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TransAct Technologies Incorporated (NASDAQ:TACT)

Q4 2013 Earnings Call

March 06, 2014 4:30 pm ET

Executives

Richard Land

Bart C. Shuldman - Executive Chairman and Chief Executive Officer

Steven A. DeMartino - President, Chief Financial Officer, Treasurer and Secretary

Analysts

Todd Eilers - Eilers Research, LLC

Mitchell Lester Sacks - Grand Slam Asset Management, LLC

Lawrence J. Haverty - Gabelli Multimedia Trust Inc.

Samuel Bergman

Operator

Good day, ladies and gentlemen, and welcome to the TransAct Technologies Fourth Quarter 2013 Conference Call. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to introduce your host for today's conference, Richard Land. Please proceed.

Richard Land

Thanks, Charlotte. Good afternoon, and welcome to TransAct Technologies 2013 Fourth Quarter Conference Call. Joining us today from the company are Chairman and CEO, Bart Shuldman; and President and CFO, Steve DeMartino. Today's call will include a discussion of the company's key operating strategies and progress against these initiatives and details on the fourth quarter and full year 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 the 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 report 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 measures calculated and presented in accordance with GAAP, can be found in today’s press release, as well as on the company’s website.

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

Bart C. Shuldman

Thank you, Rich, and welcome, everybody, for joining us on this afternoon's conference call and webcast.

It's clear from this afternoon's reported results that the fourth quarter for TransAct was a challenging period in which we experienced declines in a number of our financial metrics. The fourth quarter results also skewed our full year results and, as a result, had the effect of masking much of the progress we achieved throughout the year. Steve will review the financial results in detail in a few moments, but I want to start by just briefly highlighting our results in the fourth quarter.

First, I want to remind everyone that through the first 9 months of 2013, our newly introduced products were key drivers of year-over-year growth in gross profit, operating income, adjusted operating income, EBITDA, adjusted EBITDA, net income and adjusted net income. In fact, while total sales declined approximately 2% through the first 9 months of 2013, primarily due to lower sales in our lottery unit and the deemphasis of some of our historical lower-margin businesses, gross profit was up nearly 10% and adjusted operating income, which normalizes for nonrecurring items, was up nearly 22% and represented 11.2% of sales compared to 9% of sales in 2012. Adjusted EBITDA was also up over 57% for the year through the end of the third quarter. I think this progress provides clear evidence of the value our newest products bring to customers in high-growth markets and their potential to drive long-term growth.

Unfortunately, the fourth quarter was different, which is evident in the results we just reported. Clearly, our casino and gaming sales unit was pressured by the decline in slot machine sales in the U.S. compared to the prior year quarter. That said, while casino and gaming sales were down year-over-year, we did have one of our best quarters for Epicentral going live at 2 casinos in the quarter. In food safety, we had indicated on our third quarter conference call that seasonality would impact this business during the holiday season and we certainly saw that happen. The food safety opportunity that remains a very bright spot for TransAct, and I will review in a bit more detail in a few minutes, as full year sales of our Ithaca 9700 were $4.4 million, representing approximately 38% of our total food safety point-of-sale and banking sales.

In the lottery segment, we discussed throughout 2013 that the tough comp we faced versus 2012 and the fourth quarter was the toughest comp yet for the company. As in the fourth quarter 2012, a lottery customer made a large end-of-life purchase for an older generation printer. Our 2013 fourth quarter lottery sales to that customer were in line with our normal historical minimum quarterly contractual agreement.

Finally, worldwide demand for oil and gas printers was lower in the fourth quarter. A result, we believe, of general weakness in the industry. However, we are seeing positive signs that the industry may begin to rebound, highlighted by the significant increase in natural gas prices. With the previous fall of natural gas prices, many producers moved their assets to oil production. Now we are seeing increased activity in the gas sector, which should eventually turn into increased orders for TransAct. So while there were certainly a confluence of factors that impacted our fourth quarter performance, I am very appreciative of the effort and commitment demonstrated by the entire TransAct team throughout the quarter to achieve the best possible result for our company and our shareholders.

Now we roll up our sleeves and get back to achieving the growth we expect in 2014. To that end, I'd like to spend a few minutes reviewing several of the exciting opportunities I expect we will successfully execute on this year and going forward. First, we discussed in the past the market position we have in the casino and gaming markets with our Epic 950 dual port, thermal ticket-in/ticket-out printer. The Epic 950 remains an industry leader and we expect to continue to grow market share, in part due to our new relationship with Suzo-Happ, which is one of the many significant accomplishments achieved in 2013. I expect that a greater percentage of electronic gaming machines sold worldwide in 2014 will have a TransAct printer in them compared to 2013. And as such, will further expand our market position this year.

Of course, the really exciting opportunity within our casino and gaming business is the growing penetration of our Epicentral couponing system. In 2013, Epicentral went live on approximately 7,000 electronic gaming machines, bringing our year-end installed base to 8,000 units. Further, we have signed agreements that will add Epicentral to an additional 4,000 units and expect the majority of these units to be live by the end of the second quarter of 2014.

As we've been able to mine performance data from the early adopters of Epicentral, casino operators' knowledge and appreciation for the value of the system, offers are growing. Today, we can approach potential customers with data, demonstrating that Epicentral can help increase lower-tier player average daily theoretical on the day a random reward is presented, and achieves an 87% redemption rate of coupons targeted at carded players; boost coin-in over a single 1-hour promotion by 73%; generates 40% redemption rates for coupons that encourage bounce-back midweek repeat visits; drives a 30% bump-up a new player loyalty club enrollment in less than 90 days by targeting uncarded players; and drives a 25% increase in players qualifying for top-tier status. These demonstrated successes show casino operators that Epicentral is clearly a tool that can help improve their top line. Epicentral can clearly be a differentiator for the most challenged regional casino market. We have said before that casino revenue goes up when Epicentral goes in, and the data continues to support this claim.

Beyond locals market opportunities, we are also seeing interest in Epicentral from some Asian and European casino operators, as well as from Las Vegas strip operators, reflecting the growing traction across the marketplace, I expect Epicentral revenue growth will be stronger in 2014 than it was in 2013.

