TransAct Technologies Inc (TACT) 2009 Q3 法說會逐字稿

Good day ladies and gentlemen. Thank you for standing by. Welcome to the TransAct Technologies third quarter 2009 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, and instructions will be provided at that time. As a reminder today's conference is being recorded.

And now I would now like to turn the conference over to over to Mr. William Schmitt of ICR.

Good afternoon and welcome to TransAct's third quarter 2009 results 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 may be 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, 2008.

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 would like to turn the call over to Mr. Bart Shuldman. Please go ahead.

Good afternoon everyone, and thank you for joining us on today's call. I want to start off today talking about what we just accomplished in the third quarter. In the midst of a continued global recession and extremely weak domestic casino market, many companies are trying to cut costs in order to generate net income. Topline growth has been an afterthought for the most part as companies concentrate on preserving margin, which was why we are proud today to be able to report that for the third quarter of 2009, TransAct Technologies achieved record quarterly revenue of approximately $18 million.

We are not just surviving during this global recession, we are performing. And it is due to the fantastic work from the entire TransAct team.

Two years ago we told our investors that we had developed a focused strategy which we put in place that we believe would grow the revenues and profitability of the company. Specifically we mentioned we would focus on several areas.

First, growing our international gaming sales by launching market-specific printers for a market we felt would provide a meaningful opportunity for growth for TransAct. And let me remind you, we launched our latest printer, the Epic 880, in January of this year.

Second, we would focus on the international casino market, different than the international gaming market, utilizing the strength of our existing product, the Epic 950, and our worldwide sales relationships.

Third, we would focus on the US banking market, where we believe TransAct has a competitive advantage in our inkjet printer product line, while also delivering a solid stream of recurring revenue with sales of our inkjet cartridges for those printers.

Fourth, we would focus our sales efforts in the POS market, where we could apply our world-class technology to provide a solution, not just a printer.

And fifth, we would focus on growing our TransAct Services Group, TSG as we call it, primarily selling our line of consumables with the use of our website, while also growing our service maintenance agreements with the large customers we serve.

Finally, we laid out a plan about cutting our costs where appropriate but more importantly moving at least 70% of our domestic printer production to China.

Well, we focused on the strategy, and as you can see from our third-quarter results, it is paying off in a major way for the company.

For the third quarter of 2009, we are very pleased to announce revenues for the quarter reached an all-time company high of $17,982,000, and we generated net income of $1.2 million or $0.13 per diluted share. And we ended the quarter with a solid balance sheet with over $5.5 million in cash, no debt, and a very impressive inventory level that is now below 6.5 million, a reduction of 5.7 million from the end of the first quarter in 2009 -- just six months ago.

And not to steal Steve's thunder, we are now projecting our year-end cash position to exceed $8 million.

Now let's dive further into the results by market. Starting with our banking and point-of-sale markets, which was one of the clear highlights for us as sales were up 95% compared to Q3 2008 to $5.8 million. We continued to achieve solid growth in sales from our McDonald's coffee and beverage printer, as well as from the McDonald's grill initiative which has started to ramp up. As you know, we are supplying either one or two printers per store for the coffee initiative, and between six and eight printers for the grill initiative. We are pleased with the success this business has brought to TransAct, and continue to work with our partners on new opportunities using this world-class product line.

In terms of our banking sales, revenue was up an impressive 1,000% in the third quarter of 2009 compared to a year ago, which included sales from our $4.9 million order for the Bankjet 1500 to our largest banking customer. Shipments to that customer have exceeded our expectations, and we are optimistic with what we are seeing regarding future sales of our banking printers into the banking market for the foreseeable future.

We will have approximately 45,000 printers installed with just this one customer, and I must remind you of the recurring revenue we will get from both service maintenance contracts and also the continuing supply in orders for the inkjet cartridges they will need for each of these Bankjet 1500 printers. There will be a material amount of recurring inkjet cartridge and maintenance service revenue for years to come.

Moving over to our gaming and casino market, I am very pleased to report that the international casino and gaming sales portion of this business now account for 55% of total TransAct casino and gaming revenue. Our focus on the international gaming market is delivering solid results for TransAct. In fact, in the third quarter of 2009 international gaming sales rose by 49% over the prior year quarter -- all of this in spite of the global recession.

