TransAct Technologies Inc (TACT) 2007 Q4 法說會逐字稿

Welcome to the TransAct Technologies fourth quarter of 2007 earnings results conference call. (OPERATORS INSTRUCTIONS) It's now my pleasure to introduce your host, Mr. Tyler Wilson of The Ruth Group. Thank you, Mr. Wilson. You may begin.

Thank you, operator. Good afternoon and welcome everyone to TransAct's Fourth Quarter 2007 results Conference Call. Joining us today from the Company are Mr. Bart Shuldman, Chairman and President, and CEO; and Mr. Steve DeMartino, EVP and CFO.

The format of the call will be a brief business review followed by art followed by Steve providing details on the financials. We will then have time if there are any questions. If you have not yet received a copy of this results release, you can either call 646-536-7018 and one will be sent to you or you can access one at TransAct's website. Before I begin the formal remarks, the Company's auditory advised that this conference call contains statements about future events and expectations, which are forward-looking statements. Any statements in this call that are not statements of historical fact, may be deemed to be forward-looking statements. Actual results may differ materially depending on the number of risk factors. For a full list of risk factors inherent in the business of the Company, please refer to the Company's SEC filing, including the Company's most correct annual report on Form 10-K. The Company uptake no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call.

At this time I would like to turn the call over to Mr. Bart Shuldman. Please, go ahead, sir.

Thank you, Tyler. Good afternoon, everyone. And thank you for joining us on today's call. As noted in our press release this afternoon, revenues for the fourth quarter of 2007 were $11.6 million, compared to $15.7 million in the same period a year ago. The Company recorded a net loss of $1.3 million or $0.14 per diluted share in the fourth quarter of 2007, compared to net income of $1 million or $0.10 per diluted share in the same period of 2006. I would like to note that on a pro form of basis, after an incremental inventory reserve charge related to certain obsolete electronic components, such as nonraw host part and circuit boards and from discontinued products, our charge for severance associated with determination of certain employees on the previously announced business restructure change and legal fees related to the ongoing litigation against FutureLogic, we -- after netting it out, we're almost breakeven for the quarter at $0.01 loss per share.

As we have previously said, 2007 was a difficult year for TransAct and we're glad it's over. We experienced lower revenues as certain important customers in markets experienced issues of slowdowns during 2007. Specifically during 2007, we experienced a historically low revenue year with out lotter customer. In addition, our domestic casino market was soft as casinos finished their ticket in ticket out upgrade cycle and held up a purchasing new slot machines as they get ready for the next upgrade cycle for server-based gaming. And there were also some going private transactions in the casino industry in 2007, that we believe also helped the depressed sales of new and replacement slot machines during the year. It was a tough year in our POS market due to one of our largest customers who is trying to get their new point of sales system ready for launch. The system was delayed throughout 2007, but we understand it should be ready this year.

And finally, as you all know, the banking sector was severely impacted by the credit crisis in the second half for 2007. We believe the lowest sales we experienced in 2007 were result of market conditions and specific customer issues.

During this difficult business environment in 2007, we worked on both reducing costs while also positioning the Company for revenue growth in 2008. We believe the initiatives we put in to place in 2007 will ensure that we grow our revenues and improve our margins in 2008. Steve will explain in detail all of the cost changes we made to the business and the impact that it had on our results in the fourth quarter and full-year of 2007. I will focus on what we see for 2008, as we are becoming increasingly optimistic about our prospects.

Our primary reason for optimism in 2008, is the domestic casino market. We currently see the market improving and expect to continue to improve throughout the rest of the year. Specifically, we see growth in both new casinos being built, and existing casinos beginning to purchase new slot machines for the upcoming server-based gaming technology. Industry reports have indicated this progress growth will begin in 2008, and continue to at least 2010 or 2011, and we believe we are in an excellent position to capitalize upon this opportunity. As a point of reference to the impact of this impending upgrade cycle for server-based gaming.

Let's look back to the last upgrade cycle in the domestic casino market for ticket in and ticket out technologies. At that time, there were approximately 600,000 slot machines to be replaced. Now, the size of the domestic casino market exceeds 850,000 slot machines with more casinos expected to open over the next couple of years -- several years. Do not only will we experience growth due to the coming upgrade cycle, but also the total available market for our casino printers will also grow. In addition, we are optimistic about our lottery revenue 2008, as we have already booked over $8 million in printer orders for shipment in 2008. So, currently, we have over 50% more orders this year than we had all of 2007.

