TransAct Technologies Inc (TACT) 2017 Q3 法說會逐字稿

Good day, ladies and gentlemen and welcome to the TransAct Technologies Third Quarter 2017 Conference Call. (Operator Instructions)

I would now like to turn the conference over to Mr. Jim Leahy. Sir, you may begin.

Thank you, Chris. Good afternoon, and welcome to TransAct Technologies' 2017 Third 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 on the third 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 the 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. Earlier this afternoon, we reported fabulous results for the 2017 third quarter, including net sales of $15.5 million, operating income of $2.6 million and adjusted EBITDA of $3 million. Steve will review our third quarter results in more detail in a few moments, but I'd like to begin by providing some high-level comments about our business and our strategy.

On our second quarter call, we detailed four key strategies TransAct was pursuing, which were aimed at successfully monetizing our investment in what we saw as a significant long-term market opportunity for integrated technology offerings in restaurants and food service settings. I'm excited to provide an update today in these initiatives by noting that we have assembled a team of sales professionals who are focused exclusively on the restaurant solutions market.

In addition, we have implemented our direct marketing campaign aimed at driving awareness for AccuDate XL terminal, which we officially launched at the national restaurant show in May of this year.

Also, we have moved forward with the strategy of creating recurring revenue with the sales of these terminals as we recently launched a lineup of TransAct branded labels for the AccuDate terminals. These labels are extensively tested by our operations team to ensure a full functioning ecosystem between our terminals and labels, which we know from our experience in other markets, is crucial to providing a long-term reliable solution. We require our customers to exclusively use our TransAct labels if they want a warranty on the terminal.

And finally, continuing with our goal of developing long-term recurring revenues, and providing our customers with the best customer service, TransAct now offers a full suite of software maintenance and product support warranty offerings.

Our successful execution in all four of these strategies, as well as our focus over the last several years on diversifying our product offerings towards purposely built, high value software and technology driven solutions is beginning to lead to strong improvements in our financial results.

We delivered exceptional profitability in 2017 third quarter with record quarterly gross margins and record quarterly earnings per share. Net sales of our restaurant solutions nearly doubled on a quarterly sequential basis and crucially, interest in our restaurant solutions among some of the biggest and well know brands in the world is growing, which we expect will drive higher revenue related to sales of the AccuDate XL as we head into 2018.

We firmly believe that technology based solutions and operational enhancements will be a major focus for investment and development across the restaurant industry over the coming years. And this is just not our opinion, but increasingly it is what we hear from a range of industry insiders who know the industry well. There is a growing consensus that the technology transformation taking place in the food supply and restaurant business is the biggest opportunity in the restaurant market today because of the lack of technology.

I am so proud of the TransAct team as we develop the technology in software and services and we are well positioned to succeed in this exciting, large, long-term opportunity.

I am also pleased with the relationships and partnerships we've established with leading software companies like CrunchTime Information Systems and Jolt as they bring real solution to the restaurants in the back of the house. The restaurant market will be changed forever.

With all that said, and before I turn the call over to Steve, I'd like to take a brief look at the strategy for the rest of the businesses. In the casino and gaming market, we are focused on selling our full suite of ticket and roll fed printers, which no company in the market today can match, while also featuring Epicentral, our promotion and bonusing print system. We are very pleased with the recent integration we completed with Aristocrat between Epicentral SE and their Oasis 360 slot management system, which resulted in an Epicentral SE deployment at a New York casino. We believe this represents the first time in the casino industry that free play tickets can be printed at the slot machine and then reinserted back into the slot machine.

For Printrex, while a still very small piece of our overall business, our strategy is to work with the industry as the oil and gas exploration and production companies are starting to ramp up their activities. We run this business or market with little overhead and it does add to the profitability of TransAct.