Our off-premise gaming markets continue to shine as the transition to printers and also new installations in the international markets continue. And we believe the introduction of the new Epic 880 printer into this market should only increase our market penetration and revenue. The opportunities we continue to see only enhance our excitement about us entering this market a few years back, with Europe and Asia leading the way. I am proud to say once again that 55% of our gaming and casino sales are now from the international markets.

As expected, sales were down in the third quarter of 2009 compared to the prior year quarter in the domestic casino market as the domestic casino market continues to be weak. However, on a sequential basis, revenue from our domestic casino business in the third quarter of 2009 was up almost 18% compared to the second quarter of 2009. We are pleased with this sequential growth as we not only see stabilization in the domestic casino market but now see the potential for growth returning. Casinos are now talking to us once again about buying more replacement slot machines and therefore the need for more printers.

We are cautiously optimistic that the significant downturn is not only over, but the market opportunities are about to build again.

One comment I would like to make is something I have said previously on our earnings conference call. I believe the building of the big-box casino is basically over. As the casino companies around the US work to improve their balance sheets, it is my belief they will use their financial improvements to start to upgrade the casino floors as they work to garner more market share and customer loyalty. The casino operators will work hard to upgrade their slot floors, which I believe will shortly turn into another upgrade phase for all of us manufacturers and suppliers.

In addition, and some people know I haven't said much about this, I also truly believe that promotional ideas and customer loyalty needs will start to drive casino operators towards printing messages at the slot machines. This bodes well for TransAct, as our existing Epic 950 provides our casinos with a true upgrade path to promotional printing by utilizing the existing Epic 950 in their slot machines, and just as good for TransAct, the casinos buying and utilizing our ServerPort product. Our casino customers are thrilled that we have a true and easy upgrade path for them without the need for expensive replacement of their existing printer, an upgrade path for our customers and a new revenue driver for TransAct. A win-win for both.

Turning to our lottery market, lottery printer revenue fell 29% to $3.3 million from $4.7 million in the prior year quarter, primarily due to the timing of orders, as a recent $3.6 million order for our thermal lottery printers did not begin shipping until the middle of this quarter. However, it was still a notable sequential increase in sales from the $2 million in lottery revenue in the second quarter of 2009.

As we have mentioned previously, lottery sales can vary significantly from quarter to quarter due to timing of orders from our lottery customers. This is strictly due to their installation needs and dates.

Now let's move on to TSG, our TransAct Services Group business, which had a fantastic quarter, a 40% increase in revenue in the third quarter of 2009 compared to the third quarter of 2008. Our main area of focus, our consumable sales, continues to thrive, up 67% from the prior year quarter. This growth is occurring while we believe the amount of transactions occurring in the US is declining by at least 20%. So we are growing in a down market.

Consumable sales increased mainly due to the rise in the inkjet replacement cartridge sales during the quarter to our banking customer. In addition, TSG saw maintenance revenues grow by 24% in the quarter, and we believe we will see that revenue stream continue to grow as more of our printers that were sold with extended warranty maintenance agreements kick in over time.

Before turning the conference call over to Steve, I'd like to make a comment about our gross margin. As I have spoken about the last few quarters, TransAct purposely increased our domestic inventory starting in the third quarter of 2008 as we started the transition of more of our product production to our Chinese manufacturing. As we explained to you previously, we did that to ensure we would have no delays in shipments if any issue occurred in China as they began their production.

When the great recession kicked in, we were left with more inventory than we had planned, as you saw at the end of the first quarter of this year. So knowing that as soon as we could use up the inventory in our Ithaca facility was the sooner we could get the lower-cost printers from China, we decided to convert as much inventory as possible into printers for the increase in orders we received in the quarter. In some cases we took existing parts or subassemblies and removed or changed parts to create the product we sold. This increase in labor and material caused us to spend more in the quarter than we normally would, but it helped to drive our inventory down.

The result of this extraordinary effort by our operations team has allowed us to start up our China manufacturing, and we expect deliveries of the lower-cost [finished] printers to start in late November. Soon more than 70% of our printers will be from our low cost production in China. The net effect is something you know. We will continue to see increasing gross margins and therefore increasing profit margins.

I just personally wanted to explain why we did it and how it will help us in the years to come. And of course depleting lots of inventory drives cash. And once again I am pleased to let you know that TransAct will have over $8 million in cash by year-end.