Turning to our POS market during 2007, we implemented the more focused sales approach that should begin to show a miserable benefit in the second half of 2008. Additionally, as I have discussed, one of our largest point of sale customers were going through a transition to a new point of sale operating system in 2007. This transition impacted our revenues for most of 2007 as they waited to get the new system certified in working; creating pent up demand for our printers in 2008 once the system is ready. We continue to work hard to be ready for this upgrade, and are poised for growth as we believe this should all come together in the second half of 2008.

Now, we cannot look away from the current economic situation affect in the United States today, and what it could do to our domestic point of sale sales. Are we in a recession? Are we not? However, with your focused approach and our initiative to supply solutions to the point of sale market versus just the printer, we believe the prospects look good for TransAct in 2008 despite the economy.

In banking, during the fourth quarter, we announced the latest edition to our banking product portfolio, the BANKjet 2500. Our strategy was to offer a printer solution to banks tha want it to replace their existing printer that was either failing or was old. These banks wanted a replacement printer for their existing firm with our solution being faster, more reliable, a small footprint, with a cut-through slot for validation, and that is exactly what we launched. With the BANKjet 2500, we entered a new sales market for TransAct. The bank telestation replacement printer market, and the timing of this new product edition could not be any better. Given the current economic environment, but more specifically the issue banks are facing with the credit crisis, we believe many banks will not implement a major upgrade with their bank telestations in 2008. However, the BANKjet 2500 gives banks a viable option, a replacement printer for their existing installations. There are over 500,000 banking telestations in the United States, and if a bank is not considering a full upgrade to their system, then our new product offering gives them a new printer solution to replace their older existing technology.

I would like to note that we are positioned well in 2008, despite what the domestic and international economic environment looks like. In fact, you can say a lot of our business is counter cyclical in nature. It is clearly one of the good things about the diversity of our markets and products. I would like to take a moment to discuss this with respect to both the products we offer and the markets we are currently in.

First and foremost the gaming, casino and lottery markets are typically a counter cyclical business. In difficult economic times, states and governments often looking for additional sources of revenue and thus turn to building casinos, expanding a [inaudible] in lotteries or gaming venues. While the greater economic environment outlook might look difficult for 2008, our business should grow.

Second, we continue to expand internationally. This expansion is twofold. We continue to seize opportunities as casinos are built and slot machines are upgraded in Asia, Europe, Central and South America and Australia. And we continue to capture the opportunity in a market we have termed as off-premise gaming. In 2007, we saw significant growth in international casinos, specifically in Macau and Europe. During the fourth quarter, we officially received our business license in Macau and are now open for business. WE have a sales manager and two technicians there. We will cover all of Asia from that office and continue to see many opportunities for growth. Macau is expanding at a rapid rate. There were some very large casinos slated to open in 2009. For other, Singapore will open two casinos in the next few.

Finally, the talk in Asia, about the casino growth in other places like Japan, keeps us positive about the future for revenue growth for TransAct in this rapidly growing region of the world. This international expansion is increasingly attracted to both us and our customers with the current state of the dollar. With the near historically low dollar, international slot machine manufacturers are able to purchase our printers at an effective lower price than they paid just a few years ago, as we sell in dollars. We believe this trend will continue in to 2008.

In regards to what I have labeled the off-premise gaming market, we remain very optimistic about the growth prospects that presents and provides TransAct for year to come. We have already launched two new products for this market, the Epic 430, and Epic 630 we see gaming printers, and have additional plans to launch more. Remember, we are focusing on growth opportunities, and while we are at the very beginning stages of this off-premise gaming market, which is transitioning from coin drop to issuing receipts not tickets, the total available market for our new receipt printers could approach the size of our existing worldwide casino market. It will take time, but you should know we are very focused on this. Now, we experienced revenue growth in our off-premise gaming business in 2007, and expect to continue in to 2008.

