I would like to introduce John Dillon, CEO of TransAct. Welcome, John.
Thank you. Thank you. Good afternoon. I should have registered earlier because I see that I am at lunchtime on the second day. Going to talk a little bit about TransAct. Many of the people here know the company. It has been around for a long time, and I am a recently appointed chief executive, and I got into the company, and I have said in the past that it was a turnaround. There were a lot of challenges that we had. I am just going to talk a little bit about the company. I do have to say that there is a safe harbor warning, so if I say something really enthusiastic, and it could have been, it might have, or possibly or projected, I am going to try not to say a lot of that stuff.
They already told me that I have to say, and if I talk, I have to say as of June 30th, which was our last quarter. In any event, here we go, and I got to find the button on this thing. That is not it. It is a PC. I do not know how to operate it. Do I have a clicker? Yeah. I bet the button to the right makes it go to the next slide. There is a safe harbor warning. I will go past that. The company started in 1996, and it was a merger of a company that was spun out with a small public company, and they did an IPO in 1996. We are smaller today than we were then, I think, certainly in real dollars, real terms. We started out as a printing company, and that makes a lot of sense.
A bunch of people came out of NCR, and they developed the first standalone point-of-sale printer. It was pretty easy. They had a lot of experience in it. They did not patent it, and point-of-sale printer is now pretty much a commodity. Today, we focus on gaming and casino. Those are both vertical markets. We do not segment the company, which frustrates investors because you cannot really tell where the money is coming from and where the money is going. I have looked in the economics of segmenting the company, and for a small company like that, it is really complicated. Internally, we are working through that, and eventually at some point, I am hoping to be a little more forthcoming with what we do. The gaming business is one of the verticals. We make printers that go into slot machines. We make roll-based printers that are used in sports betting.
In the past, we used to make lottery printers. That relationship was blown up some years ago. We might get it back at some point. That is just sort of an accident. Really down deep, the company is an ODM, an original design and manufacturing company. Years ago, we used to make printers for banking tellers, things like that, but we happen to be strong in this one. What is interesting is it is a very strong business that has good margins. A TITO printer is a ticket -in, ticket -out printer. If you go to a slot machine and you sit down and you are done playing and you got any money left, they will give you a little ticket, and it is like a paper debit card. We do that, and we do it really well. It is a duopoly. That means there are two companies in there that do it.
We've probably got about a 35% global market share. Pretty hard to pin down. A bit of information that you probably wouldn't know about the gaming industry. First of all, the slot machines make all the money in a casino. It makes about 70% of the profit. It's better than all the other machines combined, and yet it's sort of mindless. I just was in Las Vegas last week, and there's lots of people playing slots. What's interesting is a casino gets rid of or replaces 5%-8% of the machines on the floor every year. It's sort of a replacement business, and there's about 1 million slot machines in North America alone, so we get our share of that. Then we go out and try to find new casinos, new openings, this, that, and the other thing. That's that business. It's steady.
The customers are loyal, and the duopoly basically means that it's pretty darn good business. There's pretty good barriers to entry, pretty good moat around that business. In any event, if I go to the food service business, we call it Food Service Technology or FST. We started out with point-of-sale printers, and we sold those to anybody who wanted them. One of our large clients was McDonald's, and when they started getting more aware of food service as an important thing, they asked us if we could build a date code printer. A date code is just what it sounds like. It's the date. It's the date when some food item expires or needs to be used.
When you go to the grocery store and you look at maybe a can of soup or something like that, it says when you should use it by, but it doesn't change until you open it. A can of tuna fish could sit on the shelf for a year, but when you open it, you probably got maybe a week, and you better be using it. So we built a printing system for McDonald's, and it's a unique system. We designed it. They helped us figure out what to do, and that's how we got into it. Date code is simple. There are a lot of other things that have to happen in the back of the house, as we call it, BOH. The back of the house doesn't have to be a house. It just means a facility where food is prepared.
The systems that we built are fully, in my opinion, buzzword enabled. We've got everything in it. It's got touchscreens. It's got software. It's got IoT, telematics, which is Wi-Fi, internet connectivity, cloud connectivity. We always do printing because we're really, really, really good at that. We know a lot about it. That's sort of our strong suit. That's how we got to what we call the fourth -generation BOH system. It's sophisticated, and it's integrated. Think of it as a platform. It's a platform that eventually it will do anything in the back of the house that you need done. This is what the stuff looks like. It's not just that printing system that's on the right. There's a lot of nuances with labels, things like that. We have software that designs labels.
