USA Technologies Reports GAAP and Non-GAAP Profitability for the Second Quarter of Fiscal 2013

  USA Technologies Reports GAAP and Non-GAAP Profitability for the Second
  Quarter of Fiscal 2013

               Total Revenues Up 29%; Recurring Revenues Up 33%

                             Gross Profit Up 86%

    186,000 Connections to ePort Connect Service, Up 37% (year over year)

                   4,100 Customers, Up 62% (year over year)

Business Wire

MALVERN, Pa. -- January 29, 2013

USA Technologies, Inc. (NASDAQ: USAT), (“USAT”), a leader of wireless,
cashless payment and M2M telemetry solutions for self-serve, small-ticket
retail industries, today reported results for the second quarter of fiscal
2013 ended December 31, 2012. Second quarter highlights, compared to the
corresponding quarter of the prior fiscal year, included:

  *29% increase in total revenues to $8.9 million and 33% increase in license
    and transaction fee revenues (“recurring revenues”) to $7.4 million,
    representing 83% of total revenues for the quarter;
  *86% increase in gross profit to $3.6 million;
  *Adjusted EBITDA of $1,752,721, up from an Adjusted EBITDA loss of
    ($938,400);
  *GAAP net income of $153,758, up from a GAAP net loss of ($1,821,061); and,
  *Non-GAAP net income of $557,393, up from a non-GAAP net loss of ($997,820)
    in the same quarter a year ago.

In addition, customers and connections to USAT’s cashless payment and M2M
telemetry service, ePort Connect®, continued to demonstrate solid growth in
the second quarter. Highlights, compared to the second quarter of the prior
fiscal year, included:

  *12,000 net new connections, a 71% increase;
  *186,000 total connections, a 37% increase; and,
  *375 new customers, a 50% increase, for 4,100 total customers, a 62%
    increase.

“We are extremely pleased to achieve non-GAAP net income for the first time in
USAT’s history,” stated Stephen P. Herbert, chairman and CEO of USA
Technologies, “and to deliver that target with such strength that we achieved
GAAP net income as well, even after absorbing a sizable warrant adjustment for
the quarter. The aggressive actions taken as part of our turnaround plan
communicated to shareholders last year are clearly visible in our results,
with exceptional improvements in both gross profit margin and operating margin
this quarter. In addition, the inherent value of the recurring revenue base
that we are building with every new connection is evident in the steady
improvement in revenues over the last quarters and the $1.8 million base of
Adjusted EBITDA reported for the second quarter—a great improvement from just
one year ago.

“Our resolve to achieve non-GAAP profitability by the second quarter of fiscal
2013 included an equally determined commitment to continue to strengthen our
prospects for growth,” continued Herbert. “In a short period of time, we have
accumulated a strong list of customers whose transition to cashless payment
and telemetry is, we believe, just getting started. We are also encouraged by
acceleration of adoption by a number of our existing customers. This is
reflected in some of the customer activity in the second quarter, such as our
work with The Pepi Companies— the first full-service food and beverage vending
company believed to be 100 percent cashless—and All Stop Vending has also
indicated its intent to go 100 percent cashless. It is also evident in the ten
additional exclusive agreements for our ePort Connect service that we signed
in the second quarter—a testament, we believe, to the confidence these
customers have in our service and a greater level of customer interest in
planning for more comprehensive cashless and M2M telemetry adoption
longer-term.

“Concurrently, we have continued to pursue strategic partnerships and
value-added service offerings that further enhance our position in the
marketplace,” added Herbert. “During the second quarter, our work with key
partners, such as Isis, resulted in an extension of our marketing support
agreement to March 31, 2013. In addition, at the 2013 International CES, we
demonstrated the next phase of our mobile solution for loyalty and couponing
services—a result of our co-marketing agreement with Verizon,” said Herbert.

Second Quarter Results

Revenues for the second quarter of fiscal 2013 were $8.9 million, an increase
of 29% from the same period a year ago. Revenue growth was fueled by a 33%
growth in license and transaction fees and a 14% increase in equipment sales
compared to the second quarter of fiscal 2012.

