USA Technologies Reports Financial Results for Third Quarter of Fiscal 2013

  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. Comm. & Investor Relations
vrosa@usatech.com
 
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