TransAct Technologies Inc (TACT) 2008 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the TransAct Technologies fourth quarter and year-end earnings conference call.

At this time, all participants are in a listen only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. As a reminder, today's conference is being recorded and now I would like to turn the conference over to Mr. William Schmitt of Integrated Corporate Relations. Please go ahead, sir.

Thank you, Nicole. Good afternoon and welcome to TransAct's fourth quarter and year-end 2008 earnings conference call. Joining us today from the Company are Mr. Bart Shuldman, Chairman, President and CEO, and Mr. Steve DeMartino, Executive Vice President and CFO. 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 questions.

As a reminder, this conference call contains statements about future events and expectations which are forward-looking in nature. Statements on this call maybe deemed as forward-looking and actual results may differ materially. For a full list of Risk Factors inherent to the business and the Company, please refer to the Company's SEC filings, including the Company's most recent report on Form 10-K for the year ended December 31, 2007. The Company undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances that happen after the call.

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

Thank you, Bill. Good afternoon, everyone, and thank you for joining us on today's call. We're very pleased with our fourth quarter performance. We achieved another solid revenue quarter, driving sales up by over 23% despite the significant deteriorating economic environment we faced in the quarter. Overall, 2008 was an excellent year for TransAct, and this is 100% due to the efforts of our Management team and the employees at TransAct who continue to perform above and beyond expectations in this very difficult economy. I cannot be happier to have them on our team as we head into what would appear from a macroeconomic perspective to be an even worse 2009. As Bernanke said this morning, this is the worst economic environment and crisis since the Great Depression. With our employees' continued efforts, we will weather this economic storm and we will emerge an even stronger Company when the recession ends.

So let me take you through some of the highlights of the quarter. Revenues for the fourth quarter 2008 increased 23% to $14.3 million, compared to $11.6 million in the same period a year ago. Net income in the fourth quarter of 2008 was $600,000 or $.07 per diluted share, compared to an adjusted loss per share of $0.01 in the prior year period, after excluding lawsuit fees and incremental inventory reserve charge and a one-time severance charge for the prior year quarter's results.

Now turning to the details of our results. Sales from our casino and gaming market declined by 4% for the fourth quarter ,primarily due to a large Model 70 Legacy Impact order we shipped in the fourth quarter of 2007 that did not repeat in the fourth quarter of 2008. In fact, I'm pleased to report unit shipments of printers into our domestic casino market improved over 15% compared to last year. Once again, we believe we gained solid market share in the domestic casino market in the fourth quarter of 2008. We grew our shipments into the domestic casino market despite the slowdown of slot machine purchases by casinos across North America.

One item I'd like to highlight that occurred in the fourth quarter of 2008 was the launch of the global gaming exposition of our new technology and device, we call it Server Port. This electronic device which we are marketing today allows any casino that has our Epic 950 printer to connect the device to both our printer and to a server or system for promotions coupons or any type of message printing. We created a dual port printer and server based gaming environment with the purchase and connection of our Server Port device to our Epic 950. We believe we have the only upgrade technology in the marketplace today and have seen real interest by casinos. We are showcasing it in many situations in the market today, as many system companies in the market include this device and technology in their displays and demonstrations that they are making to casinos today. Now our strategy to diversify our international sales in both the casino and off premise gaming markets has benefited TransAct in 2008, especially in the fourth quarter. Both the casino and gaming revenue portion of the international parts of our business grew.

I also want to highlight that we continue to believe the gaming side of this business in the international markets presents a large revenue opportunity for TransAct. We almost doubled sales of these printers in the fourth quarter. And to continue our leadership position in the marketplace, we introduced the new Epic 880 printer into this market in January just two months ago. We expect this new printer to help us further penetrate the market and help the market change from coins to receipts. Again, we view this market as a large opportunity for TransAct that will take time to develop; however, our strategy to enter this market continues to hold true as we expect weakness in the domestic market to be offset somewhat by our international initiatives.

Turning to our lottery market, lottery printer revenue grew 117% to $2.6 million from $1.2 million in the prior year quarter, primarily due to increased sales to our largest customer. All in all, 2008 was a solid year for our lottery business. However, I am disappointed to let our shareholders know that we expect lottery printer sales in 2009 to be lower than 2008. This drop is primarily due to the fact that our lottery customer who won two good-sized contracts that would have equated to printer shipments by TransAct in 2009 ended up losing those contracts due to issues not involving the printer. There was nothing we could do to help and, of course, we're very disappointed with what has occurred.