And finally, I would like to make some comments about the prospects of our TransAct services group or TSG as we call it. As some of you might not know, we recently launched our new website called www.TransActsupplies.com to go after consumable sales such as paper, ribbons and cartridges that are purchased on the Internet. This is a large opportunity for TransAct as a lot of supplies has purchased this way. I encourage you to go to our new website. I believe you'll find it professional and easy to use. Already we have gained several new customers in just the first month, this new website went live. And of course, this is a real focus point for TransAct; to grow our after-market supplies business, not only for supplies for our printers, but selling supplies to customers who use any manufacture printers in the markets we serve. There by giving us a much larger total available markets for us to penetrate. As we have said over the last year or two, our TransAct service group sales group has been impacted by the growth of thermal and inkjet technology printers, and the significant decline of our impact printer sales.

We expect 2008 to be the last year where we will see this change impact our business. However, we expect our new sales of spare parts and service contracts for our new printers, coupled with the additional revenue growth in selling papers, ribbons and cartridges to offset the decline in our older business. We believe the growth of our new TSG business will overcome the downturn in our older impact business within TransAct, and the ramp-up in revenues will be seen once again starting towards at the end of this year and then for years to come.

Now, before I turn the call over the Steve, I would like to make a brief comment about the ongoing litigation with FutureLogic. We know we are spending a significant amount of money on the lawsuit with FutureLogic. But, as I have said before, we cannot discuss anything going on with the case. This is all I am allowed to say regarding the FutureLogic matter, and I want you to know i will not be able to answer any questions you might try to ask. I am very sorry, but I will not be able to. I ask that you please understand the position we're in. With that, I would like to turn the call over to Steve DeMartino, our Chief Financial Officer for our financial summary. Steve?

Thanks, Bart. As Bart stated, due largely to lower sales to some significant customers in challenging market conditions, 2007 was a difficult year for TransAct. In these items negatively affected both our top and bottom-line financials. Looking first ta the financial results for the year, our net sales for 2007 were $48.8 million, down 24% from our 2006 net sales of $64.3 million. Gaming and lottery sales were $25.3 million in 2007, compared to $34.7 million in 2006, down 27%. Our sales in to the gaming lobby market for 2007 were impacted primarily by historically lower sales of a lotter printers to GTECH, as well as lower casino printer sales due to continued softness in the domestic casino market. We also experienced a $2.2 million or 24% decline in international gaming and lottery printer sales largely due to Australia, as Australia's conversion to ticket in ticket out is occurring slower than anticipated.

Banking and POS sales were $11 million in 2007, down 34% from $16.9 million in 2006. The decrease was largely due to about $2.6 million of bank teller printer sales to two large banking customers in 2006 that did not reoccur in 2007. Keep in mind, sales of banking printers are project oriented and can fluctuates significantly quarter to quarter and year to year. In addition to lower banking printer sales, sales of our legacy impact printers were also down. As we stated on our previous calls, we had expected sales of these printers to continue to decline during 2007, and believe this trend will end in 2008.

And lastly, we experienced lower sales to a large hospitality customer that slowed and deferred equipment purchases while it implemented a new point of sale software system. Sales of active market products from our TransAct services group, decreased by 3% to $12.4 million. TSG sales for 2007 were impacted by lower service revenue from a service contract for a legacy printer from a single customer in the UK. TSG also experienced a decline in the sale of replacement parts for legacy impact printers, as the installed-based of these legacy printers in the market declines. These decreases are almost entirely offset by increased consumable product sales mostly inkjet cartridges; as our focused effort to grow this very possible portion of our business continues to pay off.

Our gross margin for 2007, decreased to 32.8% from 34.8% in 2006, due primarily to a lower volume of sales and a less favorable sales mix. In addition, gross margin for 2007 was negatively impacted by an incremental inventory reserve charge of $528,000 related to certain obsolete electronic components and discontinued printer products. Excluding this charge, our gross margin would have been 33.9% for 2007.

Operating expenses for 2007 were $19.8 million, up $3.5 million $16.3 million in 2006. Operating expenses for 2007 were higher due largely to approximately $2.9 million of legal expenses incurred related to the lawsuit with FutureLogic. We plan to continue to update you on the financial impact of this lawsuit each quarter. In addition to the legal fees, we also incurred a severance charge of approximately a 187,000 resulting from the termination of certain employees as part of cost-reduction actions.

And on the bottom line, we recorded a GAAP net loss in 2007 of $2.3 million or $0.24 per diluted share. Excluding the inventory reserve charge, legal fees related to the lawsuit and the severance charge, our pro forma earnings per share for 2007 would have been just above breakeven at $0.01 per share. This compares to GAAP net income of $3.9 million or $0.40 per diluted share in 2006.

