TransAct Technologies Inc (TACT) 2020 Q4 法說會逐字稿

Good day, everyone. Welcome to the TransAct Technologies Fourth Quarter 2020 Earnings Call. Today's conference is being recorded.

At this time, I'd like to turn things over to Mr. Marc Griffin, Investor Relations. Please go ahead, sir.

Thank you. Good afternoon, and welcome to TransAct Technologies Fourth Quarter and Year-end 2020 Earnings Call.

Today, we'll be discussing the results announced in our press release issued after the market close. 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 in its initiatives and details on our fourth quarter financial results. Then we will open up the call to participants for questions.

As a reminder, this conference call contains statements about our future events and expectations, which are forward-looking in nature. Statements on this call may be deemed as forward-looking, and actual results maybe 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-Q and 10-K. TransAct undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances that occur after this 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 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.

And with that, let me turn the call over to Bart.

Thank you, Marc, and thank you to everyone joining us on this call today. As you are all aware, the global pandemic remains persistent, but we are beginning to see improvement in our key markets as customers are calling again and answering our calls. We do sense a change in the environment in our markets with the vaccination process accelerating. Confidence in our business and markets is starting to grow.

While we have all experienced difficulties associated with the global pandemic, we're becoming more optimistic about the future that lies ahead. We are pleased with our execution throughout this challenging year, and we ended 2020 on a better note with an improved quarter.

We are particularly pleased with the strong momentum in our foodservice technology market, which saw accelerating growth throughout the year. As I have said to many investors many times, it's all about the installation of hardware terminals and workstations for TransAct.

And the good news, we ended the year with 5,688 paid terminals installed in the market, a growth of over 100% compared to how we ended our fiscal 2019.

As Steve will discuss in detail later during this call, our preliminary fourth quarter total net revenue declined 30% year-over-year to $7.8 million, in line with our guidance of $7.5 million to $8 million.

And we recorded an EBITDA loss of $2 million and adjusted EBITDA loss of $1.7 million. We delivered quarterly gross profit margin of 30.6%, and diluted EPS loss for the quarter was $0.22 a share.

Joining the good news about the terminal installations in fiscal 2020, our foodservice technology recurring revenue continued its growth and we ended fiscal 2020 up 96% versus FY 2019.

Now let's remember, the impact on the stores and restaurants being closed early in the year and the significant slowdown we experienced during the Christmas time as the virus and pandemic expanded once again, but we were still up on our recurring revenue by almost 100%.

Total foodservice technology market revenue in the fourth quarter was $2.8 million, up 55% from the same period last year and 20% sequentially.

Hardware sales of terminals are the lifeblood of our recurring revenue stream. And as we increase the number of terminals and workstations in the market, our recurring revenue will grow exponentially.

During the fourth quarter, hardware revenues led the way, and were extremely strong, up 65% from the year ago period and almost 1/2 of our hardware revenue in all of fiscal 2020.

This equates to an additional 1,875 paid terminals in the market for a total of 5,688 paid BOHA! terminals running on our system by the end of fiscal year 2020.

Two things I need to note about our fourth quarter of 2020. First, we shipped and installed almost 1,200 terminals that went toward new sushi customer. However, the installation occurred at the very end of December, so we did not receive a lot of label sales from those installations. This led to a lot more terminals in the market, but not the corresponding recurring revenue we would expect. We expect these terminals to drive a solid amount of recurring revenue in 2021.

Second, due to the unfortunate spread of the COVID-19 virus starting in October, and lasting months in the winter, many of our customers experienced declines again in transaction volumes. Our large convenience store customer who purchased a lot of labels in the third quarter of 2020 realized that they had overbought as their customer visits started to really slow in the fourth quarter, so they chose not to purchase any labels in the fourth quarter, causing some fluctuation in our recurring revenue.

While we cannot do anything about a spreading virus and the impact it has on our customers' customer, we have started to see new label orders coming from this large convenience store customer during the first quarter of this year.

And as we ship more terminals and workstations in 2021, and the economy continues to improve and the vaccination rate increases, we except label sales to pick up nicely once again.

Our new Restaurant Operations Platform is seeing some good progress as well. As a reminder, in September, we announced our all-new, iOS-native Restaurant Operations Platform, which provides restaurant operators with a single digitized platform to manage and track food safety procedures and back-of-house operational processes built using an iPad.

Late in the quarter, our Restaurant Operations Platform was officially offered to customers, and we started to book our first sale in the first quarter of 2021.