Now turning to our banking and point-of-sale markets, sales were up 34% for the quarter at $3.1 million. The driving factor of this growth is primarily McDonald's, where we experienced solid results as we began shipments of our POS printer that performs both receipt printing and also label printing at the grill. Our relationship with McDonald's is starting to have a significant impact on this business, and we expect the new coffee initiative that we won in 2009 will further support these strong sales trends.

We continue to see benefits from our partnership with NCR in selling the 8000 printer and integrated solution for McDonald's. And in January of this year, we officially announced that McDonald's had selected the Ithaca 8040 thermal printer for its new coffee and beverage initiative, which means the Ithaca 8040 printer should be shipped to over 11,000 franchise locations. We had already been taking small orders and received purchase commitments during the test process, but is still very gratifying to win this important deal and extend our relationship with McDonald's. The rollout of the Ithaca 8040 to the franchisees will occur throughout 2009, with some potentially ordering more than one printer per store.

The way I see the McDonald's order flow is the coffee initiative will drive sales for TransAct more in the first three quarters of this year and then, the what we call grill initiative printer, will drive sales growth after that. With the coffee initiative getting so much attention, we believe the McDonald's stores will want to implement the coffee first as it drives revenue immediately.

I would also like to point out that in addition to our point-of-sale business, our recently announced $4.9 million order for the BankJet 1500 should also bolster sales in 2009. These wins are quite rewarding for us at TransAct. It shows how our focus on clear initiatives in each of our markets has lead us to significant wins, but just as important is the diversification of our business. While we know the domestic casino market will go through a very rough time in 2009, as both the consumer slows down and the casinos deal with their capital structure issues, our other markets such as point-of-sale and banking and the international side of our business will contribute to offset some of the revenue shortfalls we expect. And it is also rewarding to note that our POS and banking market will contribute to TransAct, something I'm sure our long term shareholders also enjoy hearing.

Now let's move on to TSG, our TransAct services group business. We are extremely pleased to report that we experienced a solid 27% growth in the fourth quarter of 2008 compared with the fourth quarter of 2007. The effect of the old international service contract and lower legacy spare parts sales started to take less of an impact in our comparables, and the area focus, our consumable sales had a strong fourth quarter rise in revenues in 2008. The sales growth in consumables was also positively impacted by our website,www. TransAct supplies. com which has now been operating for two full quarters. We are still adding technology to this website to make it world class, but it's driving incremental sales every day.

In addition, we are also starting to see contributions from our new preferred partner agreement with NCR System Media Division which we announced early in September of 2008. Without going into too much detail, this agreement positions tsg to aggressively pursue markets that include the financial, retail and hospitality sectors with a significantly expanded product offering. Together, our two companies are focused on growing this business through our website and telemarketing sales, and we are pleased with our progress to date. As this platform continues to grow our business, it is our plan to add to our product offerings by developing relationships with other TransAct supply companies, transaction supplies companies. Just as we have done with the new NCR agreement.

Now, turning to the operations side of our business, I'd like to make a brief comment about our Asian manufacturing initiative. So far, we have moved approximately 40% of our products into full finished product production in Asia. As we said on the third quarter conference call last year, the net results of this move have been to lower product costs and increase quality with the added benefit of reducing our ongoing warranty expense. Our goal is to have approximately 70% of our products fully assembled in China by the end of 2009. We are on track to beat the timing as we now believe this will be done by the end of the third quarter of this year.

As we continue this transaction, you should expect our inventory to rise as it did during the fourth quarter. This will allow us to have product for our customers and no delays in shipping as we achieve this new milestone. It is the benefit of running our Company conservatively as we have cash and no debt, so increasing our inventory to achieve the strong cost savings in China is something we can do. I would expect this inventory build to start to deplete in the second quarter of 2009, turning inventory into cash as we end our domestic manufacturing and turn it over to Asia.

Finally, on a different note. Something we have avoided in the past, but believe it is warranted, given these uncertain times. I want to give you some color on our 2009 outlook. As we stated in the Earnings Release, we expect our 2009 first quarter results to be near breakeven due to the deep recession and timing of certain customer orders. We believe the first quarter will be our lowest revenue quarter for the year and given our backlog of orders, such as the large banking order we already have and order flow forecast provided by some of our customers, we expect improvements from the second quarter on.

Our conservative Balance Sheet and culture has positioned the Company well, and we expect to come through this recession with a stronger Company and well positioned to gain market share and new business. We are confident we can execute on our long term business strategy, and our near term plans also give us confidence that we can achieve free cash flow of at least $3 million in 2009.