Revenue from license and transaction fees, which is driven primarily by
monthly ePort Connect service fees, JumpStart fees and transaction processing
fees, grew to $7.4 million for the second quarter on a total ePort Connect
service base of 186,000 connections as of December 31, 2012.

Gross profit was $3.6 million in the second quarter, an 86% improvement from
$1.9 million for the same period in the prior year. Gross profit margin
improved to 41% in the second quarter, from 28% for the prior year. Stronger
revenues, actions taken by USAT to address the impact of the Durbin Amendment
that became effective during the second quarter of the prior year and other
actions taken to strengthen major supplier contracts and streamline network
operations over the course of 2012 contributed to the improvement. Gross
profit margin on revenues from license and transaction fees, which were 83% of
total revenues, reached 41% in the quarter, a record high for USAT.

Operating expenses compared to the comparable period a year ago declined by
$0.8 million in the second quarter of fiscal 2013, to $3.0 million. Stronger
revenues, improved gross margins and reduced operating expenses resulted in
operating margin of 6.4% for the second quarter on both a GAAP and non-GAAP
basis, compared to (28.1%) and (14.0%), respectively, for the same period a
year ago.

GAAP net income was $153,758 for the second quarter compared to a GAAP net
loss of ($1.8 million) in the prior year. Non-GAAP net income was $557,393,
compared to a non-GAAP net loss of ($997,820) for the second quarter of fiscal
2012. Non-GAAP net income (loss) for the second quarter excludes fair value of
warrant liability adjustments for both years and CEO separation expenses for
the prior year in order to track the operational progress of the business (see
non-GAAP Reconciliation table).

Diluted earnings (loss) per common share was $.00 for the second quarter of
fiscal 2013 compared to ($.06) for the same period in fiscal 2012. On a
non-GAAP basis, diluted earnings (loss) per common share was $.02 for the
second quarter of fiscal 2013 compared to ($.03) for the same period in fiscal
2012.

Outlook

“Our crossover into profitability marks a new beginning for USAT,” said
Herbert. “Perhaps more importantly, it comes at a time when, in our view,
there are numerous developments that will continue to attract consumers to
cashless forms of payment. Emerging trends such as mobile payments, including
loyalty, couponing and other consumer engagement applications, for example,
should continue to raise awareness that we believe will further drive adoption
of cashless payment and telemetry capabilities in the small-ticket, unattended
market.

“In this light, we continue to work toward our target of 60,000 new
connections for the year, for 224,000 in total connections to our ePort
Connect service by the end of our June 30, 2013 fiscal year,” continued
Herbert. “In this regard, we expect connection growth to be driven by further
penetration of the 4,100 customers on our ePort Connect service, in addition
to activity with partners and further expansion into new vertical markets. As
such, we also remain committed to achieving over 30% revenue growth for the
year, as well as cash generated from operations in the $4-$5 million range.

“In addition, given the improved financial performance in the second quarter
and the recurring nature of the majority of our revenues, we believe non-GAAP
net income is sustainable; therefore, we also expect to achieve non-GAAP net
income for the full fiscal year as well,” concluded Herbert.

NASDAQ Stock Market Closing Bell

In celebration of its milestone profitability event, USAT will ring The NASDAQ
Stock Market Closing Bell today in Times Square, New York. To view the event,
visit www.nasdaq.com.

Webcast and Conference Call

USA Technologies will conduct a conference call and webcast at 10:00 a.m.
Eastern Time on January 29, 2013. 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
January 31, 2013, can be accessed by calling (855) 859-2056; Conference
ID#89544751, (toll free).

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 financial position, achieving
profitability or non-GAAP net income or cash flow from operations, anticipated
connections to our network, 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 USAT to generate sufficient sales to generate
operating profits, or conduct operations at a profit; the incurrence by us of
any unanticipated or unusual non-operational expenses, such as in connection
with a proxy contest, 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; whether USAT’s
customers would continue to add additional connections to our network in the
future at levels currently anticipated by USAT; 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 its
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; whether the actions of our former CEO which
resulted in his separation from the Company or the Securities and Exchange
Commission’s investigation would have a material adverse effect on the future
financial results or condition of the Company; and whether USAT’s existing or
anticipated customers purchase, rent or utilize ePort devices 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,
                 2012           2011            2012               2011
                                                                                 
