USA Technologies, Inc.
Sep 23, 2014

USA Technologies Announces Fourth Quarter & Full Year Fiscal 2014 Results

Record 25,000 Gross Connections Added in Q4, 39% Y/Y Increase

266,000 Total Connections at Year End, 24% Y/Y Increase

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 fourth quarter and fiscal year ended June 30, 2014.

Fourth Quarter Financial Highlights:

 

Period Ended June 30

    Q4F14   Q4F13   %Change   F2014   F2013   %Change
Gross New Connections (thousands)   25   18   38.9%   76   54   40.8%
% From Existing Customer Base   83.5%   82.5%   -   68.3%   83.5%   -
Net New Connections   22   18   22.2%   52   50   4.0%
Total Connections   266   214   24.3%   266   214   24.3%
                         
New Customers Added   650   525   23.8%   2250   1750   28.6%
Total Customers   7300   5050   44.6%   7300   5050   44.6%
                         
Total Number of Transactions (millions)   47.0   36.5   28.8%   168.5   129.1   30.5%
Transaction Volume ($millions)   $82.9   $62.7   32.2%   $293.8   $219.0   34.2%
         

Management Commentary

"USA Technologies ended fiscal 2014 with 266,000 total connections. During the year we added 76,000 gross new connections, a record, eclipsing the 24,000 deactivations from one large customer, and increased our customer base by over 44% to 7,300 total customers," said Stephen P. Herbert, USA Technologies Chairman and Chief Executive Officer. "Through aggressive marketing campaigns designed to accelerate adoption and further secure USA Technologies' foothold in the vending, laundry, kiosk and taxi verticals and innovative sales and product offerings targeting small- and medium-sized businesses, we successfully drove meaningful increases in our installed base and our total customer count.

"Revenue growth for fiscal 2014, however, came in slightly below our guidance range of 20% to 23% in large part due to a delay in integration work related to our recent taxi partnerships. We are working diligently with our partners to wrap up this work and expect to complete the integration in the second quarter," added Herbert.

Herbert concluded, "With record new connections in fiscal 2014, a robust pipeline, and a set of ongoing sales and product initiatives, we're entering the new fiscal year with good momentum. In addition, in fiscal 2015 we expect to recognize approximately $5.5 million in incremental revenue as billing grace periods granted in fiscal 2014 begin to expire. With 70% of our installed base, or approximately 150,000 locations, NFC-enabled (near field communications), we are perfectly aligned with the latest developments in NFC/mobile payment such as ApplePay. These positives, we believe, collectively position USA Technologies for strong growth and strengthening of our leading market position as adoption for cashless payment in the self-serve retail market continues to accelerate."

Fourth Quarter Operational Highlights:

Fourth Quarter Financial Results

For the fourth quarter total revenue was $11.2 million, an increase of 15.7% compared to $9.7 million in the fourth quarter of fiscal 2013. This increase was driven by an increase in year over year connections to our network. License and transaction fees were $9.5 million compared to $8.2 million in the year ago quarter, a 15.8% increase. These fees, which are comprised of recurring monthly service fees as well as transaction processing fees, accounted for approximately 84% of total revenue. Equipment sales were $1.7 million compared to $1.5 million in last year's fourth quarter, a 15.5% increase, reflecting the greater connection growth in the fourth quarter of fiscal 2014 compared to last year's comparable period.

Gross profit was $3.7 million, even with the year ago quarter. The gross margin was 32.7% compared to 37.9% in the fourth quarter last year. Gross margin on license and transaction fees was 33.1% compared to 37.1% last year, reflecting the impact in the fourth quarter of 2014 of certain new JumpStart connections associated with grace periods as well as deactivations from one large customer. For the new connections associated with the grace periods, the company incurred costs without the associated monthly service fees.

Operating expenses were $4.2 million in the fourth quarter compared to $3.5 million in the year ago quarter. The increase primarily reflects one-time expense reductions in the fourth quarter of fiscal 2013, increased compensation costs from the addition of new employees as well as year-end sales commissions and bonus accruals resulting from the record number of gross new connections during the fourth quarter.