Now before I turn the call over to Steve to discuss our financial results in detail, I want our shareholders to know once again how pleased I am with the results. In 2008, we won new business, including the win with IGT and McDonald's, and grew existing businesses and launched new products our customers wanted. And our goal to diversify our revenues by growing our international sales is clearly taking hold, while the work we are doing to grow our eCommerce website business with our enhanced consumables product line is working.

2009 will be a challenging year, one the economists and financial experts will write about for generations to come, but you should know by looking at the results TransAct just posted, that your Company is winning and working hard, and with our Balance Sheet and cash flow poised to exit this mess in solid shape. And when the U.S. emerges from this deep recession, we are and will be a stronger and better Company than we have ever been. TransAct will continue to maintain a focus on our initiatives we have laid out. We will launch three new products this year, including the new Epic 880 which we did in January.

We will continue growing the list of customers, expanding relationships with companies like NCR and our new international casino and gaming manufacturers, and expanding our geographic footprint where we're selling around the world. We will be solidly positioned to exploit the many market opportunities that will come with the end of the recession.

With that, I'd like to turn the call over to Steve DeMartino, our Chief Financial Officer, for our financial summary. Steve?

Thanks, Bart. We're pleased to report another good quarter of financial results for the fourth quarter of 2008. Our earnings per share for the fourth quarter 2008 were $.07 on revenue of $14.3 million, up year-over-year from an adjusted $0.01 loss in the fourth quarter 2007, excluding legal fees related to the now settled lawsuit with FutureLogic, an incremental inventory reserve charge and a severance charge.

Now let me discuss the details of the fourth quarter financial results. Our net sales for the fourth quarter of 2008 were $14.3 million, up 23% from $11.6 million in the fourth quarter of 2007. Casino and gaming sales were $5.3 million in the fourth quarter of 2008 compared to $5.6 million in the fourth quarter of 2007, down 4%. The decline came mainly from a large printer shipment of a legacy gaming printer in the fourth quarter of 2008 that did not repeat in the fourth quarter 2008, and slightly lower domestic sales of casino printers. Even though the total dollar value of our domestic casino printer sales decreased, we were pleasantly surprised that unit sales actually increased 15%, indicating that we increased our market share in the quarter, despite the adverse conditions in the casino industry.

Internationally, we continue to see positive results, as international printer revenue increased by 16% on growing sales of printers used in off premise gaming machines such as video lottery terminals, amusement with prizes, skills with prizes and fixed odd betting terminals.

Lottery printer sales for the quarter more than doubled to $2.6 million from $1.2 million in the same quarter a year ago as we completed our second highest ever sales year to G-Tech in 2008. On a sequential basis, sales to G-Tech were down from $4.7 million in the third quarter of 2008, as expected. If you'll recall, we mentioned our expectation for lower fourth quarter printer shipments to G-Tech on our third quarter earnings call.

Banking and POS sales were $3.1 million in the fourth quarter of 2008, up 34% from the fourth quarter of last year. The large sales increase was attributable mainly to a significant increase in sales of our two new printer products for McDonald's, the Ithaca 8000 and 8040, as McDonald's roles out these printers for use in the front counter and grill program, as well as their new combined beverage initiative. The increase in sales to McDonald's was somewhat offset by lower sales of legacy impact printers, which continue to represent a declining percentage of our overall POS sales with each passing quarter.

Banking sales for the fourth quarter of 2008 were relatively consistent with the fourth quarter of 2007. Sales from our TransAct Services Group increased by 27% to $3.2 million for the fourth quarter of 2008. TSG sales for the fourth quarter of 2008 were lead by an 85% year-over-year increase in consumable and transaction supply products, which is our main targeted growth area for TSG. Contributing to this increase were strong sales of Inkjet cartridges and growing internet sales, including paper products from our expanding relationship with NCR through our eCommerce website, TransAct supplies.com.

Our gross margin in the fourth quarter of 2008 remained relatively consistent at 33.7% compared to an adjusted 34%, after excluding a one-time inventory reserve charge of approximately $528,000 in the prior year quarter. The slight margin decline was due primarily to a less favorable sales mix than in the previous few quarters.

Operating expenses for the fourth quarter of 2008 were $4.2 million, down from $5.4 million in the fourth quarter of 2007. Operating expenses for the fourth quarter of 2008 were lower due to approximately $1.2 million of legal expenses incurred last year related to the lawsuit with FutureLogic which we settled in May 2008. Excluding these legal fees and a severance charge of about $39,000 in 2007, our operating expenses for the fourth quarter of 2008 were flat compared to the fourth quarter of 2007.

