USA Technologies Announces First Quarter, Fiscal 2014 Results

  USA Technologies Announces First Quarter, Fiscal 2014 Results

                Service Revenues Up 23%; Total Revenues Up 21%

Total Connections to ePort Connect Service Up 25% (year over year) to 217,000

Business Wire

MALVERN, Pa. -- November 12, 2013

USA Technologies, Inc. (NASDAQ: USAT) (“USAT”), a leader of wireless, cashless
payment and M2M telemetry solutions for small-ticket, self-serve retailing
industries, today reported results for the first fiscal quarter ended
September 30, 2013.

First quarter financial highlights, compared to the corresponding quarter in
the prior year, included:

  *23% increase in license and transaction fee revenues to $8.5 million;
  *21% increase in total revenues to $10.1 million;
  *Adjusted EBITDA of $1.5 million up from $0.7 million;
  *GAAP net income of $293,654 from $39,140; and
  *Non-GAAP net income of $74,557, up from a non-GAAP net loss of ($95,993).

License and transaction fee revenues, which represented 84% of total revenues
in the quarter, were largely driven by connections to USAT’s comprehensive and
turnkey cashless payment and M2M telemetry service, ePort Connect^®. Total
connections to ePort Connect reached 217,000 as of September 30, 2013, a 25%
increase over total connections as of September 30, 2012.

“Our first quarter results reflect solid progress toward our fiscal 2014
objectives that include 25%-30% growth in service revenues and the doubling of
non-GAAP net income for the fiscal year,” said Stephen P. Herbert, USAT’s
chairman and chief executive officer. “We added 14,000 new connections to our
ePort Connect service in the quarter, which more than offset the 11,000
deactivations during the quarter that we had announced on last quarter’s
conference call.

“Our customer base grew by 50% from the first quarter a year ago, to 5,600
customers as of September 30, 2013, which we believe further demonstrates a
growing awareness for cashless among both large and small businesses,”
continued Herbert. “In addition, our efforts to strengthen our presence in
other adjacent self-serve retail markets beyond vending, such as commercial
laundry, amusement and transportation, also progressed well in the first
quarter. And, we had a solid quarter of contribution from our web service,
QuickConnect™, with a mobile-based payment application that contributed to
approximately 2,800 new connections in the first quarter. Our QuickConnect
product is attracting more developers and manufacturers looking for a
streamlined cashless payment solution like ePort Connect.’’

New products and services introduced in the quarter included:

  *Expansion of the ePort Connect suite of services with launch of the MORE.
    loyalty program and toolkit. Through MORE., USAT customers can build
    loyalty, repeat business and a greater understanding of their consumers'
    purchasing preferences by offering rewards and discount offers for
    products purchased at their cashless-enabled locations.
  *Completion of the Isis^® SmartTap™ integration for USAT’s ePort G8 that
    enables consumers nationwide to pay, present loyalty cards and redeem
    offers with a single tap—a technical pre-requisite to USAT’s “Fifth Vend
    Free” promotion with Isis.
  *Introduction of an integrated, mobile payment solution, ePort GO™,
    designed for the $11 billion taxi and transportation industry, which is
    already adding new customers and new connections to USAT’s ePort Connect
    service base.

“In line with our expectation, the deactivations and certain pricing
incentives put some pressure on gross margins in the first quarter. At the
same time, however, our growing scale also opened the door for additional cost
savings from one of our major suppliers, with benefits beginning in the second
quarter. All these opportunities and accomplishments, we believe, put us on
course for achieving our growth targets for fiscal 2014,” added Herbert.

First Quarter Results

Revenues for the first quarter of fiscal 2014 were $10.1 million, an increase
of 21% from the same period a year ago. Revenue growth was attributable to a
23% increase in license and transaction fees to $8.5 million. Revenue from
license and transaction fees, which represented 84% of revenues for the first
quarter, is driven by connections to USAT’s ePort Connect service through
monthly service fees, JumpStart fees and transaction processing fees. As of
September 30, 2013, USAT had 217,000 connections to its ePort Connect service.

Equipment sales of $1.6 million increased by 9% due to growth in both direct
sales of ePort cashless payment devices and sales of Miser-branded energy
products.

Gross profit was $3.6 million in the first quarter, a 14% improvement from
$3.1 million for the same period in the prior year. Gross profit margin was
35.4%, down from 37.5% for the same period in the prior year, due to lower
gross profit margins from license and transaction fee revenues in the quarter.

Operating margin (both GAAP and non-GAAP) expanded to approximately 1.3% from
(4.9%) and (1%) on a GAAP and non-GAAP basis, respectively, for the same
period in the prior year, as additional investments in sales and marketing for
fiscal 2014 were offset by stronger revenues and resulting gross profit dollar
contribution.