As I end, I want our shareholders to know how proud I am of the efforts of the entire TransAct team during the third quarter. In this demanding and difficult environment where most companies are cutting back their expenditures, we were able to grow our revenue for the quarter while maintaining our profitability. We kept investing in sales and product development, and I will tell you we will launch three new printers over the next 12 months. We did not stop investing in TransAct, but we also delivered solid results.

Looking out, we will continue on our focused strategy, and we look forward to providing the best printers and service to our current and new customers. Our balance sheet remains as solid as ever, which puts us in prime position for even better results as the economy recovers.

And finally we will continue to refine and introduce new products in order to provide the most function and cutting-edge solutions for our markets.

Great job, TransAct.

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

Let's get right into the numbers for the third quarter of '09.

Our earnings per share for the third quarter '09 were $0.13 on revenue of approximately $18 million compared to EPS of $0.13 on $17.3 million of revenue in the third quarter of '08.

Now let me discuss the details of the third quarter financial results.

Our net sales for the third quarter of '09 were just shy of $18 million, up 4% from $17.3 million in the third quarter of '08. I'm proud to say this was the highest quarterly revenue we've ever reported in our company's history, which is quite an accomplishment in this current economic environment.

Banking and POS sales were $5.8 million in the third quarter of '09, up 95% from the third quarter of last year. Banking sales for the third quarter of '09 led the increase and were up over 10-fold from the third quarter of '08 as we finished shipping against the $4.9 million order we received for Bankjet 1500 teller station printers in February '09, as well as some of the additional follow-on orders we have received from one of the largest banks in the US.

Sales of our POS printers decreased by 16%. The decline was mainly the result of lower sales of our non-McDonald's POS printers due to the impact we believe the economic slowdown continues to have on the capital spending of a number of our retail and hospitality customers. However, increasing sales of our McDonald's printers helped to offset our lower POS printer sales, as we experienced continued strong sales of our two printer products for McDonald's, the Ithaca 8000 for the grill initiative and Ithaca 8040 for the coffee initiative. Combined sales of these two printers for McDonald's increased 25% from the third quarter of '08, and we expect the rollout pace for McDonald's to continue as the grill initiative ramps up.

Casino and gaming sales were $4.7 million in the third quarter of '09, down 29% compared to the third quarter of '08.

On the positive side, we saw continued strong sales of our international off-premise gaming printers, which increased 49% from the third quarter of '08. However, even with this increase, our overall international gaming and casino printer sales were flat due to continued weakness in the overall worldwide casino market.

On the domestic side, we saw a $1.9 million or 48% decline in our domestic casino and gaming printer sales as our sales continued to be substantially impacted by the downturn in the overall domestic casino market. However, on a sequential basis, domestic casino and gaming printer sales increased by 18%.

Lottery printer sales for the quarter declined 29% to $3.3 million from $4.7 million in the same quarter a year ago due to the timing of orders from GTECH. On a sequential basis, sales to GTECH were up from $2 million in the second quarter of '09. We expect sales to GTECH to remain solid for the fourth quarter of '09 as we complete shipping the $3.6 million order we received in April, as well as other orders from GTECH.

Sales from our TransAct Services Group increased by 40% to a record quarterly high of $4.1 million for the third quarter of '09. TSG sales for the third quarter of '09 were led by a 67% year-over-year increase in sales of consumable and transaction supply products, which is our main targeted growth area for TSG. The largest contributor to this increase was strong sales of inkjet cartridges for our large banking customer, which demonstrates the beauty of our recurring revenue model.

Our gross margin in the third quarter of '09 fell to 30.7% from 34.0% in the third quarter of '08. The gross margin decline was due partly to higher sales of lower margin products, and as Bart explained earlier, the aggressive depletion of our higher cost domestic inventory in the third quarter of '09 as we make the final shift of our manufacturing to China.

With our higher cost domestic inventory nearly depleted, we will now source more than 70% of our products from China, in full force beginning in the fourth quarter of '09. As a result, we expect our gross margin to increasingly improve beginning in the fourth quarter of '09 and into the quarters ahead.

Operating expenses for the third quarter of '09 were $3.7 million, down 6% from $4.0 million in the third quarter of '08, due largely to the successful cost control actions we took in '09 to consciously reduce our spending, especially our G&A expenses.

Our operating income in the third quarter of '09 was $1.8 million or 10% of net sales compared to $1.9 million or 11% of net sales in the prior year quarter. Our operating income and the operating margin were slightly lower due to the lower gross margin, as I explained earlier, and the resulting gross profit, partially offset by lower operating expenses in the third quarter of '09 compared to that of '08.

