TACT

Please note this conference is being recorded. I will now turn the conference over to Ryan Gardella, Investor Relations. Thank you. You may begin.

Thanks, Jesse. Good afternoon. Welcome to the TransAct Technologies first quarter 2026 earnings call. Today, we'll be discussing the results announced in the press release issued after market close. Joining us from the company is CEO John Dillon and President and CFO Steve DeMartino. Today's call will include discussion of the company's key operating strategies, the progress on these initiatives, and details on our first quarter financial results. We'll then open the line 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 forward-looking, and actual results may differ materially. For a full list of risks inherent to the business of the company, please refer to the company's SEC filings, including its reports on Forms 10-K and 10-Q.

TransAct undertakes no obligation 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 website. With that, I will turn the call over to John.

Thanks, Ryan, and good afternoon, everyone. Thanks for joining us. It's a nice afternoon here, and I'm pleased to report today that TransAct delivered a solid first quarter, 2026. Total net sales, $14.4 million, up 10% year-over-year, generating an adjusted EBITDA of $1.4 million, which is a strong start for the year. As we discussed, our focus remains on driving revenue growth in our Food Service Technology or FST vertical, with software as our primary growth engine going forward, supported by targeted and disciplined investments across the business to accelerate sales. In the first quarter, we sold 1,370 BOHA! Terminals, driven mostly by upgrade orders from our 40,000+ unit install base from prior sales of older products.

We also continue to see strong interest from existing customer base to move from either the AccuDate, which is an older system, or the T1, which is also an older system, to our newer Terminal 2, T2. We see a long runway of growth there, so that's a good sign. We ended the first quarter with 19,959 online terminals, which is an increase of a little over 1,000, actually specifically 1,062 new online terminals over the fourth quarter of 2025. Most importantly, our recurring FST revenue continues to grow. Our software revenue were up 23% year-over-year, which gives us confidence in our strategic direction. We're very focused on generating this revenue, which is high margin, certainly higher margin than hardware. It's more sustainable and predictable.

It's a focus we didn't really have in the past because we didn't own the software, and we own it now. We can start selling the software in a way we couldn't do before. With nearly 20,000 online terminals now in the field, this is the time to begin monetizing these deployments more effectively. In the past, we didn't really do this. In fact, software was often bundled for free to make a hardware sale. Now our focus is to ensure that our customers are paying for and receiving the fair market value of our leading software offering. Given the importance of this growing revenue stream, we will begin sharing more and more of our ARR details, recurring revenue details each quarter to help you track that progress.

ARR includes, for your reference, software, but it also includes contracted support service, which is a high-margin service for us because our products are highly reliable, and the labels. From an information standpoint for first quarter, ARR revenue was $3.3 million, and we firmly believe that the future for TransAct will come from recurring software revenue rather than one-time hardware sales. Longer term, we're aiming to get our install base up to $100-$200 per machine per month in recurring software revenue, which could really unlock a lot of significant value given the size of our install base and the fact that it's growing. Next, let me say a few words about the update on our port of our software to the new platform.

As you know, we acquired the software about one year ago last April, we're making good progress here. We've pulled forward our go-live date from what was originally suggested to be Q1 2027. Now it looks to be late Q2 this quarter, late in this quarter or early Q3 2026. That's really good news and good progress. I'd like to say that our cloud partner, our public cloud partner in this has done a really terrific job helping us with this transition. As I stated before, ownership of the source code and launching our own hosting platform is really crucial for our recurring revenue model going forward.

It provides us with an increased level of operational freedom and enables us to accelerate software innovations like exploring, for example, an application store model for our own terminals, where we could add additional applications which either are grown in-house or may be sourced from outside through partners. This model is appealing, and as we get into full production here, I think that's an interesting growth engine that we probably can explore successfully. I also want to speak briefly about AI, also known as artificial intelligence. I know it's a hot topic in any software investment thesis right now. I'd like to say a few words about it. Most of you probably know that AI was developed in the 1950s. We're talking a long time ago, almost 75 years ago.

Now it's really coming into its own because we have more data, we have cloud compute capacity, which bursts and allows you to put a lot of machines to work all at once. We have compute power in the form of GPUs and other optimization that's happening so the compute power is greater. Work that couldn't used to be done in a meaningful fashion or certainly couldn't eclipse human capability now is doing some stunning things which are really important. I believe AI will serve and continue to serve as an accelerant, in our case, for our business. It allows our developers to focus more time crafting existing new applications for our platform and reduces many of the mundane tasks that previously consumed enormous amount of time from our good engineers.