Revenues:
License and
transaction      $ 7,403,241    $ 5,583,464     $ 14,309,598       $ 11,003,127
fees
Equipment         1,481,080     1,298,134      2,965,001         2,584,219
sales
Total revenues     8,884,321      6,881,598       17,274,599         13,587,346
                                                                                 
Cost of            4,363,212      3,983,251       8,555,572          7,744,828
services
Cost of           920,928       959,891        1,974,564         1,855,027
equipment
Gross profit       3,600,181      1,938,456       6,744,463          3,987,491
                                                                                 
Operating
expenses:
Selling,
general and        2,699,675      3,531,081       5,914,800          6,999,150
administrative
Depreciation
and               332,856       344,409        676,245           747,641
amortization
Total
operating         3,032,531     3,875,490      6,591,045         7,746,791
expenses
Operating          567,650        (1,937,034)     153,418            (3,759,300)
income (loss)
                                                                                 
Other income
(expense):
Interest           21,661         13,286          41,827             31,154
income
Interest           (25,016)       (49,072)        (48,023)           (60,236)
expense
Change in fair
value of          (403,635)     151,759        59,498            1,888,368
warrant
liabilities
Total other
income            (406,990)     115,973        53,302            1,859,286
(expense), net
                                                                                 
Income (loss)
before             160,660        (1,821,061)     206,720            (1,900,014)
provision for
income taxes
Provision for     (6,902)       -              (13,823)          -
income taxes
Net income         153,758        (1,821,061)     192,897            (1,900,014)
(loss)
Cumulative
preferred         -             -              (332,226)         (332,226)
dividends
Net income
(loss)           $ 153,758      $ (1,821,061)   $ (139,329)        $ (2,232,240)
applicable to
common shares
Net earnings
(loss) per       $ -            $ (0.06)        $ -                $ (0.07)
common share -
basic
                                                                                 
Weighted
average number
of common          32,734,394     32,448,040      32,626,312         32,368,339
shares
outstanding
Net earnings
(loss) per       $ -            $ (0.06)        $ -                $ (0.07)
common share -
diluted
Diluted
weighted
average number     33,468,336     32,448,040      32,626,312         32,368,339
of common
shares
outstanding
                                                                                 

                                                         
USA Technologies, Inc.
Consolidated Balance Sheets
                                                                             
                                                                             
                                         December 31,       June 30,
                                         2012               2012
                                         (Unaudited)
Assets
Current assets:
Cash and cash equivalents                $ 5,046,346        $ 6,426,645
Accounts receivable, less allowance
for uncollectible accounts of $34,000      1,156,404          2,441,941
and $25,000, respectively
Finance receivables                        110,363            206,649
Inventory                                  2,439,280          2,511,748
Prepaid expenses and other current        680,274          555,823      
assets
Total current assets                       9,432,667          12,142,806
                                                                             
Finance receivables, less current        $ 407,782          $ 336,198
portion
Property and equipment, net                14,647,943         11,800,108
Intangibles, net                           825,253            1,196,453
Goodwill                                   7,663,208          7,663,208
Other assets                              92,606           80,884       
                                                                             
Total assets                             $ 33,069,459      $ 33,219,657   
                                                                             
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable                         $ 6,447,583        $ 6,136,443
Accrued expenses                           1,791,887          3,342,456
Line of credit                             1,000,000          -
Current obligations under long-term       396,809          466,056      
debt
Total current liabilities                  9,636,279          9,944,955
                                                                             
Long-term liabilities:
Long-term debt, less current portion       158,862            262,274
Accrued expenses, less current portion     408,000            426,241
Deferred tax liabilities                   26,422             12,599
Warrant liabilities, non-current          859,068          918,566      
Total long-term liabilities               1,452,352        1,619,680    
                                                                             
Total liabilities                         11,088,631       11,564,635   
                                                                             
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 $15,693,778     3,138,056          3,138,056
and $15,361,552, respectively)
Common stock, no par value: Authorized
shares- 640,000,000 Issued and             220,646,236        220,513,327
outstanding shares- 32,721,421 and
32,510,069, respectively
Accumulated deficit                        (201,803,464 )     (201,996,361 )
                                                           