Finally, we are strategically focused on growing our recurring sales through TransAct Services Group. One area of growth is the recurring sales pipeline coming from the lottery market as spare parts sales grow due to the lengthy extensions of existing contracts around the world. And as I noted earlier, we are benefiting from increased sales contributions from our TransAct branded labels and also from our software support and maintenance offerings for the AccuDate XL. We expect the TransAct Services Group results to remain strong in the coming quarters and years as our AccuDate XL sales drive further demand for related products and services on a recurring basis. TSG is likely to be a very good story as we benefit from the recurring revenue sales.

Everyone in TransAct is focused on executing on our strategy and we are truly excited by the move we have made to provide these markets with more and more technology.

Now I'll turn the call over to Steve for a deeper review of the 2017 third quarter results, after which I'll make some summary remarks before opening the call to questions and answers. Steve?

Thanks, Bart. Good afternoon, everyone. Third quarter 2017 net sales were $15.5 million, up 7% from $14.5 million of sales in the third quarter last year. Looking at our sales for the third quarter by market. Restaurant solution sales were $1.8 million, up 86% or $800,000 from last year's third quarter. The year-over-year rise in sales during the quarter was driven largely by higher shipments of AccuDate 9700 terminals, as well as by growing sales of our AccuDate XL. On a sequential basis, restaurant solution sales nearly doubled from Q2 as we began to benefit from our efforts to build out our internal sales team, as well as from growing interest in these solutions from operators of all sizes.

POS automation and banking sales were down 37% or $1.1 million to $1.8 million in the 2017 third quarter, as sales of our Ithaca 9000 printers to McDonald's slowed from the record pace we saw a year ago.

Casino and gaming sales were down 9% or $500,000 year-over-year to $5.1 million in the third quarter '17. Domestic casino and gaming sales grew 26% from the prior year due to what we are seeing as a relatively healthy U.S. market, as well from two new Epicentral installations in the quarter. However, international casino and gaming sales were down 44% year-over-year, as we again saw a decline in both casino and gaming printer shipments to slot manufacturers and operators, particularly in Europe.

Lottery printer sales of $2.2 million were down just $66,000 or 3% compared with the prior year quarter as shipments remained roughly flat year-over-year.

Printrex product sales were $358,000 compared to just $67,000 a year ago as we again saw an increase in oil and gas printer sales in the quarter. Though the overall market for our oil and gas products is showing signs of life, we believe the Printrex business will remain relatively consistent with current levels for the remainder of '17.

TSG sales were up 57% year-over-year to $4.3 million, as the business benefited from significantly higher lottery spare part sales, as well as from initial sales of our new restaurant solutions labels and service and support contracts related to the AccuData XL, both of which we believe will provide us with a growing recurring revenue stream in the years to come.

Gross margin for the third quarter reached 48.4%, a quarterly record high for us compared to 40.9% in the third quarter of '16. Our record quarterly gross margin benefited from a very favorable sales mix, including higher sales of restaurant solutions offerings and lottery spare part sales.

You've heard us say over the past few quarters that as our business transitions away from legacy products and towards our new, higher value solutions, like our AccuDate terminals, labels and recurring service and support offerings, we believe our gross margin will decline through the mid to high 40% range and even touch 50%. While our third quarter results prove that we can achieve these elevated levels of gross margin and eventually get to, or even surpass, the 50% gross margin level as these sales grow over time.

Total operating expenses for the third quarter of '17 were $4.9 million, up 5% from the year ago period. Engineering design and product development expenses for the third quarter were relatively consistent, up just $14,000, or 1% year-over-year.

Selling and marketing expenses for the third quarter were up a $87,000 or 5% to $1.9 million, mostly driven by spending related to our newly hired and now fully staffed restaurant solutions direct sales force, as well as the direct marketing campaign that we successfully launched in the first half of this year, that is now driving increased awareness of our restaurant solutions offerings.

G&A expenses for the third quarter were $1.9 million, up 9% over the year ago period on higher incentive comp expense.

