TransAct Technologies Inc (TACT) 2015 Q4 法說會逐字稿

Good day ladies and gentlemen, and welcome to the TransAct Technologies fourth-quarter 2015 conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions).

I would now like to introduce your host for today's conference, Mr. Jim Leahy of JCIR. Sir, you may begin your conference.

Thank you Chelsea. Good afternoon and welcome to TransAct Technologies' 2015 fourth-quarter conference call. Joining us today from the Company are Chairman and CEO Bart Shuldman, and President and CFO, Steve DeMartino. Today's call will include a discussion of the Company's key operating strategies, progress against these initiatives, and details of the fourth-quarter financial results. We will then open the call to participants 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 risks inherent to the business and the Company, please refer to the Company's SEC filings, including its reports on Form 10-K and 10-Q. TransAct undertakes no obligations to revise or update any forward-looking statements to reflect events or circumstances that occur after the call.

Today's call and webcast will include non-GAAP financial measures within the meaning of SEC Regulation G. When required, a reconciliation of all non-GAAP financial measures to the most directly comparable financial measure calculated and presented in accordance with GAAP can be found in today's press release as well as on the Company's website.

At this time, I would like to turn the call over to Bart Shuldman. Bart?

Thank you, Jim, and welcome to everyone joining us on this afternoon's conference call and webcast.

This afternoon, we reported fourth-quarter 2015 revenue of $12.1 million, adjusted EBITDA of $900,000, and diluted EPS of $0.07 a share. While Steve will review the financials in more detail, I'd like to start by noting that our 2015 fourth-quarter and full-year results demonstrate notable success with the transformation in our business as our efforts over the past several years to expand our product offerings into new high-margin opportunities are beginning to bear fruit.

In particular, we were able to double sales of our AccuDate food safety terminals in 2015 with revenue increasing every quarter, and generated consistent market share gains for our domestic casino and gaming printers. Furthermore, with many attractive growth opportunities for TransAct in 2015, we continue to invest in the most promising of these opportunities. Our Epicentral promotion that we serve and our outlook for continued progress going forward.

First, our AccuDate food safety terminal market has become a key growth driver for the Company, one that we intend to build on in 2016 and beyond. We've all seen the increasing number of headlines from across the restaurant and food service industry with the recent Chipotle news bringing to light the real consequences of inadequate food safety controls. Food safety has never been more important to restaurant operators and their brands, and we believe that we are creating a product line that is a true valued assistant for prep chefs and other back of the house personnel.

In addition, the growing importance of food safety technology in non-restaurant venues has resulted in a total available market for AccuDate terminals that is larger than we first projected. The AccuDate terminal's most basic ability to print food rotation and prep labels from one small compact device is a revolutionary change for kitchen operations. However, our ability to further innovate and expand the functionality of the AccuDate product line to include sending prep items directly to prep chefs, centralizing menu updates and distribution, displaying prep and plating instructions, help with food inventory and waste, and directly connect with central computer systems has cemented AccuDate as a must-have kitchen system. We expect to over time offer different products and technologies to address a number of opportunities in and out of the restaurant industry.

Full-year sales of our AccuDate terminals doubled in 2015 as restaurant and food service operators more fully recognize the unique functionality of this solution and its valuable presence in their back of the house operations. In particular, we were able to generate consistent sales for the terminals with sequential increase -- with sequential increases in each quarter in 2015.

The strength of sales in the fourth quarter was driven in part by a rollout of the AccuDate 9700 by a new major quick service chain operator who has made our product a cornerstone of their food preparation processes. In addition to the 9700, the AccuDate PRO continues to garner a strong backlog of trials across all types and sizes of different industry participants following its introduction in May of 2015. In the fourth quarter, we sold our first order of AccuDate PRO terminals.

As mentioned last quarter, we continue to work on a new AccuDate food safety terminal that will amplify the features and functionalities of the AccuDate PRO while creating yet another exciting opportunity for TransAct. While we will have more to say about this new product in the coming months, we believe that the unique new software enabled terminal under development is a significant step forward in our development efforts for this product line.

TransAct is moving further into food prep, food service, restaurant, and other venue operations as we believe our efforts in this market will allow us to further transform the Company and generate higher margins through the delivery of integrated high tech solutions. And as I have previously mentioned, we are developing a recurring revenue model for our AccuDate terminals.

Second, and despite an industry environment that remains somewhat challenged on a global basis, our casino and gaming business continues to make great strides, particularly in the domestic marketplace. Our focus remains on the opportunities for Epicentral and the further expansion of our domestic casino printer market share. TransAct's industry-leading Epic casino and gaming printers, led by our flagship Epic 950, delivered an unmatched feature set and unbeatable reliability, traits that when combined with our commitment to the highest levels of customer support have allowed us to gain share and grow this business. In particular, we saw a 40% increase in our sales of casino printers into the domestic marketplace in the fourth quarter of 2015.

At the same time, Epicentral is the industry's only solution that allows operators to directly target players in a real time while they are playing at the slot machine or gaming device, helping to drive increased player visits and incremental play.

