TransAct Technologies Incorporated (NASDAQ:TACT) Q3 2022 Earnings Conference Call November 11, 2022 4:30 PM ET
Company Participants
Ryan Gardella – Investor Relations, ICR, Inc.
Bart Shuldman – CEO
Steve DeMartino – President and CFO
Conference Call Participants
Jeff Martin – ROTH Capital Partners
George Sutton – Craig-Hallum
Mitchell Sacks – GS Asset Management
Operator
Good day and welcome to the TransAct Technologies Third Quarter 2022 Earnings Conference Call. Today’s conference is being recorded.
At this time, I would like to turn the conference over to Mr. Ryan Gardella, Investor Relations. Please go ahead, sir.
Ryan Gardella
Thank you. Good afternoon and welcome to TransAct Technologies third quarter 2022 earnings call. Today, we’ll be discussing the results announced and our press release issued after market closed.
Joining us from the company is CEO, Bart Shuldman and President and CFO, Steve DeMartino. Today’s call will include a discussion of our company’s key operating strategies, the progress on those initiatives and details on our third quarter financial results. We will then open the call to participants for questions.
As a reminder, this conference call contains forward-looking 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 company, please refer to the company’s SEC filings, including its reports on Forms 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 measures calculated and presented in accordance with GAAP can be found in today’s press release, as well as in the company website.
And with that, I’d like to turn the call over to Bart.
Bart Shuldman
Thank you, Ryan and thank you to everyone joining us on the call today. Our third quarter results reflect the accumulation of many months of incredible work by the TransAct team, across every facet of the company. I’m incredibly proud of all of you at TransAct, and now every team member contributed to the success we are seeing. After a very difficult couple of years, I believe we’re finally reaching an inflection point in the business and could not be more excited for the future.
Last quarter, I discussed the efforts on the Engineering and Operations side to get production back to normal, casting our teams with solving problems related to the ongoing worldwide part shortage issue. I am thrilled that our production lines are back in full swing. And to say that we delivered a near record number of Casino and point-of-sale printers in the third quarter, and we broke a number of company’s sales records.
First, at a high level, on the Food Service Technology or FST side, we set record highs in terms of sales dollars for total FST revenue, label revenue and total recurring FST revenue, which I’ll go into more detail shortly. On the Casino and Gaming side, we saw another double-digit percentage increase in sales on the domestic side of our business, and yet another triple-digit sales increase on the international side. Suffice to say our R&D and operations were to ramp up production was a massive success. And barring any unforeseen issues, we believe this momentum will continue.
Before I go through the market results, I also wanted to provide you an update on our cost cutting initiatives and price increases, which I discussed in last quarter’s call and was in full effect by September of the third quarter of 2022. These cost cutting measures combined with the revenue growth resulted in a significant improvement in the flow through of our top line revenue to the bottom line profitability. We were thrilled to see our gross margin increased by 540 basis points.
Okay. Let me step aside. Ryan, Mitch Sacks is texting me that he – he’s on hold for 10 minutes. So can somebody figure that out? So let me start again. Sorry, it’s modern technology. These cost cutting measures combined with the revenue growth resulted in a significant improvement in the flow through of our top line revenue to the bottom line profitability.
We were thrilled to see our gross margin increased by 540 basis points, while achieving both positive net income and positive adjusted EBITDA. What a great job by the TransAct team to get us to this point, and sales teams, you did a fantastic job.
Now, let’s go through our markets in more detail, starting with FST. I cannot be more pleased with our results. And as I just mentioned, we set in a number of records. Our FST recurring revenue crossed over $2.5 million for the first time in a quarter, setting a new record high of nearly $2.6 million.
While we saw increases across all three components of a recurring revenue, label sales saw a particularly strong quarter, and also set a new record high in terms of sales dollars. Combined with record high software sales, and adding in the hardware sales in the quarter, we reached total FST revenue in the quarter of $3.7 million, which, as I already mentioned, is a record for total FST sales dollars in a quarter.
Well, a lot of the positive momentum can be credited to our newly expanded sales force, please keep in mind, that we have said in the past, that our typical sales cycle are well over a year, and the expanded team has only been in place for less than six months. Some just joined us a few weeks ago. I’m really excited to see their early success, which we believe is setting the stage nicely for future performance.