Turning to the food safety market. As I noted earlier on the call, the fourth quarter reflected the seasonality in this business that we discussed in our third quarter conference call. Despite the quarterly sequential sales decline, our momentum in this industry remains unabated. In fact, I believe the long-term food safety market opportunity is one of the biggest, if not the biggest opportunity TransAct has ever addressed. I say this because we've identified a total addressable market opportunity of at least 700,000 terminals. And as we continue to develop relationships with restaurants and food service operators, we see further growth in the number of ongoing trials. In addition, we have received very positive industry response and acclaim at various trade shows, as well as in our interactions with established industry participants. We believe that the Ithaca 9700 is an industry-unique tool that can help spur a real change in the back-of-the-house operations for restaurant and food service providers. This is reflected in the growing number of conversations we are having with different industry players, as well as with software providers and label manufacturers that are seeking to partner with us to address this opportunity. Each of these conversations confirms our enthusiasm for the potential of the Ithaca 9700 and our go-to-market strategy.

I'd note that we expect to be in a position to discuss opportunities to partner with leading industry participants that would expand this business by the time we reach our third quarter conference call. This is an exciting time for TransAct and I hope that the weakness in the fourth quarter results, due mostly to seasonality in the business, doesn't distract anyone on the call today from our potential to execute on this large growth opportunity. Regarding our new Epic -- our Ithaca 9700 food safety terminal, we are now conducting over 150 trials encompassing more than 70 restaurant companies and representing an opportunity of over 100,000 terminals. The pace of the new trials continues to be rapid. Once a trial begins the customer quickly sees how aligned we are with their goals and expectations. And we've successfully evolved the Ithaca 9700 to a level where we were able to address specific needs of a wide variety of food service operators through customized menus, nutritional labels and food segmentation. As we have discussed before, these trials do take time, but we continue to believe that sales levels will begin to accelerate in mid-2014.

Moving to the oil and gas exploration market, we continue to make inroads with the integration of our Printrex color printers for both the field and in-office markets. I'd like to remind our shareholders that we remain the dominant providers of black-and-white oil and gas rig printers. Going forward, we have trials underway for the Printrex 920 color thermal printer with many small, medium and large exploration and production companies for both wire-line and down-hole measurements. More and more tracers are being put down the hole, and our customers are finding that the color output is clearly showing them much more data and much more -- in a much more complete picture of the conditions in the well. We like to say oil and gas is easier to find when data is easier to read.

All of the feedback from the trials is very positive and point to the strong interest in the product as a replacement for the black-and-white products. As such, we believe it's a matter of when, not if, the multi-year replacement market from black-and-white or color on-site printers takes off in earnest.

I would like to once again point out that the rise in natural gas prices is good for TransAct. When natural gas prices decline, many operators switch their assets from gas to oil. Now that gas prices have risen, more and more assets being deployed back into the gas production. We are hearing positive things in the market and expect that this will eventually turn into increased orders for our Printrex printers.

Our relationships in the oil and gas exploration market include the very large exploration companies. And as we have noted, the integration and adoption with these large players in this market will take time. With an 18- to 24-month time line for trials and subsequent integration, we continue to expect that significant sales momentum for the Printrex 920 thermal rig printer will come in 2015, as we are now about 9 to 12 months into the process. That said, I do think we'll grow sales levels for the Printrex 920 in 2014. Further out, as we gain traction with the new truck installations and also we recreate a replacement market, we will drive increased high-margin recurring revenue as each Printrex 920 could generate $5,000 a year in recurring revenue from our paper sales.

Now the larger Printrex 980 high-speed color printer is gaining traction in the -- as a leading solution for the office or data center market. This, we believe, is a total opportunity of about 100 printers, each of which will have the opportunity to drive up to $50,000 per year in recurring revenue from inkjet cartridges, inkjet printheads and other consumable sales. As such, this will be yet another high-margin recurring revenue growth channel that our company is poised to execute on. Our installations of the Printrex 980 are actually slightly ahead of where we thought we would be at this time. In fact, one very large exploration company has basically standardized on the 980 in their data centers. Our Printrex 980 is the only office, high-speed color printer designed specifically for the oil and gas exploration market. And our customers are responding by installing more and more of these units.

So that's 3 exciting high-growth opportunities for TransAct, offering higher margins in the products we continue to deemphasize. This reflects our long-term product development strategy, which is focused on identifying large, untapped addressable markets for which we can leverage our technology expertise to create products that offer us the opportunity to continue to grow our revenue and margins. We continue to move forward with this focus as we plan to introduce 3 new products in 2014 that we believe meet this criteria and will expose us to even more areas of long-term growth. We have the perfect skill sets and understanding of the market opportunities that can benefit from our value-added solutions that help our existing and just as important new customers enhance their profitability and efficiency.

With that, I'll turn the call over to Steve for a deeper review of the fourth quarter and full year 2013 results, after which I'll make some summary remarks before we open the call to questions and answers. Steve?

Steven A. DeMartino

Thanks, Bart, and good afternoon to everyone. 2013 fourth quarter net sales were $12.5 million compared to $19.6 million in the year-ago quarter, which included the benefit of a $4.8 million last-buy of an older generation printer by GTECH. In the 2013 fourth quarter, lottery sales were in line with the minimum contractual volume we normally see from GTECH. On a full year basis, our net sales for 2013 were $60.1 million compared $68.4 million in 2012. While net sales declined approximately 12% from 2012, total gross profit of $25.1 million was only about 3% lower. For the full year, our gross margin rose 370 basis points to 41.7%, which is a good indication that as we ramp up our higher-margin businesses, such as food safety and Epicentral, and deemphasize some historical, low-margin businesses, we'll be favorably positioned to consistently grow our gross profit.