Total shareholders’ equity                21,980,828       21,655,022   
                                                                             
Total liabilities and shareholders’      $ 33,069,459      $ 33,219,657   
equity
                                                                             


USA Technologies, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
                                                              
                Three months ended                Six months ended
                December 31,                      December 31,
                2012             2011             2012             2011
OPERATING
ACTIVITIES:
Net income      $ 153,758        $ (1,821,061 )   $ 192,897        $ (1,900,014 )
(loss)
Adjustments
to reconcile
net income
(loss) to net
cash provided
by (used in)
operating
activities:
Charges
incurred in
connection
with the
vesting and       94,891           187,044          220,224          427,497
issuance of
common stock
for employee
and director
compensation
Change in
fair value of     403,635          (151,759   )     (59,498    )     (1,888,368 )
warrant
liabilities
Depreciation      904,580          552,990          1,738,586        1,116,115
Gain on
disposal of       (3,600     )     (12,003    )     (3,600     )     (12,003    )
property and
equipment
Amortization      185,600          258,600          371,200          517,200
Bad debt
expense           15,187           (19,512    )     9,058            (41,568    )
(recoveries),
net
Provision for
deferred tax      6,902            -                13,823           -
liability
Changes in
operating
assets and
liabilities:
Accounts          1,195,158        (154,980   )     1,276,479        32,520
receivable
Finance           (6,129     )     9,679            24,702           (34,112    )
receivables
Inventory         (1,249,295 )     (832,088   )     82,095           (671,290   )
Prepaid
expenses and      (87,740    )     (186,210   )     (8,111     )     (137,871   )
other assets
Accounts          426,592          (665,491   )     311,140          (1,322,043 )
payable
Accrued          (117,364   )    307,694        (1,568,810 )    890,051    
expenses
                                                                                  
Net cash
provided by
(used in)         1,922,175        (2,527,097 )     2,600,185        (3,023,886 )
operating
activities
                                                                                  
INVESTING
ACTIVITIES:
Purchase of
property and      (47,881    )     (313,597   )     (50,278    )     (373,945   )
equipment
Purchase of
property for     (2,466,780 )    (821,386   )    (4,542,170 )    (2,055,994 )
rental
program, net
                                                                                  
Net cash used
in investing      (2,514,661 )     (1,134,983 )     (4,592,448 )     (2,429,939 )
activities
                                                                                  
FINANCING
ACTIVITIES:
Net proceeds
from the
issuance
(retirement)
of common         (87,315    )     (12,041    )     (87,315    )     (2,031     )
stock and
exercise of
common stock
warrants
Proceeds from
(repayments       (337,779   )     -                1,000,000        -
of) line of
credit
Repayment of
long-term        (138,905   )    (95,435    )    (300,721   )    (205,274   )
debt
                                                                                  
Net cash
provided by
(used in)        (563,999   )    (107,476   )    611,964        (207,305   )
financing
activities
                                                                                  
Net decrease
in cash and       (1,156,485 )     (3,769,556 )     (1,380,299 )     (5,661,130 )
cash
equivalents
Cash and cash
equivalents      6,202,831      11,099,937     6,426,645      12,991,511 
at beginning
of period
Cash and cash
equivalents     $ 5,046,346     $ 7,330,381     $ 5,046,346     $ 7,330,381  
at end of
period
                                                                                  
Supplemental
disclosures
of cash flow
information:
Cash paid for   $ 25,519        $ 5,092         $ 51,669        $ 16,800     
interest
Equipment and
software
acquired        $ -             $ -             $ -             $ 495,955    
under capital
lease
Prepaid
insurance       $ -             $ -             $ 128,062       $ 90,372     
financed with
debt
Disposal of
property and    $ -             $ 75,045        $ -             $ 54,638     
equipment
Reclass of
rental
program         $ 4,068         $ -             $ 9,627         $ -          
property to
inventory
Depreciation
expense         $ 757,323       $ 467,181       $ 1,433,541     $ 885,674    
allocated to
cost of sales
                                                                                  

                            USA Technologies, Inc.