They have made significant inroads in the SMB vertical, and – started to carve out new use cases for our industry-leading BOHA! Terminal and workstations, particularly in the grocery market, where we see as important to the TransAct brand going forward. The economics of the grocery aisle resemble very large convenience stores with heavy label usage, but with some additional software layered on top.
Now let’s talk about paid terminal count. In the third quarter, we added 988 paid terminals for a total of 11,929 currently in the quarter. I’m sorry, currently, I’m getting text messages Ryan, that people can’t get into the call.
Now let’s talk about paid terminal count. In the third quarter, we added 988 paid terminals for a total of 11,929 currently in the market. We continue to be optimistic about our results for the remainder of the year, but I am optimistic for 2023 and the future, due to all the new sales opportunities our new sales team have identified.
And speaking of our sales pipeline, we continue to believe it has robust or perhaps even more than ever. We are seeing great traction with a number of valuations currently underway across some well-known international brands. And our sales team is at high gear working to close deals.
Well, it will take time to close some of the opportunities in the pipeline, there is a real need for our technology, and we believe we will see positive momentum carry on throughout the end of the year and into 2023. With that in mind, we are reiterating our recurring FST revenue guidance for the full year of $8 million to $10 million.
Now, I would like to speak about one large opportunity that should become a great success story for TransAct. We have been given the approval to go into a final test with a very large QSR. And the goal between our two organizations is to begin the sales process with their franchise organization in July of 2023. This is a very large opportunity for TransAct. And we just have to finish some final design work and then the final field test. We believe this will be the largest sales opportunity in the company’s history for a BOHA! technology.
Before moving on, I wanted to touch on our ARPU for the quarter, which came in at $936 versus $861 sequentially. Our record FST recurring revenue helped fuel this gain, particularly with the strong performance from our label business. As a reminder, our target ARPU continues to be $1,000 to $1,200 per year.
However, we are now selling a number of BOHA! Terminals that will replace our old 9700 AccuDate Food Safety Terminal, which will not generate any recurring revenue from the beginning. Well, these units are included in our ARPU calculation and dragged down the number of debt.
The purchase price of these will be higher than our typical BOHA! Terminal or workstation sale, which will fall into hardware rather than recurring revenue. The BOHA! Terminals and workstations will also so get our customers onto our portal-based system and gives us the opportunity to upsell each to our different app offerings.
Now let’s talk about the Gaming and Casino market. Once again, we could have sold more products, but the incredible demand is outstripping our supply, even as we ramp production up significantly. For the third quarter, Casino and Gaming sales were $7.6 million, which is up almost 92% year-over-year.
As I mentioned, we saw a solid double-digit gain in our domestic sales, and yet another triple-digit gain in our international markets. And our international success was achieved without much sales into the [inaudible] market, which is still affected by the Chinese COVID lockdown policy. As many people know, our competitor in the Casino market appears to have a production issue, and we took on the task of ramping production as quickly as possible, despite the product shortages in the marketplace to help our slot manufacturers with their sales to the Casinos.
One slot manufacturer personally told me, Bart, we bailed them out. There is no doubt the word is out that TransAct has supply, and new customers are coming in from across the globe to buy our epic line of printers. We continue to actively work on ways to increase our production to meet this record demand.
We plan on increasing production even more in the fourth quarter of 2022, and we should experience higher sales as we ship more printers in the fourth quarter than we did in the third quarter. In addition, we are planning to increase production even more in the first quarter of 2023 to meet the demand we’re experiencing from our customers around the world.
We learned and heard a lot at the G2E Show this year in Las Vegas, and working hard to produce more printers. I’d like to thank everyone we met at G2E for coming out and seeing our booths and product demonstrations. We had BOHA! in the booths and pleased to see Casinos wanting to learn more about our back of the house technology. We generated sales leads at G2E for BOHA! and have added this market to our focus lesson. It is fantastic to be back out at trade shows like G2E, interacting with all our customers and prospects, and showing them the power of our technology solutions all in one place.
Now let’s move on to our POS Automation market. We were also the beneficiary of the competitors’ inability to supply the market here, as we saw them ship a huge amount of our Ithaca 9000 printers to our key customer. The additional supply allowed us to begin fulfilling backlog orders as well. And together, this resulted in sales of over $5.2 million, which was over 300% above our POS Automation sales from the prior year. It is important for us to continue our POS printer line and get to a constant level of production, as this leads us to dive further into the POS customers to cross sell our BOHA! system.