Most of our customers pre-print the labels with logos, things like that. Labels cost money. Next time you go get grab-and-go sushi, you might take a look at that nice label that is around the package. They use that label to seal the package. If you are a grab-and-go vendor and you have more than 10 stores in the country, you have to do nutritional labeling. Nutritional labeling is complex because you have to go out to an official federally regulated database and go, "What ingredients do I have? How much of each do I have? What is in the label?" There is a lot of other things that happen with the labeling. It is not that exciting, candidly. The reason this matters a lot is that there is a lot of cost pressure in the industry.
You have got labor wage rates, you got labor turnover, you got food safety as a consideration. Bottom line, it is the costs that are the biggest issue. Food costs, food waste. The marketplace is large, and currently the back-of-the-house TAM, total addressable market, is about $4 billion. That is from AGC Partners, not the AGC that is here, a different AGC. It is early days. The food service industry is kind of late to the party for digital transformation. That was the buzzword we were throwing around before we got all hyped up on AI. That was where you were going to hook everything up, and you are going to have one version of the truth. The reality is, hospitality is a complicated business because you got to delight your customers, but fundamentally, you got to make a profit. If you do not make a profit, you are out of business.
They are paying a lot of attention to this. They are kind of late to it. We know how to do it. The idea here is that this market is big. The TAM estimate for by the time we get to about 2032 is about $12 billion. Little TransAct is not going to grab 50% of that for sure, but there is a really wide-open market. There is a lot of greenfield, and it could be a lot bigger in the long run. We are excited about that. I will point out that if you segment it, there is a lot of buzzwords in this field. You got full-service restaurants. A QSR is a quick-service restaurant, like a McDonald's is quick service. A&W is a quick service. You have got the other categories, fine dining. You have got food service management companies, which are people like Sodexo and Aramark and Compass Group.
These are all clients of ours, and they go out and do things like baseball stadiums, college campuses, factories. We have got a BMW factory near Spartanburg that has 17,000 employees, 24 hours a day, and they feed them. They go out and win these contracts, and those people use the technology that we make, but the reality is it is a big part of the market. When I talk about what you might do with the back-of-the-house platform, there is basic labeling. Within basic labeling, there is made to order. There is also grab-and-go labeling, and there is end of the day.
You might go, "What's end of the day?" Well, if you're making sushi, at the end of the day, you got a bunch of stuff left, and you go like, "I might as well make a new roll." You make it, but you don't know what the nutritional requirements are. So you go, "This is what I have. This is what I'm going to put in this thing." The system will basically print a label that gives you all the nutritional information. So it gets complicated pretty quickly. We do things like food prep applications that include checklists, timers, menu management. Like if you're going to change a menu in a McDonald's, they can add a chicken sandwich that wasn't on the menu. They can push it down to every one of the machines in the Southwest. They can change the price. They can change the ingredients.
All those things happen in the system. There's analytics and reporting, label design. I mentioned that we've got software that basically Think Photoshop for designing labels, that sort of thing. We do temperature monitoring for reefers, freezers, and we do temperature taking for things like the chicken wings that are on the grill or the hamburger that's on the grill. That's required by the Department of Agriculture or the food service department and the government, because we have to create something called a HACCP log. I never can remember what that HACCP stands for. It's an acronym. But fundamentally, it's a temperature-taking log that if a food inspector comes in, you have to be able to produce that log. For our large clients, those things all get uploaded to the headquarters, so they can do analysis. There's more coming.
But fundamentally, it's an integrated system, and that's a platform which we think will serve the back of the house well. So some people say, "Well, why do we win?" We're going after the high end of the market. We're not going door to door for every gas station with a grab and go or a mom-pop grocery store. We're basically targeting the largest companies in the United States and elsewhere in the world, but mostly in the United States because we're small, and we can. But we know how to talk to the IT department. We know how to deal with security. We have application program interfaces, APIs, so you can interface with things like point-of-sale systems. We've got a mobile device management thingy, which means you can't just run Angry Birds.
You could, but we don't let you, and they don't want these machines to go home with people. Some of the machines don't have a tablet built in. You can have a separate tablet, and you can walk around, you can run all these apps on your phone, you can talk to this stuff, and you can print remotely. In any event, we know how to talk to the corporate enterprise. It's a different sales motion than if you're going door to door with a low-touch, high-velocity, low-cost sales model. So it takes us a while to land a customer, but typically with the customers, the customer lifetime value is considerable. So we're happy with that part of the model, and we also help with installation, we help with the telecommunications pieces, and we've had pretty good success.
