USA Technologies Reports Financial Results for Third Quarter of Fiscal 2013 Total Revenues Up 19%; Recurring Revenues Up 26% Gross Profit Up 32% Connections to ePort Connect Service, Up 32% (year over year) to 196,000 Business Wire MALVERN, Pa. -- May 10, 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 third quarter of fiscal 2013 ended March 31, 2013. Third quarter highlights, compared to the corresponding quarter of the prior fiscal year, included: *19% increase in total revenues to $9 million, including 26% increase in license and transaction fee revenues (“recurring revenues”) to $7.6 million, which represented 84% of total revenues for the quarter; *32% increase in gross profit to $3.7 million, up from $2.8 million; *Adjusted EBITDA of $1.7 million, up from $0.3 million; *GAAP net loss of ($1.0) million (includes $1.3 million Other Expense for fair value of warrants), from a GAAP net loss of ($0.5) million (includes $.1 million Other Income for fair value of warrants); and, *Non-GAAP net income of $293,011, up from a non-GAAP net loss of ($633,692) in the same quarter a year ago. Total connections to USAT’s cashless payment and M2M telemetry service, ePort Connect®, were 196,000 as of March 31, 2013, a 32% increase from the prior fiscal year, fueled in the third quarter by 10,000 net new connections to the service. Total connections as of March 31, 2012 were 148,000, fueled by 12,000 net new connections in that quarter. New ePort Connect customers added in the quarter totaled 425, for 4,525 total customers, contributing to a 59% increase in USAT’s customer base from 2,850 customers since the same period in fiscal 2012. During April, USAT entered into an exclusive agreement with a new customer in a vertical market in which it is already participating—commercial laundry. The customer has its own cashless payment hardware platform for the laundry industry which would now utilize USAT’s network for credit/debit card processing. USAT anticipates that the initial connections to its ePort Connect service under the agreement would be several thousand. The customer and USAT will also use good faith efforts to achieve certain annual targets in terms of connections during the three year term of the agreement. Stephen P. Herbert, Chairman and CEO of USA Technologies, stated, “Our results for the quarter reflect a number of dynamics in this emerging market. In spite of our momentum, connections were not what we expected this quarter, as several of the agreements we have been working on since early in the fiscal year have taken longer to materialize than we anticipated. We remain encouraged, however, by the work underway to get our new laundry customer’s connections on our service, as well as our accomplishments in the quarter in many areas of the business that we believe are essential to driving increased adoption in the marketplace. “During the third quarter, we expanded our sales reach in the $5 billion, coin-operated amusement and gaming market with a new distribution agreement with Betson Enterprises, with Ameri-Source for small-medium size vending companies, and we expanded into non-traditional vending with companies like Ice House America, a network of over 2,400 independently owned ice house locations,” continued Herbert. “While these don’t translate to connections overnight, we believe they nevertheless extend our opportunity for growth longer-term as cashless payment adoption accelerates. “Much of our work during the third quarter also related to the formation of agreements and development to facilitate introduction of our new value-add services that we anticipate will extend USAT’s differentiation in the marketplace, as well as our next generation ePort G9 and G10, designed to deliver greater value and improved functionality to our customers while reducing the capital required by USAT for our JumpStart program. For example, we believe our mobile payment and loyalty promotion with Isis is the largest offering of its kind ever introduced to the U.S. vending market. Isis’ interest in loyalty is spot on with our own initiatives in this area that include an expanded services suite formed around loyalty that is tailored to the individual business operator. “In