We recorded income taxes at an effective rate of 33.5% in the third quarter of '09, and we expect our effective tax rate for the full year of '09 to be between 33% and 34%.

Finally on the bottom line, EPS were $0.13 in both the third quarter '09 and '08.

Now looking at our cash flow, we had a very strong quarter. We generated approximately $3.7 million of cash from operations in the third quarter of '09, largely due to our strong operating results and a $4 million decrease in inventories, somewhat offset by higher accounts receivable due to higher sales, especially in the month of September.

Our capital expenditures were approximately $150,000 for the third quarter of '09 compared to $200,000 for the third quarter of '08. We expect our CapEx for the full-year '09 to be in the $600,000 to $800,000 range.

Our overall cash balance increased by $3.6 million to $5.5 million at the end of the third quarter from $1.9 million at the end of the second quarter '09.

We also continue to have no debt outstanding on our $20 million revolving credit facility with TD Bank.

Our working capital increased to $19.2 million at September 30, '09 from $17.2 million at the end of the second quarter '09. And our current ratio reached a near record 4 to 1 at the end of the third quarter, increasing from 3.6 to 1.0 at the end of the second quarter '09. Both the increase in working capital and our current ratio was due largely to an increase in cash in receivables and a decrease in inventories in accounts payable, as we reduced our inventory purchases and worked down our current stock of on-hand domestic inventory for the shift of manufacturing to China.

Our EBITDA for the third quarter of '09 was approximately $2.4 million. This compares to EBITDA of $2.6 million for the third quarter of '08.

Depreciation and amortization totaled approximately $438,000 for the third quarter of '09 and $430,000 for the third quarter of '08.

Non-cash compensation expense totaled approximately $152,000 for the third quarter '09 and $200,000 for the third quarter of '08.

Now let's take a look at our balance sheet at the end of the third quarter. Receivables were $11 million as of September 30, '09, up from $8.8 million at the end of the second quarter '09. The increase in our receivables reflects increased sales volume on a sequential basis, including an especially high September sales month. Even in this difficult economic environment, our collection effort and day sales outstanding continues to be admirable.

Our inventory balance fell to $6.4 million at the end of the third quarter '09, down an impressive $4 million or 38% from the second quarter of '09 as we work to deplete a substantial portion of our domestic inventory prior to the final transition of our printer production to our contract manufacturer in China. Going forward, we expect inventory levels to remain around these levels as we no longer will need to maintain a large amount of inventory of parts domestically.

Overall, we believe we are in the best financial position we have ever been in as a company. Our shift to lower cost Chinese manufactured product is now complete, and we should begin to see its positive effects on our gross margin and decreased working capital needs in the quarters to come.

Our balance sheet remains strong with $5.5 million in cash, no debt, and increasingly strong working capital levels. We now expect to generate at least $6 million in free cash flow during the year, a raise from our previous guidance of $3 million, which should bring our cash balance to at least $8 million by year-end.

We are performing well in this difficult environment, which will put us in prime position when the global economy turns around. And we will continue to maintain our prudent and conservative approach to managing our balance sheet to allow us to exploit new revenue growth opportunities when the recovery is back in full swing.

And with that I'll pass it back to Bart.

Operator, will open the call to questions.

(Operator Instructions). Todd Eilers, Roth Capital Partners.

Congratulations on an excellent quarter. Let's -- I just wanted to start off on the McDonald's side. Clearly the sales there started to ramp in the quarter. Can you tell us maybe how many domestic stores you've shipped to? Are you still shipping one printer per store for that initiative? And do you still expect to achieve I guess the 11,000 total domestic stores by year-end for that initiative?

Yes. We are shipping about -- there's two parts to our relationship with McDonald's. You've got the coffee and beverage printer and then of course the grill printer. And as we've said previously, we would start with the coffee and beverage printer, and then eventually the grill printer would kick in.

There's a good chance that the 11,000 stores will get completed by maybe the first quarter next year. We are shipping a lot of those printers, and it's difficult -- we don't get like an account of -- did a store buy one or two? And remember, the second printer would go by the drive-through and the coffee equipment by the drive-through. So we continue to get orders, and we are expecting those orders to continue all the way through if not the first quarter, the second quarter of next year.