Now, turning to the fourth quarter. Our net sales for the fourth quarter of 2007 were $11.6 million, compared $15.7 million in the fourth quarter of 2006 down 26%. Gaming and lottery sales were $6.8 million in the fourth quarter 2007, compared $8.4 million in the fourth quarter of 2006, down 19%. Our sales in to the gaming and lottery market for the quarter were impacted primarily by lower casino printer sales dues to continued softness in the domestic casino market, as well as another historically low quarter of lottery printer sales to GTECH. Banking and POS sales were $2.3 in the fourth quarter of 2007, down 43% from $4.1 million in the fourth quarter of last year. The decrease was largely due to a large hospitality customer that slowed in deferred equipment purchases while implement a new pint of sales software system, as well as lower sales of our legacy impact printers. Sales from our TSG group decreased by 21% to $2.5 million for the fourth quarter 2007.

TSG sales for the fourth quarter of 2007 were impacted primarily by lower service revenue from the service contract for our legacy printers with a single customer in the UK that faced down during 2007 and ended in November 2007; as the customer is replacing our legacy printer with new printers. You should note that this was a service contract covering 40,000 legacy printers that we have had for nearly 10 years, and the customer simply went with a different printing solution that we just don't have. In addition to lower service revenue, we also experienced a decline in the sale of replacement parts for legacy impact printers.

Our gross margin in the fourth quarter of 2007 decreased to 29.4%, from 35% in the fourth quarter of 2006, due primarily to a lower volume of sales and a less favorable sales mix. In addition, our gross margin for the fourth quarter 2007 was negatively impacted by the inventory reserve charge of 528,000 I explained previously. Excluding this charge, our gross margin would have been 34% for the fourth quarter 2007. So, our pro forma gross margin was only 1 percentage point below our fourth quarter 2006 gross margin, even on over $4 million of lower sales in the quarter.

Operating expenses for the fourth quarter of 2007 were $5.4 million, up from $4 million in the fourth quarter of 2006. Operating expenses for the fourth quarter of 2007 were higher due largely to approximately $1.2 million of legal expenses incurred related to the lawsuit with FutureLogic and 39,000 in severance expenses related to the termination of certain employees as part of cost-reduction actions. And on the bottom-line, we recorded a GAAP net loss in the fourth quarter of 2007 of $1.3 million or $0.14 per diluted share. Excluding the inventory reserve charge, legal fees related to the lawsuit and the severance charge, our pro forma earnings per share for the fourth quarter 2007 would have been almost breakeven as $0.01 loss per share. This compares to GAAP net income of $1 million or $0.10 per diluted share in the fourth quarter of 2006.

Now looking at our cash flow, we generated about $2.6 million of cash from operations during the fuel year 2007 and use approximately 300,000 of cash from operations in the fourth quarter of 2007. Our capital expenditures were about $2.2 million for the full-year 2007, and 200,000 for the fourth quarter 2007. Even after funding our capital expenditures, we purchased $1.5 million of our common stock and incurring $2.9 million of legal fees, our cash balance at the end of 2007, still stood at approximately $2.6 million, compared to $3.4 million at the end of 2006, and we continue to have no debt outstanding.

Our working capital decreased to $11.2 million at the end of 2007 from $16.6 million at the end of 2006. Our current ratio also decreased to $2.4 million to one at the end of 2007 from 3 to 1 at the end of 2006. The declines were largely due to lower accounts receivable from lower sales buying and improved collection efforts, and higher accounts payable resulting from higher inventory purchases in the timing of payments. Somewhat offset by higher inventory levels and lower accrued liabilities. In addition, keep in mine our working capital and incurred ratio were also impacted by our stock repurchase program, as we used available cash to repurchase about $1.5 million of our common stock during 2007. I would also like to note despite a challenging year in 2007, both our working capital and incurred ratios still remind strong at year-end.

Our EBITDA for the full year of 2007 was -$1.2 million and approximately -$1.4 million for the fourth quarter of 2007. Excluding the inventory reserved charge, legal fees related to the lawsuit and severance charge, EBITDA was a positive $2.4 million for the full-year 2007, and a positive 400,000 for the fourth quarter of 2007. This compares to EBITDA of $8.1 million for the full-year 2006, and $1.9 million in the fourth quarter of 2006. Depreciation and amortization totaled $1.8 million for the full-year of 2007, and 500,000 for the fourth quarter of 2007. Non-cash compensation expense totaled 700,000 for the full-year 2007, and about 200,000 for the fourth quarter 2007.