GAAP and non-GAAP net income were both positive for the first quarter fiscal
2014. GAAP net income was $293,654 for the first quarter of fiscal 2014,
compared to $39,140 for the same period in the prior year. Non-GAAP net income
for the first quarter of fiscal 2014 was $74,557 compared to a non-GAAP net
loss of ($95,993) for the first quarter of fiscal 2013. Non-GAAP net income
removes the impact of the fair value of warrant adjustment of $0.2 million and
$0.5 million for the first quarter of fiscal 2014 and 2013, respectively, in
addition to other non-operational adjustments noted for the quarter (see
Non-GAAP Reconciliation tables).

After accrual for preferred dividends, GAAP net loss applicable to common
shares was ($38,572) or ($.00) per common share for the first quarter of
fiscal 2014, compared to ($293,086), or ($.01) per common share for the first
quarter of the prior fiscal year. On a non-GAAP basis, net loss applicable to
common shares was ($0.3) million, or ($.01) per common share, compared to
($0.4) million, or ($.01) per common share for the prior year first quarter.

Net cash generated from operations of $0.9 million for the first quarter of
fiscal 2014 increased by 34% from the prior year while net cash used in
investing activities stayed relatively flat compared to the prior year. Cash
and cash equivalents stood at approximately $5.8 million as of September 30,
2013, compared to $6.2 million as of September 30, 2012.

Outlook

“As consumer behavior, mobile payment options, loyalty programs and other
factors add momentum to the rate of cashless adoption in our targeted markets,
we believe USAT is well positioned to benefit,” said Herbert. “We are also
encouraged by new developments that, in our view, reflect a stronger mindset
toward cashless adoption, such as our recently announced five-year agreement
with USConnect—our largest commitment ever for our ePort and ePort Connect
service.

“For fiscal 2014, our priorities include delivering 25%-30% license and
transaction fee revenue growth and 20-25% total revenue growth. Achievement of
our revenue expectations coupled with cost efficiencies and operating
leverage, should translate to a 40%-50% increase in Adjusted EBITDA for fiscal
2014 and a 100% improvement in non-GAAP net income compared to fiscal 2013,”
concluded Herbert.

Webcast and Conference Call

USA Technologies will conduct a conference call and webcast at 10:00 a.m.
Eastern Time on November 12, 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
November 15, 2013, can be accessed by calling (855) 859-2056; Conference
ID#91881698, (toll free).

About USA Technologies:

USA Technologies is a leader of wireless, cashless payment and M2M telemetry
solutions for small-ticket, self-serve retailing industries. ePort Connect® is
the company’s flagship service platform, a PCI-compliant, end-to-end suite of
cashless payment and telemetry services specially tailored to fit the needs of
small ticket, self-service retailing industries. USA Technologies also
provides a broad line of cashless acceptance technologies including its
NFC-ready ePort® G8, ePort Mobile™ for customers on the go, and QuickConnect™,
an API Web service for developers. USA Technologies has been granted 86
patents and has agreements with Verizon, Visa, Elavon, Isis and customers such
as Compass, Crane, AMI Entertainment and others. Visit the website at
www.usatech.com.

Forward-looking Statements:

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995: All statements other than statements of historical fact included in this
release, including without limitation the business strategy and the plans and
objectives of USAT's management for future operations, are forward-looking
statements. When used in this release, words such as "anticipate", "believe",
"estimate", "expect", "intend", and similar expressions, as they relate to
USAT or its management, identify forward-looking statements. Such
forward-looking statements are based on the beliefs of USAT's management, as
well as assumptions made by and information currently available to USAT's
management. Actual results could differ materially from those contemplated by
the forward-looking statements as a result of certain factors, including but
not limited to, the incurrence by us of any unanticipated or unusual
non-operational expenses which would require us to divert our cash resources
from achieving our business plan; the ability of USAT to retain key customers
from whom a significant portion of its revenues is derived; the ability of
USAT to compete with its competitors to obtain market share; whether USAT's
customers continue to utilize USAT's transaction processing and related
services, as our customer agreements are generally cancelable by the customer
on thirty to sixty days' notice; the ability of USAT to obtain widespread
commercial acceptance of it products; the ability of USAT to raise funds in
the future through the sales of securities 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 of USAT to efficiently
and securely integrate cashless payment with new machine technologies; and
whether USAT's existing or anticipated customers purchase, rent or utilize
ePort devices or our other products or services in the future at levels
currently anticipated by USAT. Readers are cautioned not to place undue
reliance on these forward-looking statements. Any forward-looking statement
made by us in this release speaks only as of the date of this release. Unless
required by law, USAT does not undertake to release publicly any revisions to
these forward-looking statements to reflect future events or circumstances or
to reflect the occurrence of unanticipated events.