Our integrated solutions approach insulates TransAct for most of the potential downsides from AI that might affect valuations for companies with simple applications and really a somewhat, again, simplistic pure SaaS model. That's not TransAct. If you keep in mind that we offer SaaS applications, of course, that are software as a service, but these are integrated applications or rather solutions running on a purpose-built platform with hardware, software, communications like Bluetooth, LTE, Wi-Fi, APIs, application program interfaces that talk to other systems, IoT, which includes sensors like for Temp and Sense in the kitchens, things like that. Of course, you know, a mainstay for us are our printing capabilities in the different types of food service environments.

All in all, having an integrated solution is something that isn't easily disintermediated, and we see AI as a plus for us, given that right on the threshold of a lot of advance and a lot of progress, you know, as we roll out software into the marketplace that we're already in. For us, AI is a great accelerator, and we think it's going to serve us well, and I just thought it was worth saying a few words about that. Separately and in other calls, I'd be happy to talk a little bit more about AI. In terms of our GTM, the go-to-market, we're pleased with our strategy.

It includes an emphasis on competitive pricing, strategic partnerships, targeted outreach, and high-potential sub-market verticals such as QSR, that's quick service restaurants, convenience stores, grab-and-go sushi, which has done really well for us, and co-corporate food service management from food service management companies. At the same time, we expect to maintain a disciplined cost management regimen, target positive adjusted EBITDA, and preserve the strength of our balance sheet, things I'm sure you guys care about. Turning to our FST highlights specifically for the first quarter, total FST net sales came in at $4.7 million, driven by strong recurring revenue growth and more offset by lower hardware sales. Recurring FST revenue reached $3.3 million. The ARPU, the average revenue per unit, $709 per unit.

Labels were $2.6 million in the quarter, up 26% from the prior year, driven by stronger volumes from long-standing customers, including Love's Travel Stops, Hissho Sushi, and our 2025 win at Yummy Sushi. These customers spend a lot of money with us. We have designed software. We help them with their labeling systems, and frankly, it's one of the things that creates a greater degree of customer intimacy, and frankly, it also makes the customer relationship with us stickier. It means that attrition rates are low, retention is high, and that's a good thing. Labels remain a margin-accretive component of our P&L, and they help build the stickiness that I already mentioned. As a solutions vendor, our labeling expertise and related services add a lot of differentiated value for our clients.

Near term, our labels business also holds potential for labels-only deals, where we might win customers based on the value, the quality, expertise, and pricing advantage that we can offer. That's another door into customers. It's a distinctive competence that we can use to ultimately get in and sell additional products to clients that might start with us for just labeling and then move into some of the other applications our BOHA! Suite offers. In the first quarter, we landed 22 new logo accounts from direct sales and from our market partners, and with the potential of about 1,405, you know, about 1,400 potential future units.

We tend to use a land and expand strategy because our product performs well in situ. It's great for us to get a small order from a potentially large client, then we treat that as an account management opportunity to get follow-on business and expansion revenue. We also remain confident in our new pipeline logo pipeline for the remainder of 2026, we feel like we're in pretty good shape. I also wanted to mention that when our customers win, we also win. We had a number of key customers this last quarter adding new stores to their portfolio in the quarter. That presents an opportunity for us to sell into these new locations. When we get revenue growth from these expansions, it comes without a huge sales investment like it takes when we want to win a net new account.

Expansion business is always easier to win, and it's a really important aspect of our land and expand model. As our customers expand, we can expand with them. I also wanted to provide a brief update. You know from prior press releases and maybe conversations that we hired a new Chief Marketing Officer, CMO, last quarter. Her name's Dana Loof. She joined us, I think, in early January, and I'm incredibly happy with the structure and progress she's brought to our marketing function since joining us. I've had conversations with many of you about how our brand is somewhat, I guess I would say lackluster or kind of languishes out there. Our website hasn't been particularly hard-hitting with calls to action and, you know, really compelling reasons why you should buy our technology, why you should buy it now.

