USA Technologies, Inc.
Sep 13, 2016

USA Technologies Announces Fourth Quarter and Fiscal Year 2016 Results

MALVERN, Pa.--(BUSINESS WIRE)-- USA Technologies, Inc. (NASDAQ:USAT), a premier payment technology service provider of integrated cashless and mobile transactions in the self-service retail market, today reported results for its fourth quarter and fiscal year ended June 30, 2016.

Fourth Quarter Financial Highlights:

Fourth Quarter Financial Highlights, Connections & Transaction Data:

Fiscal Year Financial Highlights:

   

Fiscal Year Financial Highlights, Connections & Transaction Data:

 

Three months ended, unless noted

(Connections and $'s in thousands, transactions in millions, eps is not rounded)

June 30,

   
  2016       2015   # Change % Change
 
Revenues:
License and transaction fees $ 15,263 $ 11,938 $ 3,325 28 %
Equipment sales   6,681     5,708     973   17 %
Total revenues $ 21,944   $ 17,646   $ 4,298   24 %
 
License and transaction fees gross margin 30.5 % 34.1 % (3.6 %) (11 %)
 
Equipment sales gross margin 17.0 % 12.8 % 4.2 % 33 %
 
Overall Gross Margin 26.4 % 27.2 % (0.8 %) (3 %)
 
Operating loss $ (1,578 ) $ (357 ) $ (1,221 ) 342 %
 
Adjusted EBITDA $ 626 $ 1,251 $ (625 ) (50 %)
 
Net loss $ (872 ) $ (201 ) $ (671 ) 856 %
 
Net loss per common share - basic and diluted $ (0.02 ) $ (0.01 ) $ (0.01 ) 177 %
 
Net New Connections 28 31 (3 ) (10 %)
 
Total Connections (at period end) 429 333 96 29 %
 
Total Number of Transactions (millions) 89 62 27 44 %
 
Transaction Volume ($millions) $ 169 $ 113 $ 56 50 %
 

 

   

 

Year ended, unless noted

 

June 30,      

 

2016

 

2015

# Change

% Change

(Connections and $'s in thousands, transactions in millions, eps is not rounded)

 
Revenues:
License and transaction fees

$

56,589

$ 43,633 $ 12,956 30 %
Equipment sales   20,819     14,444     6,375   44 %
Total revenues $ 77,408   $ 58,077   $ 19,331   33 %
 
License and transaction fees gross margin 32.7 % 32.6 % 0.1 % 0 %
 
Equipment sales gross margin 16.7 % 18.1 % (1.4 %) (8 %)
 
Overall Gross Margin 28.4 % 29.0 % (0.6 %) (2 %)
 
Operating loss $ (1,467 ) $ (240 ) $ (1,227 ) 511 %
 
Adjusted EBITDA $ 5,984 $ 6,259 $ (275 ) (4 %)
 
Net income (loss) $ (6,806 ) $ (1,089 ) $ (5,717 ) 525 %
 
Net loss per common share - basic and diluted $ (0.21 ) $ (0.05 ) $ (0.16 ) 318 %
 
Net New Connections 96 67 29 43 %
 
Total Connections (at period end) 429 333 96 29 %
 
Total Number of Transactions (millions) 316 217 99 46 %
 
Transaction Volume ($millions) $ 584 $ 389 $ 195 50 %
 

"We ended the fiscal year with strong momentum as we continue to drive growth by the adoption of our cashless payment solutions," said Stephen P. Herbert, USA Technologies' chairman and chief executive officer. "Our customers are increasingly realizing the positive benefits of upgrading 100% of their locations with our ePort Connect service to enable consumers the cashless payment option. The addition of our ePort Interactive Service provides additional value with the ability to provide a more robust consumer experience and yields improved performance at the location. We've grown our business substantially and are poised for the next phase of growth as we work to improve profitability and scale our business."

As described in our Form 10-K for the fiscal year, to be filed today, based on management's assessment of the effectiveness of its internal control over financial reporting as of June 30, 2016, management identified control deficiencies, including three significant deficiencies, in the design or operating effectiveness of the Company's internal control over financial reporting, which when aggregated, represent a material weakness in internal control. The Company is committed to remediating the control deficiencies that gave rise to the material weakness. These internal controls are being evaluated by management, and will be adjusted appropriately as soon as is practical. Due its increased market capitalization, this is the first fiscal year that the Company's internal control over financial reporting has been subject to audit by its independent registered public accounting firm.