Now looking at our sales by market for the fourth quarter, casino and gaming sales declined approximately 12% or $800,000 to $5.7 million. The year-over-year decline reflects lower North American market sales partially offset by a $200,000 increase in sales to international markets. A bright spot for us in the fourth quarter 2013 was Epicentral, which as Bart noted, was a strong quarter for Epicentral installs. On a full year basis, Epicentral sales were a significant contributor to our improved gross margin during 2013. As I noted earlier, we had tough year-over-year lottery comps throughout 2013. However, as expected, fourth quarter 2013 lottery sales were about 50% higher on a quarterly sequential basis. For 2014, we expect quarterly run rates in lottery sales to be in line with those reported in 2013.

Food safety POS and banking sales were a good story for us in 2013, growing close to 20% to $11.3 million for the year, even with the expected seasonality impact we experienced in the fourth quarter in our food safety terminal sales. For the full year, the Ithaca 9700 food safety terminal comprised 43% of total sales for this unit, and like Epicentral, was a significant contributor to our improved gross margin in 2013. Full year POS and banking printer sales declined by $2.8 million or 30% during 2013. As we've discussed, our focus on this business unit going forward is on the higher value food safety opportunity and we will continue to deemphasize the lower-margin POS market. And I think that our success to date with the Ithaca 9700 validates this strategy.

Printrex-branded sales, which consists of sales of our printers for the oil and gas, medical and emergency vehicle markets, declined approximately $200,000 or 19% for the fourth quarter 2013 to $800,000 compared to the fourth quarter 2012, which was a little lower than our performance in the prior 2 quarters in 2013. On a full year basis, Printrex-branded sales declined about $300,000 or 7% to $4.3 million, as growing sales of our new color oil and gas printers were more than offset by a decline in sales of our legacy black-and-white printers. Despite the decline, we remain the leading provider of black-and-white oil and gas printers for use in trucks at drilling sites and we expect to leverage this position as we enter a replacement market cycle with the Printrex 920 color printer.

Bart reviewed the progress we're making with both the Printrex 920 and Printrex 980 color printers, and reflecting this progress, we expect to achieve ramping sales growth from these 2 products in 2014 with further acceleration in 2015. Growth in sales of both color printers will also generate higher recurring consumable revenue, which we expect to become a growing lucrative TSG product for TransAct in the years to come.

Finally, sales for our TSG unit were down 27% to $2.2 million in the quarter. The decrease is largely due to a $500,000 or 38% decline in consumables revenue, primarily a lower HP inkjet cartridge sales, reflecting a declining installed base as we continue to deemphasize our focus on this low-margin legacy printer consumable product. Full year TSG sales were down $700,000 or 5%.

I mentioned gross margin earlier in my remarks and it continues to be a very positive story for us and one we expect will only get better. Fourth quarter gross margin was just shy of 40% at 39.9% compared with 39.2% in the prior year quarter. Fourth quarter gross profit declined to $5 million compared to $7.7 million in the year-ago quarter, primarily reflecting the lower sales volume. As we continue to transition the sales mix in our business towards more higher value food safety terminals and Epicentral software, we expect gross margins will further expand into the low to mid-40% range.

Total operating expenses in the fourth quarter 2013 declined by $1.3 million or 27% to $3.5 million compared to the prior year period. On an adjusted basis, after excluding legal fees for the Avery Dennison lawsuit and adjustments for the Printrex contingent consideration accrual in both periods, operating expenses were $4.1 million compared to $4.5 million in last year's fourth quarter, which was down $400,000 or 8%. The 2013 fourth quarter benefited from lower selling and marketing expenses compared to the prior year due to the timing of the G2E trade show. In addition, lower sales commissions on a lower sales volume was somewhat offset by higher expenses related to the addition of new sales staff and increased marketing spend to support our newly launched food safety and Printrex products.

G&A expenses declined about $1.2 million in the fourth quarter 2013, largely reflecting a $700,000 reduction of the accrued earn-out for Printrex, as well as lower incentive compensation expense. For the full year 2013, operating expenses were $18.5 million compared to $20.4 million in 2012. However, adjusted operating expenses, excluding the lawsuit legal fees and adjustments to the Printrex contingent consideration accrual, were $18.9 million for 2013 compared to $18.4 million in 2012, up $500,000 or 3%. Again, the increase in adjusted operating expenses for 2013 was largely related to the launch of new products, which we had incremental headcount and marketing expense.

Looking forward, we do expect the operating expenses for 2014 to be higher than in 2013, as we intend to increase our investment in expanded sales efforts and marketing spend to support the expected sales growth from our newest products.

Operating income in the fourth quarter 2013 was $1.5 million compared to $2.8 million in the prior year quarter. For the full year 2013, operating income was $6.6 million compared to $5.6 million in the prior year. Excluding the unusual items in both periods, adjusted operating income was $6.2 million or 10.3% net sales in 2013 compared to $7.6 million or 11% of net sales in 2012. Clearly, we lost some operating leverage in 2013 as a result of the 12% lower sales volume. But looking forward, we do expect to achieve operating margin expansion, particularly in the second half of 2014 as we leverage our fixed overhead expenses and drive higher sales of our newest products, which generally carry higher margins than our legacy products.

EBITDA for the fourth quarter 2013 was $1.8 million and adjusted EBITDA was $1.3 million, which compares to EBITDA of $3.3 million and adjusted EBITDA of the $3.7 million in the 2012 fourth quarter. For the full year 2013, EBITDA of $8.3 million and adjusted EBITDA of $8.4 million compares to EBITDA of $7.3 million and adjusted EBITDA of $9.8 million in 2012.

As a reminder, adjusted EBITDA adds back share-based compensation expense and excludes the impact of restructuring expenses, legal fees related to the Avery Dennison lawsuit and adjustments to accrued contingent consideration from our acquisition of Printrex. For the fourth -- for the 2013 fourth quarter, we recorded diluted EPS of $0.13 compared to diluted EPS of $0.21 in the prior year. Adjusted diluted EPS, which excludes the unusual items was $0.08 compared to $0.23 in the prior year quarter. For the full year 2013, diluted EPS was $0.57 compared to $0.40 in 2012 and on an adjusted basis, full year diluted EPS for 2013 was $0.54, which was the same as 2012.