In closing, I want to quickly recap what I believe to be the highlights of the quarter. In FST, we’re seeing fantastic momentum in certain markets and feel confident in our growing pipeline going forward. We experienced record highs in our FST revenue. In Casino and Gaming, we’re actively taking share in every geographic market we serve across the board, due to the incredible success of our teams to ramp up production with all the operations, R&D and sales work we did. Our international sales were real highlight and we continue to see demand from these customers.
Our price increases and cost reduction program resulted in a positive net income and adjusted EBITDA in the very first quarter they were fully implemented. And we entered the fourth quarter of 2022 with $19 million of backlog. Taken together, it’s hard to imagine a better quarter for TransAct as a whole.
With that, I’d like to hand the call over to Steve to go over the numbers. But before I do, I do hope people finally got through. I don’t know why they’re having problems getting through on this call. And I can only apologize, this is happening. Okay, I’d like to hand over the call to Steve to go over the numbers. Steve?
Steve DeMartino
Thanks, Bart and thanks to everyone for joining us this afternoon. Let’s turn to our third quarter 2022 results in more detail. Total net sales for the third quarter were $17.9 million, which was up 68% from $10.6 million in the third quarter of ‘21.
Sales from our Food Service Technology market, or FST, were up 14% to a record $3.7 million compared to the third quarter of ‘21. FST hardware sales decreased by 6% to $1.2 million, largely on lower sales of our first generation AccuDate 9700 terminal to McDonald’s. While sales of our BOHA! Terminals and workstations remained relatively flat.
We added 988 paid terminals during the third quarter 2022 and finished with a total of 11,929 in the market. Our recurring FST sales which includes software and service subscriptions, as well as consumable label sales were $2.6 million, also a record high and up 27% from the $2 million in the prior year period, and up 18% sequentially. This improvement was due to a record label and software sales in the quarter as well as higher service revenue.
Our ARPU for the third quarter ‘22 was $936, which was up sequentially from $861 in the second quarter of 2022. The continued ARPU recovery is due to higher FST recurring revenue, which we’ve seen accelerate over the past two quarters.
Our Casino and Gaming sales were $7.7 million, which was up 92% from the third quarter of ‘21 and 19% sequentially from the second quarter ‘22. Our international sales were up almost 190% year-over-year, and have continued to be very strong, as we are actively picking up market share, especially in Europe due to competitive dynamics.
Domestic sales were also very strong, up 42% year-over-year. And we also implemented our second price increase late in the third quarter, which began to positively impact our top line. As we mentioned in the last quarter, we’re continuing to see record demand. And although we’ve been able to increase production substantially, even in the face of the worldwide supply shortages, we still sold out of Casino and Gaming printers in the quarter. We’re ramping up production even more in the fourth quarter, but still expect to be supply limited against all the demand we’re experiencing.
POS Automation sales more than quadrupled in the third quarter ‘22, increasing 340% from the prior year to $5.2 million. This jump resulted from significantly higher sales of our Ithaca 9000 printers to McDonald’s due to additional competitive dynamics, with another key supplier being unable to deliver product in the quarter. Additionally, our successful production ramp allowed us to begin to fulfill our backlog of orders, which we were unable to fulfill sooner due to the ongoing chip shortage.
Moving to TransAct Services Group or TSG sales. Overall TSG sales were down 42% to $1.1 million. This decrease was largely due to unusually high spare parts sales to a customer for our legacy lottery printers during the third quarter of last year, that didn’t repeat to the same extent this quarter. As a reminder, the TSG market is no longer a focus for us, and we expect sales to gradually wind down over time.
Moving down the income statement, our third quarter gross margin was 45.9% compared to 40.5% in the prior year quarter. Gross margin was positively impacted by 68%. higher sales, especially in the Casino and Gaming market, as well as two rounds of price increases we instituted late in Q1 and again in September 2022 to mitigate higher product and shipping costs related to the chip and parts shortages. While we originally anticipated gross margin to dip in the third quarter, the leverage from additional sales was more than enough to overcome this. As a result, our gross margin actually rose sequentially by 290 basis points from the second quarter.
Our operating expenses for the third quarter increased $1.9 million or 32% from the significantly lower COVID impacted spending levels of the prior period. However, sequentially expenses were down 7% to $7.8 million as a result of our cost savings initiatives. Breaking this down a little bit. Our engineering and R&D expenses increased 6% to $2 million, largely due to the impact from hiring additional software developers in late 2021 for the continued development of BOHA! software. On a sequential basis, our engineering and R&D expenses were down 9% due to our cost reduction initiatives.