Fiscal 2017 Outlook

For full fiscal year 2017, management expects to add between 115,000 and 125,000 net new connections for the year, bringing total connections to our service to a range of 544,000 to 554,000 and expects total revenue to be between $95 million and $100 million. We also expect to have year-over-year increases of adjusted EBITDA and non-GAAP net income.

Webcast and Conference Call

Management will host a conference call and webcast the event beginning at 8:30 a.m. Eastern Time today, September 13, 2016.

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 # 75053191.

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 11:30 a.m. Eastern Time on September 13, 2016 until 11:30 a.m. Eastern Time on September 16, 2016 and may be accessed by calling (855) 859-2056 (domestic dial-in) or (404) 537-3406 (international dial-in) and reference conference ID # 75053191. 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, Inc. is a premier payment technology service provider of integrated cashless and mobile transactions in the self-service retail market. The company also provides a broad line of cashless acceptance technologies including its NFC-ready ePort® G-series, ePort Mobile™ for customers on the go, ePort® Interactive, and QuickConnect, an API Web service for developers. USA Technologies has 78 United States and foreign patents in force; and has agreements with Verizon, Visa, Chase Paymentech and customers such as Compass, AMI Entertainment and others. For more information, please 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 financial results, including earnings or taxable income of USAT, or increased revenues at a customer location; the incurrence by USAT 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 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; 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 or violating the intellectual property rights of others; whether USAT would be able to sell sufficient ePort hardware to third party leasing companies as part of the QuickStart program in order to continue to increase cash flows from operations; whether USAT's future remediation efforts in connection with the control deficiencies that resulted in a material weakness in USAT's internal controls over financial reporting as of June 30, 2016 would be effective; whether USAT experiences additional material weaknesses in its internal controls over financial reporting in future periods, and USAT is not able to accurately or timely report its financial condition or results of operations; 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.

Financial Schedules:

A.   Statement of Operations for the 3 Months and Fiscal Years Ended June 30, 2016 and June 30, 2015
B. Five Quarter Select Key Performance Indicators in Process
C. Comparative Condensed Balance Sheets for Year Ended June 30, 2016 and Year Ended June 30, 2015
D. Five Quarter Statement of Operations and Adjusted EBITDA
E. Five Quarter Selling, General, & Administrative Expenses - in Process
F. Five Quarter Condensed Balance Sheet and Other Data
G. Five Quarter Statement of Cash Flows
H. Five Quarter 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 Earnings/(Loss) Per Common Share - Basic and Diluted
I. Annual Reconciliation of Net Loss to Non-GAAP Net Loss and Net Loss Per Common Share - Basic and Diluted to Non-GAAP Net Loss Per Common Share - Basic and Diluted
 

(A) Statement of Operations for the 3 Months and Fiscal Years Ended June 30, 2016 and June 30, 2015

           
($ in thousands, except share and per share data) For the three months ended June 30, For the year ended June 30,
(unaudited)   2016     2015     2016     2015  
 
Revenues:
License and transaction fees $ 15,263 $ 11,938 $ 56,589 $ 43,633
Equipment sales   6,681     5,708     20,819     14,444  
Total revenues 21,944 17,646 77,408 58,077
 
Costs of sales/revenues:
Cost of services 10,614 7,863 38,089 29,429
Cost of equipment   5,547     4,975     17,334     11,825  
Total costs of sales/revenues   16,161     12,838     55,423     41,254  
 
Gross profit:
License and transaction fees 4,649 4,075 18,500 14,204
Equipment sales   1,134     733     3,485     2,619  
Total gross profit   5,783     4,808     21,985     16,823  
 
Operating expenses:
Selling, general and administrative 6,721 5,009 22,373 16,451
Depreciation 208 156 647 612
Impairment of intangible asset   432     -     432     -  
Total operating expenses   7,361     5,165     23,452     17,063  
Operating loss (1,578 ) (357 ) (1,467 ) (240 )
 
Other income (expense):
Interest income 182 42 320 83
Other Gain - 52 - 52
Interest expense (197 ) (92 ) (600 ) (302 )
Change in fair value of warrant liabilities   18     263     (5,674 )   (393 )
Total other income (expense), net   3     265     (5,954 )   (560 )
 