Now after the market closed today, we announced our first restaurant purchase of our BOHA! Restaurant Operations Platform. This order is for 13 restaurants that are part of a multi-concept, full-service restaurant company. We're really pleased to see our first restaurant order for BOHA! ROP.

Now Apple has been a phenomenal partner so far, and their lead generation has been incredible. We currently have more than $100 million in potential revenue in our sales pipeline, and Apple is involved in roughly half of those potential deals. As you know, Apple is very focused on building our business in the restaurant market. And here is some really good news. Apple has decided to expand our relationship to other markets around the world. We are very excited to be joining Apple to expand with them around the globe.

So let's review some of our more recent notable wins this quarter. Our regional convenience store team with 250 locations will upgrade to our full BOHA! ecosystem from an earlier generation of labeling system. Our regional convenience store chains will use the BOHA! ecosystem to support the privately branded and third-party fresh food offerings at over 40 locations. An international convenience store chain will use the BOHA! system to support their fresh food program at 350 locations and will eventually expand to over 650 locations across the U.S. and Canada.

Despite the significant impact to our business and especially in the foodservice market by COVID-19, you can see why we continue to be very excited about the opportunities in front of us.

Moving on to our casino and gaming printer business and Epicentral, revenue in the quarter was $2.7 million, down 50% year-over-year. The global casino and gaming markets remained challenged during the quarter, but we are starting to see a mild recovery as casinos refocus their spending on the gaming floor.

Our international casino markets remain more challenged in the U.S. as large gaming localities required more travel, which has been limited due to the pandemic. Europe experienced extensive shutdowns in the first part of 2020 -- first half of 2020. (inaudible) a moderate recovery in the second half, the challenges clearly remain. Casinos throughout the Asian market continue to reopen, but limited capacity has curtailed lines. In the U.S., we are starting to see casinos reopen, albeit with limited capacity and most nongaming attractions remaining closed. We are receiving a slight benefit in volumes as casinos refocus on their gaming activity. And accordingly, our domestic revenue improved 14% from the third quarter in 2020 to the fourth quarter in 2020, but remained down 46% than Q4 from last year.

However, we are cautiously optimistic that the gaming floor CapEx spend will continue to prove -- improve throughout 2021. After hitting a sales low from the pandemic in the second quarter of 2020, thereafter, our revenue increased sequentially every quarter in 2020. And while Q4 experiencing some stagnation with the pandemic rearing its head in the winter, we feel that conditions will continue to improve and new projects will begin coming back faster and stronger than before.

As a testament to our industry-leading gaming technology, TransAct was selected by the all-new Circa Resort & Casino in Las Vegas to support the opening of their new gaming floor. Circa Resort & Casino has chosen both TransAct printers, industry-leading Epic 950 and Epic Edge for use in all their 1,350 slot machines. The Circa Resort & Casino is the first all-new casino opening in Downtown Las Vegas since 1980 and is the third Las Vegas property of Derek Stevens, CEO of Circa Sports. We are honored to work with Derek and the entire Circa team as we aim to provide the guests of this cutting-edge casino the best experience possible through our products.

We're excited about our position in the gaming industry, and even though gaming activity is down worldwide, we know we're well positioned to benefit once the increase in activity of travel resumes.

Before I turn the call over to Steve, I want to welcome Randall Friedman to our Board of Directors. Randall's extensive knowledge of restaurants and the foodservice industry and his deep experience in business-to-business marketing in the restaurant market will be a huge asset as we grow and scale our BOHA! sales and marketing activities. Additionally, I want to thank Tom Schwarz for his extensive guidance he has given me in the company over 24 years of dedicated service on our Board. I will truly miss his wisdom and his humor greatly, and I wish Tom all the best during his retirement.

With that, Steve will review our fourth quarter and full year 2020 results, after which I'll make some summary remarks before opening the call to questions and answers. Steve?

Thanks, Bart. Good afternoon, everyone. We're pleased with the progress TransAct has made in the fourth quarter and throughout the challenging year of 2020.

Turning to our fourth quarter's results. Net sales were $7.8 million, which was down 30% from $11.2 million in the fourth quarter of last year, but up 6% sequentially compared to Q3.

Net sales for our foodservice technology market, or FST, was up 55% to $2.8 million from $1.8 million in the fourth quarter of last year.

Our FST hardware sales increased 65% to $1.8 million from $1.1 million in the year ago period, and we ended the quarter with 5,688 paid terminals in the market.

During the quarter, we increased our paid terminal count by 1,875 units, which included shipments of approximately 1,200 BOHA! terminals to the sushi operator we announced in July.