We clearly in the quarter though saw the pickup of the grill initiative, and we expect that to continue for years. That's six to eight printers per store. Now that this -- a lot of the stores domestically got the coffee initiative. Now they are turning over to put the new POS software in, and that takes our new grill printer, so that's going to go on for years to come. So we feel pretty good about the future with both of those printers at McDonald's. It's just a very good, steady, profitable business for us.

That's great. On the -- you mentioned the grill initiative starting to take off. Can you maybe give us a sense of which one of those initiatives with McDonald's contributed the most in the quarter? And maybe what the current penetration rate is on the grill initiative at this point? Whether it's (multiple speakers)

Yes. The grill initiative -- remember, it's six to eight printers per grill versus one or two for the coffee. So actually if you look at the quarter, the grill initiative actually -- we sold more grill initiative printers than coffee printers. That's an effect of six to eight versus one to two. That's going to continue though for years. That's not only domestic, that will be international. That's just going to continue because that's part of the rollout for their new POS system.

Perfect. And then on the banking side, the large order that you'd signed with one of your larger banking customers started to hit in the quarter. Can you give us a sense of how much of that order you booked in the third quarter?

Yes, you know we can't get into the details. But what really surprised us and continues to look extremely positive is what they are doing now with the printer and the bank and how many locations and how many new locations inside the bank that are using the printer. So that order was basically finished in Q3, but we actually got more orders and continue to be shipping banking printers to this customer. And based on conversations we've had with just this one bank, we expect some sizable business next year.

And also next year we are in conversations with other banks about using our technology. So we feel very good about the banking sector right now.

And then how about with respect to the lottery -- obviously the New York Lottery there was a strong contributor in the quarter. I think you said you started to ship those units to GTECH in the middle part of the third quarter? -- if I'm not mistaken.

Yes.

How much does that represent of that large order? Is that about half? Or less than half? I'm just trying to get a sense of what that order can add in the fourth quarter.

It's going to be consistent quarter-to-quarter.

Okay. And then finally on the gaming side, you mentioned some operators starting to talk about a pickup in replacement demand heading into next year. We've heard that some of the larger operators, the Vegas-centric operators like a Harrah's for example, are starting to purchase new slot machines. Can you help us understand, do you guys have -- or refresh us on your relationships with some of the larger operators. Do you have some default status or preferred vendor relationships with some of those? Just to give us a sense of which ones might help you better heading into next year?

Yes. Look, if you look at Vegas, you have two sides of the street. You got MGM on one side and Harrah's on the other side of the street. We clearly have 100% of Harrah's business. And then you can add in Wynn, we have 100% of Wynn's business. In the MGM relationship we don't get much business right now from them.

And then the other casino groups we split -- depends on the floor and the particular casino. Remember there's about 911 casinos in the country, most are not in Vegas. So depending on the area location, there are certain states we have 100%, there are certain states we have 50% or 20%.

I think the real positive news is, over the last three quarters I think I have been very cautious about the domestic casino market. I think I've continued to say that given the issues that these casinos face with not only tough balance sheets but clearly a declining economy and one that really fell off at the very beginning of this year, this is the first time that I've had the opportunity to speak with the investors that we are starting to see light at the end of the tunnel. We are expecting next year to be better than this year. There's no doubt -- from what our casino customers are saying.

On top of that, I think though as much as the domestic -- and the domestic casino market, all we need to do is go from a 40 year replacement cycle to a 20 year replacement cycle and we double the volume. If we ever got to a seven or eight year replacement cycle, which is not unheard of to happen over the next year or two, you're looking at three times the volume that we are doing today. So the domestic casino market, the replacement domestic casino market, has been anemic. And you get into a 10 year replacement cycle from a 40 year replacement cycle with approximately 1 million machines out there, it's just dramatically different.

And for the first time I can talk to the shareholders and say look, we are hearing about budgets getting released, casinos wanting to upgrade the floor. And their balance sheets are getting better. They are seeing -- look, as a company we went to Vegas in March and didn't pay a dollar for the hotel room, and now we are paying for the hotel room. So the casinos are clearly driving cash, and what I said on the conference call is they're going to use it to upgrade their slot floors.

And I think you know as well as I do, you go to a slot floor and you see a Wizard of Oz machine and people waiting to play, and 200 Red, White and Blue machines right next to it and nobody is playing, you get to understand that a good machine drives revenue.