Loss before provision for income taxes (1,575 ) (92 ) (7,421 ) (800 )
Benefit (provision) for income taxes   703     (109 )   615     (289 )
 
Net loss (872 ) (201 ) (6,806 ) (1,089 )
Cumulative preferred dividends   -     -     (668 )   (668 )
Net loss applicable to common shares $ (872 ) $ (201 ) $ (7,474 ) $ (1,757 )
Net loss per common share - basic and diluted $ (0.02 ) $ (0.01 ) $ (0.21 ) $ (0.05 )
Basic weighted average number of common shares outstanding 37,325,681

35,761,370

36,309,047 35,719,211
 
Adjusted EBITDA $ 626   $ 1,251   $ 5,984   $ 6,259  
 
Non-GAAP net loss $ (1,373 ) $ (392 ) $ (713 ) $ (470 )
 
Total connections at period-end

429

333

429 333
Net new connections in period 28

31

96 67
 
 

(B) Five Quarter Select Key Performance Indicators

                     
Three months ended
(unaudited) June 30, March 31, December 31, September 30, June 30, March 31,
2016 2016 2015 2015 2015 2015
Connections:
Gross New Connections 33,000 34,000 24,000 19,000 34,000 24,000
% from Existing Customer Base 81% 91% 89% 86% 89% 82%
Net New Connections 28,000 32,000 20,000 16,000 31,000 14,000
Total Connections 429,000 401,000 369,000 349,000 333,000 302,000
 
Customers:
New Customers Added 225 75 350 675 675 475
Total Customers 11,050 75 10,625 10,275 9,600 8,925
 
Volumes:
Total Number of Transactions (millions) 89.0 82.0 76.0 68.8 62.2 54.8
Transaction Volume ($millions) $169.0 $151.0 $138.0 $126.4 $112.8 $97.7
 
Financing Structure of Connections:
JumpStart 6.5% 7.4% 10.1% 10.2% 6.0% 11.3%
QuickStart & All Others * 93.5% 92.6% 89.9% 89.8% 94.0% 88.7%
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
 
             

(C) Comparative Balance Sheets June 30, 2016 to June 30, 2015

 
($ in thousands)

June 30,

June 30,
 

2016

    2015  

$ Change

% Change

 
Assets
Current assets:
Cash $ 19,272 $ 11,374 $ 7,898 69 %
Accounts receivable, less allowance 4,899 5,971 (1,072 ) -18 %
Finance receivables 3,588 941 2,647 281 %
Inventory, net 2,031 4,216 (2,185 ) -52 %
Prepaid expenses and other current assets 987 574 413 72 %
Deferred income taxes   2,271     1,258     1,013   81 %
Total current assets 33,048 24,334 8,714 36 %
 
Finance receivables, less current portion 3,718 3,698 20 1 %
Other assets 348 350 (2 ) -1 %
Property and equipment, net 9,765 12,869 (3,104 ) -24 %
Deferred income taxes 25,453 25,788 (335 ) -1 %
Intangibles, net 798 432 366 85 %
Goodwill   11,703     7,663     4,040   53 %
Total assets $ 84,833   $ 75,134   $ 9,699   13 %
 
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 12,356 $ 10,542 $ 1,814 17 %
Accrued expenses 3,456 2,108 1,348 64 %
Line of credit, net 7,119 4,000 3,119 78 %
Current obligations under long-term debt 629 478 151 32 %
Income taxes payable 18 54 (36 ) -67 %
Warrant liabilities 3,739 - 3,739 100 %
Deferred gain from sale-leaseback transactions   860     860     -   0 %
Total current liabilities 28,177 18,042 10,135 56 %
Long-term liabilities
Long-term debt, less current portion 1,576 1,854 (278 ) -15 %
Accrued expenses, less current portion 15 49 (34 ) -69 %
Warrant liabilities, less current portion - 978 (978 ) -100 %
Deferred gain from sale-leaseback transactions, less current portion   40     900     (860 ) -96 %
Total long-term liabilities   1,631     3,781     (2,150 ) -57 %
Total liabilities   29,808     21,823     7,985   37 %
 
