TransAct Technologies Inc (TACT) 2011 Q2 法說會逐字稿

Good day, and welcome to the Transact Technologies second quarter 2011 earnings conference call. Today's conference is being recorded. At this time I would like to turn the conference over to Mr. Garrett Edson. Please go ahead, sir.

Thank you, Jessica. Good afternoon, and welcome to Transact 's second quarter 2011 results conference call. Joining us today from the Company are Mr. Bart Shuldman, Chairman and CEO, and Mr. Steve DeMartino, President and CFO. The format of the call will be a brief business review by Bart, followedby Steve providing details on the financials. We will then have time for questions.

As a reminder, this conference calls contains statements about future events and expectations which are forward-looking in nature. Statement's on this call may be deemed as forward-looking, and actual results may differ materially. From full risk 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, 2010. 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, sir.

Thank you, Garrett. Good afternoon, everyone, andthank you for joining us on today's call.

When I was starting to think about the script for this quarter's conference call, I was excited about all that is going on in Transact and the good results we achieved compared to last year's second quarter. Despite the environment, especially the domestic casino market, Transact performed well. But I would be wrong if I didn't just think of the issues that are going on, what we all watched in Washington regarding the debt ceiling, the subsequent S&P downgrade of the USdebt Friday night, and the resulting significant decline of the stock market. What I call the triple crown of ridiculousness. So let me say, despite all of this, your Company is performing.

Transact has a strategy and plan and we are looking forward. We are growing in our existing markets, where we believe we have a competitive advantage, led by leading technology and products. We are leading with our strategy of launching new world class market leading products,such as our new Epicentral software systems and now lottery printer for GTECH, with more to come, by the way. And we are leading with our strategy of using our cash to grow our business,such is our recent announcement of the acquisition of Printrex, the world's leading printer manufacturer for oil and gas exploration.

To give you some background, Printrex is the worldwide leading manufacturer of high performance specialty printers primarily sold into the oil and gas exploration and drilling market, a brand new market for Transact. Printrex also manufacturers and markets printers for applications in the medical industry and rugged mobile truck-mounted printers. We believe that with the oil and gas demand extremely high throughout the world, there is ample opportunity for us to use our sales and marketing expertise to drive Printrex's growth through its current products, creating new innovative products and expanding Printrex's reach to new geographies.

The deals purchased price was $4 million plus contingent consideration. And when you consider Printrex generated 2010 revenue of $5.4 million and EBITDA of approximately $650,000, we were very pleased to buy such a great business at such a reasonable multiple. Please remember the $4 million in cash that sits in our balance sheet today, that we will use to acquire Printrex would have earned a total of $40,000 this year,thanks to the low interest rate environment we are in. We know have turned that $40,000 into $650,000, and that is before we add our synergies and strategy for expansion. A great use of cash by the team at Transact.

The acquisition should close before the end of September, and we expect it will be slightly accretive to earnings in 2011 net of one-time transaction expenses, and fully accretive of course in 2012.

Also during the second quarter of 2011, we had excellent news in June as we signed the first official contract for our Epicentral print system to be used in the UScasino. The casino is asked that we not give the name until the system is live, as they believe the Epicentral print system will be a game-changer for their market and business, thus we can't identify them just yet. The system should be live before the end of the third quarter, and we will announce the name at that time.

Once live, the Epicentral print system will be connected to approximately 1,000 slot machines at the casino. And on top of that, we will also be replacing 30% of the printers on the floor, with our Epic 950 printer to ensure each slot machine has the full capabilities of the system. We believe this contract will be first of many to come for the Epicentral, and we should see the first contributions to revenue from the system in the third quarter.

In terms of our trial run at the MGM Grand at Foxwoods, there is nothing new to report other than the trial continues to run well, and the extended test is on going, with a steady stream of positive feedback. We have now printed over 300,000 coupons to the Foxwoods customers. Foxwoods has actually become our showcase location for those casinos that want to see how the system works, how easy it was to install, and how easy it is to use. Our expectations for the Epicentral print system remain as high as ever.