Now, let's take a look at our balance sheet at the end of the year. Our total assets were 30.6 million compared to $33.7 million at the end of 2006. We ended the year with about $2.6 million of cash, compared to $3.4 million of cash at the end of 2006. So, as I previously stated, our cash balance only declined by $800,000 even after funding $2.2 million in capital expenditures, incurring $2.9 million in legal fees and repurchasing $1.5 million of our common stock during 2007. Receivables were $6.1 million at the end of 2007, down from $11.4 million at the end of 2006. The decrease now receivables reflects reduced sales volume for the fourth quarter of 2007 compared to the fourth quarter of 2006, and improved collection efforts. That said, our collection experience continues to be excellent. Our inventories increased to $8.7 million at the end of 2007, from $7.6 million. Our inventories grew primarily due to higher inventory stocking levels resulting from our continuing initiatives to move more production to China and expected increased demand in the first quarter of 2008. As an update on our stock repurchase program, during the fourth quarter of 2007, we repurchased 47,000 shares for a total of approximately $200,000. Then for the full year 2007, we repurchased a total of 232,700 shares for approximately $1.5 million.

So, as of the end of 2007, our total buyback since the beginning of the program, standing at over $1 million shares bought back for a total of $8 million, representing about 11% of our total shares outstanding. Just as a reminder, we're authorized to purchase up to $50 million of our common stock through March 2010.

And lastly, looking to 2008, we have recently made significant efforts to reduce costs in our business, the effects of which we should begin to see in 2008. During 2007, we have made significant progress in increasing the full contract manufacturing of our printers in Asia. This has resulted in lower overall product costs and higher gross margins on those products that are fully made in Asia, and we expect this trend of improving gross margins to continue in to 2008, as we move more and more full printer build production to Asia.

In addition, the cost reduction actions including employee terminations that we took during the last few months of 2007 related to the POS business will allow us to realize operating expense savings beginning in the first quarter and throughout 2008. Overall, we believe the cost controls that we implement in 2007 coupled with out new sales initiatives will improve our gross margins and favorably impact our financial results in 2008. And that ends the financial portion of discussion. And with that, i'll get it back to Bart.

Thanks. We'll open up the call to questions now.

Thank you. We will now be conducting a question-and-answer session. [ OPERATOR INSTRUCTIONS ] Our first question comes from Todd Eilers with Roth Capital Partners. Please, proceed with your question.

Hi, Bart. Hi, Steve. How are you?

Hi, Todd, how are you doing?

Just a few questions here. First, just to -- with -- can you breakout your gaming and lottery? How much was gaming? And how much was the lottery revenue in the fourth quarter? And the also how much was domestic versus international?

Domestic and international just for gaming and lottery, Todd?

Yes.

For the fourth quarter -- let's see. Domestic gaming and lottery was about $5.1 million. International gaming and lottery was about $1.6 million.

And then -- okay. And then how much in total was just gaming versus lottery?

Let's see. GTECH was about $1 million.

Okay.

For the fourth quarter.

Okay. And then -- you guys talk a little bit about the POS business. It sounds like that's kind of a second half story with respect to one of your larger customers being ready to start to purchase some printers there, that's been delayed as well as cost savings. But, I guess my question is this -- focus more on the gaming and lottery side. I know GTECH should rebound for you guys in 2008, and the expectations are for the domestic gaming market -- the replacement market to improve gradually throughout this year. Can you Bart, can you maybe talk a little bit about what you are seeing right now in the first quarter? Are you seeing a rebound in this quarter? And just how should we kind of look at that domestic market for you guys in 2008? Should it be a gradual improvement? Or is there a certain quarter where you might expect more sales than other quarters?

You know, I -- Todd, great questions. And let me -- from a new products standpoint, the new products, the things like the Epic 950, the casino product, the Epic 430, 630, the off-premise gaming products, the banking products -- everything outside of our older products. We're going to see growth throughout the year. So we're going to see continued growth in -- our -- what we call the newer products, all of the legacy products out of that. The one lumpiness in the business is going to be a lottery business. That's very typical for us. Quarters are going to be different. It's not going to even all year, but the -- what we said in our press release is the first quarter, we're going to basically see printer growth in often most of our printer lines. So, you are going to see across all of our new products in the first quarter.