Shareholders' equity:
Preferred stock, no par value 3,138 3,138 - 0 %
Common stock, no par value 233,394 224,874 8,520 4 %
Accumulated deficit   (181,507 )   (174,701 )   (6,806 ) 4 %
Total shareholders' equity   55,025     53,311     1,714   3 %
Total liabilities and shareholders' equity $ 84,833   $ 75,134   $ 9,699   13 %
 
Total current assets $ 33,048 $ 24,334 $ 8,714 36 %
Total current liabilities   28,177     18,042     10,135   56 %
Net working capital $ 4,871 $ 6,292 $ (1,421 ) -23 %
 

* Accounts receivable, net of
allowance for doubtful accounts and
accounts payable have increased by
the following amounts due to
reclassifications

$ -   $ 1,299  
 
                   

(D) Five Quarter Statement of Operations and Adjusted EBITDA

 

($ in thousands) For the three months ended
(unaudited)

June 30,
2016

% of Sales

March 31,
2016

% of Sales

December 31,
2015

% of Sales

September 30,
2015

% of Sales

June 30,
2015

% of Sales

 

 

 

 

 

 

Revenues:

 

License and transaction fees $ 15,263 69.6 %

$

14,727

72.3 % $ 13,674 73.9 % $ 12,925 77.9 % $ 11,938 67.7 %
Equipment Sales   6,681   30.4 %   5,634   27.7 %   4,829   26.1 %   3,675   22.1 %   5,708   32.3 %
Total revenue 21,944 100.0 % 20,361 100.0 % 18,503 100.0 % 16,600 100.0 % 17,646 100.0 %
 
Costs of sales/revenues:
License and transaction fees $ 10,614 69.5 % 9,703 65.9 % 9,067 66.3 % 8,705 67.4 % 7,863 65.9 %
Equipment sales   5,547   83.0 %   4,986   88.5 %   3,953   81.9 %   2,848   77.5 %   4,975   87.2 %
Total costs of sales/revenues 16,161 73.6 % 14,689 72.1 % 13,020 70.4 % 11,553 69.6 % 12,838 72.8 %
 
Gross Profit:
License and transaction fees 4,649 30.5 % 5,024 34.1 % 4,607 33.7 % 4,220 32.6 % 4,075 34.1 %
Equipment sales   1,134   17.0 %   648   11.5 %   876   18.1 %   827   22.5 %   733   12.8 %
Total gross profit 5,783 26.4 % 5,672 27.9 % 5,483 29.6 % 5,047 30.4 % 4,808 27.2 %
 
Operating expenses:
Selling, general and administrative $ 6,721 30.6 % 6,094 29.9 % 4,762 25.7 % 4,796 28.9 % 5,009 28.4 %
Depreciation 208 0.9 % 173 0.8 % 127 0.7 % 139 0.8 % 156 0.9 %
Impairment of intangible asset   432   2.0 %   -   0.0 %   -   0.0 %   -   0.0 %   -   0.0 %
Total operating expenses 7,361 33.5 % 6,267 30.8 % 4,889 26.4 % 4,935 29.7 % 5,165 29.3 %
         
Operating income (loss)   (1,578 ) -7.2 %   (595 ) -2.9 %   594   3.2 %   112   0.7 %   (357 ) -2.0 %
 
Other income (expense):
Interest income 182 0.8 % 67 0.3 % 20 0.1 % 51 0.3 % 42 0.2 %
Other income - 0.0 % - 0.0 % - 0.0 % - 0.0 % 52 0.3 %
Interest expense (197 ) -0.9 % (180 ) -0.9 % (104 ) -0.6 % (119 ) -0.7 % (92 ) -0.5 %
Change in fair value of warrant liabilities   18   0.1 %   (4,805 ) -23.6 %   (1,230 ) -6.6 %   343   2.1 %   263   1.5 %
Total other income (expense), net 3 0.0 % (4,918 ) -24.2 % (1,314 ) -7.1 % 275 1.7 % 265 1.5 %
 
Loss before provision for income taxes (1,575 ) -7.2 % (5,513 ) -27.1 % (720 ) -3.9 % 387 2.3 % (92 ) -0.5 %
Benefit (provision) for income taxes 703 3.2 % 93 0.5 % (154 ) -0.8 % (27 ) -0.2 % (109 ) -0.6 %
         
Net income (loss)   (872 ) -4.0 %   (5,420 ) -26.6 %   (874 ) -4.7 %   360   2.2 %   (201 ) -1.1 %
 