Our operating income in the fourth quarter of 2008 increased to approximately $600,000 from a loss of $200,000 in the prior year quarter on an adjusted basis, excluding FutureLogic lawsuit legal fees, the incremental inventory reserve charge and the severance charge. Our operating margin was 4.3% in the fourth quarter 2008, a nice improvement over the negative operating margin we reported in the prior year quarter.

So for the quarter, excluding the various charges taken in the fourth quarter of 2007, our operating expenses remain flat even as our sales grew by 23%, reflecting the benefit we realized from cost reduction actions taken in late 2007, as well as the operating leverage we experienced as our sales volume increases. We also incurred a currency exchange gain of approximately $270,000 in the quarter. The gain resulted from transaction exchange gains recorded by our UK subsidiary due to the strengthening of the US dollar against the British pound. US dollar gained on average about 20% against the pound during the quarter. We recorded income taxes and an effective tax rate of 27.3% in the fourth quarter 2008.

As we mentioned on the call last quarter, the Federal Research and Development Credit was reinstated retroactive to January 1, 2008 as part of the Emergency Economic Stabilization Act of 2008 which was passed in October. As a result, we recognized a full year 2008 income tax benefit from the federal R&D credit of about $125,000 all in the fourth quarter, which favorably impacted our effective tax rate for the fourth quarter. Our effective tax rate for the full year 2008 was about 35%. On the bottom line, earnings per share for the fourth quarter 2008 substantially improved to $0.07, compared to a loss of $0.01 per share on an adjusted basis, excluding legal fees, the incremental inventory reserve charge and the severance charge in the fourth quarter of 2007.

Now, looking at our cash flow, we used about $1 million of cash from operations in the fourth quarter of 2008, largely due to an increase in Accounts Receivable and inventories, which I'll explain in a bit. However, for the full year 2008 we generated approximately $1.1 million of cash from operations. Our Capital Expenditures were approximately $250,000 for the fourth quarter of 2008 and $1 million for the full year 2008.

Our cash balance decreased by $2.1 million to $2 million at the end of the fourth quarter of 2008 from $4.1 million at the end of the third quarter 2008, due to increases in Accounts Receivable and inventory, as well as $543,000 of stock repurchases. However, we continue to have no debt outstanding under our $20 million revolving credit agreement with TD Bank North.

Our working capital increased to $15.1 million at the end of 2008 from $11.3 million at the end of 2007. The increase in working capital was due largely to higher Accounts Receivable resulting from higher sales volume and higher inventory levels. Our current ratio rose to 2.9 to 1 at the end of 2008 from 2.4 to 1 at the end of 2007.

Our EBITDA for the fourth quarter of 2008 was approximately $1.5 million. This compares to EBITDA of negative $1.4 million for the fourth quarter of 2007 or positive $400,000, excluding the various extraordinary charges. For the full year 2008, our EBITDA was approximately $4.9 million or $7.9 million, excluding the FutureLogic lawsuit and legal fees. Depreciation and amortization totaled approximately $500,000 for both the fourth quarter 2008 and 2007. Non-cash comp expense totaled approximately $200,000 for both the fourth quarter 2008 and 2007. Total depreciation, amortization and non-cash comp expense remained flat at $2.6 million for the full year 2008 and the full year 2007.

Now let's take a look at our Balance Sheet at the end of the quarter. Receivables were $8.7 million at the end of 2008, up from $6.1 million at the end of 2007. The increase in our receivables reflects higher sales volume as our sales increased 23% from the fourth quarter of 2007 to the fourth quarter of 2008. We continue to be extremely vigilant in maintaining close communication with our customers in collecting our Accounts Receivable, especially in these difficult economic times. Despite the higher total dollar value of our receivables, we had not experienced any degradation of our receivables aging, and our collection effort continues to be stellar.

Our net inventory balance rose to $9.9 million at the end of the fourth quarter 2008, up $1.3 million from year-end 2007. Let me explain. As you may recall, we're in the process of increasingly moving full production of our printers to a contract manufacturer in China. In fact, our goal is to produce 70% of our total unit volume in China by no later than the end of 2009. During the fourth quarter 2008 we made good progress on this initiative with about 30% of our products moved over as of the end of 2008. We expect to move another 40% by the end of 2009 to reach our 70% goal.