GAAP operating loss was approximately $0.60 million compared to GAAP operating income of $0.2 million. Adjusted EBITDA was $1.3 million, a year-over-year decrease of 22.1%, compared to $1.6 million for the fourth quarter of fiscal 2013. Taking into account an income tax benefit of approximately $0.50 million related to the reduction in our tax provision for fiscal year 2014, GAAP net loss was approximately $39,000, or $0.00 per share, compared to GAAP net income of $1.7 million, or $0.05 per share, for the fourth quarter of fiscal 2013.

On a non-GAAP basis, net loss was $0.1 million, or $0.00 per share, for the fourth quarter of fiscal 2014, compared to net income of $0.2 million, or $0.00 per share, in the same period last year.

Cash and cash equivalents were $9.1 million as of June 30, 2014.

Fiscal 2014 Financial Results

For the year ended June 30, 2014, revenue was $42.3 million compared to $35.9 million in fiscal 2013. License and transaction fee revenue totaled $35.6 million compared to $30.0 million, an 18.6% increase. Adjusted EBITDA was $6.5 million compared to $5.8 million last year. GAAP net income applicable to common shares was $26.9 million, or $0.78 per share, compared to $0.2 million, or $0.01 per share, for fiscal 2013. GAAP net income for fiscal 2014 included $26.7 million, or $0.75 per diluted share, related to the partial recognition of a deferred tax asset. Non-GAAP net income applicable to common shares was $0.1 million, or $0.00 per diluted share, compared to non-GAAP net income of $0.2 million, or $0.01 per diluted share, applicable to common shares for fiscal 2013.

Fiscal 2015 Outlook

For full year fiscal 2015 management expects total revenue in the range of $51.0 million to $53.0 million, for a growth rate of 20% to 26%. License and transaction fee revenue is expected to be in the range of $44.0 million to $47.0 million, for a growth rate of 24% to 31%. Net new connections are expected to be in the range of 66,000 to 76,000, for a growth rate of 27% to 46%.

Webcast and Conference Call

Management will host a conference call at 10:00am EDT on Tuesday, September 23, 2014. To participate in the conference call, please dial (866) 393-1608 approximately 10 minutes prior to the call. International callers should dial (224) 357-2194. Please reference conference ID # 93456751.

A live webcast of the conference call will be available at http://investor.usatech.com/events.cfm. Please access the website 15 minutes prior to the start of the call to download and install any necessary audio software.

A telephone replay of the conference call will be available from 1:00pm EDT on September 23, 2014 until 11:59pm EDT September 26, 2014 and may be accessed by calling (855) 859-2056 (domestic dial-in) or (404) 537-3406 (international dial-in) and reference conference ID # 93456751. An archived replay of the conference call will also be available in the investor relations section of the Company's website.

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® G-series, 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 ability of management to accurately predict or forecast future earnings or taxable income of USAT; 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 or debt financings 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 to prevent a security breach of our systems or services or third party services or systems utilized by us; 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

 
Three months ended Year ended
June 30, June 30,
2014 2013 2014 2013
 
Revenues:
License and transaction fees $ 9,460,303 $ 8,172,243 $ 35,638,121 $ 30,044,429
Equipment sales   1,747,157   1,512,599   6,706,843   5,895,815
Total revenues 11,207,460 9,684,842 42,344,964 35,940,244
 
Cost of services 6,327,432 5,139,129 23,018,001 18,219,945
Cost of equipment   1,217,884   874,901   4,254,127   3,623,686
Gross profit 3,662,144 3,670,812 15,072,836 14,096,613
 
Operating expenses:
Selling, general and administrative 4,067,804 3,150,535 14,036,016 12,068,566
Depreciation and amortization   162,151   309,989   600,488   1,314,122
Total operating expenses   4,229,955   3,460,524   14,636,504   13,382,688
Operating income (loss) (567,811) 210,288 436,332 713,925
 
Other income (expense):
Interest income 8,995 4,212 30,337 57,121
Interest expense (74,529) (47,804) (256,844) (157,205)
Change in fair value of warrant liabilities   53,125   1,517,384   65,429   267,928
Total other income (expense), net   (12,409)   1,473,792   (161,078)   167,844
 
Income (loss) before provision for income taxes (580,220) 1,684,080 275,254 881,769
Benefit (provision) for income taxes   541,501   (6,912)   27,255,398   (27,646)
 