Operating income for the third quarter of '17 reached $2.6 million or 16.7% of sales compared to operating income of $1.2 million or 8.5% of sales in the year ago quarter. Our near record operating margin of 16.7% once again demonstrates the operating leverage of our business model where higher gross margin on growing sales drops almost entirely down to our operating income.

Diluted EPS for the '17 third quarter doubled to a quarterly record of $0.24 compared to $0.12 in the year ago period. And adjusted EBITDA for the third quarter of '17 times 77% for $3 million, compared $1.7 million in the third quarter last year.

And lastly, turning to the balance sheet, we ended the quarter with $3.5 million in cash and no debt. We returned a total of approximately $1 million of capital to shareholders through the 2017 third quarter through our quarterly cash dividend of $0.09 per share, as well as through the repurchase of 36,000 shares of stock at a total cost of approximately $359,000. And as of the end of September, we had approximately $1.1 million remaining under our existing $5 million share repurchase authorization that we announced in February last year.

And at this point, I'll hand the call back to Bart for some closing remarks.

Thanks, Steve. Great job. TransAct's decision to enter the promising restaurant solutions business with our portfolio of software driven AccuDate terminals is beginning to transform our company. At the time we began development of what became the AccuDate 9700, we saw what we believe was a significant long-term opportunity, which would benefit from our heritage in print based technology solutions. Our results in the third quarter of 2017 demonstrate that our decision to target this new market is playing out as planned and as we begin to leverage our technology solutions to deliver margin expansion and enhanced profitability that will ultimately drive shareholder value creation.

At the same time, TransAct shareholders benefit from our ability to continue to invest in this new market, thanks to the steady cash flow generated by our leadership position in the casino gaming and lottery markets. As we close out 2017 and look to 2018, we believe TransAct clearly has its best days ahead and we are excited by the potential for continued success.

In closing, I'd like to offer my deep gratitude to the entire TransAct team for their diligent work to transform our company. Efforts which are now beginning to drive real results. I also offer my sincere appreciation to our shareholders for the continued long-term support.

And before I end the presentation and turn the call over to questions, I want to say that everyone at TransAct sends their thoughts and prayers to all those that were impacted by the senseless and horrific shooting in Las Vegas. Las Vegas strong.

Operator, we're ready to take questions.

(Operator Instructions) Kara Anderson, B. Riley FBR.

I'm wondering if you can provide more detail with respect to sales within the restaurant solutions category, specifically if the sales of the 9700 reflected a larger rollout. And then what in the quarter was sold directly by TransAct? And then lastly, any color on the percentage of sales that included labels or servicing?

Most of the sales in the quarter were TransAct Direct. Our relationship with our past distributor still exists and they sold some terminals. I should say they bought some terminals from us, but I would categorize the sales in Q3 as mostly direct sales by TransAct.

The nice thing about the quarter, while some of our customers were repeat customers in the quarter, and that hence why we sold the 9700, we sold a fair amount of XLs. One rollout, but more importantly, a lot because of the magnitude of the different customers that are now looking at the XL as a solution for the back of the house.

We have a board up in the office which shows the amount of opportunities that the company is working on, both by customer name and dollar volume and total dollar volume. And I can tell you that the total dollar volume of the opportunities that the company's looking at has gone up by probably 10x. And a lot of that started in the third quarter as we had the big show in May, started our marketing campaign, which by the way is a digital campaign now, which is not only a great way to inform your customers, but it's not very expensive, which is wonderful. But the third quarter really started to show the launch of the XL and the amount of different customers that we're dealing with.

And not only ones that we're dealing with directly, but ones that are coming through our relationship with both CrunchTime and Jolt. And CrunchTime is revolutionizing the back of the restaurant and clearly we had some sales as we talked to those customers about a full rollout of not only the CrunchTime system, but of course it comes with our terminal.