Moving on to our second quarter highlights. The 103% growth in sales in our lottery market, led by our new thermal lottery printer, drove Transact to achieve revenues of approximately $17.5 million in the second quarter, up 7% from the $16.4 million in the second quarter of 2010,and drove earnings per share up $0.15 for the second quarter, ahead of the $0.12 in the prior year period. Now let's dive further into the markets.

In our casino and gaming market, revenue was approximately $5.9 million for the second quarter of 2011, down 6% from the prior year. However, digging down further into these results, we experienced a 14% increase in the domestic casino and gaming sales in the face of a struggling domestic market. And we once again we believe we gained ship share during the quarter. Please remember, we were gaining market share last year in the second quarter. So this market share gain this quarter is against market share gains we already achieved last year.

With new potential opportunities in Ohio and Illinois coming online, we are hopeful -- hoping to see a rebounded in the overall domestic market, and we are well positioned to capitalize it when it occurs. I can also say I have spent time in Las Vegas over the last several months, and I have been truly impressed with the crowds. While it will take time for the increased business at the casinos to turn into growing printer sales, we need to see the casino growth to begin this process, and I can say I am seeing it.

On the international side, casino and gaming printer sales were down 16% from the prior year quarter. However, we had an excellent quarter in terms of growth in our Asia-Pacific market. Having just returned from Asia, it is quite impressive to see all the different projects in that area of the world. Macau is packed and more casinos are being built. Korea and the Philippines look very exciting, and as you probably know, a new $5 billion project was announced in Vietnam. This area of the world will continue to provide meaningful business for Transact for years to come.

The growth we experienced in Asia, however, was unable to offset the large orders of Italian VLT printers in the send quarter of 2010.

Moving on to our banking and point of sale markets, sales for the quarters were $2.8 million, down 29% from the second quarter of 2010. The decline came from our POS market, as we fulfilled a large order a retail customer in the second quarter of 2010 that did not repeat this quarter. We continue to generate consistent sales, however, of our thermal printers to McDonald's on the domestic side, and new sales on the international front for their POS upgrade, for their grill and combine beverage initiatives continue. The upgrade program will continue at least through the remainder of 2011 domestically, and we expect it to ramp up further internationally in the rest of the year.

Our banking markets saw increased sales in the quarter, but not on a significant scale. As we have mentioned before, the banking side of the business is project oriented, and there were no new projects in the quarter. Given the stock market issues and what has happened to the banks recently, I'm sure you are not surprised there were no major protects in the second quarter.

Now let's move on to TSG, our transaction services group, which saw revenue increase 1% in the second quarter of 2011 compared with the second quarter of 2010. The increase was mainly driven by 14% higher sales of consumables due to higher inkjet cartage sales for our largest and newest customers, mostly offsetting by lower service revenues.

So to sum it up, it was another solid quarter of Transact as offer growth strategy led to another increase in revenue, gross margin, operating margin and earnings per shape. We continue to innovate, and we look forward to bringing you the news in the ensuing quarters about two new printers that we will be launching in 2012.

Looking ahead, while our next generation thermal lottery printer led us to second quarter -- to the second consecutive quarter triple-digit revenue growth in the lottery segment, the significant orders for that printer has been completed, and we would expect lottery revenues to return to more normalized level in the second half of 2011. At the same time, we believe our casino and gaming market will be stronger in the second half of the yearas a result of our increased market share and planned new openings. Plus, we should see the first contribution of our Epicentral print system revenue to our income statement.

Overall, we expect the second half of the year in terms of revenue earnings will be down from a first half, as it be difficult to match the excellent lottery results elsewhere. However, we are still forecasting overall revenue and earnings per share growth of 2011 verses the prior year.

Our balance sheet remains very strong, with $10.9 million in cash as of June 30, and we continue to use some of our excess cash to repurchase shares as well as for the acquisition of Printrex. Our inventory levels remain stable, and allow us to garner as many as extra orders as possibly on a nearly immediate basis.

The future looks very bright at Transact, and I am proud of entire team. Despite the noise around us, we all remain focus on the implementation of our strategy and plan. Thank you, Transact employees. Job well done. And lastly, I would like to thank our shareholders who continue to support our work and efforts.

