USA Technologies, Inc.
Feb 6, 2014

USA Technologies Announces Second Quarter, Fiscal 2014 Results

MALVERN, Pa.--(BUSINESS WIRE)-- USA Technologies, Inc. (NASDAQ:USAT) ("USAT"), a leader of wireless, cashless payment and M2M telemetry solutions for small-ticket, self-serve retailing industries, today reported results for the second fiscal quarter ended December 31, 2013.

"During the second quarter, we continued to drive new connections and new customers to our ePort Connect® service across all vertical markets," said Stephen P. Herbert, USAT's chairman and chief executive officer. "By leveraging our existing customer base and industry diversification strategies, we gained 17,000 new connections to our ePort Connect service in the quarter, strong results that helped us offset 10,000 deactivations from a customer that we previously announced was transitioning away from our service. In addition, our customer base grew by 48% from the prior year, to 6,075 customers at the end of the quarter, reflecting what we believe to be a growing awareness for cashless in the self-serve retail market.

"We also generated our second highest level of GAAP and non-GAAP net income in the second quarter—solid progress as we work toward our fiscal 2014 objectives that include the doubling of non-GAAP net income for the fiscal year," said Herbert.

Highlights for the second quarter, compared to the corresponding quarter in the prior year, included:

Approximately 82% of total revenues stemmed from license and transaction fee revenues, which are largely driven by connections to USAT's comprehensive and turnkey cashless payment and M2M telemetry service, ePort Connect.

"Last fiscal year, we worked to expand our sales and marketing presence in self-serve retail markets beyond vending, such as commercial laundry, amusement, kiosk and taxi and transportation," continued Herbert. "Similar to vending, many of these markets are in the early stages of cashless adoption and thus, in our view, hold enormous opportunity for growth going forward. During the second quarter, we continued to strengthen our presence in each of these markets through value-added services and innovative programs and products."

Examples include:

Second Quarter Results

Revenues of $10.6 million in the second quarter of fiscal 2014 grew by 19% from the same period a year ago, led by growth in equipment sales of 28% and growth in license and transaction fees of 17%.

Revenue from license and transaction fees, which represented 82% of revenues in the second quarter, is driven by net connections to USAT's ePort Connect service through monthly service fees, including any rental program fees and transaction processing fees.

Gross profit of $3.8 million increased by 6% in the second quarter, from $3.6 million for the same period in the prior year. Gross profit margin was 36.2%, down from 40.5% for the same period in the prior year, due primarily to deactivations in the quarter.

Operating expenses of $3.3 million in the second quarter grew slightly, from $3.0 million for the same period in fiscal 2013, largely due to additional investments in sales and marketing for fiscal 2014. Operating margin (both GAAP and non-GAAP) was 4.8% for the second quarter, compared to 6.4% for the same period a year ago.

GAAP and non-GAAP net income were both positive for the second quarter of fiscal 2014, with non-GAAP net income reaching the second highest level for USAT to date.

GAAP net income was $409,191 for the second quarter of fiscal 2014, compared to $153,758 for the same period in the prior year. Diluted net earnings per common share was $.01 for the second quarter of fiscal 2014 compared to $.00 for the same period in fiscal 2013.

Non-GAAP net income for the second quarter of fiscal 2014 was $447,087 compared to $557,393 for the same period in the prior year. Non-GAAP diluted net earnings per common share was $.01 for the second quarter of fiscal 2013 compared to $.02 for the same period in fiscal 2013. Non-GAAP net income and non-GAAP diluted net earnings per common share removes the impact of the fair value of warrant adjustment of $0.04 million and $0.4 million for second quarter fiscal 2014 and 2013, respectively (see Non-GAAP Reconciliation tables).

Cash and cash equivalents stood at approximately $6.7 million as of December 31, 2013, up from approximately $5.0 million as of December 31, 2012.

Outlook

"We remain encouraged by the 31,000 gross new connections achieved in the first half of fiscal 2014, the continued expansion of our customer base and feedback from our existing customers regarding the value of cashless payment as a vital tool to drive incremental revenue and operational benefits," continued Herbert. "At the same time, we are also mindful of growing competitive pressures and the need to remain agile and aggressive from a marketing perspective.

"For the remainder of fiscal 2014, we will be balancing these market dynamics, our long-term strategies and the customer environment as we work toward achieving our fiscal 2014 financial targets that include over 25% license and transaction fee revenue growth, over 20% total revenue growth and a 100% improvement in non-GAAP net income for fiscal 2014," said Herbert.