And now turning to the balance sheet, we ended the year with $2.9 million in cash and still no debt outstanding. We didn't repurchase any stock during the fourth quarter 2013. However, for the full year 2013, we repurchased a total of 604,200 shares of our common stock for about $5.2 million. We also paid dividends to shareholders of $0.27 per share or $2.3 million during 2013, including $0.07 per share in the fourth quarter. So through a combination of quarterly dividends paid and our share repurchases, we returned a total of $7.5 million to shareholders during 2013. And since the beginning of 2012, we have returned through share repurchases and dividends a total of $14 million to shareholders, even as we continue to invest in our growth during this period.

Looking ahead, we continue to expect that 2014 will be a year in which we gain further traction with our Epicentral system and our Ithaca 9700 food safety terminal. In addition, on a competitive basis, we expect modest market penetration of our Printrex color printers. We believe we will see greater sales momentum occurring in the second half of 2014 than in the first half, particularly in regards to the ramp of sales of our food safety terminal. We also have several new Epicentral installed that are scheduled to contribute to revenue later in the second quarter. As noted earlier, we expect momentum for our Printrex 920 color printer to begin to ramp in 2014, but really take hold in 2015, which will add yet another attractive growth opportunity.

In summary, we expect to see the transition in our business to accelerate in 2014 mostly in the second half. And as momentum grows for our newest products, we expect to achieve higher levels of operating income, EBITDA, net income and diluted EPS as we move through the year.

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

Bart C. Shuldman

Thanks, Steve. Before opening up the call to questions, I want to emphasize again that despite a challenging fourth quarter, the progress we achieved in 2013 with the introduction of new products is notable and has certainly strengthened our long-term foundation for growth and shareholder value creation. Even with the lower revenue, TransAct still achieved gross margins in excess of 40%. The success of the Ithaca 9700, our Epic printers, Epicentral and the Printrex oil and gas printers is an excellent indicator of the progress in our business. We have leveraged our deep understanding of the printing and software needs for the transaction-based businesses to identify opportunities in current and new markets. We can develop value-added solutions that help customers grow their business. And we'll introduce new products this year that once again demonstrate the value we can bring to new and different markets. In doing so, we'll continue to diversify into new high-growth industries with higher-margin products. And with our solid balance sheet and consistent generation of free cash flow from operations, we have the financial flexibility to further invest in new product development, support the commercialization of new products and consistently return capital to shareholders.

Before I open up the call to questions, I would like to personally thank our employees who have worked hard to create the new TransAct. Your dedication to our strategy is clearly appreciated. And I would like to thank our shareholders for your support of our company and our efforts. Finally, I'd like to mention that I will be presenting at the Roth Capital Investment Conference on Tuesday, next week, March 11. And I will also be available for one-and-ones and small group meetings. In addition, if you'd like to arrange a call with Steve or I and arrange for a meeting at our office, please reach out to Investor Relations firm, JCIR, at (212) 835-8500. We have a lot going on, and we will be glad to speak with any of you at the Roth conference next Tuesday or any time after.

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

Question-and-Answer Session

Operator

[Operator Instructions] Our first question will be coming from the line of Todd Eilers from Eilers Research.

Todd Eilers - Eilers Research, LLC

I wanted to start off on the casino and gaming segment. Obviously, a little challenging in the quarter. I was wondering if you could, Bart, maybe if you could just speak to your expectation for that business, I guess, going forward here in 2014? And then also, obviously, the new relationship with Suzo-Happ, maybe refresh our memory on when that officially kicked in and what sort of benefit are you starting to see at this point and looking into 2014?

Bart C. Shuldman

So let's talk about the Suzo-Happ just because that was the last thing you asked. And that relationship really started right around G2E. So we closed the deal -- closed the sales agreement with them and then started transitioning them from selling our competitor's product to our product. It takes a couple of months to get everybody trained on the product, as you can imagine, so we really look at their impact to -- the positive impact to our business will be this year. I think the big thing about the casino industry, Todd, and I'm sure you're writing about and all that, is the difficult environment that we're in domestically. It's hard to really gauge whether it's going to be an up or down market. So we're pretty much looking, from a printer side, as flat. Domestic could be down a little. Europe could be up a little and Asia should be up a little. In fact, I just came back from Asia and I'm really excited about what sales look like, not only this year, but more in 2015 and 2016. But what's really going to grow the business this year is clearly Epicentral. And we do believe that we'll close more deals this year. And that tends to drive, of course, revenue. Once we close the deal and install it. But also it can drive incremental printer sales, because if the casino has some of our competitor's product, we'll have to change them out. I can say, Todd, that on Epicentral, for the first time, we're really seeing the customers around the world and Las Vegas looking at the product. So before, we were really focused on the locals market because it's a great tool for repeat visitors. We've had some phenomenal success. In fact, the casino that opened up with our -- I mean, the casino that put in our product in Europe, in London, is seeing some phenomenal results. But we're starting to see more European casinos and we're starting to see some Asian casinos. As Macau continues to expand, but you have Manila, talk about Japan coming online, even South Korea, we're seeing casinos starting to talk about how to drive repeat business and all that. And we're even starting to hear things about the Las Vegas strip casinos. I think they are looking at it because they believe that with carded play and uncarded play, there's a lot they can do with the system. So for the first time, we're really seeing interest around the world. From a Suzo-Happ impact to the business, what we're seeing is that with their ability to have all these salespeople around the country, we've gone from 3 salespeople to probably 11 or 12, just adding the Suzo-Happ people. We're starting to see some traction with regards to changing those casinos that we're buying or wanting our competitor's product to our product. And we'll see that throughout the year.

I think the big question, Todd, is what is the domestic casino market going to be this year. We've run into some headwinds with the weather. I mean, just our own office, taxes are up and medical is up and all that. And how is that impacting the overall casino market? I leave that to the analysts to help us figure that out on what the year is going to be like in regards to replacement cycle cells and all that. But I think with the globalization of the business, we will see Europe and we will see Asia kick in to offset any decline we see in the U.S.