She's changing all that. I'm delighted. The progress from her so far has been excellent. Her focus has been competitive positioning, messaging, and building out our lead gen engine. We've already seen improvements in our press cadence and digital presence. She's also been hard at work to update our website, which some of you have commented on to me personally as well. In any event, we're delighted with the improvements she's already made and even more excited about the momentum she's building. We think she can generate a lot of opportunity for us. Stay tuned. I think you'll see TransAct delivering a much improved market presence and brand presence as we go forward into the future. I think of that as actually really good news. A key individual, key executive really making a difference.

Shifting over to casino and gaming, we recorded net sales of $8.3 million for the quarter, up 24% from $6.7 million in the prior year period. Both domestic and international demand was strong, with results in each segment up over 20%. Our Epic TR80, which is a relatively new product, is also gaining some meaningful traction internationally in what we call roll-fed gaming applications. These would be things for, like, kiosk betting and things like that, where it's a roll printer that prints out the tickets from these machines. Although our casino and gaming business is highly cyclical, we have found there's always a significant free cash flow component generated from it, and we don't expect that to change much in 2026. I do point out that it's lumpy, somewhat, but it's always bounced back and it's consistent.

I've got some recent casino statistics and slot machine statistics. You know, the CAGR there is respectable. It continues to grow, and more casinos are opening. At this point, as you know, it's a relatively high margin business, and we're in a duopoly market, and we continue to service a significant portion of that overall market. Today, we believe that our ship share now approaches parity with the other large vendors serving the same market. That's really important. We've made great progress. We've got a great sales team there. They know the industry cold, and we're very well equipped to continue to maintain our presence in this space going forward. Turning to our financial outlook for 2026, I'm reaffirming our 2026 net sales outlook. We basically suggested $55 million-$57 million for the top line.

As you'd expect, I'm raising our adjusted EBITDA outlook to between a range of $1 million-$1.75 million based on first quarter guidance and performance. We're off to a good start. $14.4 million in net sales. $1.4 million of adjusted EBITDA. 1,370 BOHA! Terminals. Grew our online terminal base to nearly 20,000, which is a good opportunity for us going forward. Software revenue rose 23%, bolstering our confidence in that part of the market. It's high margin, recurring revenue model, which you'd expect us to try to drive. We're making progress on monetizing the install base and look forward to giving you more updates on the ARR progress each quarter.

I'm hoping to be able to add more specific metrics so that you can dive in and get a better understanding of the business. Feel good about the strategy, direction, and where we fit in the marketplace and the evolution of our business in the coming year. That's kind of where we're at. Before handing the call over to Steve, I know you've probably seen that we made a report last week, with his transition for our Chief Financial Officer. I just wanted to thank Steve for 30 years of tireless, I promise you it was tireless effort and support at TransAct. He's been a stalwart. He's been here from the original IPO way back in 1996, which is just an incredible feat of dedication, support, loyalty, and a job well done.

Steve, you're an asset to the team. You're gonna be missed, your retirement certainly earned and deserved. We wish you all the best. I know you're gonna be around. You're gonna be helping us at least through the end of the year in various forms and fashion and support. Congratulations on this well-earned retirement. With that, maybe this is your last call. I'd like to turn the call over to Steve DeMartino.

Thanks for the kind words, John, and thanks everyone for joining us today. Let's turn to our first quarter 2026 results in a little more detail. Total net sales for the first quarter were $14.4 million, and that was up 10% compared to $13.1 million in the prior year period. Sales from our FST market for the first quarter were $4.7 million. That was down 4% compared to $4.9 million in the first quarter of 2025 and nearly flat, declining just 2% sequentially from $4.8 million in the fourth quarter of 2025. As John said, we sold 1,370 terminals during the first quarter of 2026. Our recurring FST sales, which include software and service subscriptions as well as consumable label sales for the first quarter, were $3.3 million.

That was up 26% compared to $2.7 million in the prior year period. Our ARPU for the first quarter of 2026 was $709. That was down 7% compared to $761 in the first quarter of 2025. Down 6% sequentially from $756 in the fourth quarter 2025. Our ARPU reflects our continued focus on the growing recurring revenue base, and we are making progress transitioning our large hardware-only customer towards a recurring model. We expect this effort to begin to contribute positively to ARPU in the coming quarters. Our casino and gaming sales were $8.3 million. That was up 24% from $6.7 million in the first quarter of 2025 and up 55% sequentially from $5.4 million in the fourth quarter 2025.