Our recurring FST sales, which include software and service subscriptions as well as consumable label sales, came in at $942,000 in the fourth quarter, which was up 37% from the $686,000 we reported in the year ago period. As stated last quarter, Q3 benefited from a large stocking order from our largest convenience store customer.

As Bart explained, this customer's transactional volume was negatively impacted by an uptick of COVID-19 during the fourth quarter that affected their business. So they didn't purchase any labels during the fourth quarter. However, the good news is that they have begun placing label orders again in 2021. We believe that this customer's orders for Q3 really covered both their Q3 and Q4 demand. Averaging this large Q3 label stocking order over 2 quarters, we believe total recurring FST revenues would have averaged about $1.25 million for both Q3 and Q4.

We believe our FST recurring revenue will increase over time and demonstrates the cumulative and ramping effect of having increasing number of BOHA! hardware terminals in the market.

That said, the annualized recurring revenue per terminal can fluctuate from quarter-to-quarter based on the size of individual software and label service orders as well as the timing of terminal shipped and placed in service by our customers.

For Q4, our ARPU was impacted by 2 factors: first, the impact from the large label stocking order we shipped in Q3 that didn't occur in Q4

(technical difficulty)

right near the end of Q4, so we were only able to recognize a small amount of recurring revenue related to this customer in the fourth quarter.

As a result, annualized recurring revenue per terminal was approximately $660 for Q4. Using the normalized amount of recurring revenue of $1.25 million for the fourth quarter, which averages the large Q3 label stocking order over 2 quarters, our ARPU would have been about $880 per terminal for the fourth quarter.

Casino and gaming sales were $2.7 million, a decline of 50% from the fourth quarter of '19, but a 33% improvement sequentially from the third quarter as casinos began to reopen albeit with much lower volumes of activity than pre-COVID-19 times.

Breaking this down further, our domestic revenues were down 46% from the prior year, and our international revenues were down 55%, both due to the worldwide pandemic.

Sales automation and banking sales were down 25% to $989,000 in the fourth quarter of 2020, but up 33% sequentially from the third quarter on significantly lower sales of our Ithaca 9000 POS printer to McDonald's due to the impact of COVID-19 on their business.

Looking at Printrex sales. Revenues were down 72% to $68,000 compared to the prior year period. While we continue to deemphasize Printrex sales, we still expect to receive additional orders from our legacy customers as the industry recovers from the impact of COVID-19.

And finally, TransAct Services Group, or TSG, sales were down 41% year-over-year to $1.2 million, as we continued to experience declines in sales of the legacy spare parts, legacy consumable products, such as HP inkjet cartridges and paper rolls and service contracts on our legacy banking printers. Since we're no longer focusing on the products in this market, we expect our TSG revenue to continue to decline over time.

Moving

(technical difficulty)

compared to 41.2% in the prior year period. Our gross margin for the fourth quarter was negatively impacted by the 30% overall sales decline as well as a $300,000 tooling write-off and the lower margin on the large terminal order that we shipped in the quarter.

Total operating expenses for the fourth quarter of 2020 were $5 million, an increase of $205,000 or 4% sequentially from the third quarter 2020 and down $621,000 or 11% year-over-year.

As we outlined earlier in the year, we took a number of steps to lower our expense structure from our Q1 run rate due to the COVID-19 pandemic and have maintained those cost controls throughout 2020.

Selling and marketing expenses were down $884,000 or 41% year-over-year to $1.3 million. The sharp decline was fairly attributed to the elimination of a significant portion of all trade shows and other planned marketing programs as well as the travel ban, reduced sales commissions and employee terminations in April, all due to the ongoing COVID-19 pandemic.

As we head into 2021, we plan to begin making significant investments in sales and marketing to support our recent partnership with Apple and the growth opportunity we see for our BOHA! solutions. Despite the pandemic, we continue to invest in engineering, design and product development during 2020, mainly for the launch of BOHA! ROP and the growing relationship with Apple. And accordingly, those expenses were up $441,000 or 41% year-over-year to $1.5 million.

In Q4, we incurred additional outside software development expenses for specific functionality needed for the large sushi operator.

In general, development expenditures over the past year have been centered on our recently announced native IOS BOHA! Restaurant Operations Platform and the all-new BOHA! workstations with iPad.

G&A expenses were down $178,000 or 7% year-over-year to $2.3 million as legal, accounting and other professional fees declined during the quarter as well as reductions in other discretionary expenses due to COVID-19.