In an environment where operators demand a clear value proposition and return on their investment in new technology, Epicentral continues to gain traction with casino operators. As announced last week, Epicentral recently went live on approximately 1,900 electronic gaming machines at Foxwoods Resort Casino, helping to power the new FoxPerx slot rewards program. We are extremely excited to work with Foxwoods, particularly given that they were one of the first casinos to show interest in our Epicentral software system.

I would also like to say that just today, driving to my office, I passed a billboard promoting Foxwoods and their bonusing rewards. We are also hearing radio ads regarding the FoxPerx program here in Connecticut. I cannot tell you how great this is all to have Epicentral running in our state of Connecticut. This is the first Epicentral installation to go live in 2016 and the start of what we expect to be a good year for Epicentral sales.

Furthermore, our sales efforts have benefited and will continue to benefit from the recent agreement to integrate Epicentral with Aristocrat's Oasis 360 slot management system. The systems will be fully integrated and we are now working directly with Aristocrat's engineering and sales teams to bring this unique feature set to their large base of North American casino operators.

Third, lottery sales declined in the fourth quarter as our key customer, GTECH, made a minimal contractual buy this quarter while the year-ago fourth-quarter period benefited from a one-time order for a custom version of our printer to satisfy the specifications of a major European lottery operator. With ongoing sales to GTECH and the opportunity for TransAct to sell our new Epic 3000 lottery printer to all global lottery system providers, we expect to see continued health in this market in 2016.

Fourth, sales of our Printrex line of printers to the oil and gas exploration market remain extremely challenging. It is likely plainly evident that current oil prices have had a real dampening effect on exploration and drilling activity around the world, and we do not see any significant changes in the environment in the near term. We continue to manage the Printrex business for profitability, but acknowledge that this business is not a key near-term focus for TransAct. That said, we fully believe that this business will come back at some time, and when it does, it will again prove to be very beneficial to our operating results.

Finally, our mobile printer, the RESPONDER MP2, has all the signs of being a long-term opportunity for the Company. We continue to explore this new mobile-to-mobile market and are positioning the RESPONDER MP2 as a prime beneficiary of a market where machines and vehicles are becoming increasingly connected. But, given the many opportunities for our Epicentral and AccuDate products, we are directing the efforts of most of our engineering and sales and marketing personnel towards the casino and food safety markets in 2016. There are just too many opportunities.

As we prepared to enter 2015, we knew that a sales focus was imperative, particularly as we ramped up awareness of our exciting new product offerings, particularly those that address the casino and gaming market and the food safety marketplace. I am proud to say that the TransAct that enters 2016 has been transformed into an organization that is prime to benefit from an unmatched casino and gaming printer solution in our Epic 950, a wholly unique Epicentral promotion and bonusing system, and a growing portfolio of AccuDate food safety terminals that are unlike anything available on the market today. Perhaps most importantly, these product offerings have enabled TransAct to dramatically reshape our margin profile and further improve the profitability of our overall business.

I'd like to take this time to thank the entire team at TransAct whose efforts have enabled our Company to innovate, expand and drive growth in some exciting new markets. I also want to thank our shareholders who continue to support our ongoing efforts.

With that, I'll turn the call over to Steve for a deeper review of the 2015 fourth-quarter results. Steve?

Thanks Bart. Good afternoon everyone.

2015 fourth-quarter net sales were $12.1 million, down 2% from $12.3 million in the year-ago quarter. As Bart pointed out earlier, Q4 results reflect strength in our food safety and domestic casino printer markets which was offset by weakness in the international casino printer and global oil and gas markets as well as lower lobby printer sales.

Looking at our sales by market for the 2015 fourth quarter, (technical difficulty) growing by $1.8 million or 85% year-over-year. Sales of our food safety terminals increased 57%, driven primarily by a successful rollout of the AccuDate 9700 with a large national quick service chain in the quarter.

Additionally, we saw domestic and international POS and banking printer sales double thanks to very strong performance from our Ithaca 9000 POS printer with McDonald's. In fact, we experienced sales growth at McDonald's throughout all 2015 as they accelerated rollouts for multiple initiatives that all use our printers with sales especially accelerating during the fourth quarter. We believe our food safety and POS businesses will both remain key growth drivers for us in 2016 and beyond, and believe our food safety business in particular will benefit from continued penetration of our AccuDate 9700 and AccuDate PRO terminals.

Casino and gaming sales were down approximately $500,000 or 10% year-over-year to $4.5 million. Similar to the third quarter, our results again reflect strong domestic sales. In fact, the 2015 fourth quarter represents our third consecutive quarter of domestic printer sales growth.

The increase in domestic printer sales was offset by weakness in sales of casino and gaming printers to international markets. While still early, international casino and gaming sales are off to a good start so far in Q1, which bodes well for improving sales as we progress through 2016.

Lottery printer sales were down 57% to $700,000 from $1.6 million in the fourth quarter 2014. During the 2015 fourth quarter, GTECH made only its minimal contractual buy while the fourth quarter 2014 benefited from GTECH's one-time purchase of printers for a European lottery win that didn't repeat. Overall, we believe our new GTECH contract and our recently introduced Epic 3000 lottery printer for the global lottery marketplace positions us well for 2016.