Net income (loss) (38,719) 1,677,168 27,530,652 854,123
Cumulative preferred dividends   -   -   (664,452)   (664,452)
Net income (loss) applicable to common shares $ (38,719) $ 1,677,168 $ 26,866,200 $ 189,671
Net earnings (loss) per common share - basic $ - $ 0.05 $ 0.78 $ 0.01
 
Weighted average number of common shares outstanding 35,517,099 33,080,641 34,613,497 32,787,673
Net earnings (loss) per common share - diluted $ - $ 0.05 $ 0.78 $ 0.01
Diluted weighted average number of common shares outstanding 35,517,099 34,115,444 34,613,497 33,613,346
 
 
USA Technologies, Inc.
Consolidated Balance Sheets
   
June 30, June 30,
2014 2013
 
Assets
Current assets:
Cash and cash equivalents $ 9,072,320 $ 5,981,000

Accounts receivable, less allowance for uncollectible accounts of $63,000 and $18,000, respectively

2,683,579 2,620,684
Finance receivables 119,793 116,444
Inventory 1,486,777 1,823,615
Prepaid expenses and other current assets 363,367 184,336
Deferred income taxes   907,691   -
Total current assets 14,633,527 10,726,079
 
Finance receivables, less current portion 352,794 408,674
Other assets 190,703 84,117
Property and equipment, net 21,138,580 17,240,065
Deferred income taxes 26,353,330 -
Intangibles, net 432,100 454,053
Goodwill   7,663,208   7,663,208
 
Total assets $ 70,764,242 $ 36,576,196
 
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 7,753,911 $ 7,301,247
Accrued expenses 1,915,799 1,468,184
Line of credit 5,000,000 3,000,000
Current obligations under long-term debt 172,911 247,152
Income taxes payable 21,021 -
Deferred gain from sale-leaseback transactions   380,895   -
Total current liabilities 15,244,537 12,016,583
 
Long-term liabilities:
Long-term debt, less current portion 249,865 122,754
Accrued expenses, less current portion 186,174 366,785
Deferred tax liabilities - 40,245
Warrant liabilities 585,209 650,638
Deferred gain from sale-leaseback transactions, less current portion   761,790   -
Total long-term liabilities 1,783,038 1,180,422
   
Total liabilities   17,027,575   13,197,005
 
Commitments and contingencies
 
Shareholders' equity:
Preferred stock, no par value:
Authorized shares- 1,800,000 Series A convertible preferred- Authorized shares- 900,000

Issued and outstanding shares- 442,968 (liquidation preference of $16,690,456 and $16,026,004, respectively)

3,138,056 3,138,056

Common stock, no par value: Authorized shares- 640,000,000 Issued and outstanding shares- 35,514,685 and 33,284,232, respectively

224,210,197 221,383,373
Accumulated deficit   (173,611,586)   (201,142,238)
 
Total shareholders' equity   53,736,667   23,379,191
 
Total liabilities and shareholders' equity $ 70,764,242 $ 36,576,196
 
 
USA Technologies, Inc.
Consolidated Statements of Cash Flows
       
Three months ended Year ended
June 30, June 30,
2014 2013 2014 2013
OPERATING ACTIVITIES:
Net income (loss) (38,719) 1,677,167 $ 27,530,652 $ 854,123

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Charges incurred in connection with the vesting and issuance of common stock for employee and director compensation

280,161 133,674 529,041 502,907
(Gain) Loss on disposal of property and equipment (2,808) (1,928) 4,245 (20,343)
Non-cash interest and amortization of debt discount - 26,933 2,095 53,867
Bad debt expense (recoveries), net 67,403 61,156 134,176 68,615
Depreciation 1,553,875 1,094,978 5,463,985 3,837,174
Amortization - 185,600 21,953 742,400
Change in fair value of warrant liabilities (53,125) (1,517,384) (65,429) (267,928)
Deferred income taxes, net (551,848) 6,912 (27,301,266) 27,646
Recognition of deferred gain from sale-leaseback transactions (9,522) - (9,522) -
Changes in operating assets and liabilities:
Accounts receivable (736,633) (310,847) (157,071) (247,358)
Finance receivables (39,938) (29,687) 52,531 17,729
Inventory 31,689 31,356 370,104 716,470
Prepaid expenses and other current assets (128,280) 452,207 (190,783) 503,937
Accounts payable 1,341,699 1,968,679 412,664 1,164,804
Accrued expenses 567,988 (122,612) 267,004 (1,915,091)
Income taxes payable   (14,500)   -   21,021   -
 