Todd Eilers - Eilers Research, LLC

Okay. Great, that's helpful. Just -- and a follow-up on the international side of the business there. I know one potential new market opportunity would be Greece on the VLT side. Given the relationship you guys have with GTECH and SPIELO, I would assume that they would do well on that market. Can you maybe give us your best guess in terms of when we might start to see some printer sales resulting from that new market?

Bart C. Shuldman

You've seen our inventory come up a little. And we were -- the forecast had Greece. It's been in the forecast for quite a while. I mean, some of the inventory was also the growing 9700 sales that the team was forecasting that we expect to now come in a little later. But we're prepared for Greece. We've got great relationships. As you know, we probably won 70% to 80% of the Italy market. So we were able to be quite successful there. And we have the necessary relationships with the companies that are bidding on Greece to win that business. There's been a lot of discussion, is it one company owning it all? Is it one company having half? And it's about 35,000 VLTs. There's one story out there that one company is going to get half of it and then the other half is going to be split between 5 companies; and then the other story is one company is going to win it all. So we're following it very closely. Truthfully, in the numbers that I just gave you, how we see the year, Greece is not in those numbers because they would have a meaningful impact to our business. So we are not thinking about how the year looks. And I'm talking about kind of a flat printer business this year and an up software side, Greece -- there's no Greece in any of those numbers.

Todd Eilers - Eilers Research, LLC

Okay. Okay, great, that's helpful. And then just, I guess, maybe looking at the food safety business or opportunity there, can you maybe help us understand how the trials are going versus the last conference call? Obviously, it looks like you've got more total trials ongoing. Can you maybe also speak to -- is that 30 new on top of the 120 last quarter? Or is that more of a net number where you converted a few of the previous trials and actually added some more? Just trying to kind of understand the ins and outs there and just, obviously, it looks like you expect that the ramp-up here starting in the middle of the year. But I think just kind of help us understand what you're seeing with the trials, the feedback from customers and just how we should look at that this year?

Bart C. Shuldman

So let me break it up into 2 ways. It's a great question, Todd, and hopefully, our shareholders will get an appreciation for it. We have some restaurant companies, more on the casual restaurant side, where they control what their restaurants are doing. So what we do there is we work with the corporate office. And that takes a couple of months to get the menu right. They trial it in their lab, and then they'll put 5 or 10 in the field. A lot of times, it could be a restaurant right next to their headquarters or something. They'll get the feedback from the field, the General Manager, the manager of the restaurant, and then they'll go back into headquarters and then we'll negotiate either ourselves or through our partner and soon-to-be partners. We'll negotiate what they need and roll it out. So that's kind of on the casual restaurant side. And that takes -- you're talking about a restaurant company that's been running their back-of-the-house operation a certain way for many, many years and coming in and changing how that works. So they no longer are going to ride on labels. They no longer are going to buy labels. And they're not going to buy any sharpies anymore. They're going to buy a terminal. They're going to put it in, they're going to wire it up and all that. And truthfully, Todd, it takes about 1 year, 9 months to 1 year. It could take a little longer. That's kind of the casual side. So they were working at the top end and they're pushing it out to all their restaurant chains. And we've got a host of them that we're working with. In the quick-serve, well, in the McDonald's side, corporate decided and pushed it down through the franchisees and eventually through what they call McCompCos [ph] which is the company-owned stores. And then McDonald's is taking us around the world, and we're working in many different countries with McDonald's right now in getting their trials off. We have Spanish. We have all different types of Asian languages and different ways they do it. And they're kind of pushing that in the field. But we have some quick service where the franchisees have come to us and said, "We want to do this. I own 100 XYZs. I own 50 ABCs. And I'm not -- i don't want to wait for corporate to even think about it. This is really going to help me control my food cost, my food waste and my food safety." So there, what's happening is we're working individually with these franchise owners, and they're pushing up at the corporate to say, "Hey, look, what's going on? We're able to save money. It's more productive." We had one franchise owner write a beautiful letter to the corporate officer, basically saying how much it's saving them in money and time. So on the quick-serve side, we're kind of working both angles. We're in the field with trials with the franchisees, and they're working in our behalf to push it up to corporate. And then in certain restaurant chains in the quick-serve, we're at the corporate and they're pushing it down. And all of those take 12 months, 15 months. With some franchisees, we did a trial of 4, they bought 15 more. They did a trial of 5, they bought 25 more. But you look at the restaurant chain and go out, there's 15,000 stores or there's 8,000 stores. So once it goes all the way up to corporate, they may say, "Okay, you know what, this is what we're going to do. We're going to approve this for all of our restaurants." Then we'll see that big spike up, and that's why we think it's the second half. Including some of these restaurants -- casual restaurant chains that we're working with, where the trials are going really -- the trials are going great and it's just a matter of time for the companies to figure out how they're going to change their operating procedures and all that and roll it out. We basically talked about 70,000 on the last call. This is 30,000 incremental that we're working on. This is that many more restaurant companies that have come to us that we're in trials with, and when we add up all the restaurants, we're now north of 100,000. So you add up all the franchisees or all the local restaurants and the new trials have created an additional 30,000 terminals for us.

Todd Eilers - Eilers Research, LLC

Okay, great. Bart, that's very helpful. Appreciate the update there. Just one final question and I apologize if you talked about this in the commentary already. But on the TransAct Services segment, it looked like it was a little weaker than normal, certainly below our expectations. Can you maybe talk a little bit about what might've happened in the quarter there? Was there any kind of onetime issues there? And just kind of your expectations for that business going forward?

