USAT USA Technologies Inc

USA Technologies, Inc. (NASDAQ:USAT), a premier payment technology service provider of integrated cashless and mobile transactions in the self-service retail market, today reported results for its second quarter ended December 31, 2016.

Second Quarter Financial Highlights:

• Total quarterly revenue of $21.8 million, a year-over-year increase of 18%
• 469,000 connections to ePort service, representing a year-over-year increase of 27%
• Added 500 customers to achieve record 11,900 total customers compared to 10,625 as of a year ago, a year-over-year increase of 12%
• Quarterly record license and transaction fee revenue of $16.6 million, a year-over-year increase of 22%
• Ended the quarter with $18.0 million in cash
• Quarterly GAAP net income of $233,000 resulting in earnings of $0.01 per share
• Quarterly Non-GAAP net income of $241,000
• Quarterly Adjusted EBITDA of $1.7 million

 

Second Quarter and YTD Financial Highlights, Connections & Transaction Data:

        As of and for the three months ended December 31, (Connections and $'s in thousands, transactions in millions, eps is not rounded) 2016 2015

$ Change

  % Change Revenues: License and transaction fees $ 16,639 $ 13,674 $ 2,965 22 % Equipment Sales   5,117     4,829     288   6 % Total revenues $ 21,756   $ 18,503   $ 3,253   18 %   License and transaction fee margin 31.6 % 33.7 % -2.1 % -6 %   Equipment sales gross margin 21.2 % 18.1 % 3.1 % 17 %   Overall Gross Margin 29.1 % 29.6 % -0.5 % -2 %   Operating income $ 234 $ 594 $ (360 ) -61 %   Net income/(loss) $ 233 $ (874 ) $ 1,107 127 %   Net earnings (loss) per common shares - basic $ 0.01 $ (0.02 ) $ 0.03 150 %   Net earnings (loss) per common shares - diluted $ 0.01 $ (0.02 ) $ 0.03 150 %   Net cash provided by operating activities $ 1,122 $ 507 $ 615 121 %   Net New Connections 21 20 1 5 %   Total Connections (at period end) 469 369 100 27 %   Total Number of Transactions (millions) 100 76 24 32 %   Transaction Volume (millions) $ 192 $ 138 $ 54 39 %   Adjusted EBITDA $ 1,738 $ 2,260 $ (522 ) -23 %   Non-GAAP net income $ 241 $ 686 $ (445 ) -65 %     As of and for the six months ended December 31, (Connections and $'s in thousands, transactions in millions, eps is not rounded) 2016 2015

$ Change

  % Change Revenues: License and transaction fees $ 33,004 $ 26,599 $ 6,405 24 % Equipment Sales   10,340     8,504     1,836   22 % Total revenues $ 43,344   $ 35,103   $ 8,241   23 %   License and transaction fee margin 31.4 % 33.2 % -1.8 % -5 %   Equipment sales gross margin 20.6 % 20.0 % 0.6 % 3 %   Overall Gross Margin 28.8 % 30.0 % -1.2 % -4 %   Operating income/(loss) $ (716 ) $ 706 $ (1,422 ) -201 %   Net loss $ (2,231 ) $ (514 ) $ (1,717 ) 334 %   Net loss per common shares - basic $ (0.07 ) $ (0.02 ) $ (0.05 ) 250 %   Net loss per common shares - diluted $ (0.07 ) $ (0.02 ) $ (0.05 ) 250 %   Net cash provided by (used in) operating activities $ (5,143 ) $ 869 $ (6,012 ) -692 %   Net New Connections 40 36 4 11 %   Total Connections (at period end) 469 369 100 27 %   Total Number of Transactions (millions) 195 145 50 35 %   Transaction Volume (millions) $ 375 $ 264 $ 111 42 %   Adjusted EBITDA $ 2,435 $ 4,011 $ (1,576 ) -39 %   Non-GAAP net income (loss) $ (714 ) $ 747 $ (1,461 ) -196 %  

“With a focus on driving growth through penetration into our existing customer base and by acquiring new customers, we are seeing more adoption of our ePort connect devices and subsequent traction in cashless payment options,” said Stephen P. Herbert, USA Technologies’ chairman and chief executive officer. “USA Technologies is at the forefront of the industry with our payment solutions, and with our customer loyalty programs and interactive point-of-sale devices we are adding increasing value to each connection sold. Our ePort Interactive platform creates new possibilities at the point of sale and we believe increases cashless payment acceptance.”