Net cash provided by operating activities 2,267,442 3,656,204 7,085,400 6,038,952
 
INVESTING ACTIVITIES:
Purchase of property and equipment (50,760) (25,660) (111,121) (107,351)
Purchase of property for rental program (3,671,812) (2,771,880) (10,883,473) (9,092,394)
Proceeds from sale of rental equipment under sale-leaseback transaction 2,995,095 - 2,995,095 -
Proceeds from sale of property and equipment   51,672   -   82,047   18,908
 
Net cash used in investing activities (675,805) (2,797,540) (7,917,452) (9,180,837)
 
FINANCING ACTIVITIES:

Net proceeds from the issuance (retirement) of common stock and exercise of common stock warrants

(13,913) 323,652 2,272,936 311,177
Excess tax benefits from share-based compensation 24,847 - 24,847 -
Proceeds from line of credit 1,000,000 1,000,000 2,000,000 3,000,000
Repayment of long-term debt   (107,368)   (149,853)   (374,411)   (614,937)
 
Net cash provided by (used in) financing activities   903,566   1,173,799   3,923,372   2,696,240
 
Net increase (decrease) in cash and cash equivalents 2,495,203 2,032,463 3,091,320 (445,645)
Cash and cash equivalents at beginning of year   6,577,117   3,948,537   5,981,000   6,426,645
Cash and cash equivalents at end of year $ 9,072,320 $ 5,981,000 $ 9,072,320 $ 5,981,000
 
Supplemental disclosures of cash flow information:
Cash paid for interest $ 70,617 $ 34,714 $ 259,820 $ 118,934
Depreciation expense allocated to cost of sales $ 1,386,803 $ 970,590 $ 4,880,529 $ 3,265,452
Reclass of rental program property to inventory, net $ 6,463 $ 16,414 $ 33,266 $ 28,337
Prepaid items financed with debt $ (144,312) $ 3,186 $ 101,850 $ 133,588
Prepaid interest from issuance of warrants for debt costs $ - $ - $ - $ 55,962
Equipment and software acquired under capital lease $ 107,670 $ 44,034 $ 325,431 $ 124,917
Equipment and software financed with long-term debt $ - $ - $ - $ -
Disposal of property and equipment $ 475,781 $ 91,228 $ 709,638 $ 98,928
Disposal of property and equipment under sale-leaseback transactions $ 1,918,920 $ - $ 1,918,920 $ -
 

Discussion of Non-GAAP Financial Measures:

This press release contains certain non-GAAP financial measures. Generally, a non-GAAP financial measure is a numerical measure of a company's performance, financial position or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. Reconciliations between non-GAAP and GAAP measures are set forth below.

The following non-GAAP financial measures are discussed herein: adjusted EBITDA, non-GAAP net income (loss) and non-GAAP net earnings per common share - diluted. The presentation of these additional financial measures are not intended to be considered in isolation from, or superior to, or as a substitute for the financial measures prepared and presented in accordance with GAAP (Generally Accepted Accounting Principles), including the net income or net loss of USAT or net cash used in operating activities. Management recognizes that non-GAAP financial measures have limitations in that they do not reflect all of the items associated with USAT's net income or net loss as determined in accordance with GAAP. These non-GAAP financial measures are not required by or defined under GAAP and may be materially different from the non-GAAP financial measures used by other companies. USAT has provided below the reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures.

Non-GAAP net income (loss) represents GAAP net income (loss) excluding costs relating to the proxy contest, benefit from reduction of the deferred tax asset valuation allowances, any adjustment for fair value of warrant liabilities, and any charges for impairment of intangible assets.

Non-GAAP net earnings (loss) per common share - diluted is calculated by dividing non-GAAP net income (loss) applicable to common shares by the number of diluted weighted average shares outstanding.