Our selling and marketing expenses increased 45% to $2.7 million due to additional investment in marketing programs, the return of trade show and travel spending to pre-COVID spending levels and the further expansion of sales and customer support staff to support our BOHA! products. However, sequentially our selling and marketing expenses were down 17%, again, due to our cost reduction initiatives.
Lastly, our G&A expenses increased 43% to $3.1 million. This increase included an across the board salary increase, the hiring of additional accounting and finance staff, recruiting fees, higher professional fees, as well as expenses related to the rollout of our new ERP system, NetSuite.
Turning to operating income, we generated operating income of $387,000 or 2.2% of net sales in the third quarter of ‘22, which compares to an operating loss of $1.6 million in the prior year period. And on the bottom line, we recorded net income of $528,000 or $0.05 per diluted share, compared to net income of $901,000 or $0.09 per diluted share in the year ago period. However, our EPS of $0.09 for the prior year third quarter included a $2.2 million gain on the forgiveness of the PPP loan from the SBA under the Cares Act. After removing this gain, we incurred an adjusted net loss during the third quarter of ‘21 of $1.3 million or $0.13 loss per share.
And finally, as Bart mentioned, I’m pleased to report that we generated positive adjusted EBITDA of $1.2 million in the third quarter of 2022, compared to negative $1.2 million in the prior year period. In terms of liquidity, we finished the quarter with $6.4 million of cash and $2.25 million of debt outstanding under our newly amended Siena credit facility. And based on our internal projections, we believe we have sufficient cash on hand and borrowing capacity under a Siena credit facility to fund our business through at least the end of ‘23.
And with that said, I’d like to turn the call back over to Bart, for any closing remarks. Bart?
Bart Shuldman
Thanks, Steve. Once again, a great job. Before I open the call to questions, I want to let our shareholders know that I’ll be in New York City next week, attending two investor conferences. Hopefully, I will see many of you and we’d gladly meet you at the conferences, or if necessary for coffee or drinks or dinner after. Just let me know.
With that operator, please open the call to questions.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] We’ll take our first question from the line of Jeff Martin with ROTH Capital Partners.
Jeff Martin
Steve, hope you’re doing well. I apologize, I was one of those that had a tough time getting on the call. Bart, you mentioned a large QSR order or you know customer in the pipeline. I’m just curious how you know long you’ve been working with them and what stage that you know is currently? And you gave us a timeline of mid-year ‘23 you know what needs to happen between now and then? It’d be helpful. Thank you.
Bart Shuldman
Yeah. So we’ve been working with them for quite a while. And they had some requirements that we worked on, that we’re just about finishing up. So we went in and demonstrated the final product to them and got the thumbs up based on the response we got we, checked off all the boxes is how they put it.
And so we’ll finish that up now that they approved it and start our test, our final fuel test as we get to the end of the spring. And the two organizations bode things that we could start a rollout July, early July of 2023. It’s a franchise organization so we get the license to sell, which we think you know that we’re going to get great support from corporate, but we’ll begin our selling to the franchisees right around the beginning of July of 2023.
Jeff Martin
Okay. And care to disclose how many franchisees they have?
Bart Shuldman
Well, actually don’t know how many franchisees they have. I know that they have the addressable market that we’re going after, between all the different geographic areas is probably going to approach 20,000 stores.
Jeff Martin
Okay. Yep, yep. Okay, great. And then you may have touched on this in your prepared remarks, but just in terms of pipeline development you know what kind of progress did you see in the quarter? Are we starting to get to the point where you know larger restaurant organizations are less focused on labor issues and input – you know inflation costs? Just curious if you’re seeing any kind of undamming of the sales process with respect to a back of the house you know purchase decision?
Bart Shuldman
Yeah. So you know if you kind of break up our FST business into three markets, right, you’ve got the convenience store market. And that’s you know that’s all about getting into fresh food and the growth of fresh food at convenience stores. I think we all understand that we’ve got a bunch more that we’re working with. And you know that business continues to move forward.
The grocery aisle is another area that we’re focused, again, that has to do with fresh food and the demands of the FDA on labeling and that also has a couple of large opportunities in there. We’ll add a fourth now, the Casino market. Clearly the response we got at G2E was very positive. You know, Casinos run basically restaurants so it’s kind of a no brainer. It’s kind of a different, it can be a different operator. They do a lot with kitchens and things like that commissaries. But the need for the things that we can provide are there. So we’ll move that forward.