We incurred an operating loss for the fourth quarter of 2020 of $2.7 million or 34.3% of net sales compared to the operating loss of $1.1 million or 9.5% of net sales in the year ago period. And on the bottom line, we recorded a net loss of $1.9 million or $0.22 per share in the fourth quarter 2020 and compared to a net loss of $800,000 or $0.11 per share in the year ago period.

Adjusted EBITDA for the fourth quarter 2020 was negative $1.7 million compared to negative $140,000 in the fourth quarter of last year.

And finally, turning to the balance sheet. We ended the December quarter with $10.4 million in cash and $2.2 million of debt under the PPP loan.

As a reminder, in October 2020, we completed an underwritten public offering of 1.38 million shares, including the exercise in full of the overalignment option at $7.10 per share. The offering generated net proceeds after expenses of approximately $8.7 million.

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

Thanks, Steve. Great job. As we look towards our 2021, we are optimistic about the momentum we are seeing in the restaurant and convenience store markets and remain confident that BOHA! is on pace to become our largest ever revenue-generating opportunity.

Our focus is on driving the success for BOHA! as we are determined to leverage our position in this emerging market to grow our business and create significant long-term value for shareholders.

Remember, it's all about the terminals. Finally, we will be participating in the 33rd Annual ROTH Conference on March 15 through 16. Please see your ROTH associate for more information if you'd like to participate. Clearly, I'll be there.

At this point, I'd like to turn the call over to questions and answers to our listeners. Operator?

(Operator Instructions) We'll hear first today from Jeff Martin with ROTH Capital Partners.

Bart, I want to start with Apple, $50 million of potential revenue in the pipeline. One, could you explain what that means in terms of definition of pipeline? Is that you've made first contact with the prospective customer? Or is it defined or something differently? And secondly, are you in the pilot stage with any of those prospects? And any idea when you might cause your first sale there?

Yes. So the -- so we have a sales force program that we use. And over this last year, we kind of revamped it a little. And what we only want in our sales pipeline numbers are potential orders that we're working on.

For instance, if you look at our convenience store customer, while we've shipped them so many thousands of terminals and still have many thousands to go, that's not in the sales pipeline number. That's a closed order, and that goes into a different spreadsheet. What we're following is all the new potential orders that could be coming to TransAct.

And the only way they make our list is not that we've contacted them and they answer the phone call, and that was it. They have to show true interest in moving forward with the discussion. And then it's different phase gates. There could be a multiple team meeting between us and them. Then it comes down to, okay, we'll have to sign a nondisclosure. So there's different phase gates. And then there's an evaluation, and then there could be a pilot and then a close.

The amount of opportunities that we have in fact at the -- a sheet right here, they range from -- they've made it through qualification. All the meetings have been set. The biggest number is where they've given us their menu items and their data. That means that we're working on putting together all of their menu items and data into our system and getting ready for a test. Now it could be a pilot or it could be evaluation. And then it, of course, goes to close.

So we're very excited that with the help of Apple, we've identified that much business that we're work -- truly working on. It doesn't mean it's going to close. And some of it is long term, there's some pretty big customers in this pipeline, and they tend to move a little slower than somebody that's got 20 restaurants or 30 restaurants, but we're very excited of where we are. I would expect a few to close this year.

They might not be in the bigger category. They might be in the small to medium category. But based on the conversations that we're having and the tests that are going on, I would expect some to close this year.

Okay. Great. And then you mentioned Apple's interested in expanding the relationship to other markets. I'm just curious what markets they're looking at.

So we're working with them in Asia right now on an opportunity, and we're working with them in Europe on an opportunity. So they've introduced TransAct to their global sales team. So they have a sales team in Europe and a sales team in Asia. And together, we're identifying certain customers that will be right for this type of technology.

So we're very excited. I can tell you that Apple is holding a restaurant seminar in April. And their plan is to invite somewhere around 200 restaurant companies to attend. And there's only 3 of us presenting. We've actually done a 7-minute video for them, and then we'll be presenting to the many restaurant executives that are attending the meeting. Sometimes, it's interesting, Jeff. Sometimes, you get involved with a big company. They promise the world and then some new boss comes in or they set a different direction. All of sudden, you look and say, what just happened? I think we're going in this direction together. I will say at this point, I mean, could change, but at this point in the relationship with Apple, they have stayed amazingly focused on growing our restaurant business.

They keep telling us they're in it for the long haul. They have shown us nothing but respect, and they've shown us nothing than they're working hard to get us the leads and the opportunities in the marketplace. So at this time, where I stand right now today, I could not be more thrilled with the relationship.