I would think that most of our XL sales in the quarter came with label sales, so our decision to control the labels in the terminal due to the reliability and the quality and the experience that our customers get, allowed us to sell labels with the terminal and that now will keep going. And one of the things that we're looking at, Kara, is what is going to be the tie ratio as more and more XLs get out there and the customers re-buy the labels, what would be our expectation of what we call the tie ratio, which would be the amount of labels we sell per year against the terminal sales. So if we're selling the terminal for a certain price, how many labels do we sell against that and then year after year?

And then I would say a fair amount of those customers also bought our service agreement, which provides the customers with product service on the terminal itself. What we have recently introduced because of the amount of technology that's now included, is we've added to our menu of offerings to our customers a technical service whereby we will help them manage their menus, help them manage the integration of the terminal with the cloud and then give them that service for a period of years where depending on if it's a franchise deal or a company deal, each restaurant can call us and then get support on any type of integration, Wi-Fi, Bluetooth, cloud or just menu services. So we've added to our menu of offerings to our customers both product service and now engineering or technical service. And some of that was sold in the third quarter also.

And then the second question I have or topic area, hoping you can discuss, is around the TransAct Services Group. Recognizing that gross margin was in the quarter very favorably benefited from the mix, can you quantify how much of the gross margin pickup was an effect of that strong lottery spare parts? And perhaps provide some expectations for the balance of the year?

Yes, if you look at the mix, Kara, I mean we've really decreased the amount of the old legacy printers. Really if you think about it, we have one customer left in POS and that's our wonderful relationship with McDonald's. Everything else, other than lottery, is sold at higher than the gross margin that you basically see, so everything adds to the gross margin.

I mean clearly the food safety terminal business, the label business, the repair services, the technical services, and the spare parts all add to that, but it's not just that alone. So our gross margin is favorably impacted really by everything other than our legacy products and sales of our lottery printers. Everything else benefits the gross margin line.

(Operator Instructions) Todd Eilers, Eilers.

I wanted to talk a little bit about the casino business. Obviously a pretty healthy quarter. You had some comments about the domestic business being up 26% year-over-year I believe, which seems like a pretty strong number. I'm wondering if you could give us a sense for how much of that is maybe the market picking up versus maybe some market share gains. Or is it may be a combination of both?

It is a combination of both, Todd. I don't think it's a mystery to anybody that Caesar's announced that they were going to be back in the market buying new slot machines. And if you look at the position that we have in the domestic casino market, after we came out of the great recession, our competitor has one side of the street, MGM, and we have the other side of the street, Caesar's. And clearly our competitor benefited from the fact that their customer didn't have a financial issue. So we are so pleased and that Caesar's is back in the market and that clearly is benefiting us.

We are seeing a healthier market. And look, some of that could be share gain. Remember a lot of our sales come -- most of our sales come through the OEMs. So some of that could be share gain. Clearly there is a lot more interest in Epicentral than ever before and customers have to prepare for that. So if they're not planning on installing Epicentral for another year or two because they need to get their floor to 950s, they start to buy new machines with 950s as they transfer their floor over from our competitor to the 950s.

The other thing that you should know, Todd, is that Europe has been a disappointment for us and we've made a decision to take that business direct. It's actually going to be a cost savings for us because we already have a facility in Europe. But we expect our European business to add to our sales sometime the first or second quarter of next year as we take over that business directly.

And what I think proved to Steve and me was the success that we're having in the restaurant business by taking that market direct. Nobody sells as hard as we do and the restaurant market and the success that we're now having, like I said, our amount of opportunities has gone up 10x, is due to having this direct sales force that everyday lives and breathes TransAct. And we believe the same thing's going to happen in Europe, so we're very excited about the move that we're making in Europe because what we've done in the restaurant market convinced us that we can really make a go of this.

So I hope that puts a little color on what's going on at TransAct. I mean the Asia is Asia, I don't think we've lost a new opening in many years, so Asia's just what happens there everyday. It's good to see that the revenue and things in Macao are doing better. Clearly the Philippines, Vietnam, some of these other markets, are popping up now and we're excited to be looking at opportunities there, both for printer sales, by the way, and Epicentral. So we see Epicentral as a play in Asia.

