USA Technologies, Inc. (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.
"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.
Full results available here.