Fiscal 2017 Outlook

For full fiscal year 2017, management expects to add between 115,000 and 125,000 net new connections for the year, bringing total connections to our service to a range of 544,000 to 554,000 and expects total revenue to be between $95 million and $100 million. We also expect to have year-over-year increases of adjusted EBITDA and non-GAAP net income.

Webcast and Conference Call

Management will host a conference call and webcast the event beginning at 5:00 p.m. Eastern Time today, February 8, 2017.

To participate in the conference call, please dial (866) 393-1608 approximately 10 minutes prior to the call. International callers should dial (224) 357-2194. Please reference conference ID # 59727592.

A live webcast of the conference call will be available at http://usat.client.shareholder.com/releases.cfm. Please access the website 15 minutes prior to the start of the call to download and install any necessary audio software. A telephone replay of the conference call will be available from 8:00 p.m. Eastern Time on February 8, 2017 until 8:00 p.m. Eastern Time on February 11, 2017 and may be accessed by calling (855) 859-2056 (domestic dial-in) or (404) 537-3406 (international dial-in) and reference conference ID # 59727592. An archived replay of the conference call will also be available in the investor relations section of the company's website.

About USA Technologies

USA Technologies, Inc. is a premier payment technology service provider of integrated cashless and mobile transactions in the self-service retail market. The company also provides a broad line of cashless acceptance technologies including its NFC-ready ePort® G-series, ePort Mobile™ for customers on the go, ePort® Interactive, and QuickConnect, an API Web service for developers. USA Technologies has 77 United States and foreign patents in force; and has agreements with Verizon, Visa, Chase Paymentech and customers such as Compass, AMI Entertainment and others. For more information, please 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 ability of management to accurately predict or forecast future financial results, including earnings or taxable income of USAT, or increased revenues at a customer location; 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; 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 raise funds in the future through the sales of securities or debt financings 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 to prevent a security breach of our systems or services or third party services or systems utilized by us; whether any patents issued to USAT will provide USAT with any competitive advantages or adequate protection for its products, or would be challenged, invalidated or circumvented by others; the ability of USAT to operate without infringing or violating the intellectual property rights of others; whether USAT would be able to sell sufficient ePort hardware to third party leasing companies as part of the QuickStart program in order to improve cash flows from operations; whether USAT’s remediation efforts in connection with the control deficiencies that resulted in a material weakness in USAT’s internal controls over financial reporting as of June 30, 2016 would be effective or successful; whether USAT experiences additional material weaknesses in its internal controls over financial reporting in future periods, and USAT is not able to accurately or timely report its financial condition or results of operations; 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.

Financial Schedules:

A. Statements of Operations for the 3 Months and 6 Months Ended December 31, 2016 and 2015 B. Five Quarter Select Key Performance Indicators

C.

Comparative Balance Sheets as of December 31, 2016 and June 30, 2016 D. Five Quarter Statements of Operations and Adjusted EBITDA E. Five Quarter and YTD Selling, General, & Administrative Expenses F. Five Quarter Condensed Balance Sheets G. Five Quarter Statements of Cash Flows H. Five Quarter Reconciliation of Net Income/(Loss) to Non-GAAP Net Income (Loss) and Net Earnings/(Loss) Per Common Share – Basic and Diluted to Non-GAAP Net Earnings/(Loss) Per Common Share – Basic and Diluted  

(A) Statement of Operations for the 3 Months and 6 Months Ended December 31, 2016 and 2015

              For the three months ended December 31, ($ in thousands, except shares and per share data) 2016