And then the last one, Jeff has been restaurant. And that’s been the hardest market, there is no doubt that our friends in the restaurant market have had a sendoff a lot over the last couple of years first, the pandemic and closing and just dealing we’re trying to sell as much food as they could online and pick up. And then, of course, once they opened labor shortages and high inflation on both labor and food.
But I think the good news is you know we implemented our sales team, we brought on the new sales team, mostly they’re in the restaurant market and we’re starting to see some real traction with some very large customers. One in particular, I was able to mention, because that one we’ve been given the okay, it’s just that we got to finish up some work for them, and then go out and sell to the franchisees, but there’s quite a few restaurants in the pipeline that are moving forward.
So we are seeing that the restaurants, while still focused on their labor shortages and their high inflationary issues, they are receptive to us coming in, demonstrating the technology and moving forward with trials, evaluation units and in their location at the headquarters and then potentially doing you know field trials. So, we are starting to see that turn, Jeff, where restaurants are opening up to our technology.
Jeff Martin
Okay. And then I may have missed it. But you gave an updated terminal installations guidance for the year. I know you reiterated the –
Bart Shuldman
No.
Jeff Martin
Recurring revenue –
Bart Shuldman
We didn’t. No, we didn’t. You know we’re running at about 1,000 a quarter on turn-ons. And you know barring you know it’s because we have so many opportunities that are coming into the pipeline, we’re just going to keep going forward and work with some of these large opportunities, and let them happen when they happen.
Jeff Martin
Okay, great. I’m going to yield. I’ll come back with some additional questions.
Operator
We’ll take our next question from the line of George Sutton with Craig-Hallum.
George Sutton
Thank you. Bart, congratulations on the great numbers. So relative to your discussion around the traditional sales cycle of a year and the fact that you brought on a lot of new salespeople over the past six months. I think the suggestion was, we are in front of even better news, because those folks have not yet really become productive. Am I hearing that correctly? Or was there anything that has accelerated the sales cycle we should be aware of?
Bart Shuldman
You know it’s kind of both. Look, our salespeople coming up to speed, but also the restaurants weren’t ready. So I think you’ve got a combination of both. But you also have some people that are walking into the grocery store market, for instance, that need labeling for their fresh food offerings, where we’ve got a bunch of trials going on right now.
The Casino market just opened up to us as we showed the technology at the G2E Show, and there’s a couple of exciting Casinos in that mix. So it’s kind of a combination you know being the fact that we’ve got this larger sales force you know that pipeline is just going to grow, right, it’s the funnel that just going to get wider and wider, which is what we need to see, and then you know you start seeing the close come down at the bottom.
The other thing that’s been very healthy for us is our SMB market. We now have three people in what we call digital sales. Because those close very quickly, there you have the chef, the CEO, owner, all in the same position. And once they get a demonstration of the technology, they get it they get the savings, they get what’s going to be helpful for them. And so those tend to close quicker. So there we see that sales cycle much quicker than the bigger people and we’ve set the roll up.
George Sutton
So when we talk about sort of the takeaways from the G2E Show and you obviously had that very valuable sign that said, printer is available. Can you talk about what that has meant for your printer business? And can you also talk about you know understanding you’ve standardized on a chip. How much supply you’re actually getting versus the demand side of the equation?
Bart Shuldman
Yeah, yeah. Great question, George. So the demand side continues to surprise us. We ramped up in the third quarter, and mind you, we were capacity-constrained in the third quarter as we put a third production line on and got it up to speed by September. And then, of course, the fourth quarter that fourth line – that third line is going to run, we’ve now decided to put a fourth line in. the demand, well, we have a $19 million backlog, we actually have orders we have not accepted yet, because we can’t give out delivery dates, which would drive that backlog probably north of $30 million.
So the Casino market continues to impress us with the demand. And you know what we’ve heard from our customers is, they’ve got a backlog of orders that they’re you know they’ve had their own supply issue that they’re going through and getting fixed and ramping up their production. We heard from one in particular, a slot manufacturer that ramping up their production to meet the demand that they’re seeing.