                              Non-GAAP Schedules

Discussion of Non-GAAP Financial Measures

This press release includes the following measures defined as non-GAAP
financial measures by the Securities and Exchange Commission: adjusted EBITDA,
non-GAAP net income (loss) , non-GAAP operating margin, and non-GAAP diluted
earnings (loss) per common share. 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 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 relating to the proxy contest, the costs associated with the
separation of the former CEO, any adjustment for fair value of warrant
liabilities, and any charges for impairment of intangible assets. As used
herein, non-GAAP diluted earnings (loss) per common share is calculated by
dividing non-GAAP net income (loss) applicable to common shares by the diluted
weighted average number of shares outstanding.

Management believes that non-GAAP net income (loss) and non-GAAP diluted
earnings (loss) per common share 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.

As used herein, 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
impairment expense on intangible assets. We have excluded the non-operating
item, change in fair value of warrant liabilities, because it represents a
non-cash charge that is not related to USAT’s operations. We have excluded the
non-cash expenses, stock-based compensation and 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.

As used herein, operating margin represents operating income or loss divided
by revenues and non-GAAP operating margin represents operating income or loss
excluding any expenses related to the proxy contest, CEO separation or any
adjustment for impairment of intangible assets divided by revenues.

Non GAAP Reconciliation                                      
Reconciliation of Net Income (Loss) to Non-GAAP Net Income (Loss) and Net
Earnings
(Loss) Per Common Share to Non-GAAP Net Earnings (Loss) Per Common Share
                                                                
                                                 Three Months Ended
                                                  12/31/2012   12/31/2011 
Net income (loss)                                $ 153,758      $ (1,821,061 )
Non-GAAP adjustments:
Operating expenses
Selling, general and administrative
CEO separation                                                    975,000
Fair value of warrant adjustment                  403,635      (151,759   )
Non-GAAP net income (loss)                       $ 557,393     $ (997,820   )
                                                                
Net income (loss)                                $ 153,758      $ (1,821,061 )
Non-GAAP net income (loss)                       $ 557,393      $ (997,820   )
                                                                
Cumulative preferred dividends                    -            -          
Net income (loss) applicable to common shares    $ 153,758     $ (1,821,061 )
Non-GAAP net income (loss) applicable to         $ 557,393     $ (997,820   )
common shares
Diluted weighted average number of common         33,468,336   32,448,040 
shares outstanding
Net earnings (loss) per common share - diluted   $ 0.00        $ (0.06      )
Non-GAAP net earnings (loss) per common share    $ 0.02        $ (0.03      )
- diluted

                                                              
Non GAAP Reconciliation
Reconciliation of Operating Margin to Non-GAAP Operating Margin
                                                                 
                                                   Three Months Ended
                                                   12/31/2012   12/31/2011
Operating income (loss)                            $ 567,650     $ (1,937,034)
                                                                 
Non-GAAP adjustments:
Operating expenses
Selling, general and administrative CEO                         975,000
separation
Operating income (loss), Non-GAAP                  $ 567,650     $ (962,034)
                                                                 
Revenues                                           $ 8,884,321   $ 6,881,598
                                                                 
Operating Margin                                    6.4%        -28.1%
Operating Margin, Non-GAAP                          6.4%        -14.0%
                                                                   

Reconciliation of GAAP Net Earnings to Adjusted
Earnings Before Interest, Taxes, Depreciation and
Amortization (Adjusted EBITDA)
                                                             
                                                Three months ended
                                                12/31/2012    12/31/2011   
Net income (loss)                               $ 153,758       $ (1,821,061 )
Less interest income                              (21,661   )     (13,286    )
Plus interest expenses                            25,016          49,072
Plus income tax expense                           6,902           -
Plus depreciation expense                         904,580         552,990
Plus amortization expense                         185,600         258,600
Less change in fair value of warrant              403,635         (151,759   )
liabilities
Plus stock-based compensation                     94,891          187,044
Plus intangible asset impairment                 -            -          
Adjusted EBITDA                                 $ 1,752,721   $ (938,400   )

                                    F-USAT

Contact:

USA Technologies
VP Corp. Comm. & Investor Relations
Veronica Rosa, 484-359-2138
vrosa@usatech.com
 
Press spacebar to pause and continue. Press esc to stop.