summary, there are numerous developments that we believe will continue to attract consumers to cashless forms of payment, including mobile payment, loyalty, couponing and other consumer engagement applications,” said Herbert. “We have accumulated a base of 4,525 ePort Connect customers that we will continue to work closely with in this very transformative time in the unattended, small-ticket market. Through products and service enhancements, our goal is to improve customer ROI on all levels, which should continue to help boost the rate of cashless adoption, and USAT’s continued leadership in this emerging market,” concluded Herbert. Third Quarter Results Revenues for the third quarter of fiscal 2013 were $9.0 million, an increase of 19% from the same period a year ago. Revenue growth was fueled by a 26% growth in license and transaction fees, offset by a $125,000 decline in equipment sales compared to the third quarter of fiscal 2012. The decline in equipment sales stemmed from a decrease in sales from USAT’s EnergyMiser product line, offset in part by increased sales of ePort cashless payment and telemetry devices in the quarter. Revenue from license and transaction fees, which is driven by connections to USAT’s ePort Connect service through monthly service fees, JumpStart fees and transaction processing fees, grew to $7.6 million for the third quarter, a 26% increase from the third quarter of fiscal 2012. The ePort Connect service base reached 196,000 connections as of March 31, 2013, representing a 32% increase from March 31, 2012. Gross profit was $3.7 million in the third quarter, a 32% improvement from $2.8 million for the same period in the prior year. Gross profit margin improved to 41% in the second quarter, from 37% for the prior year. Gross profit margin is largely impacted by revenues from license and transaction fees, which were 84% of total revenues for the quarter ended March 31, 2013. Operating margin was 3.9% compared to (8.5%) for the same period in the prior year, due to stronger revenues, improvements in gross margins and lower operating expenses. For the third quarter, a $1.3 million charge for fair value of warrant liability adjustment for the 4.2 million of warrants expiring in September 2016 contributed to a GAAP net loss of ($1.0) million. The fair value of warrant liability adjustment is based, in part, on increases in USAT’s stock price and other market factors that occurred during the quarter. Conversely, for the same period in the prior year, GAAP net loss was ($0.5) million, which included a $95,074 positive warrant liability adjustment. Non-GAAP net income, which excludes fair value of warrant liability adjustments for both years, was $293,011, compared to a non-GAAP net loss of ($633,692) for the third quarter of fiscal 2012. (see non-GAAP Reconciliation table.) After preferred dividends, net loss per common share was ($.04) for the third quarter of Fiscal 2013 compared to ($.03) for the same period in Fiscal 2012. On a non-GAAP basis, net loss per common share was $.0 for the third quarter of Fiscal 2013 compared to ($.03) for the same period in Fiscal 2012. Webcast and Conference Call USA Technologies will conduct a conference call and webcast at 10:00 a.m. Eastern Time on May 10, 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 May 13, 2013, can be accessed by calling (855) 859-2056; Conference ID#33897356, (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 USAT of any unanticipated or unusual non-operational expenses which would require us to divert our cash resources from achieving our business plan, including the commercial production and introduction of our next generation G-9 and G-10 devices; 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, including appropriate diversification resulting from products and programs other than our Jumpstart Program; 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 USAT can timely manufacture and introduce to the marketplace its next generation G-9 and G-10 devices; the ability of USAT to obtain widespread commercial acceptance of its next generation G-9 and G-10 devices or its loyalty and prepaid programs; 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 