During this transition period, we decided to temporarily increase our stocking levels as a cautionary measure to minimize any potential disruption to our customers as we make the change. As a result, we experienced an increase in inventories during the fourth quarter 2008. Looking forward, we expect our inventories to rise a bit more in the first quarter 2009 and then begin to decline again to more historical levels starting in the second quarter 2009 as we complete the transition of production to China and deplete inventory we purchased in the first quarter in advance of the $4.9 million banking order we expect to begin shipping later this month and the second quarter.

Lastly, let me update you on our stock buyback program. During the fourth quarter of 2008 we repurchased approximately 130,100 share of our Common Stock for approximately $543,000 at an average price of $4.17 per share. To date, our total buyback since the beginning of the program in 2005 stands at almost 1.2 million shares bought back for a total of $8.5 million at an average price of $7.33 per share, which represents about 12% of our total shares outstanding.

Overall, looking ahead, there's no question that 2009 will be a very difficult year for the US economy. However, you should know that from a financial perspective, we have positioned TransAct well to weather the storm. Our prudent and cautious approach to managing our Balance Sheet has served us well. We ended 2008 with $2 million of cash, no debt, and strong working capital levels, and looking at the 2009, we expect to generate at least $3 million in free cash flow.

Using an old baseball adage, we will not take our eye off the ball in 2009. We will continue to tightly manage our capital, financial position, and spending levels in order to insure that we come out of this recession in an even stronger position. And with that, I'll hand it back to Bart.

Thanks, Steve. Nice job. Operator? We would open up the call to questions now.

Thank you. (Operator Instructions). We will go first to Todd Eilers with Roth Capital.

Hi guys, how are you?

Hi, Todd.

Doing all right. Bart, in your guidance for the first quarter you mentioned expectations for near breakeven results. Are you referring to or should we be looking at a slight positive number or a slight negative number?

Either way.

Okay. And then for your free cash flow guidance, a minimum of $3 million, can you maybe give us a sense of your expectations ,I guess, for working capital for the full year going forward, should that be a source of cash, do you net neutral or do you anticipate making any sort of investments?

No. Based on the $3 million of free cash flow, we're projecting the end of the year to end up with $5 million on the Balance Sheet. So that's net of any -- we're going to launch three products this year, so that's net of all of the capital costs or tooling costs to launch those products. That's free cash flow.

We believe that we're going to generate that after all of our expenditures, all of our Capital Expenditures, tooling, etc. So that's going to be net.

It incorporates the working capital needs, Todd.

I understand. I was just trying to get a sense of what you get a little bit of a benefit from building up your inventory, and would that maybe be an extra source of cash for you guys?

It could. Todd, it's all going to depend on what the revenue is for the year, because we've built up -- two things, we've built up inventory for our Asia move and that's going to deplete, and then we've also built up -- we're starting to build up inventory for our banking order that we have.

We're also building up a little inventory ahead for what's been forecasted as our lottery business to be a little lumpy, so it's going to happen more in Q2 and Q3 and Q4 than Q1, so we're building up a little inventory. That will flush out and drive cash. Clearly from our perspective, we're managing that inventory very closely. So where we would normally error on the side of maybe a little more inventory in a year, we're clearly managing the other way this year.

In fact, we basically have a meeting almost every two weeks where we look at that because we can turn that all to cash. So depending on what the revenue level looks like, we could actually drive more than $3 million of free cash flow.

What we're comfortable telling you, though, is in this tough economy, we're going to end up at the end of the year with a Balance Sheet with $5 million of cash and no debt.

Okay. How about on the lottery side, you mentioned G-tech, your partner there had lost a couple contracts and expectations are for overall revenue to be down year-over-year going forward. If we looked back over the last, I guess I don't know, five years it looks like G-tech revenue has kind of ranged between $7 million and $16 million. Could you maybe give us a sense of should we expect G-tech to maybe be at the lower end of that range, or maybe at the mid point of that range, or just a little bit of guidance there might be helpful if you could provide any at all?

Yes, we're disappointed, Todd. In fact if they had not lost these two contracts, which they had won, so they had an issue that they could not resolve, actually, this year might have been quite a decent year despite the significant recession that we're in. I would go with the low end of that range.

Okay.

And that's despite losing these two contracts, or G-tech losing those two contracts.

Okay, that's fair. How about on the McDonald's two initiatives. Can you maybe give us a sense of how much of your point-of-sale banking revenue, that line item, how much McDonald's maybe represented in the fourth quarter?