Bart C. Shuldman

Yes, what you see us doing, Todd, is with our deemphasis to the point-of-sale business, and we are deemphasizing our inkjet printers. So with those inkjet printers come those cartridge sales, the HP cartridge sales. And truthfully, those HP cartridge sales were nowhere near the margin levels that we wanted in our business. So we deemphasized that, and what you're seeing is it's kind of like what's going on in our printer business. Those cartridge sales will continue to decline as the consumable sales of oil and gas, both the paper, the inkjet cartridges for the office printer, the waste buckets, the heads. As those accelerate with more and more printers going out, eventually, that decline will go away and we'll see the increase in sales. But what you'll see also is the margin popped also because we're replacing very low-margin HP cartridge sales with very high-margin consumable sales for oil and gas. So that's being driven -- that decline is being driven by our focus away from the low-margin commodity point-of-sale business. And Todd, just so I can help answer that, it's difficult to forecast the whole decline and the whole increase, so we watch it as it goes. One printer can equal so many cartridges in the point-of-sale side. One printer for the oil and gas will equal so many cartridges for instance. A lot of the printers that we sold in our 980 business in our office, which has $50,000 worth of recurring revenue per printer, it could take 2 or 3 months. By the time we ship it to the customer, it could take 3 months for the customer to get it online. There are all kinds of special reports that our customers are printing, and it could take 2 or 3 months to get all the drivers right and get them to use that. But once they do, those sales kick in. So it's a little tough to forecast on our side the drop at a low-margin inkjet cartridge sales and the increase in the high-margin inkjet cartridge sales, but that's all up going on right now.

Operator

Our next question will come from the line of Mitchell Sacks from Grand Slam Asset Management.

Mitchell Lester Sacks - Grand Slam Asset Management, LLC

Todd was pretty efficient with the questions. So I sort of really have one left, which has to do with the -- you mentioned in the release, you've got a bunch of new products you're hoping to release this year. Can you at least give us some framework around how to think about it or how to look at what those products either maybe? Or when will we know more about that?

Bart C. Shuldman

Yes. Look, our goal always, as a company, is to inform our investors that we're working on new technology and that you should expect to see something. You will see -- we will announce 2 new products within the next couple of months. The way we look at it, Mitch, is we've identified now 3 markets that we're very focused on, right? Casino market, both printers and software; oil and gas, which is, really, with the dominant black-and-white player. And we're really trying to move this very large industry to color. And it's actually quite exciting when I go out to Houston and go meet with the customers and hear what they're saying. And then there's food safety, and food safety is really a market that we're creating. And there's a fair amount of opportunity in that market that we see that we believe that we can bring technology to. So I've mentioned in the call, we think the food safety market is the biggest opportunity this company has ever seen. And like anything, it just takes time to bring out enough products to really create this very large market. And we're focused on that. We're also focused on areas where we believe technology is changing. And in all fairness, printers are needed for printers can be needed. But there's no printing solution today. In fact, we only think about food safety was a lot like that, right? There was no real printing solution until we came out with our integrated terminal. So we've identified a new market where we believe that, over time, as much as there's a lot of technology that's going to be brought out in that market and developed for that market and there's been a lot of discussion about it just the last 3, 4 months in the technology world, we're going to offer technology to that industry to say, "Look, you're doing all this. You can now also do that." And again, when we bring out a new product, it only takes about 2 years to see the real revenue from it. But I'm pretty excited about this other new product that we're going to bring out. I think it's one out of many that we'll bring out. But I think what we're seeing in the industry and the technology space, we think that there's a real play here and nobody's focused on it. And a lot of people think that printing is dead, and I can tell you, it's really not. And we just see these opportunities and we go to work then we use our Asian manufacturing. We use our engineering up in Ithaca. We actually use our engineering in San Jose, which we've got a couple of really great engineers from the Printrex acquisition. And we sit around, we develop our plans, we spec it out and then we get our engineers to design it and our friends over in Asia to build it for us. And we're pretty excited about those 2 opportunities. The third opportunity that we're working on won't come out to probably the third or fourth quarter. We're just packed with projects right now. So the plan is to bring out the next 2 over the next couple of months and then the third as we get towards the third -- maybe beginning of the fourth quarter.

Operator

Our next question will come from the line of Larry Haverty from GAMCO.

Lawrence J. Haverty - Gabelli Multimedia Trust Inc.

I'm just wondering if, in fact, you've got too many opportunities. And I'm concerned with some of the commentary vis-a-vis the casino industry. You have 6,000 or so installations of these machines in the United States, and you're seeking business abroad. There's 800,000 machines, or somewhere close to that, in North America. So you penetrated less than 1% of the market and you need to go abroad. You have 3 major customers in regional casinos and gaming, at Pinnacle and Boyd, that understand that they have got a very, very weak business in the low end, a nonrated player. You threw out some pretty incredible numbers here. I just don't understand the disconnect between the inability to execute sales, the numbers and why you're going abroad. Could you walk me through that?

Bart C. Shuldman

It's a good -- yes, good question, Larry. And look, it's one of the reasons why we decided to team up with Suzo-Happ. So when we look at the geographic footprint -- now first of all, we're following our customers around the world. So with Wind Casino, we're following Wind to -- from Las Vegas to Macau to Kotai. So we're following Resorts World, right? Resorts World is one of TransAct's customers. They're going to put in Epicentral in New York. As we know, they're installing it right now.

Lawrence J. Haverty - Gabelli Multimedia Trust Inc.

Well, that's more than 5,000 machines in that, Bart. That's way less than the number of machines you indicated were going to be installed. That doesn't add up either.

Bart C. Shuldman

Yes. So what Resorts World is going to do is they're going to put -- they're on 2 floors and they're going to put Epicentral, and as we put in our press release when we announced it, they're going to put it on 1 floor. So they're going to start with 1 floor and 2,500 slot machines. So once they get that up and running, then we believe they're going go to the next 2,500, which would be a second order for us. So you're right, I mean, it's 2,500 out of the 5,000. But as you know, it's...

Lawrence J. Haverty - Gabelli Multimedia Trust Inc.

That's more than you indicated for the whole country. So you have 1 order for...