Less interest income (182 ) -0.8 % (67 ) -0.3 % (20 ) -0.1 % (51 ) -0.3 % (42 ) -0.2 %
Plus interest expenses 197 0.9 % 180 0.9 % 104 0.6 % 119 0.7 % 92 0.5 %
Plus income tax expense (703 ) -3.2 % (93 ) -0.5 % 154 0.8 % 27 0.2 % 109 0.6 %
Plus depreciation expense 1,272 5.8 % 1,190 5.8 % 1,323 7.2 % 1,350 8.1 % 1,381 7.8 %
Plus amortization expense 44 0.2 % 44 0.2 % - 0.0 % - 0.0 % - 0.0 %
Plus (less) change in fair value of warrant liabilities (18 ) -0.1 % 4,805 23.6 % 1,230 6.6 % (343 ) -2.1 % (263 ) -1.5 %
Plus stock-based compensation 198 0.9 % 142 0.7 % 237 1.3 % 272 1.6 % 175 1.0 %
Plus intangible asset impairment 432 2.0 % - 0.0 % - 0.0 % - 0.0 % - 0.0 %
Plus VendScreen non-recurring charges 258 1.2 % 461 2.3 % 106 0.6 % 17 0.1 % - 0.0 %
Plus litigation related professional fees   -   0.0 %   105   0.5 %   -   0.0 %   -   0.0 %   -   0.0 %
Adjusted EBITDA $ 626   2.9 % $ 1,347   6.6 % $ 2,260   12.2 % $ 1,751   10.6 % $ 1,251   7.1 %
 

See discussion of Non-GAAP financial measures later in this document

 
                   

(E) Five Quarter Selling, General, & Administrative Expenses

 

Three months ended
($ in thousands)

June 30,
2016

% of
SG&A

March 31,
2016

% of
SG&A

December 31,
2015

% of
SG&A

September 30,
2015

% of
SG&A

June 30,
2015

% of
SG&A

(unaudited)

 

 

 

 

 

 

 

 

 

 

 
Salaries and benefit costs $ 3,050 45.4 % $ 2,761 45.4 % $ 2,786 58.6 % $ 2,685 56.0 % $ 2,295 45.8 %
Marketing related expenses 635 9.4 % 362 5.9 % 335 7.0 % 333 6.9 % 580 11.6 %
Professional services 1,533 22.8 % 1,256 20.6 % 839 17.6 % 782 16.3 % 844 16.8 %
Bad debt expense 470 7.0 % 505 8.3 % 239 5.0 % 236 4.9 % 497 9.9 %
Premises, equipment and insurance costs 555 8.3 % 460 7.5 % 347 7.3 % 399 8.3 % 475 9.5 %
Research and development expenses 123 1.8 % 131 2.1 % 37 0.8 % 191 4.0 % 154 3.1 %
VendScreen non-recurring charges 258 3.8 % 461 7.6 % 106 2.2 % 17 0.4 % - 0.0 %
Litigation related professional fees 51 0.8 % 105 1.7 % - 0.0 % - 0.0 % - 0.0 %
Other expenses   46     0.7 %     53     0.9 %     73     1.5 %     153     3.2 %     164     3.3 %
Total SG&A expenses $ 6,721     100 %   $ 6,094     100 %   $ 4,762     100 %   $ 4,796     100 %   $ 5,009     100 %
 
Total Revenue 21,944 20,361 18,503 16,600 17,646
SG&A expenses as a percentage of revenue 30.6 % 29.9 % 25.7 % 28.9 % 28.4 %
 
       

(F) Five Quarter Condensed Balance Sheet and Other Data

 
($ in thousands) June 30, March 31, December 31, September 30, June 30,
(unaudited) 2016 2016 2015 2015 2015
 
Assets
Current assets:
Cash $ 19,272 $ 14,901 $ 14,809 $ 11,592 $ 11,374
Accounts receivable, less allowance * 4,899 8,345 6,976 6,448 5,971
Finance receivables 3,588 1,677 1,503 946 941
Inventory 2,031 2,341 2,849 3,718 4,216
Other current assets   3,258   2,336     2,160   1,883   1,832
Total current assets 33,048 29,600 28,297 24,587 24,334
 