Our Printrex brand of oil and gas and medical and mobile printers generated revenue of approximately $200,000 compared to approximately $900,000 in Q4 2014. Oil and gas prices remain at extremely depressed levels, which has had a severe impact on drilling activity among our customers. We continue to believe that Printrex sales will remain under pressure in 2016 until oil and gas prices rebound to more normalized levels. However, while we wait for the rebound, we have taken the appropriate steps to reduce costs and align our cost structure with the current revenue level.

Finally, TSG sales were up 2% year-over-year to $2.7 million as an increase in sales of spare parts to GTECH was largely offset by a significant decline in sales of Printrex color printer consumables related to the ongoing weakness in oil and gas prices.

Gross margin for the fourth quarter 2015 improved to 41.5%, 160 basis points higher than our 2014 fourth-quarter gross margin of 39.9%. And for the full year 2015, gross margin reached 41.9%. This represents the highest annual gross margin TransAct has ever recorded in our almost 20-year Company history and a testament to the successful transformation we are making towards our higher value and higher margin new products.

During Q4, our gross margin continued to benefit from a favorable sales mix of high-margin food safety terminals as well as a decline in sales of lower margin lottery and medical printers. We believe this trend towards higher gross margin will continue in 2016 as our team focuses on the high-margin Epicentral and AccuDate product lines and sales of these products grow and become a larger portion of our overall sales. Over time, we expect our gross margin to continue to climb through the mid to high 40% range, and could even eventually reach 50% when our new products fully take hold.

Total operating expenses were $4.6 million in the 2015 fourth quarter compared to $9.7 million in the 2014 fourth quarter. Excluding $5 million of legal fees and settlement expenses related to the now settled Avery Dennison lawsuit in the prior-year period, our operating expenses in the quarter were down by about $100,000, or 3%, year-over-year as we continue to benefit from the cost reduction actions we initiated late in 2014, which have saved us in excess of our $1 million target during 2015. However, as Bart mentioned, beginning in the fourth quarter and moving into 2016, we are making targeted investments in engineering and sales and marketing to support the two largest growth opportunities in our business, Epicentral and our line of AccuDate food safety terminals.

Engineering design and product development expenses for the fourth quarter were up $237,000 or 27% year-over-year as we invested in additional staff to further enhance our exciting Epicentral and food safety opportunities, including the hiring of a Senior VP of Software Engineering.

Selling and marketing expenses for the fourth quarter were down $105,000 or 6% to $1.7 million largely due to a shift in timing of expenses for our largest tradeshow, G2E. In 2015, G2E occurred in the third quarter while, in 2014, the show straddled Q3 and Q4, which allowed us to split the show expenses between the third and fourth quarters.

G&A expenses for the fourth quarter were $1.7 million, down 13% from the year-ago period. G&A expenses for the 2014 fourth quarter included a severance charge related to our cost reduction initiatives that resulted in our achieving more than our $1 million of targeted cost savings during 2015.

Operating income for the fourth quarter 2015 was $481,000 or 4% of net sales compared to an operating loss of $4.8 million in the year-ago quarter. The operating loss in the 2014 fourth quarter included approximately $5 million of legal fees and settlement expenses related to the Avery Dennison lawsuit that we incurred in that period.

Both GAAP and adjusted diluted EPS for the 2015 fourth quarter were $0.07 compared to a GAAP loss of $0.37 per share and adjusted EPS of a positive $0.03 in the year-ago period. Adjusted EBITDA for the fourth quarter of 2015 was $944,000 compared to $628,000 in the fourth quarter of 2014.

Turning to the balance sheet, we ended the quarter with $4.5 million in cash and no debt outstanding. We returned approximately $600,000 of capital to shareholders during the 2015 fourth quarter through our quarterly cash dividend of $0.08 per share. For the full year 2015, we returned approximately $3.5 million to shareholders through the combination of our regular quarterly dividends and share repurchases made in the first quarter.

Earlier this week, we announced that our Board of Directors authorized a new $5 million share buyback program, replacing an earlier program that expired last summer. This, in addition to our regular quarterly dividend of $0.08 per share, is a clear demonstration that TransAct remains committed to the return of capital to shareholders even as we continue to invest to support growth in our most exciting business opportunities.

As Bart mentioned, our focus for 2016 is to drive sales of our Epicentral system into the global casino market as well as sales of our food safety terminals. Though we expect continued headwinds in the oil and gas market, and declining sales of our legacy POS and banking products, we do expect to see rising gross margins as sales of our new higher margin products take over. Overall, we expect 2016 to be another solid year for TransAct.

At this point, I'd like to give the call back to Bart for some closing remarks.

Great job Steve. Thank you. Before opening up the call to your questions, I want to emphasize that, in 2016, it is a year of great opportunity for TransAct. We are extremely excited by the growing momentum for our Epicentral system as demonstrated most recently by the newest deployment of Foxwoods and our agreement to integrate with Aristocrat's slot management system. And of course, our growing line of AccuDate food safety terminals position us to benefit from a multiple industry environment where an increasing focus on food safety is paramount.