Webcast and Conference Call

USA Technologies will conduct a conference call and webcast at 10:00 a.m. Eastern Time on February 6, 2014. USA Technologies invites all interested parties to listen to the live webcast of the conference call, accessible on the Investor Relations section of USA Technologies' website. The webcast will be archived on the website within two hours of the live call. It will remain available for approximately 90 days. Interested parties unable to access the webcast may also participate by calling (866) 393-1608 or, if an international caller, (224) 357-2194. A replay of the call, available until midnight on February 9, 2014, can be accessed by calling (855) 859-2056; Conference ID#35407558, (toll free).

About USA Technologies:

USA Technologies is a leader of wireless, cashless payment and M2M telemetry solutions for small-ticket, self-serve retailing industries. ePort Connect® is the company's flagship service platform, a PCI-compliant, end-to-end suite of cashless payment and telemetry services specially tailored to fit the needs of small ticket, self-service retailing industries. USA Technologies also provides a broad line of cashless acceptance technologies including its NFC-ready ePort® G8, ePort Mobile™ for customers on the go, and QuickConnect, an API Web service for developers. USA Technologies has been granted 87 patents and has agreements with Verizon, Visa, Elavon and customers such as Compass, Crane, AMI Entertainment and others. Visit the website at www.usatech.com.

Forward-looking Statements:

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: All statements other than statements of historical fact included in this release, including without limitation the business strategy and the plans and objectives of USAT's management for future operations, are forward-looking statements. When used in this release, words such as "anticipate", "believe", "estimate", "expect", "intend", and similar expressions, as they relate to USAT or its management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of USAT's management, as well as assumptions made by and information currently available to USAT's management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors, including but not limited to, the incurrence by us of any unanticipated or unusual non-operational expenses which would require us to divert our cash resources from achieving our business plan; the ability of USAT to retain key customers from whom a significant portion of its revenues is derived; the ability of USAT to compete with its competitors to obtain market share; whether USAT's customers continue to utilize USAT's transaction processing and related services, as our customer agreements are generally cancelable by the customer on thirty to sixty days' notice; the ability of USAT to obtain widespread commercial acceptance of it products; the ability of USAT to raise funds in the future through the sales of securities in order to sustain its operations if an unexpected or unusual non-operational event would occur; the ability of USAT to use available data to predict future market conditions, consumer behavior and any level of cashless usage; the ability of USAT to efficiently and securely integrate cashless payment with new machine technologies; whether any patents issued to USAT will provide USAT with any competitive advantages or adequate protection for its products, or would be challenged, invalidated or circumvented by others; the ability of USAT to operate without infringing the proprietary rights of others; and whether USAT's existing or anticipated customers purchase, rent or utilize ePort devices or our other products or services in the future at levels currently anticipated by USAT. Readers are cautioned not to place undue reliance on these forward-looking statements. Any forward-looking statement made by us in this release speaks only as of the date of this release. Unless required by law, USAT does not undertake to release publicly any revisions to these forward-looking statements to reflect future events or circumstances or to reflect the occurrence of unanticipated events.

 
USA Technologies, Inc.
Consolidated Statements of Operations
(Unaudited)
 
    Three months ended     Six months ended
December 31, December 31,
  2013         2012     2013         2012  
 
Revenues:
License and transaction fees $ 8,671,085 $ 7,403,241 $ 17,178,129 $ 14,309,598
Equipment sales   1,899,429     1,481,080     3,515,443     2,965,001  
Total revenues 10,570,514 8,884,321 20,693,572 17,274,599
 
Cost of services 5,495,385 4,363,212 10,904,848 8,555,572
Cost of equipment   1,244,996     920,928     2,375,820     1,974,564  
Gross profit 3,830,133 3,600,181 7,412,904 6,744,463
 
Operating expenses:
Selling, general and administrative 3,193,568 2,699,675 6,488,912 5,914,800
Depreciation and amortization   126,875     332,856     285,384     676,245  
Total operating expenses   3,320,443     3,032,531     6,774,296     6,591,045  
Operating income 509,690 567,650 638,608 153,418
 
Other income (expense):
Interest income 4,714 21,661 18,240 41,827
Interest expense (60,405 ) (25,016 ) (121,381 ) (48,023 )

Change in fair value of warrant liabilities

  (37,896 )   (403,635 )   181,201     59,498  
Total other income (expense), net   (93,587 )   (406,990 )   78,060     53,302  
 
Income before provision for income taxes 416,103 160,660 716,668 206,720
Provision for income taxes   (6,912 )   (6,902 )   (13,823 )   (13,823 )
Net Income 409,191 153,758 702,845 192,897
Cumulative preferred dividends   -     -     (332,226 )   (332,226 )
Net income (loss) applicable to common shares $ 409,191   $ 153,758   $ 370,619   $ (139,329 )
Net earnings (loss) per common share - basic $ 0.01   $ -   $ 0.01   $ -  
 
Weighted average number of common shares outstanding 34,136,884 32,734,394 33,730,590 32,626,