At this point I'll turn the call over to our President and Chief Financial Officer, Steve DeMartino, who will share the details of our financial and operational results with you. Once finishes we will both be glad to answer any questions you have. Steve?

Thanks, Bart.

Let's go over the second quarter financials. Our earns per share for the second quarter 2011 was $0.15 on the revenue of $17.5 million, compared toto EPS of $0.12 on $16.4 million in the second quarter 2010.

Now let's discuss the details of the second quarter financial results. As Bart explained, our net sales for the second quarter 2011 were $17.5 million, up 7% from $16.4 million in the second quarter 2010.

During the second quarter 2011 we shipped 56,000 printers, representing an 11% increase in unit volume compared to the 51,000 units we shipped in the second quarter last year. The increase in unit volume was led by the lottery market, where unit volume more than doubled.

The average selling price of our printers declined by 3% to $245 per printer in the second quarter 2011, compared to $252 per printer in the second quarter of 2010. The declining ASP was due largely to sales mix, as we sold substantially more lottery printers in the second quarter of 2011 compared to the second quarter last year, which are and have always been at a lower average selling prices than our other printers.

Now turning to gross margin. Our gross margin in the second quarter increased to 38% from 37.4% in the second quarter 2010, anincrease of 60 basis points. The gross margin increase was primarily due to lower manufacturing overhead expenses on higher sales volume.

Also worth mentioning is that on a sequential basis our gross margin increased from 33.5% in the first quarter 2011. If you recall, our Q1 gross margin reflected the impact of significantly higher sales of lottery printers at lower margins. With sales at GTECH moving to more normalized levels in the second quarter, combined with continues cost control, our gross margin substantially improved to a solid 38%, and now reflects the full effect of our move of our production to China.

Looking forward, we expect our gross margin for the remainder of 2011 to remain at around the Q2 level of 38%.

Operating expenses for the second quarter 2011 were $4.5 million, an increase of 2% from $4.4 million in the second quarter of last year, mainly driven by a restructuring charge of $200,000 related to the closing of our New Britain, Connecticut, service facility. The New Britain facility primarily serviced our first generation impact printer for GTECH, andsince GTECH has replaced just about all of these printers with our thermal lottery printers, we no longer needed to maintain this facility.

Excluding this restructuring charge, operating expenses actually declined by $100,000 compared to the second quarter of 2010. We expect the closing of this facility will result in an annualized cost savings of about $400,000, or about $100,000 per quarter, which we will begin to see in the third quarter this year.

Our operating income in the second quarter of 2011 increased to $2.2 million, or 12.6% of net sales, from $1.8 million or 10.9% of net sales in the prior year quarter. Overall, this highlights the leverage of our business model as our sales rise.

We recorded income taxes at an effective rate of 35% in the second quarter 2011, compared to 36.6% in the second quarter of 2010. Our effective tax rate for the second quarter last year was unusually high, because it did not include any benefit from the federal research and development tax credit that expired at the end of 2009. We expect our effective tax rate for the second (inaudible) 35%.

And then on the bottom line, diluted EPS for the second quarter 2011 was $0.15, compared to $0.12 per diluted share in the prior year quarter. Excluding the restructuring charge, our EPS would have been a penny higher at $0.16 for the second quarter.

Now let's take a look at our balance sheet at the end of the quarter. Cash I'll talk about in detail a bit later. Receivables were $10.4 million as of June 30, 2011, down 29% from $14.7 million the end of the first quarter 2011. The large decrease in our receivables is primarily due to lower sales volume from GTECH in the second quarter compared to the first quarter of this year.

Our inventory balance decreased to $12.7 million at the end of the second quarter 2011, down by $400,000 or 3% from the first quarter, as we shipped our large backlog of orders for lottery printers and consciously reduced inventory purchases in the quarter. Looking forward, we expect our inventories to continue to gradually decrease as we move through the remainder of the year, as we finished our production move to China, and we believe we can now run at lower inventory levels.

Our accounts payable decreased by about $3.7 million, or 42%, to $5.2 million during the second quarter 2011. The decrease was mainly due to a significant reduction in inventory purchases during the second quarter.