This is just a list of some of the brands that we support. On the left are QSRs, quick service restaurants, travel centers, and C-stores. C-stores are convenience stores. For example, we do sushi through a company called Hissho Sushi. It is either Hissho or Yummi Sushi, but they are in 47 Kroger. We kind of have this knockoff effect where we may sell to somebody that is enabling food service operations, but then they sell to their end customers and bring additional value. There are some of the C-stores and travel centers, people like Pilot, Love's, and TravelCenters of America. They all have a handful of these machines in every one of their stores across the country. Then contract food service. These are companies, again, that manage large food operations. You go in and you hire them.
One of the deals we have won recently, they are going to take and do all the food service for Harley-Davidson, and they are going to do all the food service for Oracle. We do not count those as new customers. Maybe we should. The point is, this stuff is permeating the marketplace. As I mentioned before, there is a lot of greenfield, and there is a lot of ankle biters out there. There are not any vendors out there that already have sufficient first-mover advantage that they are guaranteed to win. But there is a lot of people knocking on the door relative to the market opportunity. Our annual unit sales have tripled since 2022. That is when I got the job. I had to overhaul the sales team. I brought in new salespeople. We actually had to have comp plans. We did not have those. They had no target markets. We had no marketing.
I have got a new CFO, I have got a new VP of Marketing who used to be the CMO at Palo Alto Networks, and has got a pretty darn good background. Basically, we are softwarizing a hardware company that did not really know how to go into the software market. These are pretty good numbers. That 8,000 there is just a projected number. I think I know what the number is, but I cannot tell you. Anyway, I am happy with this kind of growth. More importantly, these units that are being sold. In the past, because we were a hardware company, we did not charge any money for software. Go figure.
The average price for the stuff that we sell in the marketplace today that if you look at our competitors that are out there, they typically charge $100-$200 a month per machine, year in and year out with subscription contracts. I point this number out. It is almost 22,000. Those machines are online. That is net of any attrition. What we are doing now is we are basically charging customers for the software that they have on their machines. We are selling, upselling, or cross-selling new modules, and that is a process that we started aggressively in January. As you probably know, when I got the job, we did not own the software. Not only that, we were selling somebody else's software and we were paying a royalty. The board and I decided to buy the software. It was a bargain, and we got it.
We picked it up out of a co-location center in San Diego, put it on Azure, ported it, converted it. By the way, just so I can say AI in this presentation, because everybody has to have that in here. We use AI to basically vet the code that somebody else wrote and then go, "Here's some dead code. Let's comment the code so somebody else can read it." You can even use AI to take a Java-written application and convert it to Python. It's pretty amazing. We didn't have to build the stuff, but it took us a year to do that. After that, so it got up and running probably in April or June of this year, and it's all ours now and it's our IP. Now I actually have some value in that gaming business, which we didn't really have before.
That growth was about 5,000 units over the last year online, and it's about a 32%-33% growth. I'm pretty happy with the progress. The BOHA! software was up in Q2 by 47% year-over-year. It shows that the software stuff is beginning to work. I also point out that in the old days, we had a kind of a clunky machine. I used to tell the engineering team it looked like it was designed by the Soviet Union. Anyway, those units are offline units, but there's about 40,000 of them. A lot of those are probably going to be deep sixed, but the reality is that we can go back to those customers and say, "Hey, how would you like a better product? How'd you like to upgrade? This new system is online.
It does a lot of things that the old ones didn't do." We're selling into that base and we're also selling it to new clients. The other thing is that we do sell labels to our customers, and my first instinct was, "Why the heck do we want to be in the label business?" What I found out is most of our customers really aren't experts on labeling. These labels that go out the door with grab and go are all reinforcing a brand. We help them design labels that basically say, "I'm this brand," and it's pretty in color. Those labels are printed in advance on the paper rolls that go into the machine, and then the actual labels that are pre-printed on-site are printed in black and white. But it gives them some pizzazz.
If you go into a place, and now that I'm telling you about these labels, next time you grab something, take a look at the label, and if it's crummy, then it's not from us. Okay. It's about a $10 million label business. It's not great margin. It's not bad margin. It's better than some hardware, but it's more of a convenience and helping us make the relationship with the customer stickier. If I'm going to summarize a little bit where we're at, it's a huge market. It's early days. There's room for, I wouldn't say many winners, but there's room for future consolidation, but there's a lot of room left. We have pretty darn good traction. We have a differentiated and established product. We have a good book of business, and we've got a management team that's engaged and experienced.