So you think you're progressing at or ahead of expectations? I wondered if you could give us some insight into hiring plans on the sales and support side of things. Are you at the point where you're going to need to start staffing up? Or do you still have capacity to service the lead flow?

Well, I think the international opportunity is going to challenge us. So we're looking at that very closely to see what we would have to add because that's a whole another market that we haven't even analyzed yet, right?

I mean, we like to say there's 1.4 million opportunities in the U.S. alone to use our technology. We have not even specked out what the rest of the world looks like. But we are starting to have conversations about how to support them. And as those leads come in, what we're going to do to support them. We want to be there to help them out.

Jeff, the one thing that was difficult, I will tell you, was this winter. When that pandemic took off in October, November, December, when we came out of September, we were really excited because things were slowing down, the pandemic was slowing down and the amount of action in the marketplace was picking up. And then the pandemic hit again and -- I mean, it was much larger than what it was just a year ago.

So that kind of slowed our hiring down. We said let's slow down again because let's get through this. I'm for one, extremely excited about the vaccinations that are going on. We are starting to see states open. We could all have our opinion on whether it's too early or not, but we do know that now 10% of the population has been vaccinated. So many people have had the virus.

There's much brighter light at the end of the tunnel than we've ever seen. So as we see that continue to develop, we are -- we keep talking internally about how customers are finally calling us again and how they're answering our calls.

So as we see that continue to develop, we will add where we need to, both on the sales side, big on the marketing side.

And I think I've made this comment a couple of times that it's tough when you can't get into somebody's office, right? We're still doing Zoom and Teams meetings.

And so a lot of it is marketing. So you're going to see our marketing spend really pick up next quarter. We -- with Apple's decision to do this major event for the restaurants and have us as one of the speakers. We're backing that up with a pretty good marketing spend in the trade magazine. So you'll see our marketing spend pick up.

But again, we can do that without hiring more salespeople because the leads will come in from the marketing spend, they'll come in from the Apple event. Yes, we will probably need people on the installation and also on the software side.

Okay. And then increased marketing spend pickup is Q1 or Q2? When you say next quarter, I'm not sure you mean this quarter or next...

Q2. Q2. (inaudible) we're going to marry it up to Apple's major event that's going to go on in April.

Got it. I've got a couple more questions, but I'm going to circle back around, but I'll just step in here.

We're going to hear next from Chris Howe with Barrington Research.

Yes. I guess, first off, some more color on this first restaurant sale, 13 restaurants part of the multi-concept, full-service restaurant company. Perhaps you could provide some color just on how this deal initially came about. And is there the potential for more after this within this full-concept restaurant company?

Yes. So this is actually a really good story because this is a full restaurant company that we asked if we could trial some of our new technology at without any commitment. We said, we'd like to come in. We need a field location to test our technology. We clearly -- we wanted to use our BOHA! ROP, our new workstation and all that. And so we ran a test at 2 locations.

And we didn't just do labeling. We did a whole bunch of solutions with them. And the good news is when we got done with testing the system out and understanding how it was working and all that, they came to us and said, look, we've got a chain of restaurants in one side of our business that we'd like to roll out 13 systems there.

And we've got other restaurants, too, but we'd like to start out with those 13, and we're willing to sign up.

And actually, the purchase order came in last night. So this wasn't done on purpose waiting for an earnings call, literally, the purchase order came in last night. So we were thrilled to be able to share that as quickly as possible with our shareholders.

So we need that opportunity to test in the marketplace, and this restaurant company gave us that opportunity. And the best part about it is they loved it so much, they bought it. And they bought -- as you have seen in the press release, they bought a lot. We're going to be measuring the temperature and the walk-ins and freezers and taking temperature and doing labeling, so fair amount of technology that we're rolling out in these 13 restaurants.

That's great. I appreciate that color. And just going along the path of that question. Following up on Jeff's question about Apple expanding the partnership or the scope of it to include global markets, Europe seems to have an uneven reopening, and Asia seems to be coming back faster. And then we have North America. How should we think about expectations on a geographic basis? Will things concentrate more domestically, and the global markets could be a further-out opportunity? Or is that not the case? And this will be all hands on deck global outreach for this?

Yes. So the easy answer is if somebody comes in with an opportunity in Japan, for instance, we're going to jump all over it. This -- so in looking at our sales force pipeline, everything is domestic, oh, no, that's not true. There is one in Europe that we're working on.