The TransAct of today is much different from just a few years ago, and well positioned to benefit from our efforts to enter what we believe is a very lucrative opportunity in food safety. This in turn diversifies our product portfolio that will drive higher margin based on software-driven products that will serve us well in the years ahead.

Finally, I want to mention that I will be presenting at the 28th Annual ROTH Conference in California on Monday, March 14, and will also be available for one-on-one meetings on Monday, March 14, and Tuesday, March 15. For anyone attending the conference, if you're interested in meeting to hear more about TransAct and the exciting opportunities we are executing on, please reach out to our IR firm, JCIR, at 212-835-8500, or by email, which is easy, tact@JCIR.com. We will be happy to work with the conference coordinators to schedule time for us to meet.

With that, let's open up the call to your questions. Operator?

(Operator Instructions). Kara Anderson, B. Riley & Company.

Thanks for taking my questions. I guess, first, starting with the lottery segment, I guess I was a little surprised to see that come in at their minimal contractual rate. And I'm wondering if you could comment if that was -- how that aligned with your expectations. I believe we had thought that it would be at least up year-over-year, but certainly a decline from the first half of the year.

GTECH is just lumpy. We have no control, Kara. They give us a yearly order and then move things in, push things out, add to it like last year. Actually, in 2014, they came to us with a special project that we were literally able to design in four or five weeks, and then ship in the month of October/November. So we really have no control. And I guess that's what's great about our strategy in regards to these new markets, because we really want to make GTECH on the lottery side, granted that we have them on the casino side, we want to make them less and less a percentage of our business as we grow the revenue and get more consistent revenue with our new products, because there's nothing we can do to control it. And the other thing is with our ability to sell our Epic 3000 printer into the lottery market, hopefully we will get more customers to buy our printer and maybe offset some of the lumpiness of GTECH. But truthfully, Kara, it is out of our control.

Have they given any indication as to what 2016 might look like?

Yes, I think it's going to be a good year.

Do you think -- given the fact that you're going up against a very tough comp for lottery in 2016, is it possible that we don't see revenue grow year-over-year, total revenue?

Yes, what we would rather do, we can't get into each market and give you projections. We just don't. So, we are not going to be able to do that for each market. You started asking about each market and whether revenue is going to be up or down. We just don't give projections.

Again, if you look at what we are doing, the lottery just happens. GTECH comes in and they give us an order and then orders come in, some extra orders come in, some things get pushed out. We've got a sales plan to market our new Epic 3000 into the lottery industry. And we feel very good about the printer. The printer is known as the best in the lottery industry. So we'll just see how the year works out.

I guess I was asking as a total, on a total net sales basis, given the comp being difficult from lottery, not each individual line or segment, whether or not that can be overcome by growth in the other segments. That was the question. But I'll move on.

Given the fact that lottery was much smaller as a percentage of total revenue versus Q3, what specifically did we see in Q3 versus Q4 that drove the gross margin to the 44% range and not in Q4 did we see a similar sort of level?

I'm not sure which period you're comparing, Kara.

I'm pointing out the fact that lottery is typically a lower margin business as I understand it.

Yes.

And we saw that level be much higher in Q3 than Q4, but yet we saw a much higher gross margin in Q3 than in Q4. And I'm wondering if you can comment as to why that was.

Yes, I don't have it in front of me but I'm sure it was the mix. The answer is always the mix. I believe we did have a very high TSG quarter in the third quarter, and those tend to be at higher margins.

Okay. And what can cause TSG to be meaningfully lumpy from quarter to quarter?

Things like Powerball hitting $1 billion. It has to do with our lottery business. We make a fair amount of money on our consumable products -- not on consumables, I'm sorry, our spare parts business with GTECH. And when you have things like -- depending -- if they are expecting to win a contract and we have old printers out there and the contract gets postponed and they've got to keep our old printers going, then they will buy extra spare parts that they weren't expecting.

Powerball clearly hitting $1 billion drove -- our printers printed an amazing amount of ticket, and therefore we will see some extra spare parts orders. So, it's real -- again, that's also lumpy. It's also based -- a lot of our spare parts or a lot of our TSG business is spare parts, and a fair amount that is GTECH.

What we also seen, though, and I don't think it should be any surprise, is that our oil and gas consumable business is down. As drilling is down in the printers are used less, we get less consumables. And we were building a pretty nice consumables business in the oil and gas business over the last couple of years, especially with our color office printer. But it shouldn't surprise you that that business is down.

Okay. And then just hitting on the buyback, could you speak about expectations for the new authorization, if we would expect to see some of that taken off the table in 2016?

We wouldn't announce it if we weren't going to do it. So we are really pleased that the Board approved it at the last meeting, which just happened about a week ago. And we don't announce a buyback without doing it. I think, over the last couple of years, we've bought back over a third of the stock. I think at one point we were at 11 million shares and now we are down to 8 million shares or less. So, I think we've done a really good job at using the cash flow of the business to return capital to shareholders.

We had a good 2015. And despite a lawsuit where we ended up paying Avery Dennison quite a lot of money, we ended the year with a good amount of cash. And based on our projections for this year, the Board supported us in deciding to do a buyback in 2016. And that will complement the $0.08 a share in dividends that we will pay in 2016.