So hopefully that'll give you a little more color on how we see the market and what's going on at TransAct.

Just to follow on the Epicentral, you had two new installs in the quarter. Can you give us an update on I guess where you're at in terms of total casinos or total slots at this point? And do you have any expectations for any Epicentral installs in the fourth quarter?

The pipeline is pretty good. The success that we had with the SC installation with Aristocrat I think was pretty eye opening not only to that customer, but also to Aristocrat in regards to what can be done. And for those that were able to get a demonstration of Epicentral SE and Oasis 360 in Aristocrat booth really saw where we could take this solution. So both companies are pretty excited about it and clearly in markets like New York, which is getting quite competitive, is presenting us with more opportunities.

Our goal was to pick out certain markets and get Epicentral installed and pick out competitive markets so that maybe the guy across the street or 10 miles down the street would say wow, they're growing their business because of Epicentral, I might need it. And we're finally starting to see some of that play out where we're seeing competitors of places that we've got installation start to talk about wanting to talk to us about Epicentral.

We really don't make a lot of comments about what's going to close and what's not going to close. A lot of it has to do with the integration. But I can say that the pipeline looks really good and we've come out with 3.8.2, which has some really good features in it. We're now working on the next upgrade and we're actually working on the next upgrade after that. And this is with the input of our customers.

And for the first time since we launched Epicentral and got through the great recession, we're really seeing casinos talk to us about buying the product. And the other really nice thing was the integration with Oasis 360, which allows us to do things that we can't do on our own, which is things like printing out a free play ticket and letting that patron take it to another slot machine and put it in and use it. And that's something we cannot do with our Epicentral on our own because we don't do any accounting of bonuses and promotions. And by hooking up with Aristocrat Oasis 360, which they do, we can now print free play tickets, which I think is the first time in the history of the casino market we're able to print free play tickets out of a slot machine and at any time during that session or next session, or during that day, they can put a free play ticket back in.

Mitchell Sacks, Grand Slam Asset.

With respect to gross margin, I think during the prepared remarks, Steve had talked about where gross margin is sort of. Can you just kind walk me through that and where you think it goes over the next couple of years based on what's going on with your mix?

Yes, you can see the third quarter's kind of representative of what TransAct could be from a gross margin standpoint. When the --

Hello?

Mitch was asking about the gross margin and if our investors are still online, clearly the third quarter shows what TransAct can do, as Steve was saying, as the new products layer in. And we would expect that over time that our gross margin could actually go above 50%. And since Mitch isn't on, I'm not talking to him, Operator. Are there any more questions?

Jeff Bernstein, Cowen.

Just on the gross margin, the incremental, both gross margins and operating margins year-to-year sequentially were crazy. Year-to-year were like insane. Obviously as some point you reinvest in the business. Any thoughts about that?

Yes, we've always looked at the business as a leveraged business, from a standpoint of as we introduce higher margin products and layer that in, and control our operating expenses so that we can take the gross margin and drop it to the operating income level that you'd get this expansion that you're seeing. No doubt.

In looking at our market, we've now got a full complement of products for the restaurant solutions market. We've got the 9700, the Pro, and the XL. So we're the only ones in the marketplace with different terminals, good, better, best. So a lot of the engineering work has been accomplished.

If you look at the casino market, we're the only ones with roll fed printers, ticket printers, lottery printers and really a custom design enclosed printer for cages and things like that. So we've got a full complement of product there.

So our engineering team is pretty much built out and as we finish designing new products, we go over to the next. And we've laid out our product development schedule for the next couple of years. So you won't see much cost in regards to adding more engineers. We are making a change in Europe and Asia with direct sales for our casino market and actually once we're done with that change, we're actually going to save money. So we're going to increase sales and save money on that deal.