Domestic sales were up 20% year-over-year on strength from several large domestic OEMs, while international printer sales grew at 35% with solid contributions from both Europe and our Asia, Australia regions. The Epic TR80 is also beginning to build momentum internationally in roll-fed gaming applications. While we expect fluctuations quarter-to-quarter in our sales, overall, we expect casino and gaming sales to continue to contribute positively to our cash flow throughout 2026. POS automation sales of our Ithaca 9000 printer for the first quarter 2026 were $620,000, essentially flat compared to $618,000 in the prior year period. Overall, Ithaca 9000 sales remain in a normalized range, and we expect results to remain similar going forward. Moving to TransAct Services Group or TSG sales.

For the first quarter, TSG sales were $764,000. That was down 5% from $808,000 in the prior year period. The decline was driven by lower spares and accessories revenue as our legacy installed base continues to naturally wind down. Legacy consumables, which consist solely of our remaining thermal POS paper roll inventory, at this point, are nearly fully sold off, so we expect little to no revenue from these products going forward. Overall, we expect TSG sales to continue to slowly decline over time. Moving down the income statement, our first quarter gross margin rose to 50.3%. That compares to 48.7% in the prior year period and up sequentially from 47.6% in the fourth quarter 2025.

That was largely on the strength of casino and gaming sales in the first quarter. Strong casino gaming sales in the first quarter. We continue to expect our gross margin to be in the high 40% range for the full year 2026. Our total operating expenses for the first quarter were $6.5 million, and that was up 2% compared to $6.4 million in the prior year period. The modest increase was driven by higher selling and marketing expenses and G&A expenses, partially offset by a meaningful reduction in engineering expenses as we began to capitalize R&D costs related to the BOHA! software in-housing effort.

Breaking down our OpEx a little bit, our engineering and R&D expenses for the first quarter were $1.4 million. That was down 16% compared to $1.6 million in the prior year period. Our selling and marketing expenses for the first quarter were $2.2 million. That was up 5% compared to $2.1 million in the prior year period. The increase reflects new hires initiated during the first quarter, as well as higher travel expenses and sales commissions tied to our stronger sales results. Lastly, our G&A expenses for the first quarter were $2.9 million. That was up 10% compared to $2.7 million in the prior year period. The increase was largely driven by higher share-based compensation and recruiting fees for new hires made during the first quarter.

For the first quarter 2026, our operating income was $800,000 or 5.3% of net sales. This compares to near break-even operating loss of $15,000 or 0.1% of net sales in the prior year period. On the bottom line, we recorded net income of $800,000 or $0.07 per diluted share for the first quarter 2026. This compares to net income of $19,000 or break-even results per diluted share in the year-ago period. We recorded income tax expense of $23,000 at an effective tax rate of 2.9% as we continued to take a full valuation allowance on our US and Macau pre-tax earnings and record tax only on income from our UK sub-subsidiary.

Our adjusted EBITDA for the quarter was a positive $1.4 million. This compares to negative $499,000 in the fourth quarter 2025 and $544,000 in the first quarter 2025. This was a strong start to the year and keeps us well on track to deliver positive adjusted EBITDA for the full year 2026. Lastly, turning to our balance sheet, it remains solid. We ended the first quarter with $18.8 million in cash. That compares to $20.4 million at year-end 2025. In terms of debt, we had $3 million of outstanding borrowings under our credit facility with Siena Lending. Finally, thank you all for your interest and trust over the years.

As my 30-year career at TransAct comes to a close, I want to extend my heartfelt thanks to our shareholders for your steadfast support of both TransAct and me. I look forward to staying in touch. With that, I'd like to turn the call over to the operator for questions. Operator?

Thank you. Ladies and gentlemen, we will now be conducting our question and answer session. If you would like to ask a question, please press star one on your telephone keypad. The confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Thank you. It appears we have no questions at this time, so I would like to turn the floor back over to John Dillon for closing comments. Mr. Dillon, you may proceed with your closing remarks.

Thank you very much for joining us today. There's no questions. Be happy to chat with any of you offline downstream. You can reach us through Ryan Gardella from ICR. Again, thank you and best regards. With that, Steve and I will sign off.

Thank you. Ladies and gentlemen, we thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day.

Greetings, and welcome to the TransAct Technologies Q4 2025 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Ryan Gardella, Investor Relations. Please go ahead.