We don't break out the revenue by customer, so we just -- it's not good for us because you got to believe that just about every one of our competitors is on this call right now.

Sure.

So we just don't do that, but what we saw in the fourth quarter was a nice pick up. We went over with you on the call. We saw a nice pick up of McDonald's business, both -- it was interesting what we call the grill initiative which is kind of the standard, we call the 8000, the standard POS printer that also prints the label in the grill area. And we also saw some orders for our coffee printer which is now called the combined beverage business, CBB, because they are also doing frappacinos and capaccinos and things like that. What we are predicting or projecting for our business this year is we believe CBB, the combined beverage business will be stronger than the grill initiative in the beginning of the year as we get into Q2 and Q3, because we just believe the franchisees are going to want to drive revenue versus put in just a new system and save time and all that.

The coffee initiative clearly is driving revenue. The combined beverage business printer uses the same paper, but it's cut down in size to about an inch and three quarters wide, and that production ramp up is going on as we speak, so the paper needs to catch up to what the demand is. And there was a major announcement inside a McDonald's a couple of weeks ago to officially launch and explain everything to the franchisees, all of the regional managers about the combined beverage printer. So that is going on right now.

There's a trade show in April. In fact it's in Las Vegas, so finally we get a trade show to open up in Las Vegas, and we believe that's going to have a pretty good impact the first three quarters of the year.

Then as we come out of that, because it's McDonald's intention to get the CBB all done this year, so that rush will happen, and then towards the back end of this year, then the franchisees will, we believe will convert over to the new POS system including the grill initiative where our 8000 business will pick up. So we should see solid business all year with the CBB happening first, and then the combined -- and then the grill initiative happening second.

Okay. And then just a final question on the operating expenses. It looked like your Sales and Marketing increased sequentially a little bit more than I would have thought, given the decline in revenue. Can you maybe talk a little bit about what that was or what drove that and what your expectations are going forward?

Yes. In the fourth quarter, Todd, that's typically our highest selling and marketing expense quarter because of the G2E trade show. That's a significant expenditure.

So should we expect that to come back down to kind of similar to the prior three quarters?

Are you asking about 2009 expenses?

Yes.

We don't expect any material increases in the operating expense. We have stuff that just goes up like medical expenses, but nothing significant.

Okay. And then how about on, well, I guess on the R&D as well, that ticked up a little bit. Was that related to -- I guess that wasn't G2 E related, Can you tell us maybe what drove that?

Yes, on the R & D side it was prototype expenses for our new Epic 880 off premise printer.

And the launch of the Server Port. We launched two printers or basically two devices within two months of each other. We launched the Server Port in November and the 880 in January. And normally what we do, Todd, is we build our prototypes that are full functioning, we can actually, not really prototypes, they are actual devices. But we build those internally that are much more expensive than when we build those in China, so that all hit in the fourth quarter.

Okay. All right, that's helpful. Thanks, guys. That's all for me.

You're welcome.

We'll take our next question from Justin Sebastiano with Morgan Joseph.

Thanks, hi, guys. Just some housekeeping stuff. CapEx for 2009, is that pretty much going to stay where we were in 2008?

It should be relatively similar to the 2008 level.

About a million, okay. And I think Todd went over operating expenses pretty well, but is there any wiggle room to bring down, I mean, you guys have done a pretty good job of keeping the operating expenses in line, but anything we can see that maybe shaves those numbers a little more?

This is what we're doing as a business. On sales and engineering, we're not making any changes. We got an opportunity, we believe, to continue to gain market share and continue our growth in the new international markets. From the sales side we're not doing much cutting. On the marketing side, we're not going to be doing as much advertising and things like that. On the engineering side, to be honest we have more projects today than we did last year at this time. We actually can't keep up to the projects that we have, so we're going to do no cutting on our engineering side.

Every place else, we're looking at continuing to adjust our cost to the new revenue level, so we will be looking very hard, not we will be, we have looked at our costs and we will be making the necessary adjustments during the year.

One of the things that kind of hit us with the banking order that we got, the banking order is one of the last printers we do not make in Asia, so while we had plans on doing some other things on the cost side of our business in Ithaca, all those printers, all those $4.9 million of printers will be made in Ithaca. So some of the adjustments we were going to make, we now can't make because we need those people -- we need some of the quality people and manufacturing engineers to help us through that. So on that side, it's going to be a little difficult because it's not a product we make in Asia. But on the other admin side, we have looked at the cost, we are going to make some changes and we'll continue to do that.