Finance receivables, less current portion 3,718 3,042 2,435 3,525 3,698
Other assets 348 337 326 342 350
Property and equipment, net 9,765 10,584 10,856 11,890 12,869
Deferred income taxes 25,453 25,701 25,607 25,761 25,788
Goodwill and intangibles   12,501   12,976     8,095   8,095   8,095
Total assets $ 84,833 $ 82,240   $ 75,616 $ 74,200 $ 75,134
 
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued expenses * $ 15,812 $ 15,368 $ 9,992 $ 11,615 $ 10,542
Line of credit 7,119 6,980 7,000 4,000 2,108
Warrant Liabilities 3,739 5,964 - - -
Other current liabilities   1,507   1,485     1,384   1,497   5,392
Total current liabilities 28,177 29,797 18,376 17,112 18,042
Long-term liabilities          
Total long-term liabilities   1,631   2,016     3,945   3,116   3,781
Total liabilities   29,808   31,813     22,321   20,228   21,823
 
Shareholders' equity:          
Total shareholders' equity   55,025   50,427     53,295   53,972   53,311
Total liabilities and shareholders' equity $ 84,833 $ 82,240   $ 75,616 $ 74,200 $ 75,134
 
Total current assets $ 33,048 $ 29,600 $ 28,297 $ 24,587 $ 24,334
Total current liabilities   28,177   29,797     18,376   17,112   18,042
Net working capital $ 4,871 $ (197 ) $ 9,921 $ 7,475 $ 6,292
 

* Accounts receivable, net of
allowance for doubtful accounts
and accounts payable have
increased by the following
amounts due to reclassifications

$ - $ -   $ - $ - $ 1,299
 
     

(G) Five Quarter Statements of Cash Flows

 
Three months ended
June 30,   March 31,   December 31, September 30, June 30,
($ in thousands) 2016   2016   2015   2015   2015
(unaudited)
 
OPERATING ACTIVITIES:
Net (loss) income (872 ) (5,420 ) (874 ) 360 (201 )

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

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

 

198 142 237 272 175
Gain on disposal of property and equipment (110 ) (15 ) (41 ) (1 ) (4 )
Non-cash interest and amortization of debt discount 13 - - - -
Bad debt expense 470 506 238 236 497
Depreciation 1,272 1,190 1,323 1,350 1,381
Amortization of intangible assets 43 44 - - -
Impairment of intangible asset 432 - - - -
Change in fair value of warrant liabilities (18 ) 4,805 1,230 (343 ) (263 )
Deferred income taxes, net (748 ) (93 ) 154 27 31
Gain on sale of finance receivables - - - - (52 )
Recognition of deferred gain from sale-leaseback transactions (215 ) (215 ) (215 ) (215 ) (215 )
Changes in operating assets and liabilities:
Accounts receivable 2,977 (1,872 ) (767 ) (713 ) (1,223 )
Finance receivables (2,587 ) (154 ) 533 168 (332 )
Inventory (82 ) 250 649 219 (639 )
Prepaid expenses and other assets (397 ) (160 ) (254 ) 48 (97 )
Accounts payable 328 4,154 (1,624 ) (1,044 ) 3,492
Accrued expenses 115 1,166 (13 ) (2 ) 93
Income taxes payable   453     -     (70 )   -     37  
Net change in operating assets and liabilities   807     3,384     (1,546 )   (1,324 )   1,331  
 
Net cash provided by operating activities 1,272 4,328 506 362 2,680
 
INVESTING ACTIVITIES:
Purchase and additions of property and equipment (207 ) (164 ) (117 ) (49 ) (6 )
Proceeds from sale of property and equipment 265 19 101 4 8
Cash paid for assets acquired from VendScreen   -     (5,625 )   -     -     -  
 
Net cash provided by (used in) investing activities 58 (5,770 ) (16 ) (45 ) 2
 
FINANCING ACTIVITIES:
Cash used for the retirement of common stock (173 ) - (40 ) - -
Proceeds from exercise of common stock warrants 3,237 1,652 - 29 -
Proceeds (payments) from line of credit 4,130 33 3,000 - -
Repayment of line of credit (3,992 )
Repayment of long term debt (162 ) (151 ) (233 ) (128 ) (97 )
Proceeds from long-term debt - - - - 304
Excess tax benefits from share-based compensation   -     -     -     -     10  
 