Thanks, Paul. Good afternoon. Welcome to the TransAct Technologies Q4 and full year 2025 earnings call. Today, we'll be discussing the results announced in our press release issued after market close. Joining us from the company is CEO John Dillon and President and CFO Steve DeMartino. Today's call will include a discussion of the company's key operating strategies, the progress on these initiatives, and details on our Q4 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 forward-looking, and actual results may differ materially. For a full list of risks inherent to the business and the company, please refer to the company's SEC filings, including its reports on Form 10-K and 10-Q.

TransAct undertakes no obligation 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, 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 website. With that, I'll turn the call over to John.

Thanks, Ryan, and good afternoon, everyone, and thank you for joining us today. I'm pleased to report that TransAct closed 2025 with a strong Q4, building on the momentum we established earlier in the year. This performance positions us well heading into 2026 as we focus on driving revenue growth in the FST, that's Food Service Technology vertical. We expect software to serve as our primary growth engine, going forward, supported by targeted and disciplined investments across the business, particularly in marketing and growth initiatives. I'll share some of those details shortly. In the Q4, we sold 1,434 BOHA! terminals, bringing the full year total to 7,317, which is a 36% increase year-over-year from 2024 when we sold 5,371 units.

On day one, my top priority was to improve our go-to-market and sales motions. There is always still work to be done, but given the success we've had placing new terminals, it's clear to me that we're moving in the right direction. The growth underscores the effectiveness of the land and expand strategy that we use as we continue to increase penetration within the customer base.

It's a large customer base, so that's good. Units sold continue to be the best leading indicator of our sales organization's performance, so I report that every quarter. It is encouraging to see strong retention across our install base, which is one of the metrics I'm hoping to introduce probably in the next quarter or Q2, as we discuss the different KPIs, key performance indicators that we report and we use to measure internally. I'm gonna report those publicly.

Before going into the quarterly highlights, let me update you on strategic priorities for 2026. As many of from our discussions, we're evolving our focus towards revenue growth, of course, but particularly in FST, food service. We're funding that expansion through the steady cash flows from our casino and gaming vertical. We believe that software is unequivocally our growth engine going forward, and that this is where we'll drive not just revenue, but also, margin expansion. In 2025, we took an important step forward with our acquisition of the source code for the BOHA! software, and in 2026, we intend to leverage our control of the code to enhance the offerings, introduce new applications, and capture higher margin recurring revenue. That's ARR, annual recurring revenue in that software.

We expect to deliver positive adjusted EBITDA for 2026 while making targeted investments in sales and marketing to support the growth without compromising our fiscal discipline. This includes strengthening our sales team with a sharper focus on the software-led solutions and prioritizing the upselling of software modules into the existing customer install base. We are refining our go-to-market strategy with emphasis on competitive pricing, some strategic partnerships, and targeted outreach in high potential subverticals such as the QSR, which is quick serve restaurants, convenience stores, grab-and-go sushi, which has turned into a really strong market for us, and corporate food services. Those are our people that do, say, a stadium or a campus, a college, university, or a hospital, organizations that under contract will provide the food services, and we are having good success in that market, sub-market as well.

These initiatives will require measured increases in spending, including selective hires in key roles, expanded digital marketing, and continued investment in our product roadmap. We plan to maintain a disciplined cost management regimen to target positive adjusted EBITDA and preserve the strength of the balance sheet. You should hope we're gonna do that, and we are. On that note, the transition following our acquisition of the BOHA! source code is progressing smoothly. We've made tangible strides standing up our own fully operational version, and we continue to expect the launch targeted for mid-year 2026.

This ownership not only provides operational freedom, but also enables us to accelerate software innovations, like exploring an application store model for our terminals, for example. This could allow users to opt into new applications directly on the hardware. It would drive additional software revenue streams as well.

It's still a future project, but one we're excited about as we shift from a hardware-centric focus to a software-driven solutions provider environment. We're also working on migrating existing customers to a public cloud platform, which will enhance scalability and open up more cross-selling opportunities for us. Longer term, we're aiming to get our installed base up to something like $200 per machine per month. That would be ARR or actually MRR, monthly recurring revenue. It's a great thing if we can do it, and that's where we're targeting. This would unlock significant value given our growing installed base. I think right now we've got some 18,000-19,000 online terminals in the marketplace, and we're adding more every day. That's an important opportunity for us.