So I would say that the early wins are going to be domestic. When you first get started with a customer, it doesn't matter if it's domestic or international, it takes a couple of months to have conversations back and forth, how does the technology work, how does it replace what we have, there's a lot of conversation that goes back and forth to the point they say, "Okay, I get it. Let's let's do a test in our office."

So we're months away from that, if not half a year away from that. I think the more exciting piece to me, Chris, is that Apple was willing to bring us into the international market, that they felt that strong about our technology, that that's what they were willing to do.

But it's not a story that we'll talk about a lot this year because the sales cycle is easily 12 to 18 months, and we're just beginning. So -- but it does give us the rest of the world to work on, which just expands our total available market for our technology.

So I kind of look at it in regards to being very humbled by a large company like Apple saying, "Look, we want to work with you in these other markets. We like what we're doing in the U.S., we like what we see, and we'd like to do that in the rest of the world." So I'm pretty humbled by that.

That sounds great. I'm looking forward to how that develops.

My last question. You've got a series of great announcements in the convenience store channel. As we look at each of the recent announcements, specifically, my eyes are kind of focused on the international convenience store operator that you announced with a potential rollout of 650 total locations. If we look at these announcements in comparison to the rest of your convenience store portfolio, should we think about the cadence of rollout to be somewhat consistent in thought across each of the customers? Or has there been any indication from a specific or maybe a handful of customers that they expect a rollout to be faster versus others?

Yes. So we're at the mercy of their rollout. So if -- normally, they'll take, let's talk about this one, 650 stores. They've committed to doing 350 because that's where they've rolled out their fresh food initiative. I would guess that over a quarter or 2, all 350 will roll out. Then they'll take a breather as they roll out fresh food to their other stores and then roll in the technology after that. So it's not going to be a very linear and predictable kind of rollout. If you look at our large convenience store customer, I mean that's been nothing but unpredictable.

But the good news is we've got the backlog. And we ended last year with over 5,600 terminals. We do believe it's going to grow nicely this year. We could be close to 9,000, 10,000 terminals by the end of the year.

We also believe that the recurring revenue will eventually have to come back. We witnessed good recurring revenue. We witnessed the label sales when the pandemic wasn't as bad in the summer. We did witness what it's like when it gets bad, and that's what we've been going through. But the other thing that's really good is when you look at the restaurant side, there, it's going to be much more predictable because they buy more software than labels. And so that side of the business will be a lot more predictable because we're just going to bill them every month for the software. And then they'll buy some labels because it's really the software that they're using more than the labels.

Convenience stores are labeling a lot of food. And that's where we're kind of hostage to how many transactions they're doing and how many people are walking in the door.

One of the issues that our big convenience store company faces is they don't have gas stations. So when the pandemic hit, when it really took off again in October, November, not a lot of people stopped in to get something. But if you're going to get gas, you might pick up some coffee, you might pick up a muffin in or something while you're there to get gas.

So I think their business was more impacted than others because they just don't have a gas station. But -- and there's still more convenience store companies to close. So we don't have them all yet. Not sure we'll get them all, but there's more convenience store customers to get, and they're clearly in need of label technology. So there's more to go.

We'll move next to Mitchell Sacks with Grand Slam Asset Management.

Yes. So a question with respect to the casinos. Obviously, part of the opportunity there is dealing with the slot machines. But could you talk about the opportunity with your relationships on their restaurant operations and kind of how you're attacking that?

So Mitch, we have had conversations with a certain casino group about using our technology below ground in their commissaries and all that, where they prepare food. I got to say, Mitch, that we were quite successful in getting one casino group to really use the technology, but during the pandemic, everything shut down.

So it's hard to kind of indicate when casinos are going to be looking for technology other than waiting for casinos to be able to open and see travel happen again, and see people at the slot machines and the tables and the restaurants and see the volume again, you're probably talking a 2022 story. Restaurants are one thing. You can drive down the street and go to a restaurant. I mean, here in Florida, we have certain parts of Florida where you can't get a reservation anymore. So many people have been vaccinated that they're willing to go out, and the restaurants are packed. And that's great for us. It's another thing when you think about getting in a plane and travel. So I think we'll see a lag effect of the casinos looking at our restaurant technology. But it's not like we haven't introduced it to them.

But I think, Mitch, it's probably a 2022 story just because of what they've been through and how much more they have to go until they're back to being healthier.

Okay. And then the second question has to do with the order that we saw today from the restaurant chain, can you just talk us through the different apps the restaurant chain is taking and kind of contrast that with maybe the c-store customers and where they're at in their development in terms of taking the apps?