USA Technologies, Inc.
Consolidated Statements of Operations
(Unaudited)
                                                             
                                               Three months ended
                                               September 30,
                                               2013             2012
                                                                
Revenues:
License and transaction fees                   $ 8,507,044      $ 6,906,356
Equipment sales                                 1,616,014      1,483,921  
Total revenues                                   10,123,058       8,390,277
                                                                
Cost of services                                 5,409,463        4,192,360
Cost of equipment                               1,130,824      1,053,636  
Gross profit                                     3,582,771        3,144,281
                                                                
Operating expenses:
Selling, general and administrative              3,295,344        3,215,125
Depreciation and amortization                   158,509        343,388    
Total operating expenses                        3,453,853      3,558,513  
Operating income (loss)                          128,918          (414,232   )
                                                                
Other income (expense):
Interest income                                  13,526           20,166
Interest expense                                 (60,976    )     (23,006    )
Change in fair value of warrant liabilities     219,097        463,133    
Total other income, net                         171,647        460,293    
                                                                
Income before provision for income taxes         300,565          46,061
Provision for income taxes                      (6,911     )    (6,921     )
Net income                                       293,654          39,140
Cumulative preferred dividends                  (332,226   )    (332,226   )
Net loss applicable to common shares           $ (38,572    )   $ (293,086   )
Net loss per common share (basic and           $ (0.00      )   $ (0.01      )
diluted)
                                                                
Weighted average number of common shares         33,324,295       32,518,230
outstanding (basic and diluted)
                                                                  

                                                           
USA Technologies, Inc.
Consolidated Balance Sheets
                                                              
                                           September 30,      June 30,
                                           2013               2013
                                           (Unaudited)
Assets
Current assets:
Cash and cash equivalents                  $ 5,811,900        $ 5,981,000
Accounts receivable, less allowance for
uncollectible accounts of $32,000 and        1,923,038          2,620,684
$18,000, respectively
Finance receivables                          131,237            116,444
Inventory                                    1,766,259          1,823,615
Prepaid expenses and other current          337,481          184,336      
assets
Total current assets                         9,969,915          10,726,079
                                                              
Finance receivables, less current            432,552            408,674
portion
Property and equipment, net                  18,098,035         17,240,065
Intangibles, net                             432,100            454,053
Goodwill                                     7,663,208          7,663,208
Other assets                                82,687           84,117       
Total assets                               $ 36,678,497      $ 36,576,196   
                                                              
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable                           $ 6,053,461        $ 7,301,247
Accrued expenses                             1,496,148          1,468,184
Line of credit                               4,000,000          3,000,000.00
Current obligations under long-term debt    332,052          247,152      
Total current liabilities                    11,881,661         12,016,583
                                                              
Long-term liabilities:
Long-term debt, less current portion         84,763             122,754
Accrued expenses, less current portion       356,585            366,785
Deferred tax liabilities                     47,156             40,245
Warrant liabilities, non-current            431,541          650,638      
Total long-term liabilities                 920,045          1,180,422    
Total liabilities                           12,801,706       13,197,005   
                                                              
Commitments and contingencies
                                                              
Shareholders’ equity:
Preferred stock, no par value:
Authorized shares- 1,800,000 Series A
convertible preferred- Authorized
shares- 900,000
Issued and outstanding shares- 442,968
(liquidation preference of $16,358,230       3,138,056          3,138,056
and $16,026,004, respectively)
Common stock, no par value: Authorized
shares- 640,000,000 Issued and               221,587,319        221,383,373
outstanding shares- 33,457,677 and
33,284,232, respectively
Accumulated deficit                         (200,848,584 )    (201,142,238 )
Total shareholders’ equity                  23,876,791       23,379,191   
Total liabilities and shareholders’        $ 36,678,497      $ 36,576,196   
equity
                                                              

                                                             
USA Technologies, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
                                                                
                                               Three months ended
                                               September 30,
                                               2013             2012
OPERATING ACTIVITIES:
Net income                                     $ 293,654        $ 39,140
Adjustments to reconcile net income to net
cash provided by operating activities:
Charges incurred in connection with the
vesting and issuance of common stock for         84,392           125,333
employee and director compensation
Loss on disposal of property and equipment       14,935           -
Non-cash interest and amortization of debt       2,095            -
discount
Bad debt expense (recoveries), net               26,431           (6,129     )
Depreciation                                     1,218,071        834,006
Amortization                                     21,953           185,600
Change in fair value of warrant liabilities      (219,097   )     (463,133   )
Provision for deferred tax liability             6,911            6,921
Changes in operating assets and liabilities:
Accounts receivable                              705,115          81,320
Finance receivables                              (38,671    )     30,831
Inventory                                        78,017           1,331,390
Prepaid expenses and other current assets        (51,960    )     79,629
Accounts payable                                 (1,247,786 )     (115,452   )
Accrued expenses                                17,764         (1,451,446 )
                                                                