So what you could see as that restaurant market grows I don't think you'll see much more marketing because the marketing that we're doing is digital, not very expensive and it's been successful. You could see us add a little here and there, just to -- if markets grow a little faster than other markets, could we put an extra sales person out there? We could.

So you're not going to see a stair step increase in operating expenses as we grow the top line. Now Steve could come to me and say hey, we're at a certain level, we might need another accountant or something like that. That could definitely happen. But you're not going to see that stair step increase in operating expenses like you're going to see in sales and gross margin.

Just a quick couple of follow-ups on restaurant. Can you talk a little bit about now? Is it food safety that's driving this? Is it efficiency that's driving it? Are you talking mostly to the franchisors or franchisees part of the equation now? Just give a little bit more flavor for what's driving that.

By the way, that's just a fantastic question and I thank you for asking it. Food safety is important, food safety is a topic, but it's really the automation of the back of the restaurant that I believe is going to drive this. And food safety is part of that because if you think about how we manufacture product, our systems tell us what to build, our system then knows what we used and then deducts if off the inventory and it's a total ERP controlled environment. And basically what you're going to see in the back of the restaurant.

I was talking to some people that are investing a lot of money in this technology movement that's going on in the restaurant industry. And one, they're just amazed that there's very little technology in the back of the restaurant and then they're also amazed at the size of the opportunity. And we talked about our terminal and how we believe it's going to be kind of the de facto terminal that people are going to have to design their interfaces to and all that.

So it's going to be the automation. It's going to be the efficiency. When you talk to restaurants about a 2% or 3% savings on food, that's huge. And if you look at what our partner does in regards to understanding what was produced, how much was used, so that they can drop waste, so they're not ordering just because they looked in the walk-in and didn't see enough tomatoes, but they're actually ordering because their inventory system told them you need tomatoes. And how much they should be ordering, versus what they produced over the last month so what they should be producing over the next month.

So food safety is going to be part of it, but this whole automation of the back of the restaurant is really what's going to drive it. And our conversations are not with the franchisees. Our conversation is with the headquarters. We're working with the operations and the IT departments of the restaurant companies as they decide how to rollout automation in the back of the house.

And so lastly, I know you guys have talked about trying to become sort of the IOT integration center with the kitchen equipment. Everybody wants to make their kitchen equipment smart and be able to talk to something. How's that coming together?

It's the talk of the industry and it's going to take time. But it's the talk of the industry. If a refrigerator can talk and say my temperature's going up, and the cloud can call the operations manager and say, hey, you'd better look at refrigerator number 2 on a Sunday night or you're going to lose all your food, the restaurant companies are talking about wanting this technology.

Now it doesn't happen overnight. And the thing for us is we need to be first in the market. We need our terminal to be there. So as companies look to do IOT, which is by the way what we're doing also, because if you look at Jolt and CrunchTime, it's all cloud based technology.

As these companies look to do it and restaurant company A says by the way, I've got a terminal in my restaurant, or I've got three terminals in my restaurant, which is more like what's going to happen, two to three terminals per restaurant, hey why don't you talk to that terminal and then they can send the information to the cloud. That's what's being discussed in the marketplace.

So we need to be first, we need to be there. I think the first move is going to be the management of the restaurant, the efficiency. Things like when should I clean the bathrooms? When do I take out the garbage? Not relying on somebody to remember it, but having it come up on the screen. Having these operational tasks come up on the screen and having somebody sign in and sign out that they did it.

Having somebody use a cell phone and when they take out the garbage or clean the garbage bin area, take a picture of it and send it to the cloud and say, hey boss, I did it. And now people know that things are being done in an efficient manner. These are all things that are being discussed in the industry today. We are just in the first inning of this.

Mitchell Sacks, Grand Slam Asset.

So with respect to the warranty, you were talking I think on the call about requiring purchases of labels from yourself to keep warranty on your 9700 and XL. Was that correct? And if so, how is that panning out?