Bart C. Shuldman

No, no, no. Those orders we already have. So those are installations that we're planning on doing. So what we're telling our shareholders is over the next couple of months, we've already won those orders, and expect those orders to -- expect the software to get installed and then those casinos to go live. And in order for us to collect our revenue, Larry, is the casino has got to go live. So we don't consider that revenue until the casino goes live. So we have -- in fact, we have Resorts World in the docket. Our team and their team is working. It's kind of an interesting application. It's been wonderful for us. We're turning every slot machine into a kiosk. The only way that they could give out their coupons was to take a player away from the slot machine and send them over to a kiosk and then they would get their coupon and then walk back to a slot machine. And, as you know, it's quite crowded, they might even lose their seats. We're now turning every slot machine into a kiosk, so it's not just even Epicentral that we're doing. In fact, we told our shareholders we want an additional software contract because we're doing this very sophisticated system for them that's going to turn every slot machine on the first floor into a kiosk. So now a player can sit there, play, and if they want to get their coupons, they don't have to leave the slot machine. And that's the beauty of Epicentral. So that's in the plan and that's already won. I mean, clearly, I don't disagree with you when you go "Well, we've got this very large market." One way -- and so in answering your sales question, one of the reasons why we teamed up with Suzo-Happ is they gave us additional salespeople in the U.S. So we have -- we went from 3 salespeople to 11 salespeople calling on casinos around the country, demonstrating our technology and working with them to understand how it can benefit them and go from those meetings to marketing to IT to contract to winning and installing. I don't disagree with you, by the way, that some of these regional casinos are seeing tough times. However, they're also in markets with high tax areas. So a lot of them, because of the tough times, kind of look at it and say, "We're not ready to go yet because we don't have that much money to spend because the state tax on that game or that casino is a lot higher." What we are seeing is...

Lawrence J. Haverty - Gabelli Multimedia Trust Inc.

But the weakest part of their business, Bart, is low-end and nonrated. They say that in call after call.

Bart C. Shuldman

No doubt.

Lawrence J. Haverty - Gabelli Multimedia Trust Inc.

If you've got a problem solved in that, I don't understand why you can't close.

Bart C. Shuldman

Larry, you're singing our song. And that's exactly what we sit down with these casinos and talk to them about. And it's not like they don't know it. I think some of these guys want to see a couple of more casinos come online. We've got the early adopters that have put the technology in. I think Resorts World is going to be a wonderful installation for us because it's going to put pressure on Atlantic City. It's going to put pressure here in Connecticut. It's going to put pressure in Massachusetts because people are going to be able to see that they are getting coupons and benefiting their players. So I don't disagree. Those are the conversations we are having with them, Larry. And you're singing our song. You're singing the exact song that when we sit down with them, that we can say we've taken uncarded -- let's say carded play is 55%, we've taken it to 75%. We have real statistics. We have had casinos go to our existing casinos where Epicentral is live and have them talk to the management without us even in the meeting to ask them questions about how it's going. We've had one casino guy that's running our system actually fly to Paris and give a presentation on our behalf to talk about the benefit. So we are out there -- I think your question was how are we going to cover all of this? And one of the strategic moves we made was to bring on Suzo-Happ that gave us 8 additional salespeople for not a lot of cost. So that was a strategic move on our part, to win Suzo-Happ away from FutureLogic, get 8 additional people here in the U.S., so now we have 11 people doing that. In Europe, we have a partner in Europe and they've done a very good job. I mean, casinos are kind of small in Europe. In Asia, we have our direct sales force there. I was just in Manila working on a deal. We have 2 people in Asia, plus we have our -- Suzo-Happ owns a distributorship in Asia and they're representing us there with their 3, 4, 5 salespeople. So what we do, Larry, we don't disagree. It's one of the things we talk about is we are a global company now and we need to be able to serve and sell in those markets. So we strategically look for ways to do that so that we can go into those markets and sell our technology. And like I said, one of the beauties of getting Suzo-Happ away from our competitors to us was it gave us those extra feet on the street that are doing exactly what you're doing, which is looking at Pinnacle and saying, "Guys, you're having a tough time. You use this system. It's going to pay for itself. It's going to drive incremental revenue." And, Larry, by the way, when you're talking -- you're an investor in these casino companies. I have no problem if you say, "Why aren't you using Epicentral?" Because the results are there. We can sit down and show them the results. A lot of times in these businesses, you got to get the early adopters first, which is what we've done. And once you get that volume, and we will have a lot more volume this year, then the bigger guys start looking. In fact, on this call, I've said, people on the strip of Las Vegas are starting to look at it because of the results that we've had. So we are seeing this momentum continue to build. I do appreciate the question.

Operator

And our next question will be coming from the line of William Esposito [ph] who is a private investor.

Unknown Shareholder

Just a quick question. Your cash balance position right now is around $2.9 million. Where would you -- how -- do you anticipate that building up a lot more over the next 6 or 7 months?

Bart C. Shuldman

Yes, Bill, what we did is, because of the sales forecast -- because we had cash and no debt, when we were looking at the sales forecast for food safety, when we were looking at our forecast for oil and gas and even the forecast for the casino market, we decided to take our inventory up a little, which is what you saw. You saw a pop of a couple of million dollars of inventory. We will flush that out over the next, what, 4 or 5 months. As that inventory flushes out through the projected orders that we believe we'll get, while we're not increasing inventory, we'll actually take the inventory down. So all that, the operating income, plus the lower inventory, will drive cash. So we'll see cash -- Steve, we'll see cash coming in as we go through the second quarter, third quarter. You'll see the cash pop.

Steven A. DeMartino

Yes, probably built more on the second half, though.

Bart C. Shuldman

Look at it as a spigot. We open and close the spigot with our Asian manufacturers. So in the fourth quarter, we opened up the spigot a little just to make sure that if one restaurant chain surprised us and went in the fourth quarter then we have the product. We've got some -- we had some extra orders, actually, in the casino industry with IGT and what went on with Caesar's, so we were able to deal with that and we built back up the inventory because we believe something like that can happen again. So it's like a spigot. We open and close that spigot because we have cash and no debt. And it allows us to use our inventory to either win business or to make sure we have the products so if an order does come in, we can ship.

Unknown Shareholder

I appreciate that. I think you've done a great job with that. I just -- when I got -- it's been reduced so much. But I just wanted reassurance that we were going to still see a nice positive cash position and not have to tap this credit line.