POS, is going to be a very interesting year for us, because while the market itself looks somewhat difficult to us, we have got basically three initiatives going on that throughout the year, as we end the first quarter, get in to the second quarter, and then in to the second half of the year, we're going to see some pretty good pickup in the POS market. One primarily is based on our POS. Our large POS customer that really went silent almost all of 2007, and we have got this created pent up demand. But, we have got some other projects that we're working on, and we are feeling somewhat optimistic that that will hit in the second half of the year. So, what we'll see is that kind of flow through as one of our customers with their new POS system comes out, we see some growth back, and even in the first half of the year, then a takeup in the second half of the year, and the other initiative really pick up in the second half of the year.

The casino market, we're already starting to see some increase. So, we're somewhat optimistic, and I think you said it, we read the reports, that the casino market is going to be progressive growth all year. We're already seeing it in the first quarter. So, we're optimistic that that will not only continue but even continue some more than that.

We're somewhat optimistic also about this new off-premise gaming market, because we saw some pretty good growth in 2007, even though it is off a very low base of 2006. But, now we got a base in 2007, and we're projecting that to be up in 2008. And clearly, our lottery customer already is up 50 versus last year, and we're sitting in the first week of March. So, those are orders already booked. They are in house, they are scheduled. We are just optimistic that there could be even some more that come with that.

So, what we see is a nice start to the first half of the year, some growth and then the second half of the year, I think it is going to even grow more. So, we're going to have what looks like a nose growth year this year.

Okay, great. That's helpful, Bart. That kind of jogged another idea. You talked about the off-premise opportunity for you guys, and that that's ramping -- start to ramp in 2007 a little bit. Can you talk a little bit about how much of an impact that might have had in the fourth quarter for you guys? And what your expects are in 2008? I mean, obviously you are looking from growth from that. But, can you help us on what type of magnitude to the impact to 2008? You know, million dollars in revenue or 2 million? I mean, just kind of what or as a percent of total gaming and lottery revenue? How should we look at that?

Well, in the fourth quarter, it's meaningful because it's off of low base. But, clearly it was -- there was a couple of printers in 2006, and was a lot more than that in 2007. And what is nice about that business, Todd, is those are OEM type orders, so these are -- they are not -- the -- you can call them slot machine manufacturers, but they are gaming manufacturers, that have integrated our printer in to their solution and continue to roll that out as they win more orders and extend away from coin drop to receipt drop.

In 2008, I'm just looking at the numbers in front of me, the -- we're looking at probably a two-X type of growth in revenue, and it's clearly not -- you know, $10. It's a in the millions. So, we're looking at that having some pretty good impact to the bottom line or the top line of 2008. And we have got in to it a little conservative because what we see happening in the marketplace, like we saw in the casino market is people are getting away from coin drop. It's just matter of how quickly they can turn their customers over and more of machine goes out with receipt drop than coin drop.

We also believe the product that we'll launch early next year, will also continue our move in that market, and continue our progress of getting people to move more to receipt than coins. But, they will have a good effect on us this year, and I think you're seeing the same thing that we're seeing, of course; where certain customers, certain slot machine manufacturers or even lottery customers are talk about amusement with prizes, or fix [inaudible] betting turmoils, places in like the UK which are turning over to the sophisticated digital product, they are being network and clearly they are going away from coin in and in to receipt.

Sure.

And one other thing I would like to mention, while we had a tough year in the banking market in 2007. So, what we're looking at in 2008, the growth of 2008 versus 2007 is off a low base because 2007 was -- we didn't one, we didn't have the BANKjet 2500. We had no way to of after the replacement market, and of course we didn't have any projects in 2007. So, that growth in 2008 is coming off of a low base in 2007, which will be positive for us.

Okay. And then on the expense side, and they can't talk about the FutureLogic lawsuit. But, just in terms of legal expense, should we expect kind of a similar amount that you had in the fourth quarter for this upcoming quarter? First quarter?

I think it's going to be a little higher. I think it just based on what is going on, I really can't comment about it, but I think it's going to be a bit higher. What we'll do when our results is we'll show the pro forma with and without. I think our investors are going to want to see how the cost reductions and the growth of the business, and the move of our manufacturing to China. How it really favorably impacted the business and what the investors can see now over the next couple of years, what that new margin is going to look like at TransAct.