In terms of debt, we continue to have no debt outstanding on our $20 million revolving credit facility with TD Bank.

And now looking at our cash flow. Our cash balance increased by $1.7 million to $10.9 million at the end of the second quarter 2011, from $9.2 million at the end of the first quarter 2011. Notably, our cash balance increased even after repurchased $1.3 million of our stock during the quarter.

During the second quarter 2011, we generated about $1.4 million of cash from operations, primarily from a $4.3 million decrease in accounts receivable, and a $400,000 decrees in inventories, as we monetized both of these during the second quarter, offset by a $3.7 million decline in accounts payable.

Our capital expenditures were approximately $390,000 for the second quarter of 2011, including approximately $250,000 of software development costs for our Epicentral print system, as we continue to expand and enhance the functionality of Epicentral. This compares to $340,000 of capital expenditures for the second quarter of last year. And based on our pipeline of planned printer projects and Epicentral software development, we now expect our capital spending for the full year 2011 to be approximately $1.5 million.

Depreciation and amortization total $372,000 for the second quarter of 2011, and $392,000 for the second quarter last year. Noncash comp expense totaled approximately $159,000 for the second quarter this year, and $129,000 for the second quarter last year.

Looking at some of our financial metrics, our working capital increased to $28.3 million at June 30, 2011, from $27.3 million at the end of the first quarter 2011. The increase in working capital was mainly due to the increase in cash and decrees in accounts payable during the quarter. Our current ratio was a very strong 4.6 as of June 30, 2011, and notably higher than the current ratio of 3.2 at the end of the first quarter 2011, mainly due to the significant decline in accounts payable.

Our EBITDA for the second quarter of 2011 was approximately $2.7 million, compared to EBITDA of $2.3 million for the second quarter last year.

And finally, during the quarter we repurchased 108,763 shares of our common stock for about $1.3 million under our stock repurchase program. As a reminder, we are authorized to repurchase $10 million under our current repurchase program through May of 2013. We have up to $8 million remaining available to repurchase as of the end of the second quarter.

Before I wrap up, let me give you just a few quick comments on the expected impact of the acquisition of Printrex on our financials. As we announced last week, we signed an agreement to purchase substantially all the --

Please stand by. Mr. Edson, your line is open. Again, please stand by.

Hello?

Again, please stand by. We will be connected the speakers shortly. Thank you for standing by. Thank you for your patience while we get the speakers back on. You will hear music until we begin again. Please go ahead.

Shareholders, we are very sorry. We are experiencing a rainstorm here, and the phone lines went dead. We believe that you heard us all the way through Steve's presentation. We seriously apologize. But there was not -- we have no idea the phones dropped, so as Steve said at this point, or I said, let's open the call to questions.

(Operator Instructions). Our first question will come from Todd Eilers from ROTH Capital Partners.

Hi, guys. Can you hear me?

Yes, we can hear you. I can tell you our printers work a lot better than the damn phone system here in Hamden, Connecticut.

Not a problem. Wanted, Bart -- firstoff, congrats on another great quarter, given the environment.

Thank you.

Wanted to ask a couple of questions on the domestic business on the casino and gaming side. Obviously pretty good quarter considering relatively soft demand in that markets. I think you guys in the press release said that was up 14%year-over-year on the quarter. Two year questions. Number one, I think last earnings call you mentioned the large customer that didn't buy a whole lot because they had some excess inventory. Did they kind of return to normal purchasing in this quarter? And then second question, how much of the 14% growth came from unit volume increases versus ASP increase?

Okay, is 14% increase was really market share gains. The large OEM that had a difficult inventory position continues to have that difficult inventory position. So the 14% gain had nothing to do with them coming back. So the 14% gain was strictly market share.

On the ASP side, actually, ASP was flat to probably -- I think it was flat, or maybe even down a couple of percentage points. It was unit volume growth across the gamut. Across basically all of our customers. So it was strictly unit volume growth.