For context, data from comparable SaaS software service models shows that this level is very achievable, and we'll emphasize this through our sales team's software-focused pitches, the GTM, the go-to-market enhancements, and the sales training. That's an area, a key area of focus for us in 2026. Now turning over to the FST highlights for the Q4, total FST net sales came in at $4.8 million, up 12% year-over-year, fueled by hardware placements, expanding software adoption, and record quarter for labels. Recurring FST revenue reached $3.4 million with the ARPU, that's the average revenue per unit, at 756 per unit. Labels hit an all-time high at $2.6 million in the quarter.

While label sales can be lumpy, they're not only margin accretive, but they also help us build sticky, no pun intended, sticky long-term relationships with our customers. By providing best-in-class, cost-effective labels that help operators with compliance, branding, and efficiency, we're fostering greater retention and hopefully opening doors for future software integration sales in the future. Customer intimacy is really important, and this allows us to be a key part of the customer's, if you will, business operation. We enjoy that, and it's a good relationship, and we have a degree of confidence that none of the other vendors that might be in the marketplace do. Our BOHA! Terminal 2 rollouts from prior quarters continue to progress as expected.

Our installed base of roughly 40,000 legacy, these are offline terminals, the AccuDate and the first-generation BOHA units, remain a prime opportunity for additional upgrades. We saw solid conversions and expansions throughout 2025, including further deployments with our large global QSR and also within the C-store customer base where our Terminal 2 is boosting efficiency, reduces waste, improves margins for our clients. In the Q4, we had three new logo additions with about 600 potential future units, and we're confident in our new logo pipeline for 2026. As I mentioned last quarter, we're also excited about two potential new revenue levers in the BOHA. Near term, the labels business, as I mentioned, continues to perform well with potential for label-only deals where customers value our quality, expertise, pricing edge, and our label design software.

Longer term, the app store concept I mentioned could transform our terminals into platforms for third-party applications, significantly boosting software revenue and frankly stickiness. In accordance with our public disclosure obligations, we'll keep you updated when appropriate as these initiatives develop, but we're improving sales and GTM strategies placing heavy emphasis on these software opportunities. Before moving on, let me touch on our new Chief Marketing Officer, Dana Loof, who joined us recently to lead our marketing and growth initiatives. While it's still early days for Dana, she has hit the ground running, and it's been an absolute pleasure working with her so far.

Her priorities will include competitive positioning, messaging, a press release drumbeat, and lead generation. Of course, all of the content that we generate and that we create will find its way to refresh our somewhat lackluster website presence.

It's been a kind of a thorn in my side. I want that website to tell our story and tell it effectively, and we're gonna get there pretty soon. As well, I expect to complement that with an active investor outreach program beginning in Q2 to tell the story, sell the strategy, share the strategy along with our plans for growth. We're looking forward to the impact she will have on our business, and we'll keep you all apprised of progress against these initiatives. Shifting to casino and gaming, we recorded net sales of $5.3 million for the quarter, up 13% from last year, and 2025 sales of $26.9 million, up 32% from 2024.

While we did see some sequential softening in domestic demand towards the end of the year as anticipated due to macro headwinds in Las Vegas and broader casino performance, for some reason, the international sales continue to be strong. Our new domestic OEM win, which we talked about in the last few quarters, gave us significant momentum in 2025, which has begun to taper off a bit as they work down their inventory while they wait for the next jurisdictional approval for new rollout. Although casino and gaming business is highly cyclical, I want to emphasize that there is always significant free cash flow generated from it, and we do not expect that to change in 2026. Different topic in gaming and casino are relatively new Epic TR80 in the marketplace.

The thermal roll printer is gaining traction in sports betting kiosks and video lottery terminals, and we anticipate it to become a more meaningful contributor this year. Overall, this vertical remains a reliable cash cow, funding our FST investments while we explore expansion like charitable gaming and deeper Epicentral integrations for recurring revenue. Moving on to financial guidance for 2026. The company expects 2026 net sales to be between $55 million and $57 million, with an adjusted EBITDA, the company expects that to come in between $800,000 and $1.5 million positive. I'm optimistic about the direction of the business in 2026, particularly around our FST software initiatives and Dana's priorities for the year. We've delivered consistent BOHA! growth, recorded solid label performance in the Q4, and achieved both our revenue and adjusted EBITDA guidance for the year.