Yes. So that's an easy one, Mitch. What you see with that restaurant order is what we should start seeing from all restaurants, right?

It's a package, ROP is a package of software that the restaurants will use to do multiple things in the back of the restaurant, right?

So if I pull up the press release and we can look at it, convenience stores will not do that, right? Convenience stores are just labeling. And we've said this many times that the value of the casino -- of the c-store customer to us is the service contract, clearly, we're charging them for software and lots of labels.

However, when you look at what we've done with this one restaurant, it includes our ROP system, which is labeling, temp sense, checklist, timer and media manager.

So that's a whole program that they get from us for one price, and that's a lot more money than what we're charging convenience stores because they're getting all that functionality because they need all that functionality.

In addition, what you also saw was a lot of hardware sales, right? You see that we're selling the workstation. You see that we're selling BOHA! sensors. And you see that we -- in order for the sensors to work, it's got to communicate to our BOHA! gateway. So you see that the value of the hardware sale is even higher, right?

We're not selling the $600 terminal, we're selling sensors and terminals and gateways and all that. So you see that the initial hardware order is much higher. That should be typical for restaurants, right? That's why we put this whole ROP thing together. Because I think we confuse the restaurants because they want it. They want labeling, they want temp, they want sensing, they want checklist, they want timer.

But they were confused, okay, well, I got to buy this app and this app and this app and how does it work. And you're confusing me. And we say, okay, look, we'll put it all together. One portal, you go into the portal, you see it all. And that's what we did with ROP, right? You go to one portal, and you see all the functions. So they're no longer apps, they're functions. There's a BOHA! labeling function, the BOHA! temp function, a BOHA! sense function, a BOHA! checklist function, a BOHA! timer function. With convenience stores, all they're buying is labeling.

So you can see that they're getting less software because of less functions. But because they're selling so much food, as grab and go, we get a lot of label sales. Does that help, Mitch?

Yes, very much.

That's why, Mitch, when we look out and you look out a couple of years and say, okay, we're going to have a mixture now, I'd say we go to 50-50 restaurants and convenience stores. While the label sales could fluctuate, let's hope we never get into another pandemic and slowdown and all that and (inaudible), it will be predictable because we'll see what the cadence of orders will be. But on the restaurant side, man, they're going to -- they're buying software. And that's a monthly fee that doesn't go away.

So it's not hostage to the volume of transactions that they're doing.

We're going to hear next from from Jeff Bernstein with Cowen.

Just a quick question on gross margins. I think Steve, you cut out for a minute. Can you just talk a little bit about gross margin in the quarter and how we should think about the mix impact there? I don't know if there was anything unusual in it and how to think about it for '21.

So the gross margin.

Okay. Go ahead. No, go ahead.

I was going to say, for the fourth quarter, I'll answer that question, Jeff. So yes, we did -- we were impacted by a few things in the quarter. I mean, obviously, the sales volume itself was pretty low. We have a fixed amount of overhead, so that impacts the overall margin.

But we also have -- we wrote off some tooling, about $300,000 worth of tooling in the quarter, which is an unusual charge. And the big order we got for terminals was at a lower margin.

And I think that's probably what Bart is going to talk about now is kind of where we're heading with the pricing on our hardware versus the software. Is that where you're heading, Bart?

Yes. Yes. So Jeff, the question that comes up to us is how quickly can we get terminals into the marketplace so that the following year, we get all the recurring revenue. As long as we don't lose money on the terminal, I'm open to whatever negotiation we have to do.

And in fact, in this case, the customer wanted a package price. They're actually paying us monthly. But because the terminal goes out, we actually book the terminal as a sale, even though they're paying us monthly. Jeff, what's important for us is how do we get to 30,000, 50,000 terminals because of the recurring revenue.

And if we have an opportunity like we had with the sushi company to win an order for 1,200. We replaced an existing software package that wasn't working for them. It's -- I think we will go after it. We will not lose money on it. And of course, we didn't lose money because our gross margin was 30%. And hopefully, we don't write off any more tooling. But depending on the size of the order and the size of the customer, I mean, we're working with some very sizable customers. And this is just a couple of thousand terminals to some of these customers. And should they negotiate hard, but we can get all that recurring revenue, don't expect that we won't close that order because the following year, you're going to sit there, well, oh my God, look at all this recurring revenue at this much higher margin.

So the question is, and I keep telling every investor focus on terminals, focus on how many terminals we're getting into the marketplace. Because once they get out there and look, the sushi company got them out at the end of December, we didn't have much recurring revenue.