Okay. Great, that's helpful. And then I wanted to ask about the lottery business with GTECH. In your remarks you indicated that most of the sales from the new printer there had kind of flowed through there the first half, and you kind of guided second half to be down. Can you maybe comment on what you think that business might look at -- look like, excuse me, relative to maybe last year? Would you expect it to be similar or up or down? Just might be helpful to kind of put it that context as well.

It will probably be up from last year, based on the orders that we have in the forecast that we've received. But down from the first half.

Okay.

But up verses last year.

Okay. And then, I wanted to also ask, you had mentioned on the casino and gaming side, expectations were kind of a pick up on the second half, and cited Ohio, Illinois, some new markets coming online. I wanted to also ask about the potential new international market to get your thoughts. Greece has passed some new legislation which I believe authorized 35,000 VLTs. It seems like it might be similar to the Italian VLT market, which I know you guyed have done very well there. Is this a market that you guyed have looked to participate in? And any thoughts on that kind of in terms of timing and impact?

Yes, so let me give you my perspective, because I just spend a fair amount of time in the international market. We look at -- we basically break out the world into four segments. And next year we think Greece could be a reality, and that means that that's about 25,000 to 35,000 machines. Now, they pass their first level of approvals. There is some issues with the EU in regards to how they set up the deal in regards to locking in the Greek operator to run the whole thing, and we will see how that works out. But I think we all know how important Greece gaining revenue is to their fiscal situation. So based on what we know and the people that we're talking to, there is a likelihood that Greece could happen next year, and it is our intention to play big in that project.

As you know, in Italy, we won a fair amount of that business. And that business, by the way, continues. It's just an approval process that all the manufacturers have to go through, and certain manufactures are still going through that approval process in Italy, so we are still expecting some more business out of Italy, but we are just waiting for those manufacturers to get through their approval, and I think you know some of them yourself.

In Asia, Todd, it is just an amazing market out there. The only way to explain it -- Macau actually needs more casinos. It is that crowded. And you put the numbers together. There are 24 million people coming into Macau today, and there's about 200 million, in a 100 -- [200] mile radius of Macau. So they can't let all the people in. And I was having lunch over at Grand Lisboa on a Wednesday, and after lunch we had a hard time getting on the escalator to go down because it was so crowded. We went to the new Galaxy, which by the way, we won 100% of, and it was packed on a Wednesday afternoon at 2 o'clock.

So Macau is going to open up a couple more casinos, at least two that we know, probably three. You have Korea that is talking about casinos. The largest population of Asians coming into Macau -- the largest growth population is Koreans, growing about 56% a quarter. So Korea is seriously looking at it. Vietnam just approved the first project, a $5 billion project that Ginsi is going to do.

And then we've got the Philippines, which is going through a multitude of growth, both through PAGCOR, which is the Philippine government run gaming organization, and they are going through their upgrade as they compete with what they are now allowing to have private casinos in the Philippines. And of course, the private casinos are doing better than the government controlled casinos, so there's a race to who can put in the best technology, and so the Philippines market looks wonderful. Korea looks very promising. Japan just put out a statement the other day that they are starting to look seriously at it. So Asia just looks very promising. You just have to be there to see the crowds at 2 o'clock and 3 o'clock in the afternoon.

So when we look at 2012, I think we are going to continue to see our international business be very healthy. We have the Greece opportunity, we've got the rest of the growth in Europe. Clearly, the VLT situation in Italy has been a revenue driver for the government. Italy, Greece, Portugal, Spain, all have to deal with their issues, and they are using gaming as one of the ways to get out of it. So we see the international side still being a nice growth driver for Transact.

Okay, great, that's a great overview. And then last question, if I might. Epicentral, obviously you guyed signed the second -- or signed up second customer for that product. Expect sales -- or software subscription fees [per] revenue to hit in the third quarter I believe. Can you maybe give us a update on maybe the sales pipeline or activity recording that product?

Yes, verygood pipeline. It has not changed. If anything it has gotten better. We are working to close the deals. I can tell you that a lot of the casinos have put it into their budget for next year. So we launched it in November. Most the budgets were somewhat -- if not approved, they were getting ready to be approved for 2011. So a lot of the casinos we have been working with are getting into their budget for 2012. It looks extremely promising there. So the pipeline looks great. It's just a matter of us closing.