Our enhanced sales team and GTM, that's go-to-market strategy, will emphasize software upsell, partnerships, and targeted sub-vertical expansion to drive this forward with measured incremental investments intended to keep us above that adjusted EBITDA break-even line and to protect our balance sheet. We believe that our casino business provides stability regardless of where we are in the cycle of the market, and controlling our software unlocks tremendous potential for the recurring revenue growth. Our focus remains execution, fiscal discipline, and creating shareholder value through prudent growth, and we look forward to updating you on progress in that regard. To sum it up, this was a turnaround. It's been a lot of work. There's been a lot we have to do. A lot's been done, and we believe we've now turned the corner.

The original opportunity is still in front of us, and we're ready to go get it and deliver on the promise. Lots of work ahead, but now it's all what I call good work. With that, let me pass the call over to Steve for more detailed review of the numbers. Steve?

Thanks, John, and thank you everyone for joining us today. Let's turn to our Q4 and full year 2025 results in a little more detail. Total net sales for the Q4 were $11.5 million, which was up 12% compared to $10.2 million in the prior year period. For the full year 2025, total net sales were $51.5 million. That was up 19% compared to $43.4 million in 2024 and within our increased outlook range for the year. Sales from our food service technology market, or FST, for the Q4 were $4.8 million. That was approximately flat sequentially, but up 12% compared to $4.3 million in the prior year period. For the full year, FST sales were $19.3 million.

That was up 20% compared to $16.1 million in 2024. We sold 1,434 terminals in the Q4 and ended the year with 7,317 terminals sold, which represented a 36% increase from the full year 2024. Our recurring FST sales, which include software and service subscriptions as well as consumable label sales for the Q4, were $3.4 million. That was up 24% compared to $2.7 million in the prior year period. For the full year, recurring FST sales were $12.2 million, and that was up 14% compared to $10.8 million for the full year 2024. Our ARPU for the Q4 of 2025 was $756.

That was down 14% compared to 875 in the Q4 of last year and down 5% sequentially from 792 in the Q3 of 2025. As a reminder, we continue to sell BOHA terminals to a large customer with no recurring revenue attached to them to start. While we expect to begin the process of changing the selling model to this customer in 2026, for now, it represents a drag to our ARPU number. Our casino and gaming sales were $5.4 million, and that was up 13% from $4.8 million in the Q4 of 2024, but down 25% sequentially.

As John highlighted, we began to see a demand slowdown in the Q4 as a large customer reached fully stocked status and is awaiting approval for rollouts to begin, which we currently expect will be sometime later in 2026. For the full year, casino and gaming sales were $26.9 million. That was up 32% year-over-year. While we expect fluctuations quarter-to-quarter in our sales, overall, we expect casino and gaming sales to continue to contribute positively to our cash flow during 2026. POS automation sales for the Q4 increased 47% from the prior year to $606,000. For the full year, POS automation sales were $2.2 million, and that was down 34% from $3.4 million in the full year 2024.

Overall, Ithaca 9000 sales remain in our new normalized range, and we expect results to remain similar going forward in this market. Moving to TransAct Services Group or TSG. TSG sales were $658 thousand for the Q4, and that was down 13% from $759 thousand in the prior year period. Sales were down across all portions of the TSG market, including legacy consumable business, which consists mainly of sales of cases of thermal POS paper rolls and inked ribbons, which we've decided to exit. We expect slightly declining TSG sales sequentially going forward. Moving down the income statement, our Q4 gross margin was 47.6%, and that was down from 44.2% in the prior year period. Our full-year gross margin was 48.6%.

That was down just slightly from 49.5% in the full year 2024. Going forward, we expect our gross margin to be in the high 40% range for 2026. Our total operating expenses for the Q4 increased by 19% to $6.6 million. For the full year, operating expenses were $26.4 million, and that was up 5% compared to $25.1 million in the prior year, largely due to higher sales commissions, incentive compensation and share-based compensation resulting from our improved results in 2025. These increases were somewhat offset by savings from cost reduction initiatives we initiated in late 2024. Breaking down our operating expenses a bit, our engineering and R&D expenses for the Q4 were flat sequentially at $1.7 million and up by 7% compared to the Q4 of 2024.

For the full year 2025, these expenses decreased 4% to $6.7 million. Our selling and marketing expenses for the Q4 increased 3% sequentially and 6% over the prior year's Q4 to $2.2 million, largely due to severance charges. For the full year, selling and marketing expenses increased 3% to $8.4 million. Lastly, our G&A expenses essentially stayed flat sequentially at $2.8 million for the Q4, but increased 41% compared to the prior year's Q4, mostly on higher incentive and share-based compensation. For the full year 2025, our G&A expenses were $11.3 million, and that was up 14% from the full year 2024.