% of Sales

2015

% of Sales

Change % Change     Revenues: License and transaction fees $ 16,639 76.5 % $ 13,674 73.9 % $ 2,965 21.7 % Equipment sales   5,117   23.5 %   4,829   26.1 %   288   6.0 % Total revenues 21,756 100.0 % 18,503 100.0 % 3,253 17.6 %   Costs of sales/revenues: Cost of services 11,389 68.4 % 9,067 66.3 % 2,322 25.6 % Cost of equipment   4,033   78.8 %   3,953   81.9 %   80   2.0 % Total costs of sales/revenues   15,422   70.9 %   13,020   70.4 %   2,402   18.4 %   Gross profit 6,334 29.1 % 5,483 29.6 % 851 15.5 %   Operating expenses: Selling, general and administrative 5,793 26.6 % 4,762 25.7 % 1,031 21.7 % Depreciation and amortization   307   1.4 %   127   0.7 %   180   141.7 % Total operating expenses 6,100 28.0 % 4,889 26.4 % 1,211 24.8 %   Operating income (loss) 234 1.1 % 594 3.2 % (360 ) -60.6 %   Other income (expense): Interest income 200 0.9 % 20 0.1 % 180 900.0 % Interest expense (201 ) -0.9 % (104 ) -0.6 % (97 ) 93.3 % Change in fair value of warrant liabilities   —   0.0 %   (1,230 ) -6.6 %   1,230   -100.0 % Total other income (expense), net (1 ) 0.0 % (1,314 ) -7.1 % 1,313 -99.9 %   Income (loss) before income taxes 233 1.1 % (720 ) -3.9 % 953 132.4 % Benefit (provision) for income taxes   —   0.0 %   (154 ) -0.8 %   154   -100.0 %   Net income (loss) 233 1.1 % (874 ) -4.7 % 1,107 126.7 % Cumulative preferred dividends   —   0.0 %   —   0.0 %   —   0.0 % Net income (loss) applicable to common shares $ 233   1.1 % $ (874 ) -4.7 % $ 1,107   127.7 %   Net earnings (loss) per common share - basic $ 0.01   $ (0.02 ) $ 0.03   150 % Net earnings (loss) per common share - diluted $ 0.01   $ (0.02 ) $ 0.03   150 %   Basic weighted average number of common shares outstanding 40,308,934 35,909,933 4,399,001 12.3 % Diluted weighted average number of common shares outstanding 40,730,712 35,909,933 4,820,779 13.4 %     For the six months ended December 31, ($ in thousands, except shares and per share data) 2016

% of Sales

2015

% of Sales

Change % Change     Revenues: License and transaction fees $ 33,004 76.1 % $ 26,599 75.8 % $ 6,405 24.1 % Equipment sales   10,340   23.9 %   8,504   24.2 %   1,836   21.6 % Total revenues 43,344 100.0 % 35,103 100.0 % 8,241 23.5 %   Costs of sales/revenues: Cost of services 22,632 68.6 % 17,772 66.8 % 4,860 27.3 % Cost of equipment   8,211   79.4 %   6,801   80.0 %   1,410   20.7 % Total costs of sales/revenues   30,843   71.2 %   24,573   70.0 %   6,270   25.5 %   Gross profit 12,501 28.8 % 10,530 30.0 % 1,971 18.7 %   Operating expenses: Selling, general and administrative 12,702 29.3 % 9,558 27.2 % 3,144 32.9 % Depreciation and amortization   515   1.2 %   266   0.8 %   249   93.6 % Total operating expenses 13,217 30.5 % 9,824 28.0 % 3,393 34.5 %   Operating income (loss) (716 ) -1.7 % 706 2.0 % (1,422 ) -201.4 %   Other income (expense): Interest income 273 0.6 % 71 0.2 % 202 284.5 % Interest expense (413 ) -1.0 % (223 ) -0.6 % (190 ) 85.2 % Change in fair value of warrant liabilities   (1,490 ) -3.4 %   (887 ) -2.5 %   (603 ) 68.0 % Total other income (expense), net   (1,630 ) -3.8 %   (1,039 ) -3.0 %   (591 ) 56.9 %   Income (loss) before provision for income taxes (2,346 ) -5.4 % (333 ) -0.9 % (2,013 ) 604.5 % Benefit (provision) for income taxes   115   0.3 %   (181 ) -0.5 %   296   -163.5 %   Net income (loss) (2,231 ) -5.1 % (514 ) -1.5 % (1,717 ) 334.0 % Cumulative preferred dividends   (334 ) -0.8 %   (334 ) -1.0 %   —   0.0 % Net income (loss) applicable to common shares $ (2,565 ) -5.9 % $ (848 ) -2.4 % $ (1,717 ) 202.5 %   Net earnings (loss) per common share - basic $ (0.07 ) $ (0.02 ) $ (0.05 ) 250.0 % Net earnings (loss) per common share - diluted $ (0.07 ) $ (0.02 ) $ (0.05 ) 250.0 %   Basic weighted average number of common shares outstanding 39,398,469 35,879,164 3,519,305 9.8 % Diluted weighted average number of common shares outstanding 39,398,469 35,879,164 3,519,305 9.8 %  