Okay. And then lastly, on the expense side, I saw -- look like R&D picked up a little bit in the fourth quarter, 845,000. Can you talk about a little bit about what that was in the fourth quarter? And should we expect that similar run rate going forward? Or should we expect it to maybe drop back down to kind of more normalized levels?

Yes, I don't think there was anything specific there. There was probably some based on this new project we're working on, it probably has some sample units that we made for this one customer that we're working on this project. I think the normal run rate, you'll see.

Yes, I would expect a similar run rate, Todd.

Okay.

Yes. Project we're working on, I think we shipped some evaluation unit, and that sometimes throws through the engineering number.

Okay. And then I think I missed the CapEx and the cash flow from ops numbers. Can you just -- give me those again, real quick?

CapEx for the year was $2.2 million. What else did you need, Todd?

Cash flow from ops for the fourth quarter.

Fourth quarter. Let's see.

Or the full year?

Full year was $2.6.

Okay.

400,000 for the fourth quarter, Todd.

Okay. And then, I guess going forward, what are your expectations for tax rate in 2008? Mid-30s or upper 30s? What is your expectation?

I would expect it to be in the mid30, 35 to 36 in that range.

Yes, that's what it has been.

Okay, perfect. Thank guys, i appreciate it.

Yes. It was good to see you a couple of weeks ago.

Alright.

Thank you. Our next question comes from Larry Haverty with GAMCO Investors. Please, proceed with your question.

Hi, Bart.

Hey, Larry, how are you doing?

Good. The Harris contract with IGTs for 60,000 display terminals and it would seem once they get going on that, they would need a companion printer. Have you seen any order activity? Or preliminary discussions in conjunction with that contract?

I can't talk about discussions we have with a customer like that both from the IGT side and the Harris side, they are both our customers. What I can say is we are delighted to see the work that's going on and the decision to to go ahead. It's the beginning of server-based gaming. It's the beginning of -- what we have been thinking about server-based gaming with the market been thinking about server-based gaming. You know Harris is one of our closest customers. We have a 100% of their business. I believe we have 100% of their business. So, we're thrilled the talk about using the display, the talk about promotions, the talk about, you know, talking to the customer at the slot machine, is as -- as part of the server-based gaming solution is just woof wonderful for us. So, we're just pleased with that announcement, pleased that it's Harris and look forward to how it rolls out.

Now, the thing -- there's a lot of ways you get to server-based gaming, as you know. But, it looks like the industry will transition -- I mean, looking at Harris as through the display, which would mean that the printer would come in earlier, rather than later in the transition. Do you agree with reading that in to the Harris deal with IGT? Is it -- shall we say an interested observer.

And so we are. Yes, I think that there's some good work that's going to go on. We don't like to comment about the stuff that goes; the agreements that IGT has with Harris and how we get involved with that. It's difficult, because we are so close to both customers. But, we're just really pleased that when we -- when people talk about server-based gaming, there's so many different solutions that can be talked about.

You can talk about changing the denomination of the game. You can change about changing the game titles. You can talk about somebody going to a machine and ending at one level and then going back to the machine and putting their frequent player card and getting back to that level. And then you can talk about promotions, whether first through a display, and then through a display. And clearly, a receipt because if you want to get a dinner or you want to be able to go to the person and say I got a dinner, here is my ticket, or you want to go to the show, here is my ticket. So, we're just very pleased at the very beginning of the first announcement to come out about server-based gaming, right at the beginning, they are talking about promotion as part of the solution, not the solution, but as part of the solution. Which is just wonderful for TransAct.

Okay. Great. Thanks a lot, Bart.

Yes, thanks, Larry.

Oh, yes.

Yes, go ahead.

I know you don't want to talk about legal, but is there any announced court dates on this thing? So, that we're not looking attendress support of the legal fraternity.

I appreciate that. You know, I think the ruling has been that this summer. The trial will be this summer. So, that I think is publicly known.

Okay. Thanks.

Thank you. Once again, ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. There are currently no questions in the cue at this time.

Okay. We would like to thank everybody for joining us on the fourth quarter conference call. It will be a short time before we talk to you again on the first quarter 2008 conference call, and we wish you a good night.

Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at that time. Thank you for your participation.