Net cash provided by (used in) financing activities   3,040     1,534     2,727     (99 )   217  
 
Net increase in cash 4,371 92 3,217 218 2,899
 
Cash at beginning of period   14,901     14,809     11,592     11,374     8,475  
 
Cash at end of period $ 19,272   $ 14,901   $ 14,809   $ 11,592   $ 11,374  
 
Supplemental disclosures of cash flow information:
Interest paid in cash $ 147   $ 191   $ 107   $ 106   $ 99  
Income taxes paid by cash $ 501   $ -   $ -   $ -   $ -  
Depreciation expense allocated to cost of services $ 1,139   $ 1,051   $ 1,186   $ 1,199   $ 1,179  
Reclass of rental program property to inventory, net $ 415   $ 347   $ 777   $ (279 ) $ (718 )
Prepaid items financed with debt $ -   $ -   $ -   $ 103   $ -  
Warrant issuance for debt discount $ 52   $ -   $ -   $ -   $ -  
Debt financing cost financed with debt $ -   $ 79   $ -   $ -   $ -  
Equipment and software acquired under capital lease $ -   $ 409   $ -   $ 35   $ -  
Disposal of property and equipment $ 555   $ 189   $ 238   $ 99   $ 447  
Disposal of property and equipment under sale-leaseback transactions $ (52 ) $ 52   $ -   $ -   $ -  
 
* Accounts Receivable

·Reclassification of cash provided by and included in accounts payable to accounts receivable

$ -   $ -   $ -   $ -   $ 543  
* Accounts Payable

·Reclassification of cash provided by and included in accounts payable to accounts receivable

$ -   $ -   $ -   $ -   $ (543 )
 
                     

(H) Five Quarter 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 Earnings/(Loss) Per Common Share - Basic and Diluted

 
Three months ended
($ in thousands) June 30, March 31, December 31, September 30, June 30,
(unaudited) 2016

2016

2015 2015 2015
 
Net income (loss) $ (872 ) $ (5,420 ) $ (874 ) $ 360 $ (201 )
Non-GAAP adjustments:
Non-cash portion of income tax provision (792 ) (38 ) 224 27 72
Change in fair value of warrant adjustment (18 ) 4,805 1,230 (343 ) (263 )
VendScreen non-recurring charges 258 461 106 17 -
Litigation related professional fees   51     105     -     -     -  
Non-GAAP net income (loss) $ (1,373 ) $ (87 ) $ 686   $ 61   $ (392 )
 
Net income (loss) $ (872 ) $ (5,420 ) $ (874 ) $ 360 $ (201 )
Cumulative preferred dividends   -     (334 )   -     (334 )   -  
Net income (loss) applicable to common shares $ (872 ) $ (5,754 ) $ (874 ) $ 26   $ (201 )
 
Non-GAAP net income (loss) $ (1,373 ) $ (87 ) $ 686 $ 61 $ (392 )
Cumulative preferred dividends   -     (334 )   -     (334 )   -  
Non-GAAP net income (loss) applicable to common shares $ (1,373 ) $ (421 ) $ 686   $ (273 ) $ (392 )
 
Net earnings (loss) per common share - basic $ (0.02 ) $ (0.16 ) $ (0.02 ) $ 0.00   $ (0.01 )
Non-GAAP net earnings (loss) per common share - basic (0.04 ) (0.01 ) 0.02 (0.01 ) (0.01 )
Basic weighted average number of common shares outstanding 37,325,681 36,161,626 35,909,933 35,848,395

35,761,370

 
Net earnings (loss) per common share - diluted $ (0.02 ) $ (0.16 ) $ (0.02 ) $ -   $ (0.01 )
Non-GAAP net earnings (loss) per common share - diluted $ (0.04 ) $ (0.01 ) $ 0.02 $ (0.01 ) $ (0.01 )
Diluted weighted average number of common shares outstanding 37,325,681 36,161,626 35,909,933 36,487,879 35,651,732
 
See discussion of Non-GAAP financial measures later in this document
           

(I) Reconciliation of Net Loss to Non-GAAP Net Loss and Net Loss Per Common Share - Basic and Diluted to Non-GAAP Net Loss Per Common Share - Basic and Diluted

 
Year ended

June 30,
2016

     

June 30,
2015

($ in thousands)

 

 

 