And you know we’re just – we’re ramping up as quickly as possible. It’ll be clearly record sales, I think the fourth quarter will be record sales for Casino and then the first quarter is going to be, if we can get that fourth line and get all the chips in you know we’ll have another record in the first quarter. You will see that our inventory is up a little, George mostly that’s parts that we bought. So to get ahead of this, we bought a lot of our new chips, because that chip is standardized across all of our products now.
So we bought a lot of those chips and we’re buying where we know we’ve had issues before, we’re going out and buying those chips or those electronics also, again, the goal is to get the third line up and running in the fourth quarter and get the fourth line up and running in the first quarter next year to meet this demand you know that we’re seeing. And like I said, if we ended off you know this week we have or been told we’re getting, that backlog would probably exceed $30 million right now.
George Sutton
So I just want to make sure I distinguished that Governor to your growth and your ability to ship. And I’m thrilled to hear you have high inventory of chips. So it is no longer a chip issue. It is now a production issue that you can manage via hiring and building out these, correct?
Bart Shuldman
Look, there’s no doubt that a lot of the issues that we faced just three months ago had been resolved by us designing around it and also going to our new processor. George, I can’t tell you 100% that we’re not going to get a call tomorrow. And some part that we were expecting, whether it’s a motor driver or a sensor turns out that we find ourselves not getting the volume that we thought we would get.
So you know right now it’s capacity of production. But I can’t promise you a 100% then when we ramp up to the fourth line, that all of a sudden we find out that chips, I think we’re in good shape, there’s some other electronics that pop in and out of issues in getting the parts.
I will say that the good news is, George that the spot market tends to have those products now. It’s one way we were able to get to the numbers in the third quarter. And the numbers we think we’re going to get into the fourth quarter was because we found the chips on the spot market and we’re able to buy it. And hence why we have those price increases in place to be able to absorb that extra cost. So I can’t promise you, George that there won’t be a part out there that pops up as my operations people like to still call it it’s whack-a-mole, but there’s not as many whacks we’re having to make.
George Sutton
The last question, if I look at your, what I will define as potential backlog of $30 million versus your backlog of $19 million. That delta is a number of orders that my assumption is, it can’t be fulfilled because – by some of your competitors, because they don’t have the capacity. Is that a reasonable assumption? So in other words, most of those potential backlog orders should ultimately be recognized.
Bart Shuldman
Yeah. Look – they’re just waiting for delivery dates from us. And we’re working – we need to do is to stabilize and to get that production up through the fourth quarter into the first quarter. And then we’ll share our delivery dates with those customers. But what they’re doing is, they’re showing us purchase orders. So then it’s up to us to match those purchase orders to the production and delivery.
So yeah, those orders will get entered. It’s just getting you know a firm commitment from our production people that what day are we going to ship or what week we’re going to ship those products. You know, we’re very excited about it, we’re starting to get confident of where we are, we are a bit surprised by the volume of orders and how many, because we thought by putting in the third line, that was enough.
And clearly it’s not and so we’ll put the fourth line in. And we’ll manage through it, we’ll manage it and then take those orders and you know begin to get those orders on our books. Now remember, once we ship something it’s out of backlog, so we’ll be shipping every week and all that so, but we’ve got plenty that we have not entered onto our books yet.
George Sutton
Well here’s to a fifth and a sixth later next year. Congrats on the results –
Operator
We’ll take our next question from the line of Mitchell Sacks with GS Asset Management. Your line is open –
Bart Shuldman
Mitch?
Mitchell Sacks
Hey. Can you hear me?
Operator
Mr. Sacks?
Mitchell Sacks
Can you hear me now?
Bart Shuldman
Yeah.
Mitchell Sacks
Good. Hey, Congrats. Congrats on the quarter guys. First question is around the backlog. And so with respect to the $19 million, when would you expect that $19 million going to be filled over what period of time?
Bart Shuldman
Most of it’s for the fourth quarter and some for the first quarter.
Steve DeMartino
Yeah, I would say. Well, yeah, the majority of it over the next six months, Mitch.
Mitchell Sacks
Okay. And then in terms of the additional orders that you’re holding off on. Just kind of, if you could just talk through a little bit in terms of so the gating factors now are those production lines as opposed to parts. Assuming that you have a third production line up. What does – is it a step change in terms of capacity? Or is it just technically another third, basically increased capacity by a third effectively?
