printing the receipt was impact printers. All the VLTs if not a 100% of most of them drop tickets, not-not coins so impact printers has been in Australia for years, about 20-25% of the casino market is actually impact printing today. And there is a huge amount of impact printers in Europe alone. And what we are seeing is, this move from impact printing to thermal printing. We are clearly seeing in Australia, our unit volume was up nicely, our partner in Australia, seems to be very bullish on the opportunity. I think there is 40,000 or 50,000 machines in Australia alone to have impact printers, that's going to -- and they call it ticket out, they don't call it ticket in ticket out. They just call it ticket out; we feel that, that change is going to go from impact printing to thermal printing.

We are optimistic a lot of that is going to happen next year. Clearly we saw, no the results this year, and then we saw business in our Australia, in Europe, and then some of it was the move from impact printing to thermal printing. Some was casinos opening up, in different places of Europe, last year. Russia where printing is starting to happen. So, we believe that, that will continue to grow and become a major piece to our business. In Europe, we hired a gentleman to run our European sales, Gary has been in the business for 15 years. Our distributor over there that we are working with, has been in the business for, I don't know, 20 years in the casino industry. So we -- and in fact, I just talked to the owner of our partner in Europe, yesterday. He feels very good about the businesses and the opportunities, we got a couple of good size bids going on there, and just waiting for them to close, so we feel good about the international markets and what's going on. And clearly it had an effect on our third quarter. Sales to Europe and sales to Australia, I mean started at, if you go back to third quarter last year were zero. And this quarter was up quite nicely, we had a bunch of sales, from the casino side in the US, I mean, clearly we were seeing one, the share gain that we were getting, I mean, we had a wonderful quarter. Quarter-to-quarter and year-to-year the business up wonderfully, so we saw a share gain.

We saw the market expand a little from different areas of the market. You have got Indian casinos. You have got racinos, so we saw that -- we got VLTs, VLTs that are going from impact printing to thermal printing. So, we saw the opportunity for us there, so you know when we add it all up, you know, we just got a very strong third quarter, and it came from both the domestic and the international markets.

Bart, when you talk about VLTs and possibly racinos that had impact printing either internationally or domestically. Are you seeing that opportunity as machines are being replaced, or you actually doing retro fits, and if so, how elaborate a process is that?

In the VLT market, it's really going to happen, as they change out pretty much the home, that whole market or the whole state or the whole geographic area. Even though, in certain cases, we are seeing people just order new machines with thermal printers, instead of impact printers. By the way, we are selling impact printers everyday. Every quarter, we sell impact printer into the VLT market and we sell that to everybody. Everybody basically, we you know other than certain pockets of the world, we have got almost a 100% market share. Where they are just having to continue to use impact printers, until they go to thermal printer. In the casino market, we are seeing a combination of both. Certain people, you know, of course they are buying the new machine with printers, and certain casinos that have machines that are printer ready, they can take a printer or just buying the printer, I guess through the OEMs and the slot manufactures are selling them the printers to put into the machines that are already on the floor.

Bart, I mean - you saw that started in [indiscernible] but them and would you say that international casino, of printer sales, of you know printers against the slot machines in less than 10% still over all sort of slot printer sales?

Yes, you know I'm not going to break out the numbers but you know you have to remember Angel, when we talked about the casino opportunity back in 2002, when I was telling, you know, going and installing to do presentations back to Wall Street and saying look its not easy to win and then of course we saw in the third quarter of '03 the market take offs.

The international markets are the same thing Andrew its not if it's just when. We are seeing in Australia ready, we are seeing our order rate pick up, we have been fortunate enough to win Aristocrats business, they are not the only printer, they are not the only slot machine company we were selling to over there by the way. So we think our market share is going to north of than 70%. We are seeing in the Europe, we are seeing the orders pick up and we are seeing the opportunities in front of us. That's why if you look at what we are doing with our organization, John now running all of worldwide gaming and lottery, he's got a lot to close. He is got so many opportunities out there, he is got now a person in Europe going after that forum, we have got a very strong partner in Australia who is managing that for us, we have added to our staff here in the U.S. because the opportunities are just good -- there is 911 casinos in the U.S. alone, so there is a lot of opportunities for us going forward and with the launch of the Epic 950 with the response we got from the industry and how positive our sales people feel about the opportunity, we are quite optimistic about the future.