One of the things that's important to us, Kara, is we are going through a what could only be described as a dramatic change at TransAct. We are becoming a software driven company. The engineering team has changed dramatically. The sales type of people that we have are changing, the marketing. And we invented a very what we consider to be lucrative and great opportunity in food safety. And it takes time; it takes time to get something like that done. We are creating a market, a very large market. And while we do that, to us, Steve and I and our senior team, we feel it very important to at least return some money back to shareholders as we go through this.

If you were to look at TransAct and where we came from and where we are going, we were a big supplier a point-of-sale printers in the marketplace that now has multiple Asian competitors just driving the margins down. We've exited that business. We were in the banking business, and other than the banks spending a lot of money on security and cyber security, they are not spending much money on infrastructure. And we've taken the time and the effort to really move into these new markets.

And as we moved into food safety, literally every door we went through brought another new opportunity to us. So, as Steve said, we're going to invest even more into the business because of the large opportunities that have been shown to us. But as we do that, we feel it's very important to give something back to the shareholders. We do believe that this is going to turn into a great growth opportunity. But while we go through it, and like in 2015 where our earnings per share went up a lot, we returned a fair amount of money back to shareholders and we're going to do the same thing in 2016.

Okay. Thank you.

(Operator Instructions). Phil Bernard, Eilers & Krejcik.

Thanks for taking my call. First question on food service. Looks like that came in very well. With regards to the new QSR customer, I was just curious if you could provide any additional color with that, maybe what sort of contribution that had to the existing quarter and how you expect that to progress in 2016 and what that implementation looks like.

Yes, so it was a great win. And I can't tell you the customer and all that, but let me tell you a little about it. It involved a bunch of labeling, not only food safety, but labeling some of their grab-and-go type of food items. And it streamlined their processes so much that they believed that the payback would be in less than 12 weeks. So they offered their franchisees to roll it out. They helped pay for it. That's how much they believed in it. And again, it goes to my talk about how the terminals are turning into more than just labeling, food rotation labeling. The customers are seeing the terminal as now a process benefit to the back of the house, and even part of the front of the house. So in this case, they actually helped the franchisees pay for it. It was a great rollout. We expect more this year. We are not done. We expect others for other companies, including some of our PRO terminals, which is getting a fair amount of trials out there. But again, when I talk to the sales team and they tell me why they rolled it out, how they rolled it out, and the fact that they are willing to put money behind it, the corporate was willing to put money behind it with their franchisees, just tells you the benefit that we are starting to provide the restaurants.

And again, as I said in my talk, we are not only talking to restaurants now. The amount of opportunities that people are coming to us with because of what we are doing with the terminal on the software side is opening up the doors to not only the restaurant industry.

Got it. Within the restaurant industry, is the focus going to be on QSR?

No, no, no. Look, QSR is a good opportunity for our 9700, if they are doing -- like a McDonald's. McDonald's has a limited menu, a couple of items and all that, but as we move further into the quick serve, the fast casual, the casual restaurant, we are really seeing the conversations about how to make the terminal an integral part of their operation -- inventory control, food waste, training. There is so much being talked about, so much that we are working on that's so much different than we've ever done before.

So, the 9700 is a great application for, in today's business, where they are just doing the rotational labeling. It wouldn't surprise me eventually that some of the quick serve eventually migrate to a more integrated solution as they look at that.

If you really look at what's going on in the restaurant industry, look at what happened to Chipotle. There are two aspects to food safety that I see. The first aspect is they've got to control the food coming in. They've got to understand where it's coming from, where it was grown, when it was grown, how it was transported and make sure when it comes in the door, it's right. It's safe. It's healthy and they can use it to feed their -- to provide their customers. Then we take over. Then what we see is the opportunity. Once it comes in the door, until it's prepared and sold to the customer, that's where we come in. And we see that opportunity as a very large opportunity in the restaurant industry. And that's where our PRO and other terminal will come in to really provide the solution.

So, the 9700, if you look at it, is really good for the quick serve, because they are bringing some food in, they bring in some hamburgers, they bring in some bun, they bring in some lettuce, tomatoes, some cheese, boom, they are done. But once you get into more complicated menus, more food, you save a restaurant 1% on food waste, or you start letting them know what the true usage of food is in the restaurant, and you've hit an amazing sweet spot with the restaurant. And so the terminal becomes such an integral part, and potentially not just one per restaurant, you could have one per station.

So there's just so much that we see, and the customers that we are talking to and the people that are providing us the integration that we are talking to. So when we entered the market, look, we entered it with McDonald's. McDonald's was -- I mean, first of all, they are a fantastic customer of ours. Congratulations on their turn around. Their turnaround involves a lot of printers and a terminal, so it's been great business for us. But they are more of a simplified customer. But that's what we knew at the beginning, right? They invited us in. We worked with them. We provided a terminal to them and then went out selling it.

But once we started talking more and more above the quick serve to the casual, fast casual, boy the conversations just grew and the market just opens up. And then you go into these other markets where people have found us or we have found them, and they see this terminal and say, wow, that can actually help us in our type of business.