Bart Shuldman
You know it’s just getting the production line up. Again, I cannot 100% say to you that we won’t run into a part issue out there that will surprise us. But right now it’s capacity of the line to – we’re trying to ramp up really quick. And you know it just takes time to get all the plastic parts, all the metal parts you know everybody to ramp their production up.
So it’s not just electronics, it’s all the pieces that go into that printer. And we’re getting more and more confident as we got through Q3 and able to hit some good numbers in Q3, that will hit our numbers in Q4, knowing what our customers are asking us for Q1, which will be more than what – potentially more than what we’ll do in Q4, because they’re asking for. And you know it’s up to us to supply it.
Mitchell Sacks
Great. And in terms of the QSR opportunity, is that purely a franchise organization? Or do they also have corporate stores where you’re testing the product, The BOHA!
Bart Shuldman
Yes, they’re both but they’re mainly franchise operations. They have some corporate stores.
Mitchell Sacks
So you would be billing them the franchisees, not corporate for the recurring revenue and for the equipment?
Bart Shuldman
That’s right. That’s right, Mitch.
Mitchell Sacks
Okay, cool. And then on the –
Bart Shuldman
And the rollout will start. The agreement that we have is that, we can start selling to the franchisees in July. You know I can’t tell you that going to be a quick ramp up, a slow ramp up. That we don’t know. But from a need standpoint, they need the technology. So it’s just going to be a matter of how quickly they – the franchisees decide to buy the equipment. But it’s definitely meeting a need of theirs.
Mitchell Sacks
And are you in conversations with the large franchise groups or who’s pushing this? It being pushed bottom up or top down or are you coming at it from both directions?
Bart Shuldman
So it was pushed bottom up and top down. There were some real needs in the marketplace and through our friends in the franchise world, they ended up doing some testing on our behalf, really loved what we could do for them. While, we have been talking to the corporate office well over a year.
So it was a combination. It was really needed. That I can’t get into more details than that. But they really needed it, is just a matter of time, given all that McDonald’s – all that the customer is doing. That. Yeah, I’m on medication for my back. So, it’s – I’m sorry to say, but anyway, it is what it is.
Mitchell Sacks
Okay, cool. Great. Thanks a lot, Bart.
Bart Shuldman
You got it.
Operator
Our next question comes from the line of Jeff Martin with ROTH Capital Partners. Please go ahead.
Jeff Martin
Thanks. Bart, wanted to see if there’s any insight on to you know 7-Eleven and their integration of Speedway? Are we growing closer to potential and knowing whether they’ll roll out the labeling BOHA! Terminal to their Speedway terminal?
Bart Shuldman
Yeah.
Jeff Martin
And then was also curious –
Bart Shuldman
No, no. –
Jeff Martin
If you could give us an update on – Yeah, go ahead.
Bart Shuldman
I’m sorry. Go ahead. I’m sorry.
Jeff Martin
I was just also curious on an update, in general, with 7-Eleven. I know they had a sluggish start to the year, partly because of the integration focus? So anything you can update us on would be helpful.
Bart Shuldman
Yeah. The second half of this year has been their big focus in integrating Speedway, there’s no doubt, bunch of layoffs and I think 900 people got laid off, even some of the people that we worked with got laid off.
So you know, we’re in a hold and steady mode with them. And we’ll see what they do with Speedway. I don’t think it’s unknown that the Fresh Food Program has been very successful for them. But what their ideas of Speedway, they’re very tight lipped about that. And whether they’ll roll out the Fresh Food Program to those stores yet.
Jeff Martin
Okay. And then I was just curious if you could give us some relative perspective on label sales in the quarter. When you had a good recurring revenue quarter for FST. You know are we at a level where you think we’re at fairly predictable and sustainable level of label sales? Or was there some catch up in the quarter?
Bart Shuldman
No, good question, thank you, Jeff. No, it’s becoming predictable now. You know as long as we don’t get hit, and I hate to say it this way, but as long as we don’t get hit with a major flu outbreak, a major COVID outbreak you know if you look at the first quarter, we were dealing with that, and that causes you know transactions to go down. And therefore you know our customers pull back on the amount of labels they buy, because they’re doing less transactions.
Now we’re in full swing, right. I mean, there’s been no virus, no major issue out there. It’s been Steady Eddie for their business. And you know you got to think, every time we put out 1,000 terminals and let’s say, 800 of them are recurring revenue terminals, because you know some go out where we’re just replacing the 9700 you know we are going to get a bunch of revenue from those. And that’s adding to the baseline revenue that we got last quarter.