And I guess my last question and I'll let someone jump in. A lot of when you talk about service and spares the opportunity allows the focuses been on point of sale but you know you have a lot of detect printers in the field and your over the last two years you have shipped a lot of a slot printers, have you taken forward the advantage of the opportunity to capture this to service and spares business, it's there and if not, can you talking a little bit about what your doing in that area?

Yeah, in the GTECH situation we have got a wonderful relationship as you know in end we support them with both spare parts and service if they needs us to do some thing special for them, or off course we sold, I don't know we have got 250,000 printers in the market today with GTECH and we support them either with servicing those printers, where they ask us and pay us to service the printers or where we sell them spare parts. In the casino industry our printers go out with the two year warranty and since we just really started to getting into volume in the middle of '03 looking out the middle of 05 into 06 is where we going to see the benefit of that business coming to us as revenue.

We are looking at our options, we are investigating opening up our own service center in Las Vegas we think that its going to be not only good for POS before our gaming business, but wonderful for our POS business because we will be on west coast time will be a lot closer to the California, places where we have a lot printers just for the POS and banking market, so you know we are looking at that as a wonderful opportunity. Jim is now heading up the TransAct Services Group. Just to let you know, he comes from service background, he ran a service company that did things like this, he was -- he ran a service company that supported us at Mars, when I ran Mars --- business, and coin changer business. And so, he knows the business, i. e. , we have been fortunate with our growth, and the opportunities, I mean, we did a deal the other day where a customer came to us and asked us to repair some printers for them. In talking to them, we realized that they had a competitive printer that they brought years ago, having a lousy time getting them serviced. We said, hey, let's look at it, and let's see if we can service those printers. We ended up finding out that we could service those printers, and we won the contract to service somebody else's printer. And we see this, as a wide open space for us, Andrew.

You know, we waited until our balance sheet and our income statement were in good shape that we could invest back in the business to go after opportunities like this. That TransAct services group once at literally 50% higher margin, than what get as a blended company. And there are so many opportunities there, that Jim has now been charged just to focus on that business, focus on what we need, I mean, one thing we are looking at, is a service centre on our own in Vegas, because we think it could be very good for us. Plus we got a lot of printers coming out of warranty in 2005 -- the middle of 2005. And just look at the printers that we are shipping this years, and the printers we are going to be shipping next year. So, we really look at that as a wonderful, wonderful growth opportunity over the next 3-5 years. I mean, it's just the world is open to us. Now it's just a matter of us managing that opportunity, that's why I put the structure in, I put a person in charge of it, so you know, we can sit down and then can mapped out the strategy, and say how do we take this after, you now, $20, 30, 40 million at the profits, that we are getting. How do we do it, and you know, Jim is challenge to do that and the world is, you know, the door is open for us.

Thank you.

Thank you the next question is coming from Nester Turksan (phonetic) of Wachovia Securities. Please go ahead with your question.

Hi Bart, how are you?

Good, Nester, how are you doing?

Good, thank you. The next two questions revolve around the new Epic 950 slot machine printer that you guys have?

Sure.

Number one, would be this, how much will this new printer increase your market share in next year and two, do you expect higher average selling prices and/or margins versus the 850 printer?

Great question. I think, we are going to gain market share, next year. I just think that with the performance and what the printer does, you know, there are certain things that that this printer does, that just solved a lot of issues in the market place. And I think, I mean, right now in the third quarter, we gained market share, because you remember, we started at zero a year and a half ago. Future Logic was the first in the market, and now you could see ourselves, I think, we are going to continue to gain market share. And you know our goal, we wont be happy until we get 60% of this U.S. market or more. But we have got a lot of work to do, and our guys are focused on it. From an average selling price, and what we are going to do, the opportunity is so big for us, and the opportunity is there. I think, the margins are going to be the same, our margins on the gaming printer are wonderful, our average selling price is going to be right, I mean, with our move to offshore manufacturing and assembly, we won't have to play with price or anything and continue to gain share, and drive the significant profits we are getting out of that business.

All right. Thank You, Bart.

Thank You. Our last question today is coming from Mike Hammer (phonetic) of EGM (phonetic) Capital. Please go ahead with your question.

My question has been answered. Thank you.

Thank you. I would like to turn the floor back over to Bart Shuldman for any closing comments.

Well again, I thank you for joining us on this conference call. We look forward to speaking to you again when we complete our fourth quarter. Thank you for attending.

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.