So, this whole food safety is just really growing. Look, when you have headlines in the New York Times that a restaurant chain is shutting down for a half a day because of food safety and training, you know that this is a big issue and a big opportunity.

Oh, yes, no, it took over the social networks as well. No, that's interesting. so since you guys are looking at attacking such a large market, QSR, and fast casual, casual, do you intend on approaching a lot of these customers over 2016, and do you think your sales force is sufficient to approach those markets as is?

Yes, look, we have invested in it. We have invested in it. We've moved a lot of people around the business, so where we took people out of the POS and banking industry, we put them focused totally on the food safety market. We are working with certain customers that they will become our customer when we provide technology to their customer, so it's kind of the arm-hand theory where we are the arm and then their sales people help sell for us.

We've got a great partner in Daymark, our distributor, who actually has labels and helps us also. So we do. We do.

Look, we've got engineering work to do also though. Phil, there is some engineering work that we've got to do, because what we are being asked to, which is pretty cool, is not something we have done before, and it wasn't in our product plan for the AccuDate terminal, or terminals. So we've invested in some engineering to do it. We have some high hopes for it because of what they are telling us and we hope to have more information.

We're also building a recurring revenue model with it because, as we get more into the software side of the business, it's going to be sold with potentially maintenance contracts. It might even be sold on a lease basis, not a sale basis, because kind of like your phone, you are always getting updates. So all of this is being put together internal right now with some pretty smart people. We hired a senior sales guy to come in, and he is very smart. And he's done a very good job at laying all this out. It takes time, but he's put together all these programs that will really drive a recurring revenue business for us in the food safety business.

And then we've got these other markets that have come to us and we are working in. And that has some engineering that needs to be done, because that's a whole different opportunity, all around food though. Everything is around food and labeling and safety and production and things like that. So we are going to keep going.

I've got to tell you, Phil, we are looking down the long road and we are seeing a real opportunity out there. And we've got the patience now because we see the numbers. We see what they are talking to us about. And it will -- some of this will take some time as we develop it, but we see it because they are talking to us about the numbers. They are talking to us. They tell us how many customers they have and how many terminals that can be and if it's one per store or three per store. And we look at it and say, okay, we put the team together and say go develop it, because the opportunity is that large.

Got it. Got it. No, it looks like a massive growth opportunity there for you guys.

Changing gears over to casino gaming, I was wondering if you could speak more to the -- some of the difficulties that you are facing in the international market, and whether you see that as more a function of macro weakness or whether there are some key clients or customers that were potentially lost in the competitive process?

Yes, good question. No, no competitive issues, none at all. It's Europe. I mean no doubt that Europe had some structural issues around the continent, and that affected our sales. I think the nice thing is we are seeing a pickup already in the first quarter, and while that doesn't tell us what the whole year is going to be like, at least it gives us a smile to say, okay, maybe it's going to return.

Look, we've got a great presence in Macau, great presence. You can look at the openings and see that we won just about every one if not every one. There's only a few customers in Macau that don't use our printer. We've got a great presence in Europe. It's just structural. It's just the market.

Got it. So with some of the openings coming in 2016, there may be a slight rebound there. On the domestic side, where are you seeing most of the strength? Is it commercial, tribal, a little bit of both, new openings?

You know, look, Vegas has had a nice rebound, so Vegas has been very good. The locals market has been very good. But you know what's happening, as we've always said, Epicentral pulls 950 business. Epicentral pulls the printer business. And as the casinos came out of a very difficult Great Recession, they are now starting to think about, okay, they are feeling better about their business. I think you guys are writing on it. The locals market is improving. Things are looking better. And they are now saying, okay, where should I invest? And we think we are going to have a good year with Epicentral. And Epicentral has to talk to a TransAct printer. So Epicentral is also pulling through printers for us. So, it's kind of a combination of a better market, but also the fact that Epicentral is getting a lot of attention and they have to get ready for it.

We have one customer in particular that, when they opened up, they opened up with our competitor. And I'll quote the global market because I don't want you looking whether it's US or whatever. And they've decided that they want to go with Epicentral. And it's not a small casino. And they've made the determination that, over two years, they've got to replace every printer. So that is incremental business to us, right? It's not a new machine getting out there. It's a new printer replacing an existing printer. So that's the kind of stuff that we hear and that's the kind of stuff that we are getting. So, it's a combination.

Got it. Got it. That's it for me. Thanks.

Okay, Phil. Thank you. Great questions. Thank you.

(Operator Instructions). Larry Haverty, GAMCO.

Hello Larry.

(Operator Instructions).

Can you walk through (multiple speakers) at Aqueduct on where Epicentral is or isn't? And then why is Foxwoods likely to be different? Because you don't talk about Aqueduct at all. I'm just wondering what's going on.