Okay. And I guess, given the trouble that FutureLogics owners are going through right now, do you expect possibly some of their major slot customers to switch to TransAct printers or are they taking kind of a preemptive strike, given that where the Future Logics parent is right now and who knows how they are going to be able to follow through with any sort of warranty service or anything like that?

Yes. It's hard to answer fat question considering they are listening to this call. But from a business standpoint, having cash and no debt allows you to do things in the marketplace to gain market share, and we have been looking at every one of those opportunities. As for what what we see from them, I can't answer that. It's not something we like to talk about. But as a Company being in the financial position we are, which we have cash, we have no debt, even if we needed to borrow money we would borrow at 2.25% if we needed to do something to get really aggressive, we'll continue to monitor the situation.

Clearly though, Justin, the casino market is not -- the domestic casino market, especially Las Vegas, is not in good shape right now. $20 million worth of hotel rooms were cancelled between President Obama announcing that banks shouldn't celebrate in Las Vegas and Congress coming down on business travel. $20 million worth of hotel rooms were cancelled, so Vegas has got to come out of this. They are going to come out of it, but clearly the Vegas centric business is not doing well.

Now that's actually not as bad for us as it is for our competitor, because most of our business -- only about 12% or 15% of the slot machines are sold into Vegas and, clearly, FutureLogic was first into the marketplace. But in the small markets, in the locals market is where we have been successful, and that market is tending to hold up right now. So we're making our move where we think there's going to be business and not spending as much time where we don't think there's going to be a lot of business.

Okay, and speaking of the slot makers, are you giving better terms to those guys to kind of help them out or, more specifically, I guess IGT to kind of help them through the tough time that they're going through as well?

No, we haven't had to. We haven't been even asked to. I think the biggest thing we've done with them is our Server Port technology. It clearly is a conversation piece as both the big guys, Bally and IGT, go out and talk about server based gaming. This is a device that can help them as they talk about promotional printing messages and things like that. So clearly, we have been involved in some of those conversations. We have not been asked to lower our price. We've not been asked to give terms.

Okay. And server based gaming was a hot topic a couple years ago. I guess it still kind of is, but people are being more skeptical as to when that will come to fruition? I mean, being the player that you are in the printer side of that market, where do you see -- I mean, does City Center if in fact that does open, does that mark the beginning of a very extremely slow ramp or are we years away from some sort of proliferation of network gaming?

Look, I've got different opinions about what's going to happen. Let me start by saying that the casinos have seen a very, very rough three months and will probably see another rough six to nine months. And in my mind, in my opinion, after spending a lot of time in the market over the last three months talking to everybody from Board members to CEOs to Operators, when the business comes back, I think the first thing they are going to do is put a game on the floor, not a system on the floor. Now that's just my belief that the floors are getting old.

Depending on who you talk to it's either a 16 year or 18 year replacement cycle going on right now, where for years we were used to a six or seven year. The games are getting very old, and I think that the casinos aren't going to run, they are going to sprint to buy new games once the market comes back, because the floor is very old. Most games, if not all games today, are sold server based gaming ready. So that allows them for when they want to put the system in, they can just tie those machines to it. But it's my belief that the casinos are going to run as fast as they can to buy new games to get out of these old games that are on the floor.

They haven't really helped themselves by leaving old games on the floor, so whatever player is showing up anyway is playing an old game. So I think as they get their capital structures better and get -- and the market comes back, that they are going to rush to get new games and it will be server based ready games. And that's going to help us quicker than if they put in a new system, because anybody that's put a new system in, TransAct put a new Oracle system in, it takes a year, year and a half to put a new system in. So I think it's going to be better for TransAct if they rush to put the new games in first, because I think it's going to be better for us.

Now as for server based gaming, I think it's going to happen. We have always been skeptical about playing, changing game titles and things like that on a slot machine with server based gaming. I think it's more going to be yield management, things like it's the Super Bowl weekend and you can raise the price of a slot machine. And I also believe that promotions are going to be a key aspect of server based gaming.

So I think that server based gaming will happen. I think the first rollout is going to be City Center. I think we're all interested seeing what it's going to be. I also believe that server based gaming will not be a wholesale changeout of the floor per se, but there will be banks and machines that get changed as it gets rolled out in other casinos. But I really do believe that the first thing that's going to happen is casinos will rush to get new machines in. The new games look wonderful. Everybody has got good games today, and I think the casinos are just going to rush to buy them.