Again, a lot of it has to do with budget and where -- could they get it the budget this year, or can they -- will they get it in the budget for next year?I feel we will close a couple more this year. We have got a couple in the pipeline right now, and then we should see some more close early next year as the new fiscal year opens up and these budgets are ready for Epicentral. We've been through approval processes at GLI. We have been through approval processes in certain jurisdictions, wherethose jurisdictions requested that we either submit the software or we submit documentation about the software. We have been through that.

We have been through a great success trial at Foxwoods. Printed over 300,000 coupons without a failure. Some of the casinos that are in the pipeline have visited with us at Foxwoods to see the implementation, the installation, how it is working. I thank Foxwoods for all of their help with that. It's just been wonderful. They have been very cooperative and very helpful, so it looks good. It really does.

We have new technology that we will be adding to the system that will be launching G2E. We are really excited about it. So it continues, Todd, and nothing but good, good results and comments from our customers.

All right, great, thanks guys that does it for me. Congrats.

Got any questions about Printrex?

Am I still on?

Yes.

If there's no other questions, sure, I have a whole list of questions I could ask you.

Sure, go ahead.

Well, I guess Printrex -- first off, should we expect the revenue model here to be -- should we assume 100% sales, and then is there any seasonality to their business? They might be a little bit different than your current business?

No. No, there's no real seasonality to that business at all. The interesting part of the business, it's got a very big replacement part to the business, becausethe printers are -- print high volume of paper through it. So there's a lot of repeat business, because the printers break down and they need to be replaced. So there's a fair amount of replacement business to Printrex, and therefore there's not a lot of seasonality to it.

Okay. And then clearly sounds like the stand-alone business that they have, pretty attractive. Are there any -- what synergies might there be by combining both businesses, and how should we kind of look at that going forward?

I'm glad you asked the question. Printrex -- we went to visit Printrex about a year and a half ago, two years ago, and clearly the great recession set in, and we were just a little nervous what would happen at $60 oil. And their business stayed steady, and it stayed steady all the way through and all the way -- so we went back and visited with them, and clearly bought them.

It is a wonderful story about a gentleman that 16, 17 years ago had this idea of making a printer for the oil and gas industry that could tie in their sensors in the down holes when they are drilling for oil and gas, and he built this little business. Bob is literally 80 years old. It was time that he wanted to retire and, in fact, I was there last week as he announced to his employees the sale of the business with tears in his eyes. It is a wonderful story of a business that was run by one guy, small operation, and he built it to, as we said, $5.4 million, $650,000. He has no sales force. He is the sales force. He is the chief guy. And he was able to build this business.

And so you can imagine what happens when we add our sales force now, and our marketing, and our technology. He has three or four great engineers there. So the synergies will be he makes a certain amount of printers, we make a lot more. So the synergies will be to use our volume and get their costs even lower, and we expect that to happen as we get through next year as we integrate the business. There is a technology change coming to the business potentially. Todd, I'm not kidding you, that couple triple the size of the business. It also has a consumables part to the business, and that we would own the consumables part to that business.

And that's why it fits so nicely with Transact. Because we can add our engineering; finish the technology move; get that technology into the industry, if they adopt it -- and we believe they really will. It's very slick technology. It will overnight double and triple the size of the business, and give us consumables, which ourselves -- which you know we have a TSG group here that only sales consumables.

So Bob really liked our Company because we are printer people. It is a thermal printer. We talk thermal printer. He and I talkedbits and bytes and platen issues and paper issues and all that. We know a lot of the same people in the industry. And we can integrate it in our business, use our sales force to expand it, use our sales force in the consumable side to get the consumable piece of the business. As we finish off this new technology that he's been developing, get into the market and change the way the oil and gas drilling business looks at printing.

The other thing, is he has a piece of the business that's in the medical industry, and it's clearly an industry that we've been looking at for a couple of years, so it will allow us to enter into that industry. He does a fair amount of business with one customer. And he also built a printer that actually goes into trucks, and his first application was in the UK, where they printed -- the fire trucks when they went to a fire, could print out what the building looks like so they knew what they were up against as they got to the fire.