I am pretty happy with where I am at. Like I said, it was a turnaround. We have many shareholders. I do not know how many of you are shareholders, but I, like you, share the disappointment in the stock performance. I was on the board for a long time when my predecessor left suddenly. I had sold my last company, and they said, "Well, John, would you do this?" I took a deep breath and I said, "Okay." I got in and I learned a ton of stuff that, as a board member, I should have known in advance. We fixed most of it. There is still a lot of work in progress, as you would imagine, that no company has ever done. We have got traction.
We have got an advisor that has been hired to look at strategic options, alternatives, whatever they are, and we are actively looking at things that might be good for shareholders. We have got a strong balance sheet, so I am not worried about the company going out of business anytime soon. I think that is about it. It is a pretty good story. I spend about 25% of my time working with advisors and thinking strategy. I spend 50% of my time improving operations, and then about 25% of the time because it is a public company, and it is just a lot of work you have got to do when it is public. I think that is the story. I think I got five minutes if anybody wants to ask any questions. I know this is a 30,000-foot flyby.
There is lots of information on the website, and you can go look at all the Form 8-Ks and the 10-Ks , and 10-Qs if you want. Any questions? Yes, sir.
I am particularly intrigued by the software addition. I know it is small, but can you talk about for each unit of hardware that you sell, what is the price of the hardware that you sell for and what attach rate would there be for the software, and then what gross margins? [inaudible]
Let me work from the last part. The software margins, typically software had a 90%+ gross margin. Today, most SaaS subscription softwares are more like 80%, and that's because you have to host it. Let's assume, right now, I calculate it at 75% gross margin. That's probably a pretty good proxy for what the number is. I do not have the attach rate because all the machines that are in the field have software on them.
But trying to figure out how many of them have contracts where they pay for the software is something that's still a work in progress because we were just selling them to anybody and saying, "If you buy my machine by the end of the quarter, I'll give you the software for free." We've gone back to the customers and saying, "Hey, remember that two-year free trial that you got? Well, it's not free anymore." Some of the customers aren't excited about that, but we're doing it and it's working. The number is relatively small at this point, so candidly, it's an easy compare. But if I were going to sell the standard package out the door, let me tell you this. The unit price for the machine is like $1,200.
Just for math, because you're probably all pretty good with spreadsheets, I just assume because it's hardware, it randomly has about a 50% gross margin. Okay? Then we do the software on top, and the typical package, a simple bundle is probably $80 a month. Okay? Now, if we're selling to a new customer, it goes out the door at $80 a month, then we don't discount unless they're going to buy a couple of hundred units. That's kind of way the model looks. But with those 22,000 approximate systems that are already out there and online, those are all case-by-case situations. Our customers that are paying range from between $20 -$25 a month to up to $300 a month, depending on what configuration of software they have. So my way of saying it's all over the map.
But like I said, on average for the suite that we have, the competitors we have charge $200 a month. CrunchTime! charges about $245 for the same thing. Jolt was charging about $215 for basic labeling and checklist. If you think about it, to have one of these things, it's like $5 a day. With one of our BOHA! terminals in your store, you can probably save two or three hours just in labor alone. At $22 an hour in California, that'll pay for itself handsomely. We don't have any price pushback. But I will say this, that the large food suppliers, they are slow adopters.
You walk in and you say, "I'm going to try to help you change your business." We have people using blue painter tape and Sharpies to write get date code labels, and we go, "Hey, we've got this little box here, and it'll do everything you do in about five minutes that you do in two hours." It's kind of off-topic on your question, but a lot of the custom machines out there don't pay for any software. The software numbers that we are counting are incremental new software revenue. What I'm expecting to do probably quarter after this one is actually start giving you exit ARR. My predecessor used to call the label business ARR. In my domain, Silicon Valley, ARR is software. It's CARR, contracted annual recurring revenue. The thing about the labels, they're not under contract.
They buy what they need, and they buy when they want to. Some customers will buy six months in advance, some buy every month, and we can't really predict that. But that's a solid business. I'm going to start breaking that out and try to give investors and shareholders a better understanding so they can tease the different parts of the business out. I think that's about it. I can talk later about it later if you'd like to. I got a few seconds left. Any other questions? Yes, sir.
How reliable is your cash flow? How much visibility do you have? It was massively negative the year before you joined, and it looks like you fixed that [inaudible]
Well, we're trying to operate just slightly cash positive and slightly EBITDA positive. The gaming business is pretty steady eddy. It still goes up and down 5% or 10% quarter-over-quarter, and there's a little bit of seasonality in it. From a forecasting standpoint, we're quite good at managing it, and we've got a strong balance sheet, so we're not particularly worried about that. Thank you very much, and I'm done.