For the Q4, our operating loss was $1.2 million or 10.1% of net sales, and that compared to an operating loss of $1 million or 10.3% of net sales in the prior year period. For the full year, our operating loss was $1.4 million, and that compared to $3.6 million in 2024. On the bottom line, we recorded a net loss of $1.1 million or 11-cent loss per diluted share for the Q4, compared to a net loss of $8 million or 79-cent loss per share in the year ago period. For the full year 2025, we had a net loss of $1.2 million or 12 cents per share, and that compared to a net loss of $9.9 million or 99-cent loss per share in 2024.

As a reminder, both our Q4 and full year 2024 numbers included a $7.3 million non-cash charge to income tax expense to record a full valuation allowance against our deferred tax assets. Our adjusted EBITDA for the quarter was negative $499,000, and that compared to negative $705,000 for the Q4 of 2024. For the full year, our adjusted EBITDA was a positive $1.2 million, and that compared to negative $1.5 million in 2024. Our full-year adjusted EBITDA result placed us above the midpoint of our 2025 outlook range. Lastly, turning to our balance sheet, it still remains solid. We finished the year with over $20 million in cash, which was up $6 million from our cash balance at the end of 2024.

In terms of debt, we had only the minimum required $3 million of outstanding borrowings under our credit facility with CNL. With that, I'd like to turn the call back over to the operator for questions. Operator?

Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Thank you. Our first question is from Jeff Bernstein with Silverberg Bernstein Capital.

Hey, guys. Maybe you can address the AI question. How do you see AI programming tools actually helping you guys with the business? How do you see them potentially increasing competition, or reasons why they shouldn't do that?

Yeah. Thanks for the question, Jeff. We use AI internally. that we have the code, the source code for the BOHA! software. Within the things you can do with some of the application tools is you can run the code through it, and it can look for problems with the code. It can look for dead ends, it can look for circular references, and it can actually give you a summary of what the code actually does. It's making us more efficient in that regard.

On a somewhat tangential issue, there are many applications that are in the food service industry and a couple in the gaming industry where we will add AI tooling, nothing sophisticated, but just enough to help the clients make better decisions to optimize around the data they've got to decide on this strategy or that strategy or inventory management and the like.

You'll see our products over time engage with various AI technologies to improve our customers interaction with the software and the results they get. Relative to competition, I think that I heard that story said, I think it's a lot of hype. It still takes a lot of smart people to create applications that delight users. It's not lost on any of us that large language models allow you to write stories very quickly. Normally, what happens here is the AI systems can do a lot of the pedestrian work, kind of just basic coding, but you need somebody with user experience, a user engagement model to be able to understand what's the flow. It's sort of like making a movie.

You've got all the computers that can do the CGI stuff, but the reality is somebody has to build the storyboards to figure out what is it we're gonna do, why do we do it, why do we do it this way? There's an awful lot of that. It takes more senior expertise in the building, where what we're doing is we can gradually cut back on the lower-level programmers that do kind of the rote work, and we can have more brilliant people kind of focusing on delighting customers. We see this as an opportunity, not really a threat.

I know the marketplace has taken a downturn a little bit on the software companies, but we're all engaging with the technology, and I don't think it's gonna give some startup company some opportunity to roar in and magically build a brand-new system overnight that competes with a lot of the existing software. The reality is that what we're doing is we're delivering enterprise-grade solutions. It involves hardware, software, telematics, networking, whether it's Wi-Fi, luetooth LTE, mobile. All of that stuff has to go together in a way where the customers that we serve are on the high end, and there's everything that is involved with that. It's not really commodity stuff, I guess, is what I'm saying. We think that that differentiation is something that's pretty sustainable.

That, that's great. Thanks for the answer.

As a reminder, if you would like to ask your question, please press star one on your telephone keypad. Thank you. There are no further questions at this time. I would like to hand the floor back over to John Dillon for any closing remarks.

Well, first, let me thank you for your time and attention today. We appreciate it. I'm looking forward to speaking with any of you. Some of you have scheduled calls, but as calendars align, if any of you wanna follow up, feel free to reach out to me or Steve. Thanks again. With that, we'll sign off, and we'll hopefully talk to you soon. Have a good day. Bye-bye.

This concludes today's conference. You may disconnect your lines at this time. We thank you again for your participation.