But as we get into the middle of this year, when they're in full-motion with that terminal, you're going to see a lot of recurring revenue off of that. And that's a higher margin. So the goal is to get terminals into the marketplace.

Great. As a large shareholder, we're happy with that model.

Yes, you go out 3, 4 years. It's fantastic.

We'll go back to Jeff Martin with ROTH Capital Partners.

Bart, wanted to get a sense, I wanted to switch over to the c-store pipeline. I wanted to get a sense of what your sales experience was with c-stores in Q4 and what you've seen so far quarter-to-date in Q1?

So we won a fair amount of them, and we won the big one. What drives us towards a c-store is knowing they're doing fresh food and grab-and-go. Once you get past the top 7 or 8 c-stores, as much as -- there's a 140,000 in the country, you get down to c-stores that have 50, 35, 75 stores. So what we're focusing on is 2 things, Jeff: first, are they doing fresh food or some type of grab-and-go, where they need to label; and then the size of the opportunity.

So we have a couple that we're working with right now that are sizable. And we're working with them to try and close them on our technology. The -- I guess, the interesting thing about the marketplace is once you get past like the top 7 or 8, they get kind of small.

And now as we get into the restaurant industry, where we're starting to talk to some very large restaurant companies, we're trying to hunt and farm where there's really good size opportunities. So -- because every opportunity takes time. So -- but the c-store market has been good for us.

A lot of it came directly to us. So we've got a couple on our list that we're working with. And as you see it, I think we closed 2 this quarter. So we'll continue to try and close the remaining ones that are right now in our sales pipeline.

Okay. And then I've got one more, if I may. So the first -- it's a 2-part question. The first part is with respect to 7-Eleven and the rollout plan. Have they given you a picture for this year or even this year and next year?

And then secondly, if you were to get to 9,000 or 10,000 terminals by the end of the year, how much of that would come from c-store? How much of that would come from ROP?

Well, so -- wow, considering we closed a bunch of c-stores, and we've got (inaudible) 7-Eleven, that's a great question. I would say half c-stores and half restaurants.

Okay. And then with respect to 7-Eleven's planned rollout for this year and next year, they give much indication? Do you have a clear -- do you have visibility, I guess, is what I'm asking?

It's -- they actually don't give us a purchase order, right? They don't say, okay, here is what we're buying in 2021, but they do give us an indication. And I think it's going to be steady as she goes. We've always told everybody it's going to roll out over a couple of years, 3, 4 years. There's no doubt in 2020, we fell behind, they fell behind just because of the pandemic, the stores being closed and all that. But they're back up and running to where they -- we thought they would be.

And so we've got a couple more years to go to keep rolling it out. And they seem to be very happy with it. So it's going to be business every year as they get to their goal of 10,000. And then the question will be: How many Speedways will they do? That we don't know, Jeff. We do -- we're waiting to hear from them, will they increase the 10,000 to include so many Speedways. We have not heard yet.

Okay. Great. Good luck with the Apple seminar in April. It sounds like (inaudible)

Yes, yes. The team did a great job, a beautiful video. And some of it will be on our website soon. So you will see customer testimonials on the website. You'll see a demonstration of technology on the website. So once we get through the Apple event, then we'll start putting stuff up. You're starting to see a change to our website. We're kind of stuck in an old server, which will take us probably another 3, 4 months to change. But if you go to our corporate website right now, you'll see that it's been changed. You can click on to the different sections of our foodservice technology, you can look into -- click on c-stores and quick-serve restaurants and casual and all that. And then eventually, you'll start seeing some customer testimonials on there, too.

So we'll be quite excited once the Apple event ends and to be able to post that all up on the website.

And gentlemen, at this time, I'd like to turn things back to you for closing remarks.

Yes. Well, it's been a great call. Just about an hour. We really appreciate it. Again, for those that have the opportunity to join us Monday, Tuesday next week at the ROTH Capital, the only thing I can say is I'm going to miss being in Southern California. I think the ROTH capital people throw one of the best parties and best of conferences there is. And one day we'll all hopefully be together and be able to do that again. But really appreciate everybody's support. You can see the excitement that we see in front of us despite one horrible, horrible, March and April and May through the beginning of this pandemic. I think we came out of it as strong, if not stronger, and we're just excited about the future.

So look forward to talking to everybody in the next conference call. If not, I'll talk to you at the ROTH conference. Thanks, everybody.

And that does conclude today's conference. Again, thank you all for joining us.