The answer is yes, we are requiring companies to use our labels as part of the warranty. More on the XL than the 9700 because the 9700's been out there already and some of our customers already have label deals. And like with McDonald's, we had to approve a label for them. So it's really on the XL. So far so good.

Look, what we learned in our different markets, if you look at the lottery market, for instance, we don't sell the paper, but paper became one of the critical pieces. Let me start over again. We have lottery printers, Mitch, that are out there 12 and 15 years. And if you think about that, it's kind of a bizarre thought to have a printer that works for 12 or 15 years that have done millions and millions of transactions.

And the way we control that was by controlling the paper and working with our customers and their paper suppliers to meet a certain spec so that the printers just work. Paper can be very disruptive to print heads and cutters. So we've learned that and if we're going to sell this ecosystem, which is a terminal with technology, but printers, we want to be able to walk into the marketplace and say we're going to supply you a very reliable system, but we can't let you just choose any paper.

When you start selling a terminal that can't go down, think about it. If we're part of the production system and the terminal breaks because a printer breaks, because somebody bought cheap paper, that?s not good for any of us.

So it's been accepted and our pricing's very, very competitive, so don't think that we're overcharging customers. Our customers know and we had to know what the price had to be. But it controls the ecosystem to ensure that as we become this very important device in a restaurant, like our printer was and is in the lottery business.

When Powerball hits $500 million, we're printing 30,000, 40,000, 50,000 transactions on a weekend. That printer can't go down. And our customer knows that and that's why we keep getting their business. We've got to be able to do the same thing in the restaurant industry because our terminal now is not nice to have because we're printing out some labels, like it's like what we first did for McDonald's. We're now part of the production system and that terminal has to work. So our customers understand that it's a combined system between our software, between our software partners, between the Internet and the cloud and paper.

And then you were talking a little bit on the call in your prepared remarks I believe about sales in the restaurant solutions. Third quarter was still mostly 9700, but you started to get some sales of the XL. As you move into this quarter and future quarters, does that start to cross the other direction?

Yes, I think more next year based on what we see and the quotes and when people are telling us their rollouts. I would think that would crossover next year, which is really good for us because it comes with a fair amount of recurring revenue. So we're really excited about what we see starting next year.

And a final question has to do with Europe. So as I understood it, you're switching to in-house sales starting in Q1 of 2018. For the remainder of this year, does the activity then stay muted in between? And then the second part of that question is the sales that you're not getting there, are those lost sales or are they just sales that get delayed until next year?

Yes, that's a great question. Yes, I think that what you're seeing with our casino business is kind of what we'll see in the fourth quarter. Other than we just don't know how quickly one of our customers starts to change their floor with newer slot machines. So based on what they're going to spend and how quickly or not how quickly, could affect our fourth quarter positively.

The European situation, it's kind of interesting there's something going on in Europe right now and we ran into a customer of ours and found out that nobody's called on them for a year or two. So it's not lost sales, Mitch. We're going to get it back. There's only two of us in the marketplace. I think you saw what went on at G2E with the customers loving our 950, the reliability, it works. How we back it up, how there's people on the phone that could answer questions. We feel very good about what we'll be able to do in Europe once we take it back over.

I'm not showing any further questions at this time. I would now like to turn the call back to Bart Shuldman for any further remarks.

So we thank everybody for putting up with us today, but also we really thank our shareholders for sticking with us as we've gone through this transition. We're excited about the future, we're excited about what we see in the restaurant industry. It's just beginning. We're excited about what our team is doing here, really pleased with our engineering.

But I really thank our shareholders for sticking with us and believing in us. And this is just the beginning and we hope to deliver some really good results over the next couple of years and make you proud of us. So we thank you for your support and we'll talk. And have a Happy Thanksgiving. We probably won't talk to many until after the New Year. So have a Happy Thanksgiving and a happy and health new year. And be safe. Thank you, everybody.

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