Adjusted EBITDA represents net income (loss) before interest income, interest expense, income taxes, depreciation, amortization, and change in fair value of warrant liabilities and stock-based compensation expense and any impairment expense on intangible assets. We have excluded the non-operating items, benefit from reduction of the deferred tax asset valuation allowances and change in fair value of warrant liabilities, because they represent a non-cash charge that is not related to USAT's operations. We have excluded the non-cash expenses, stock-based compensation and any impairment expense, as they do not reflect the cash-based operations of USAT. Adjusted EBITDA is presented because we believe it is useful to investors as a measure of comparative operating performance and liquidity, and because it is less susceptible to variances in actual performance resulting from depreciation and amortization and non-cash charges for changes in fair value of warrant liabilities and stock-based compensation expense.

Management believes that non-GAAP net income (loss) and non-GAAP net earnings (loss) per common share - diluted are important measures of USAT's business. Management uses the aforementioned non-GAAP measures to monitor and evaluate ongoing operating results and trends and to gain an understanding of our comparative operating performance. We believe that these non-GAAP financial measures serve as useful metrics for our management and investors because they enable a better understanding of the long-term performance of our core business and facilitate comparisons of our operating results over multiple periods, and when taken together with the corresponding GAAP financial measures and our reconciliations, enhance investors' overall understanding of our current and future financial performance.

 
Non-GAAP Reconciliation
Reconciliation of Net Income (Loss) to Non-GAAP Net Income (Loss) and Net Earnings (Loss) Per Common Share - Basic and Diluted to Non-GAAP Net Loss Per Common Share - Basic and Diluted
  Three Months Ended   Fiscal Year Ended
6/30/2014     6/30/2013     6/30/2014     6/30/2013  
Net income (loss) $ (38,719 )   $ 1,677,168 $ 27,530,652   $ 854,123
Non-GAAP adjustments:
Operating expenses
Selling, general and administrative:
Proxy related costs - - - 328,000
Fair value of warrant adjustment (53,125 ) (1,517,384 ) (65,429 ) (267,928 )
Benefit from reduction of valuation allowances   -       -       (26,713,897 )     -  
Non-GAAP net income (loss) $ (91,844 )   $ 159,784     $ 751,326     $ 914,195  
 
Net income (loss) $ (38,719 ) $ 1,677,168 $ 27,530,652 $ 854,123
Non-GAAP net income (loss) $ (91,844 ) $ 159,784 $ 751,326 $ 914,195
 
Cumulative preferred dividends   -       -       (664,452 )     (664,452 )
Net income (loss) applicable to common shares $ (38,719 )   $ 1,677,168     $ 26,866,200     $ 189,671  
Non-GAAP net income (loss) applicable to common shares $ (91,844 )   $ 159,784     $ 86,874     $ 249,743  
Weighted average number of common shares outstanding   35,517,099       33,080,641       34,613,497       32,787,673  
Diluted weighted average number of common shares outstanding   35,517,099       34,115,444       34,613,497       33,613,346  
Net earnings (loss) per common share - basic $ -     $ 0.05     $ 0.78     $ 0.01  
Non-GAAP net earnings (loss) per common share - basic $ -     $ -     $ -     $ 0.01  
 
Net earnings (loss) per common share - diluted $ -     $ 0.05     $ 0.78     $ 0.01  
Non-GAAP net earnings (loss) per common share - diluted $ -     $ -     $ -     $ 0.01  
 
 
Reconciliation of GAAP Net Income (Loss) to Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA)
     
Three Months Ended Fiscal year ended
6/30/2014 6/30/2013 6/30/2014 6/30/2013
Net income (loss) $ (38,719 ) $ 1,677,168 $ 27,530,652 $ 854,123
Less interest income (8,995 ) (4,212 ) (30,337 ) (57,121 )
Plus interest expenses 74,529 47,804 256,844 157,205
Plus income tax expense (benefit) (541,501 ) 6,912 (27,255,398 ) 27,646
Plus depreciation expense 1,553,875 1,094,978 5,463,985 3,837,174
Plus amortization expense - 185,600 21,953 742,400
Plus change in fair value of warrant liabilities (53,125 ) (1,517,384 ) (65,429 ) (267,928 )
Plus stock-based compensation   280,161     133,674     529,041     502,907  
Adjusted EBITDA $ 1,266,225   $ 1,624,540   $ 6,451,311   $ 5,796,406  
 
 

F-USAT

USA Technologies
David DeMedio, 800-633-0340
Chief Financial Officer
or
Investors:
LHA
Stephanie Prince/Jody Burfening, 212-838-3777
sprince@lhai.com

Source: USA Technologies, Inc.

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