Net cash provided by operating activities        911,824          678,010
                                                                
INVESTING ACTIVITIES:
Purchase of property and equipment               (14,626    )     (1,525     )
Purchase of property for rental program         (2,074,975 )    (2,075,390 )
                                                                
Net cash used in investing activities            (2,089,601 )     (2,076,915 )
                                                                
FINANCING ACTIVITIES:
Net proceeds from the exercise of common
stock warrants and the retirement of common      85,654           -
stock
Proceeds from line of credit                     1,000,000        1,337,779
Repayment of long-term debt                     (76,977    )    (161,816   )
                                                                
Net cash provided by financing activities       1,008,677      1,175,963  
                                                                
Net decrease in cash and cash equivalents        (169,100   )     (222,942   )
Cash and cash equivalents at beginning of       5,981,000      6,426,645  
year
Cash and cash equivalents at end of period     $ 5,811,900     $ 6,203,703  
                                                                
Supplemental disclosures of cash flow
information:
Cash paid for interest                         $ 69,735        $ 26,150     
Depreciation expense allocated to cost of      $ 1,081,515     $ 676,218    
sales
Reclass of rental program property to          $ 20,661        $ 5,559      
inventory
Prepaid items financed with debt               $ 101,850       $ 128,062    
Equipment and software acquired under          $ 22,036        $ -          
capital lease
Disposal of property and equipment             $ 174,204       $ -          
                                                                

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 proxy
contest. 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 . 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 and stock-based
compensation 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 adjustments for proxy contest divided by revenues.


Non-GAAP Reconciliation
Reconciliation of Net Income (Loss) to Non-GAAP Net Income (Loss) and Net
Earnings (Loss) Per Common Share - Diluted to Non-GAAP Net Earnings
(Loss) Per Common Share - Diluted
                                             
                                               Three Months Ended
                                               9/30/2013       9/30/2012
Net income                                     $ 293,654       $ 39,140
Non-GAAP adjustments:
Operating expenses
Selling, general and administrative:
Proxy related costs                              -                328,000
Fair value of warrant adjustment                (219,097   )   (463,133   )
Non-GAAP net income (loss)                     $ 74,557       $ (95,993    )
                                                                
Net income                                     $ 293,654        $ 39,140
Non-GAAP net income (loss)                     $ 74,557         $ (95,993    )
                                                                
Cumulative preferred dividends                  (332,226   )   (332,226   )
Net loss applicable to common shares           $ (38,572    )  $ (293,086   )
Non-GAAP net loss applicable to common         $ (257,669   )  $ (428,219   )
shares
Weighted average number of common shares        33,324,295    32,518,230 
outstanding (basic and diluted)
                                                                
Net income (loss) per common share (basic      $ (0.00      )  $ (0.01      )
and diluted)
Non-GAAP net loss per common share (basic      $ (0.01      )  $ (0.01      )
and diluted)
                                                                             

                                                    
Non-GAAP Reconciliation
Reconciliation of Operating Margin to Non-GAAP Operating Margin
                                                       
                                      Three Months Ended
                                      9/30/2013        9/30/2012
Operating income (loss)               $ 128,918        $ (414,232  )
                                                       
Non-GAAP adjustments:
Operating expenses
Selling, general and administrative   
Proxy related costs                    -              328,000   
Operating income (loss), Non-GAAP     $ 128,918        $ (86,232   )
                                                       
Revenues                              $ 10,123,058     $ 8,390,277
                                                       
Operating Margin                       1.3        %    -4.9      %
Operating Margin, Non-GAAP             1.3        %    -1.0      %
                                                       


Reconciliation of GAAP Net Income to Adjusted Earnings Before
Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA)
                                                               
                                                  Three months ended
                                                  9/30/2013       9/30/2012
Net income                                        $ 293,654       $ 39,140
Less interest income                                (13,526   )     (20,166  )
Plus interest expenses                              60,976          23,006
Plus income tax expense                             6,911           6,921
Plus depreciation expense                           1,218,071       834,006
Plus amortization expense                           21,953          185,600
Less change in fair value of warrant                (219,097  )     (463,133 )
liabilities
Plus stock-based compensation                      84,392        125,333  
Adjusted EBITDA                                   $ 1,453,334    $ 730,707  
                                                                  

                                    F-USAT

Contact:

USA Technologies
Veronica Rosa, 484-359-2138
VP Corp. Comm. & Investor Relations
vrosa@usatech.com
 
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