Now, again, he does haven't a sales force. So we can take that technology, use our sales force around the world, and start selling and marketing all this technology that he has. So the future looks extremely bright, and it's -- Steve's got his hands full with the integration, Ben Wyatt is going to lead the integration team. We hired Ben to buy businesses and get us into new markets. He got us into Epicentral and now helped us buy Printrex. [Steve] and his team are going to integrate it with the IT and operations and let us do what we do well, which is get the cost out. Mike Kumpf is going to run the engineering side and get this new technology going. And then we will get the sales to expand, get into this new market, and get the new technology out.

So it really does look like a great business addition to Transact. Again, we took $4 million of cash on the balance sheet that was going to earn 40,000 dollars, and now without doing anything it is going to earn $650,000.

All right, Bart, it sounds like a very exciting opportunity. Thanks for the color on that. I appreciate it.

Yes, thanks, Todd.

We will now go to [Michael Pulitzer] from Steven Nicholas. Michael, your line is open. (Operator Instructions). Hearing no response, we will go to Jim Roumell from Roumell Asset Management.

Thank you. Hi, Bart.

Hey, Jim, how are you doing?

Good. Congratulations on a great quarter and continuing to execute.

Thank you.

A couple questions. When is do you recall how many quarters now we have where you have estimated that you have taken share from FutureLogic?

Well, it really starts from when we first enters the market. They had 100% and we had zero. Really over the last six quarters I would say. Back in the great recession as we exit it in 2008 and got into 2009, we decided to focus where we believed we can gain business as the world's economy slowed down. And so we went after the casino market, and really went after the domestic casino market. So we expanded our sales force, we went after the casinos. I would say that it's been now about six quarters of market share growth, and again, the second quarter this year is verses the second quarter of 2010 when we were still -- when we were talking about market share growth. So I would have to say six, seven quarters now.

Okay. Any reason to believe that won't continue?

No.

No?Okay. Anecdotally I was in a casino not too long ago, and happened to be fortunate enough, while a technician was repairing a machine. And it was a casino in Minnesota, and I got to talking to him, and he had both FutureLogic and Transact printers in the slots on his floor. And clearly said the Transact printers were superior, and the FutureLogic's were -- the ticket kind of would get stuck as it comes out, and he had to spend more of his time repairing those. So very anecdotal, but it was nice to hear nonetheless.

We have heard the same story, and not from one casino, but from many.

Yes. And next question, beforegoing to Printrex. 2012, you mentioned two new printers. Are you talking about two new industries?

One will enter us into a new segment, yes. A new market. And one will have an existing market.

Okay. All right.

Yes, we've identify -- Jim, we have identified an interesting opportunity that -- what we're -- when you look at the business, Jim -- when I look at the business, domestically Greenspan said -- what's his name? Bernanke said it today. He sees limited growth in the next couple of years. You can either sit and expect that, or go create demand for your technology. Go create where you can open up a market and people will say, hey, I need that. I need to buy it. And that's what we do here. And that's what we are doing domestically.

When we look at the domestic market, we're looking at where we can take technology and either grow our business, open up the market and grow our business. So we're going to launch some technology that is going to -- we believe this industry needs, going to embrace it, andincrease our revenue. So we are going to create our own demand. And despite what happens in Washington and the freaking nonsense, and not handling the problems, and creating all this junk out there that we've all had to witness, we're going to create business for Transact, and keep creating demand for our printers.

And then we are going to do it around the world. And we're going to do it with Printrex, and we're going to do it with Epicentral. We did it with our new lottery printer for GTECH. The demand for that printer -- thefirst order was more printers than we shipped on average for the last two years, and that was the first order we got from them. So we are taking control of our destiny and creating the demand so we can grow our revenues.

And we are going to take our cash, and we are going to cake our cash and either use it to buy inventory, so we can ship printers when people need it. We are going to buy companies like Printrex, and turn that non-interest-bearing cash into profitability. And we are going to take some cash like we did and buy back our stock, to enhance shareholder value. So we are going -- we've taken control of our destiny, despite all the noise around us andhow silly this whole thing.