Nine months ended March 31, March 31, 2013 2012 2013 2012 Revenues: License and transaction $ 7,562,589 $ 5,985,052 $ 21,872,187 $ 16,988,179 fees Equipment 1,418,215 1,541,999 4,383,216 4,126,218 sales Total revenues 8,980,804 7,527,051 26,255,403 21,114,397 Cost of 4,525,244 3,749,862 13,080,816 11,494,690 services Cost of 774,221 981,969 2,748,785 2,836,995 equipment Gross profit 3,681,339 2,795,220 10,425,802 6,782,712 Operating expenses: Selling, general and 3,003,231 3,040,562 8,918,030 10,039,712 administrative Depreciation and 327,889 391,859 1,004,134 1,139,500 amortization Total operating 3,331,120 3,432,421 9,922,164 11,179,212 expenses Operating 350,219 (637,201) 503,638 (4,396,500) income (loss) Other income (expense): Interest 11,082 14,029 52,910 45,183 income Interest (61,379) (10,520) (109,402) (70,756) expense Change in fair value of (1,308,954) 95,074 (1,249,456) 1,983,442 warrant liabilities Total other income (1,359,251) 98,583 (1,305,948) 1,957,869 (expense), net Loss before provision for (1,009,032) (538,618) (802,310) (2,438,631) income taxes Provision for (6,911) - (20,734) - income taxes Net loss (1,015,943) (538,618) (823,044) (2,438,631) Cumulative preferred (332,226) (332,226) (664,452) (664,452) dividends Net loss applicable to $ (1,348,169) $ (870,844) $ (1,487,496) $ (3,103,083) common shares Net loss per common share $ (0.04) $ (0.03) $ (0.05) $ (0.10) (basic and diluted) Weighted average number of common shares 32,821,345 32,466,528 32,690,374 32,400,049 outstanding (basic and diluted) USA Technologies, Inc. Consolidated Balance Sheets March 31, June 30, 2013 2012 (Unaudited) Assets Current assets: Cash and cash equivalents $ 3,948,537 $ 6,426,645 Accounts receivable, less allowance for uncollectible 2,370,993 2,441,941 accounts of $9,000 and $25,000, respectively Finance receivables 113,485 206,649 Inventory 1,838,557 2,511,748 Prepaid expenses and other current 656,306 555,823 assets Total current assets 8,927,878 12,142,806 Finance receivables, less current 381,946 336,198 portion Property and equipment, net 15,528,584 11,800,108 Intangibles, net 639,653 1,196,453 Goodwill 7,663,208 7,663,208 Other assets 88,101 80,884 Total assets $ 33,229,370 $ 33,219,657 Liabilities and shareholders’ equity Current liabilities: Accounts payable $ 5,332,568 $ 6,136,443 Accrued expenses 1,601,362 3,342,456 Line of credit 2,000,000 - Current obligations under 314,756 466,056 long-term debt Total current liabilities 9,248,686 9,944,955 Long-term liabilities: Long-term debt, less current 159,775 262,274 portion Accrued expenses, less current 374,856 426,241 portion Deferred tax liabilities 33,333 12,599 Warrant liabilities, non-current 2,168,022 918,566 Total long-term liabilities 2,735,986 1,619,680 Total liabilities 11,984,672 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- 3,138,056 3,138,056 442,968 (liquidation preference of $16,026,004 and $15,361,552, respectively) Common stock, no par value: Authorized shares- 640,000,000 Issued and outstanding 220,926,047 220,513,327 shares- 32,878,702 and 32,510,069, respectively Accumulated deficit (202,819,405) (201,996,361) Total shareholders’ equity 21,244,698 21,655,022 Total liabilities and $ 33,229,370 $ 33,219,657 shareholders’ equity USA Technologies, Inc. Consolidated Statements of Cash Flows (Unaudited) Three months ended Nine months ended March 31, March 31, 2013 2012 2013 2012 OPERATING ACTIVITIES: Net loss $ (1,015,943 ) $ (538,618 ) $ (823,044 ) $ (2,438,631 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Charges incurred in connection with the vesting and issuance 149,009 83,300 369,233 510,797 of common stock for employee and director compensation Change in fair value of 1,308,954 (95,074 ) 1,249,456 (1,983,442 ) warrant liabilities Depreciation 1,003,610 631,330 2,742,196 1,747,445 Loss on disposal of (14,815 ) 13,844 (18,415 ) 1,841 property and equipment Amortization 185,600 258,600 556,800 775,800 Non-cash interest and amortization 26,934 - 26,934 - of debt discount Bad debt expense (1,599 ) (3,788 ) 7,459 (45,356 ) (recoveries), net Provision for deferred tax 6,911 - 20,734 - liability Changes in operating assets and liabilities: Accounts (1,212,990 ) (484,290 ) 63,489 (451,770 ) receivable Finance 22,714 (44,103 ) 47,416 (78,215 ) receivables Inventory 603,019 108,302 685,114 (562,988 ) Prepaid expenses and 59,841 (153,012 ) 51,730 (290,883 ) other assets Accounts (1,115,013 ) 291,263 (803,875 ) (1,030,781 ) payable Accrued (223,669 ) 164,417 (1,792,479 ) 1,054,468 expenses Net cash provided by (used in) (217,437 ) 232,171 2,382,748 (2,791,715 ) operating activities INVESTING ACTIVITIES: Purchase of property and (31,413 ) (30,158 ) (81,691 ) (404,103 ) equipment Purchase of property for (1,778,344 ) (1,226,518 ) (6,320,514 ) (3,282,512 ) rental program Proceeds from sale of 18,908 - 18,908 - property and equipment Net cash used in investing (1,790,849 ) (1,256,676 ) (6,383,297 ) (3,686,615 ) activities FINANCING ACTIVITIES: Net proceeds from the issuance (retirement) of common 74,840 - (12,475 ) (2,031 ) stock and exercise of common stock warrants Proceeds from line of 1,000,000 - 2,000,000 - credit, net of repayments Repayment of long-term (164,363 ) (111,841 ) (465,084 ) (317,115 ) debt Net cash provided by (used in) 910,477 (111,841 ) 1,522,441 (319,146 ) financing activities Net decrease in cash and (1,097,809 ) (1,136,346 ) (2,478,108 ) (6,797,476 ) cash equivalents Cash and cash equivalents 5,046,346 7,330,381 6,426,645 12,991,511 at beginning of period Cash and cash equivalents $ 3,948,537 $ 6,194,035 $ 3,948,537 $ 6,194,035 at end of period Supplemental disclosures of cash flow information: Cash paid for $ 32,551 $ 11,619 $ 84,220 $ 28,419 interest Equipment and software acquired $ 80,883 $ - $ 80,883 $ 495,955 under capital lease Equipment and software financed with $ - $ - $ - $ 40,871 long-term debt Prepaid items financed with $ 2,340 $ 28,419 $ 130,402 $ 28,419 debt Prepaid interest from issuance of $ 55,962 $ - $ 55,962 $ - warrants for debt costs Disposal of property and $ 7,700 $ - $ 7,700 $ 54,638 equipment Reclass of rental program $ 2,296 $ - $ 11,923 $ - property to inventory Depreciation expense $ 861,321 $ 498,071 $ 2,294,862 $ 1,383,745 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 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 adjustment for impairment of intangible assets divided by revenues. Non-GAAP Reconciliation Reconciliation of Net Loss to Non-GAAP Net Income (Loss) and Net Loss Per Common Share to Non-GAAP Net Earnings (Loss) Per Common Share Three Months Ended 3/31/2013 3/31/2012 Net loss $ (1,015,943 ) $ (538,618 ) Non-GAAP adjustments: Fair value of warrant 1,308,954 (95,074 ) adjustment Non-GAAP net income (loss) $ 293,011 $ (633,692 ) Net loss $ (1,015,943 ) $ (538,618 ) Non-GAAP net income (loss) $ 293,011 $ (633,692 ) Cumulative preferred dividends (332,226 ) (332,226 ) Net loss applicable to common $ (1,348,169 ) $ (870,844 ) shares Non-GAAP net loss applicable $ (39,215 ) $ (965,918 ) to common shares Weighted average number of common shares outstanding 32,821,345 32,466,528 (basic and diluted) Net loss per common share $ (0.04 ) $ (0.03 ) (basic and diluted) Non-GAAP net loss per common $ (0.00 ) $ (0.03 ) share (basic and diluted) Non GAAP Reconciliation Reconciliation of Operating Margin to Non-GAAP Operating Margin Three Months Ended 3/31/2013 3/31/2012 Operating income (loss) $ 350,219 $ (637,201) Non-GAAP adjustments: Operating expenses - - Operating income (loss), Non-GAAP $ 350,219 $ (637,201) Revenues $ 8,980,804 $ 7,527,051 Operating Margin 3.9% -8.5% Operating Margin, Non-GAAP 3.9% -8.5% Reconciliation of GAAP Net Earnings to Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) Three months ended 3/31/2013 3/31/2012 Net income (loss) $ (1,015,943) $ (538,618) Less interest income (11,082) (14,029) Plus interest expenses 61,379 10,520 Plus income tax expense 6,911 - Plus depreciation expense 1,003,610 631,330 Plus amortization expense 185,600 258,600 Less change in fair value of warrant 1,308,954 (95,074) liabilities Plus stock-based compensation 149,009 83,300 Adjusted EBITDA $ 1,688,438 $ 336,029 F-USAT Contact: USA Technologies Veronica Rosa, 484-359-2138 VP Corp. 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USA Technologies Reports Financial Results for Third Quarter of Fiscal 2013
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