So we added another as we said, 900 plus terminals into the marketplace. Some of them have label sales, and those labels – those terminals that have label sales with it drove our label business up, it’s going to be the same thing in the fourth quarter. So it’s getting those incremental units out the door, getting them in place, getting them online, and then the follow through of the software revenue, the service revenue, should they buy a service contract and without a doubt, the label business will grow that recurring revenue line.
Jeff Martin
Okay, great. And then I think you mentioned the AccuDate, didn’t ship a lot of terminals this quarter. That mean, we might see you know a significant hardware uptick in FST in the ensuing quarter or two related to the AccuDate replacement cycle?
Bart Shuldman
Steve, I think we shipped a lot of 9700s in the quarter.
Steve DeMartino
9700s were down in the quarter compared to last year.
Bart Shuldman
Compared to last year. Okay, okay.
Steve DeMartino
Yeah. Compared to last year.
Bart Shuldman
Yeah. Look, it’s an existing product that’s running out of it’s – you know the technology is old and there were things that we’re going to do –
Jeff Martin
But I was –
Bart Shuldman
That was –
Jeff Martin
I was referring to the BOHA! Terminal that’s essentially replacing the AccuDate 9700. Am I my misunderstanding that?
Bart Shuldman
Yeah. So what’s the question?
Jeff Martin
I just wanted to clarify, if you had mentioned that you didn’t have a lot of those BOHA! Terminals that replaced the AccuDate in the quarter. And if there’s some you know potential for some significant FST hardware sales in the next couple of quarters as a result of some pent up demand?
Bart Shuldman
You know in a lot of cases, we’re not selling the 9700 anymore. A product that’s 10 years old, and you know what we’re doing is, we’re working with our different restaurant companies that bought the 9700 and switching them to the terminal of the workstation. So there is that pent up demand once they make that decision, you got to remember that, when a restaurant is running – a franchisee, let’s call it, is running the 9700, they’ve got to go to each machine to update the menu items, right. They go with a jump drive, they stick it in the machine, the 9700 is updated with the latest menu, and then they go to the next door, the next door, the next door.
And with the terminal or the portal solution, you go to your computer and say, update you know here’s the menu item and update all the terminals in the field and press a button and 10 seconds later, all the terminals are updated. So the question that we have, Jeff is, when we talk to these customers that are starting to look at the terminal to replace the 9700. Will they replace it on a onesie-twosie or they just say, this is just such a better technology and I can update all my terminals at one time not have to send somebody on road and make sure all the terminals are updated. Will they roll it out even quicker? We don’t know that answer yet.
Jeff Martin
Okay. The reason I asked this question is, I believe on the last quarter call we talked about tens of thousands of potential replacements. So I was just curious if there was –
Bart Shuldman
There are. There are –
Jeff Martin
Much traction to-date. And if there’s you know any visibility in the next couple of quarters where that might become insignificant volume for you and therefore translate into significant FST hardware revenue. That was really like what I was getting at.
Bart Shuldman
Yeah. No, Jeff, you’re in the right track. No, you’re in the right track. Exactly. Exactly. No, that’s what we’re working on. It’s exactly what we’re working on and as they move over to the terminal, it’s going to drive significant. I mean, there’s one opportunity to talk about on the call is you know it’s over 10,000. So it’s just a matter of time to get that done, and then turn them over to you know modern technology from the 2012 technology. So it will.
Bart Shuldman
Yeah. Great. That’s it for me. Thanks.
Operator
And that does conclude today’s question-and-answer session. At this time, I’ll turn the conference back to you, gentlemen, for any additional or closing remarks.
Bart Shuldman
Yeah. So let me apologize once again, for whatever problems people had in getting on the call, we’ll clearly dive into and find out how that doesn’t happen again. I do really thank all of our shareholders, for their support. There’s no doubt that 2020-2021 were not fun years for us. And then when we came out of that, we had to deal with some significant parts shortage issues that the world is dealing with.
And then I thank my team at TransAct for getting us through it and getting us back to profitability. And then getting things like the Casino business to understand that we have product and now buying a lot of it. So I think our shareholders, I thank you for the support. I thank the TransAct team, what a job they did and look forward to talking to you again on our next quarter call and also for those that will be in New York City next week, I hope to see you and say hello. So thanks, everybody.
Operator
This concludes today’s call. Thank you for your participation and you may now disconnect.
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