Let me just clarify one thing about the FutureLogic. I have no knowledge of them having any trouble with any of their customers or their warranties or anything like that. I was just wondering if, perhaps, there were any customers approaching you. And I understand your stance on that, regarding that they're listening.

Yes, look. It's no doubt we're following American Capital. I mean, we see the same thing. They are down to $0.70 a share or whatever, so no doubt that we see what's going on. We just don't like to talk about them in particular.

Understood. Thanks a lot.

Thanks, Justin.

We will go next to Larry Haverty with GAMCO.

Hi, Bart.

Hi, Larry.

A couple questions. One, relating to casino openings, Las Vegas Sands is going to open a big casino in Bethlehem and you'll have significant orders for that, I'm sure. They are highly motivated to get that open for reasons unique to them, but will that be in the first quarter or the second quarter?

The opening is June I think, May or June?

May 22nd.

Yes, so we'll see orders probably in the second quarter for that.

So your first quarter forecast doesn't include that order then?

Probably not, no.

Okay. And then City Center, my best information is that's going to open. That would be third quarter or fourth quarter? Have you been (inaudible) on that yet?

We haven't, and we've been talking to them. And Larry, I think that's just going to depend on when they open it up.

Well let's say they open November 15th.

We would see shipments potentially in October.

Okay, all right, great. Thanks, Bart.

Okay.

(Operator Instructions). We will go next to David Gorman with Kern Suslow Securities.

Hi, Bart.

Hello, David.

How are you guys? Looks like you had a pretty good quarter considering the environment that we're in. Most of my questions have been answered already, quite frankly and I just didn't want to hang up on you guys.

That's okay.

In any event, talking about the stock buyback, I mean you guys still have a lot of cash. I guess it's the prudent thing to hold on to your cash in these times, but we're starting to look at a stock price here that's literally you have to go back 10 years to see this. And I think the Company has come a fairly long way in 10 years, I think you guys would agree with that, right?

Yes, David, look. Nobody is having fun in this market. You got two guys sitting here with just about every option we own under water.

Unreal.

And that's after what I consider to be one hell of a great year in 2008. We focused on winning the leaders in every one of our markets, won it, shipped it and now we're sitting with a $2 stock price. But I don't know how many CEOs have ever experienced a market like this, and I think what's important for us is to manage our business so that when we come -- when the economy comes out of this and this, by the way is not a US problem now, it's worldwide.

I was at the Gaming Show in London and all of a sudden at the restaurant there are no waiters and bartenders, they laid everybody off that night. So this is going on around the world. But what's important for us is, given the success that we have that when this ends at the end of the tunnel, that we're there to take advantage of -- and in fact one of our largest shareholders asked me that question. And we will be there when this turnaround comes. So what Steve and I will do is we will monitor our cash position and make sure that when this economy turns that we're standing and we will be around for it and that's what's important to us. And then along the way, we'll look at our cash flow and then we'll see, is it good times? Do we believe we can buy the stock back at that time and continue to have a clean Balance Sheet and a healthy Balance Sheet? We'll just go along the way and look at it. Clearly, you're talking to two guys that just can't believe where the stock is today.

Yes, I mean, look, we know why Citicorp is at $1.45 because they are broke. But you guys are in good financial health and nobody wants to own the stock. One of my other thoughts here is, I know you talked a little bit about the server based gaming, wouldn't server based gaming for the casinos even down the road help them in terms of their economics, attracting more people to economically?

Yes, I think the big thing for casinos right now is to get them in the door first. Once they are in the door, then they can talk to them. But I think casinos need to get customers in the door, and it's just my belief that what you're going to see is them putting new games on the floor first, and then start hooking them up and talking to the customer and all that. But I think you've got a lot of old games on the floor and depending on which analyst you talk to, it's 16, 17 or 18 years. And the Goldman Sachs report just came out saying the same thing, and eventually it's got to break. And to me it's like a coiled spring. It's not if, it's when. But we've got to get through a very, very deep recession.

All right, guys. Enjoy your dinner tonight. Again I think it was a great quarter to pull out a winning quarter in this environment, and looking forward it sounds very good.

Thanks, David.

Take care guys.

Thanks.

Mr. Shuldman, there are no more questions in the queue at this time. I'd like to turn the call back over to you for any additional or closing remarks.

We would just like to once again thank our shareholders. We're very pleased with the fourth quarter, very very pleased with the employees at TransAct that are very focused. And we just look forward to talking to you in our next quarter conference call some time in late April or early May. So we thank everybody for joining us.

That does conclude today's conference. We appreciate your participation and you may disconnect at this time.