Bart C. Shuldman

Oh, yes, no. And remember, we bought back a ton of stock. I mean, in the third quarter, we -- that wasn't in our plan when that stock became available. But what we did is we analyzed our cash position and the inventory and all that. And Steve's got it under control. With Steve running both operations and finance now, he understands that if he opens the spigot a little too much, his cash position is going to go down a little too much. So he does a really wonderful job at opening and closing. And right now, we've closed the spigot. So we won't have products coming in and then we'll flush out and then we'll open the spigot again.

Operator

[Operator Instructions] Our next question will come from the line of Mark Delast [ph] who is a stockholder.

Unknown Shareholder

Bart and Steve, I'm a bit confused about the new products. Are they within, for instance, the food safety industry or a completely new industry?

Bart C. Shuldman

The new products that are coming out?

Unknown Shareholder

Yes, in the next couple of months.

Bart C. Shuldman

When we put out our announcement, you'll find out.

Operator

Our next question will come from the line of Sam Bergerman from -- I apologize, Bergman from Bayberry Asset Management.

Samuel Bergman

A couple of questions. In regard to Suzo-Happ, did you give an indication of when you expect some of the sales to start ramping with them? I know you said there's a training period. Are we looking for the second quarter more so than the first quarter?

Bart C. Shuldman

Yes. Look, they are out there today selling on our behalf. So I would -- from what my salespeople have told me, we've already won a couple of casinos. So you'll see it ramp up all year long. I mean, there's 8 people now calling on these casinos in addition to the 3 we have. So yes, it'll just keep ramping up all year. It's been a wonderful move on TransAct to get the largest distributor for gaming and amusement technology actually in the world. So yes, it will ramp up all year. As I said to Todd, the big question is what is the domestic casino replacement market going to be? There's not a lot of openings this year. We've highlighted what the -- we track every opening and we're going after every one. But the real question is -- and you heard it from Larry Haverty, the locals market, casino market, is pretty dismal. And so it just really -- where is it going to be? We believe we're going to be flat this year because we're going to make up enough business around the world and some in the U.S., with our relationship with Suzo-Happ in Asia and Europe. We just don't know what the domestic market is going to be this year. If you get a positive surprise, it's going to be very good for us.

Samuel Bergman

In terms of authorization, you had an authorization to repurchase stock. Is that still ongoing or has that been canceled?

Bart C. Shuldman

It's over.

Steven A. DeMartino

Expired.

Bart C. Shuldman

Expired.

Samuel Bergman

It's expired?

Bart C. Shuldman

Yes.

Samuel Bergman

And going -- when you say the casino market could be flat this year, does that include Epicentral and what Epicentral will do for TransAct?

Bart C. Shuldman

No, no, no. That's just the printer market, Sam.

Samuel Bergman

Just the printer market?

Bart C. Shuldman

We expect Epicentral to be up this year. It's just the printer market.

Samuel Bergman

You had said that between the first -- beginning of the year and the second quarter, you expect an installation of, what, 4,000 more machines?

Bart C. Shuldman

Yes. Yes, we do.

Samuel Bergman

Can you give us a better color of the pipeline of Epicentral? I know you mentioned Las Vegas looking at it. But I mean, are you in serious talks with casinos, percentage-wise, much greater than last year? I mean, can you give us a little color on that? I mean, who's looking at it? What's the increase in casinos looking at it?

Bart C. Shuldman

Yes. I think the color I gave was we are now seeing interest around the world and -- including The Strip. So from a standpoint of giving you any more color than that, we just won't do that because I am sure listening on this conference call or listening on the tape of the call will be a wonderful competitor. So I think everybody can appreciate that we hold everything pretty close until we're ready to say something.

Samuel Bergman

Okay. And last question. You recently, I guess, had a trade show with Kentucky Fried Chicken. Are they -- I assume they are beta testing your -- the food labeling product. Have they started any installations at all at this point?

Bart C. Shuldman

Yes.

Samuel Bergman

And do you expect their installations to become domestic and international? Or just domestic going through the rest of the year?

Bart C. Shuldman

We -- every company that we deal with, some are at the franchise level and some are at the corporate level. When we deal with the franchise level, we're dealing across the country. When we deal at the corporate level, once you get to the corporate level and they endorse the product, as we've watched with McDonald's, McDonald's now has us in 6 countries. So the trials are in 6 countries. So it's a combination.

Samuel Bergman

Okay. So KFC right now has started a rollout? Is that what you're saying?

Bart C. Shuldman

No, no, no. And again, Sam, it's not in our best interest to talk about individual customers, so I'm going to -- after this, I'm going to have to stop it because I know that you would like it, but I'm sure my competitor would like to find every place I'm at and every customer and what we're doing. And that's just not right for us. We have -- you've asked us we had a trade show at Kentucky Fried Chicken? Yes, we were. You can see it on our website. We announced that we were there. And yes, some franchises have bought our technology.

Samuel Bergman

Okay. The only other question I will ask is in terms of sales and marketing. I think Steve mentioned that it's going to uptick during the year. Is it more geared to having the revenue come in first and then the uptick? Or is it going to be...

Bart C. Shuldman

No, the people, basically, already added. So the expenses already there.

Steven A. DeMartino

So the expense is will precede revenue growth.

Bart C. Shuldman

Yes.

Samuel Bergman

So the people have been added already?

Bart C. Shuldman

At this point, yes.

Operator

Thank you. And at this time, I'm not showing any further questions at this time. I would now like to turn the call back over to Mr. Shuldman for any closing remarks.

Bart C. Shuldman

Yes. Thanks, Charlotte. Thank you, everybody, for joining us on today's call. Again, I'll be at the Roth conference, Tuesday, March 11. I think my presentation is very early afternoon, but I'll be there for the day available for one-on-ones. I'm told that the schedule is pretty packed, so if we need to, we can do some group meetings. Appreciate talking to everybody, and we'll talk again on the next conference call. Everybody, have a good night. Thank you very much.

Operator

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

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