Yes. Well, particularly with Epicentral being as big of an opportunity as it is, and I think it would be easy to just kind of get behind it, given the size of the opportunity, I really applaud management for, while that's going on, to still look at new markets, new products and innovating, and it is -- it's commendable.

Let me just move on to a couple others real quick. In terms of Printrex, can you give me a -- some sample clients? And when you say oil and gas industry, are you talking about E&P companies? Are you talking about drillers? Who in the industry are you talking about, and can you provide a couple sample clients?

Schluberger, Halliburton --

All your very large multinational oil drilling companies, Jim.

Okay.

All over the world. 30 --

Worldwide.

Worldwide, Jim. 30% of their business is over in Asia. And this is with one guy in his office. Fantastic guy, whocreated this market, but limited resources, limited capabilities in his own structure. But these are very large companies that we are selling to.

And the nice thing, Jim, is we are designed in, so it's kind of like what happens in our GTECH business, or even our casino businesses. When you get designed in into a piece of equipment like that, you are basically locked in, right? It's difficult to move you out.

He's got to integrate with the equipment. He's got to be able understand the sensors, take that signals, and if you saw what he prints out, it's really really cool stuff. I mean, the sensors are measuring the earth, the soil, how much water, how much density, how much oil, are they hitting it or not, and he is printing this all out. It is very sophisticated stuff. And there's new technology that will even take it to another level. So he's got very very big customers.

I mean it's kind of like us, McDonald's and JPMorgan Chase, and Harrah's need us for their business, and that's the same thing with these large companies that he's selling to.

Got it. Okay, lastly, then, you indicated that third quarter we'll begin seeing some of the revenue from the Epicentral customer -- the paying customer. Will the reporting of that revenue allow investors to see how the software side of the business is being priced?

Well, I -- that's an easy one to answers, because that means I show my customer -- my competitors -- potential competitors how I price them. So, no, I don't think we would show how it would be priced. It's a great question --

Got it. So in other words, you plan on -- which is fine -- you plan on -- we'll be able to see what's happening with Epicentral, butit won't be clear how much is coming from the hardware verses the software side?

At some point, Jim, when it becomes large enough, we will probably it break it out into a separate line item. We'll disclose the software sales separate from the printers sales.

Okay. And to your knowledge --

[Not til then] we won't.

Got it. And to your knowledge effectively no real competition on the server gaming side?

Not the way -- not from what we are doing, no. Not from a standpoint of hooking up a system to the casino's player tracking system and database, beingable to utilize that database to -- and then hooking up through our server manager server port to the printer, and then being able to print that message at the slot machine.

And there's some real science here, because we're not -- we are sending a signal to the printer that is separate and not connected to the slot machine. So in the one and a trillion chance that a player is hitting cash out at the same time a coupon comes in, we have to, with our technology, have to be able to arbitrate that interaction between the slot machine telling it to print a voucher and our system telling it to print a coupon, and being able to arbitrate that -- handling what the jurisdictions want us to do, which is print out the voucher first, and then the coupon, and not shutting down the slot machine, which is the work that we've done with the slot manufacturers.

So as a multitude of integration we have done between the slot systems of the casinos, and the slot machines that exist on the floor today. And we have done that across all of the manufacturers of the slot machines, and can hook up to all of the casinos, no matter whose casino and whose system it is, because of our open API. We even got a project that we're looking at where we are going to tie the system not only into the casino's database, but into retail outlets so that the -- if this all works well, that a customer going into a retail outlet that's buying something can actually get credit towards their account, even get a ticket and then go back in the casino and play. And that's something that nobody has done. There's nothing like that out there.

Got it. Okay, thanks very much. Congratulations again.

Thanks, Jim.

(Operator Instructions). And it appears there are no further questions, so I will turn the conference back over to our presenters for any additional or closing remarks.

Let me apologize one time for the phone system here. It does happen, I guess.

We thank you for joining us on the call today, and we look forward to speaking to you on our third quarter conference call. Again, we appreciate the support of our shareholders, especially during these times. Thank you very much.

This concludes today's presentation. Thank you for your participation.