 
Net loss $ (6,806 ) $ (1,089 )
Non-GAAP adjustments:
Non-cash portion of income tax provision (579 ) 226
Fair value of warrant adjustment 5,674 393
VendScreen non-recurring charges 842 -
Litigation related professional fees   156     -  
Non-GAAP net loss $ (713 ) $ (470 )
 
Net loss $ (6,806 ) $ (1,089 )
Cumulative preferred dividends   (668 )   (668 )
Net loss applicable to common shares $ (7,474 ) $ (1,757 )
 
Non-GAAP net loss $ (713 ) $ (470 )
Cumulative preferred dividends   (668 )   (668 )
Non-GAAP net loss applicable to common shares $ (1,381 ) $ (1,138 )
 
Net loss per common share - basic and diluted $ (0.21 ) $ (0.05 )
Non-GAAP net loss per common share - basic and diluted $ (0.04 ) $ (0.03 )
Basic and diluted weighted average number of common shares outstanding 36,309,047 35,719,211
 

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 above in Financial Schedules (E) and (J).

The following non-GAAP financial measures are discussed herein: adjusted EBITDA, non-GAAP net income (loss) and non-GAAP net earnings (loss) per common share - basic and diluted. The presentation of these additional financial measures is 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. 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 above in Financial Schedules (E) and (J) the reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures.

As used herein, non-GAAP net income (loss) represents GAAP net income (loss) excluding costs or benefits relating to any adjustment for fair value of warrant liabilities and non-cash portions of the Company's income tax benefit (provision), non-recurring fees and charges that were incurred in connection with the acquisition and integration of the VendScreen business, and professional fees incurred in connection with the class action litigation and the SLC investigation. 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. Management believes that non-GAAP net income (loss) is an important measure of USAT's business. Non-GAAP net income (loss) is a non-GAAP financial measure which is not required by or defined under GAAP (Generally Accepted Accounting Principles). The presentation of this financial measure is not intended to be considered in isolation or as a substitute for the financial measures prepared and presented in accordance with GAAP, including the net income or net loss of the Company 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 the Company's net income or net loss as determined in accordance with GAAP, and are not a substitute for or a measure of the Company's profitability or net earnings. Management believes that non-GAAP net income (loss) and non-GAAP net earnings (loss) per share are important measures of the Company'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 this non-GAAP financial measure serves as a useful metric 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 (United States' Generally Accepted Accounting Principles) financial measures and our reconciliations, enhance investors' overall understanding of our current and future financial performance. Additionally, the Company utilizes non-GAAP net income (loss) as a metric in its executive officer and management incentive compensation plans.

As used herein, Adjusted EBITDA represents net income (loss) before interest income, interest expense, income taxes, depreciation, amortization, non-recurring fees and charges that were incurred in connection with the acquisition and integration of the VendScreen business, professional fees incurred in connection with the class action litigation incurred during the third quarter of the fiscal year, impairment charges related to our EnergyMiser asset trademarks, and change in fair value of warrant liabilities and stock-based compensation expense. We have excluded the non-operating item, change in fair value of warrant liabilities, because it represents a non-cash gain or charge that is not related to the Company's operations. We have excluded the non-cash expense, stock-based compensation, as it does not reflect the cash-based operations of the Company. We have excluded the non-recurring costs and expenses incurred in connection with the VendScreen transaction in order to allow more accurate comparison of the financial results to historical operations. We have excluded the professional fees incurred in connection with the class action litigation as well as the trademark impairment charges because we believe that they represent a charge that is not related to the Company's operations. Adjusted EBITDA is a non-GAAP financial measure which is not required by or defined under GAAP (Generally Accepted Accounting Principles). The presentation of this financial measure is not intended to be considered in isolation or as a substitute for the financial measures prepared and presented in accordance with GAAP, including the net income or net loss of the Company 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 the Company's net income or net loss as determined in accordance with GAAP, and are not a substitute for or a measure of the Company's profitability or net earnings. Adjusted EBITDA is presented because we believe it is useful to investors as a measure of comparative operating performance. Additionally, the Company utilizes Adjusted EBTIDA as a metric in its executive officer and management incentive compensation plans.

F-USAT

Investor Contact:
The Blueshirt Group
Mike Bishop, +1 415-217-4968
mike@blueshirtgroup.com

Source: USA Technologies, Inc.

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