USA Technologies, Inc. (USAT) recently reported results for the second quarter of fiscal 2013 ended Dec. 31, 2012. Second quarter highlights, compared to the corresponding quarter of the prior fiscal year, included:
- 29 percent increase in total revenues to $8.9 million and 33 percent increase in license and transaction fee revenues ("recurring revenues") to $7.4 million, representing 83 percent of total revenues for the quarter;
- 86 percent increase in gross profit to $3.6 million;
- Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $1,752,721, up from an Adjusted EBITDA loss of ($938,400);
- Generally-accepted accounting principles (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 percent increase;
- 186,000 total connections, a 37 percent increase; and,
- 375 new customers, a 50 percent increase, for 4,100 total customers, a 62 percent 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, in a prepared statement, "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 percent from the same period a year ago. Revenue growth was fueled by a 33 percent growth in license and transaction fees and a 14 percent 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 percent improvement from $1.9 million for the same period in the prior year. Gross profit margin improved to 41 percent in the second quarter, from 28 percent 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 percent of total revenues, reached 41 percent 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 percent for the second quarter on both a GAAP and non-GAAP basis, compared to (28.1 percent) and (14.0 percent), 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.