Oh, because Aqueduct is done. Oh, I'm sorry Larry. Aqueduct is done. They did the first -- there's two floors in Aqueduct. And Aqueduct was, in all fairness, Aqueduct was a much different installation, because it's connected to the lottery. So we have multiple systems that we have to talk to. It's not class 2; it's not class 3. While it's a casino, it's tied to the lottery system. So Aqueduct took a little longer to install because we had to talk to not only the lottery, but the owners of Aqueduct. The guys that, as you know, who do aqueduct had their own system and their own proprietary stuff that we had to work with versus Epicentral has been hooked up to Bally and IGT and Aristocrat and the other systems out there. But it's running; it's going. It's part of their kiosk system. We've turned every slot machine into a kiosk. No longer do they have to get up from their machine and go to a kiosk to get their promotions; they get it right on the machine. And the only reason why we don't talk about it is because it's done. The only thing we are looking forward to is if they want to do the second floor, which would be another 2,500 slot machines.

Foxwoods, on the other hand, is a standard type of casino operation for us. It connects to a Bally system. It's running 1,900 machines. They're doing some wonderful work there. It's going now. You can go on their website and look up FoxPerx. They're advertising here in Connecticut. I don't know if you're in Connecticut. But like I said, today I saw a billboard, we hear it on the radio, and it's a very typical installation. But truthfully, once the installation is done, Larry, we'll talk about the next one and the next one. It's not for us to talk about what each casino is doing because that would be unfair to them. It's a competitive advantage on how -- you know, Epicentral runs any way they want to run it. There is no standard promotions. They decide how to run their promotions. They decide what type of promotions they want to run. And we just don't talk about it because they don't want us to. We've had casinos do many different things with the system. We've got a casino in London doing different things, we've got casinos down in Alabama doing different things, so we just don't talk about it. That's all.

So, are you getting recurring revenue from Epicentral? And if so, what's the magnitude? Where was it at the last couple of years? Where is it going this year?

Yes. So, we have a maintenance agreement. We don't talk about the pricing, but it's -- we have a maintenance agreement. And that allows the casino to get all the updates from us and technical support. So as we install more systems this year, the maintenance agreement will start the second year. So what you will see is we will book the revenue this year for the new installs, and then 12 months after we close the order, the maintenance fees will start. So, we will continue to build that recurring revenue.

You could have Epicentral in a casino, and they are not actually printing reward tickets at the machine.

I'm not sure I understand that, Larry. Can you maybe help me understand that a little better?

The machine prints the ticket and you put your card in, but you have to go over to the kiosk to get the reward.

No. That's not how our system works at all. The reward comes at the machine. So our system connects directly to our printer in the machine.

The whole beauty of Epicentral is not to get them to leave the machine. So if you look at Aqueduct, before our system went in, if they wanted to get their promotions, they had to go to a kiosk. Now, with their card in the machine, they get the promotions at the machine. So, no, that's just the opposite, Larry. Once the Epicentral is in, then they run their promotions to get the player to play more. And once the player has hit their limit or they believe they're done, they give them promotions to come back at another time. So all of the promotions are happening at the gaming device. And the reason why I say gaming device is the industry is going to change. Right? We all believe that the Millennials don't like slot machines, but they are going to like different types of games. And Epicentral will be on those terminals, whatever they are. We even have now a printer that goes on table games so that Epicentral can run at the table games. What the beauty of Epicentral is is to keep the player at the place that they are playing.

I need to have a conversation with you offline, Bart. I'll get back to you. Thanks.

Okay. Thank you.

Howard Rosencrans, Value Advisory.

Hi Bart, Steve. I'm certainly very impressed with the strides you made in 2015 and certainly the improved profitability and the food service opportunity sounds very, very exciting. A few more questions about it, although we certainly appreciate the color. I see you cite McDonald's and the printing work you've done for them. Should we be concerned that that segment will be lumpy if you have a fall-off in the printer business with McDonald's?

And let me just ask you the other couple and I let you respond. Is the food service safety business, is that sort of in its infancy right now with what's going on with Chipotle and everything else? And are you seeing a lot of competitors when you go to bid, or why do you have a better mousetrap vis-a-vis the other guys? And where do you see the industry and what is sort of the competitive landscape? And then the question about McDonald's. Those are my key questions. Thank you.

First of all, it's been a while since we talked, so it's good to say hello again. So, from the McDonald's standpoint, you've got to separate the two businesses. The point-of-sale business that we do with them is in the front of the house, and that's actually done by a different group in McDonald's. The back of the house is really controlled by their operations team, and they are focused on the food safety side. And so it's two different groups within McDonald's. It just happened that one project that they are working on, the front -- the back of the house and -- how do I say this? McDonald's is going through a dramatic change in their menu items and things like that. And one of the things that they wanted -- want to do, they're concerned about labeling. And so what they decided to do was make sure that they have a 9700 when they roll out the test for the franchisees that will roll out the test.

But the printer, the true printer side of our business is totally separate than the food safety side. So whether the printer business, the point-of-sale business is lumpy or what happens there will not affect the back of the house. They are two different groups.

From a food safety side, you could call it the infancy of the market because everybody that we talk to, Howard, is doing manual labeling. And we've got pictures after pictures of going into restaurants and seeing the books and books that they have in the back of the restaurant where they've got to take it out, look up the menu item, or look up the prep item or look up the lettuce or the vegetable that they've got put back in the walk-in. It tells them what -- the expiration date. They look at the clock, they look at their watch, and the hand-label.