The other thing that's really positive is we are hearing from casinos about printing promotions at a slot machine. And if you really think about a product lifecycle curve, the industry went through significant growth, and now I think we are at the backside of that product lifecycle curve, and that's where advertising and marketing take place, and people are talking to us about printing a promotion at a slot machine. Clearly that's going to use our 950, we're going to be able to sell the dual port technology, and I invite anybody that's going to go to the G2E show to stop by the booth and see it. It's going to be -- we're going to sell that to the casinos. It's exciting for us to hear that casinos are finally talking about it.

And I don't want to underplay this whole gaming business internationally. It is much bigger than people realize. There is a huge thing going on in Italy right now. All over Europe they're talking about gaming machines, upgrading from coins to printers. We are looking at projects all over Asia. I once mentioned that I thought the international gaming business would be as large as the domestic casino market. I truly believe that's the opportunity for us.

So it is a really good time as all of this rolls out over the next year or so. The opportunity that TransAct is finally starting to see domestically plus what we did in the international markets really bodes well for the future for us.

Thanks. That was very helpful. And again, congrats on the quarter.

Justin Sebastiano, Morgan Joseph.

So you said that the lottery sales would be consistent in Q4 as it was in Q3. Are we then to assume it's just 50/50 and nothing is going to go into the first quarter of 2010?

No. We didn't talk to that yet. We got a pretty large order and we announced it and all that. We haven't made any comments about next year. But we get orders every day. So there will be plenty of business for next year.

But that $3.6 million contract that you've shipped, we should expect the same amount in the fourth quarter as you did in the third quarter from that?

I think the volume for the lottery business will pretty much be flat quarter-to-quarter.

Okay. And just with the large banking order, you guys spoke pretty detailed about that, but as far as the follow-on orders, how does that compare to that large contract that you finished shipping in Q3? And that was I guess you expected to finish that in Q4, but (multiple speakers)

Yes. We finished it in Q4. The sales could be a little lower in Q4 than they were in Q3, but what we are looking at for next year could equal -- just with this one bank could equal what we did in 2009, and that's not taking into account the new projects we are working on right now. So we feel pretty good about next year for the banking industry.

And then TransAct Services Group, do you still expect 40% growth year-over-year? Is that something that's doable? Or --? You guys had a great quarter (multiple speakers)

We are shipping so many cartridges right now into the banking industry, it's not unheard of. It's really -- some of it is going to depend on the economy, because remember, we are doing these sales with 20%, 25% decline in transactions in the US. So if we should see the retail environment pick up, it's not unheard of.

The thing you got to realize is with every one of these printers we ship into the banking industry, we get four to six cartridges minimum per printer every year in recurring revenue, and also the maintenance service contract. Now, in certain cases that maintenance revenue won't kick in for two years because we normally have a two year warranty, so that maintenance revenue sometimes doesn't kick in for another year. So all the time we've been shipping these printers we've got service, maintenance revenue kicking in, and then we've got the recurring inkjet cartridge sales.

And what was your share of the ARIA casino floor?

I don't know. I don't even know if they've placed the orders yet.

Yes, they -- I mean they shipped -- pretty much everybody has shipped them except I think Bally, and at this point I think they shipped theirs too.

I don't know. I don't know. With MGM, good chance that we got just a little of that floor.

Got you. And then just quickly on the margin, I know you spoke -- you give a very detailed discussion as to why there was that lift this quarter, and I appreciate that. So is it fair to say that you could get back to that 34% margin level in Q4 and going forward?

I would think Q1 (multiple speakers) I would think, because we are still using up some of the inventory in Q4. (multiple speakers) Now, our goal -- yes. We are taking first shipments from China at the end of this month. So we will have another month, month and a half, and then all of that will start kicking in in the end of November. So you should start seeing those margins heading right back up in Q1 of next year.

Okay. Just lastly, Steve, I may have missed this, but cash flow from operations at the end of the quarter, you said $3.7 million?

Yes.

Okay. All right. Thanks guys.

(Operator Instructions). It appears there are no further questions at this time. Gentlemen, I will turn the conference back over to you for any additional or closing comments.

Once again I thank everybody for joining us on today's conference call. I also want to invite anybody that goes to the G2E global gaming exhibition that's taking place in November to come by the booth and say hello and we will give you a demonstration of the products. And I look forward to talking to everybody on the next call after the New Year. Have a good night.

That does conclude today's teleconference. Thank you all for your participation.