We are replacing the very manual system. And as the restaurants look at food safety and as we go in and talk to them, they see the beauty of this. They see the time savings. They see the accuracy. It takes away a lot of time that they use to make sure that everything is labeled right. So everybody that we talk to, every customer that we are in, is replacing a manual system.

As for competition, we really don't see much competition. We have Avery Dennison; there's no doubt about it. But as we move into the PRO and the next version, there's nobody out there. And it's kind of first in kind of wins a lot of the coins. At this point -- and we are working with the restaurant.

So the beauty of what's happening with the PRO and our other terminal is we are being integrated in. So if somebody comes out with something in two, three years, it will be pretty tough because we are already in. We are already integrated with the system. And so we are first in. It doesn't say that competition couldn't come and eventually. Look, come on in and see what happens. But we are first and we are blazing. We are fast and we are way ahead of what anybody else has been doing. And when they see the new terminal, then they're going to figure out how to do what we did, which by the way is not easy what we are doing. So it's --

Look. When you see the headlines in the New York Times about Chipotle, or the Wall Street Journal, these are headlines you never saw before. These are conversations that restaurants are having. I know a guy on the board of a very famous restaurant chain, and I talk to him, and he's a good friend and he sits on the board, and I ask him, what is going on in your world, public company, you've got this restaurant company? He goes, Bart, every board meeting, we talk about food safety. Every board meeting, we are now talking about food safety. One issue can ruin the brand. Look at what happened with Chipotle. It's a market that McDonald's brought us in on, that we started, and then got aggressive to look at the different areas, the different verticals, inside there, and then actually expanded away from restaurants as more and more people were talking and finding us, because they are thinking about food safety in their type of venues. And we don't, at this point, with our PRO and our next terminal, see any competition.

Do you feel like there's a gating factor in that you don't have enough entree to enough -- and I'm certainly not belittling what you did by any stretch. I'm just asking the question. Do you have enough entree into enough food -- into enough restaurants or other food safety or other food service venues, or is that sort of a gating factor that you don't have enough salespeople or they don't have the connects or is there not that -- or is that not an issue at this juncture?

Howard, if we close the orders that the team is working on right now, there's going to be a lot of happy people on both sides of this telephone. So it is not a volume issue right now. It is an integration issue. It's a completion of technology issue getting from -- you know, what we do first is we work in the Company's labs. Then we do a rollout to one or two or five of their stores. We together look at how the implementation is going. We make the necessary adjustments.

Look, we have won a very famous technology company that uses a lot of white. It might give you a hint at who they are. And we are labeling at all of their venues and all of their buildings. And being a technology company, they freaking challenged us on how to make sure that they could automate the whole thing. And we did it for them. And it's not a big business, but it's wonderful knowing that this wonderful company, who is one of the most successful technology companies in the world if not the most successful company in the world, came to us, and we work with them. And they challenged the hell out of us. But we did it. And that's what we are seeing out there.

So, like I said, if we close the opportunities that -- and we review it monthly. We have a staff eating. We call it the CEC, the Corporate Executive Council. We are all in the meeting. We review it, and we know what the opportunities are. We wouldn't be this thrilled with the business if we didn't see that, but it will take time. But they are there; the opportunities are there. And they grow every day, because everybody is talking food safety. You're not going in and saying have you heard about this issue? Do you think about food safety? It's the other way. It's, hey, while you are thinking about the food safety issue, I'm going through a manual process, let us show you how to do it. And the one order that we got in the fourth quarter, like I said, the parent helped pay for the terminal because it turned out to be so good for them.

All sounds very exciting, particularly the last part about that kind of large technology. I hope you will aggressively utilize that buyback and while the stock is too cheap. Do you have a boundary on sort of where you guys are trying to -- do you feel like you're there sort of as a support when the stock comes in, or do you have sort of a mandate to be aggressive and reduce the share count and get the accretion while the opportunity is there?

Unfortunately, I couldn't even answer that question, so I appreciate it though, but it's a $5 million buyback. Outside of that, I couldn't answer the question.

Fabulous. Thank you so much. Good luck.

Thank you. I'm showing no further questions at this time. I would now like to turn the call back to Mr. Shuldman for closing remarks.

By the way, it was a great call today. I really appreciate the interest and the questions on food safety. Please keep asking the questions. We will do our best to answer them. I do ask you to look at the restaurant industry and some other venues and see what's going on in food safety, but I've got to say I truly appreciate the questions. You'll keep us on our toes. And all we want to do is get through this and deliver it and make everybody happy. So I would like to thank everybody for joining us on this call this afternoon.

Look, this has been a process to get this company from an old line printer manufacturer to a modern printer manufacturer to now a technology company. And I want to thank our shareholders for your support. I also want to thank the team at TransAct. Let me tell you this hasn't been easy on them.

We also look forward to reporting back to you on further progress in our business when we report the first-quarter results sometime in May. And for those that will attend the ROTH Capital Growth Conference, a wonderful conference in Southern California, I'd be happy to sit down and talk to you. And we appreciate your time today, truly appreciate the questions, and look forward to presenting more progress to you as we go through the year. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.