(B) Five Quarter Select Key Performance Indicators

          As of and for the three months ended

December 31,

September 30, June 30, March 31, December 31, 2016 2016 2016 2016 2015 Connections: Gross New Connections 25,000 22,000 33,000 34,000 23,000 % from Existing Customer Base 80 % 86 % 83 % 91 % 89 % Net New Connections 21,000 19,000 28,000 32,000 20,000 Total Connections 469,000 448,000 429,000 401,000 369,000   Customers: New Customers Added 500 350 300 125 350 Total Customers 11,900 11,400 11,050 10,750 10,625   Volumes: Total Number of Transactions (millions) 100 95 89 82 76 Transaction Volume (millions) $ 192 $ 183 $ 169 $ 151 $ 138   Financing Structure of Connections: JumpStart 6.8 % 7.7 % 6.5 % 7.4 % 10.1 % QuickStart & All Others *   93.2 %   92.3 %   93.5 %   92.6 %   89.9 % Total   100.0 %   100.0 %   100.0 %  

100.0

%  

100.0

%

  *Includes credit sales with standard trade receivable terms  

(C) Comparative Balance Sheets December 31, 2016 and June 30, 2016

        December 31, June 30, ($ in thousands) 2016 2016 Change % Change   Assets Current assets: Cash $ 18,034 $ 19,272 $ (1,238 ) -6 % Accounts receivable, less allowance 6,796 4,899 1,897 39 % Finance receivables, less allowance for credit losses of $29 and $0, respectively 1,442 3,588 (2,146 ) -60 % Inventory, net 4,786 2,031 2,755 136 % Prepaid expenses and other current assets 1,764 987 777 79 % Deferred income taxes   2,271     2,271     —   0 % Total current assets 35,093 33,048 2,045 6 %   Finance receivables, less current portion 3,956 3,718 238 6 % Other assets 145 348 (203 ) -58 % Property and equipment, net 9,433 9,765 (332 ) -3 % Deferred income taxes 25,568 25,453 115 0 % Intangibles, net 711 798 (87 ) -11 % Goodwill   11,492     11,703     (211 ) -2 % Total assets $ 86,398   $ 84,833   $ 1,565   2 %   Liabilities and shareholders' equity Current liabilities: Accounts payable $ 9,090 $ 12,354 $ (3,264 ) -26 % Accrued expenses 2,912 3,458 (546 ) -16 % Line of credit, net 7,078 7,119 (41 ) -1 % Current obligations under long-term debt 766 629 137 22 % Income taxes payable 6 18 (12 ) -67 % Warrant liabilities — 3,739 (3,739 ) 100 % Deferred gain from sale-leaseback transactions   470     860     (390 ) -45 % Total current liabilities 20,322 28,177 (7,855 ) -28 % Long-term liabilities Long-term debt, less current portion 1,394 1,576 (182 ) -12 % Accrued expenses, less current portion 52 15 37 247 % Deferred gain from sale-leaseback transactions, less current portion   —     40     (40 ) 100 % Total long-term liabilities   1,446     1,631     (185 ) -11 % Total liabilities   21,768     29,808     (8,040 ) -27 %   Shareholders' equity: Preferred stock, no par value 3,138 3,138 — 0 % Common stock, no par value 245,230 233,394 11,836 5 % Accumulated deficit   (183,738 )   (181,507 )   (2,231 ) 1 % Total shareholders' equity   64,630     55,025     9,605   17 % Total liabilities and shareholders' equity $ 86,398   $ 84,833   $ 1,565   2 %   Net working capital $ 14,771 $ 4,871 $ 9,900 203 %  

(D) Five Quarter Statement of Operations and Adjusted EBITDA

                    For the three months ended ($ in thousands) December 31, September 30, June 30, March 31, December 31, (unaudited) 2016 % of Sales 2016 % of Sales 2016   % of Sales 2016   % of Sales 2015 % of Sales Revenues: License and transaction fees $ 16,639 76.5% $ 16,365 75.8% $ 15,263 69.6% $ 14,727 72.3% $ 13,674 73.9% Equipment Sales   5,117 23.5%   5,223 24.2%   6,681 30.4%   5,634 27.7%   4,829 26.1% Total revenue 21,756 100.0% 21,588 100.0% 21,944 100.0% 20,361 100.0% 18,503 100.0%   Costs of sales/revenues: License and transaction fees 11,389 68.4% 11,243 68.7% 10,614 69.5% 9,703 65.9% 9,067 66.3% Equipment sales   4,033 78.8%   4,178 80.0%   5,547 83.0%   4,986 88.5%   3,953 81.9% Total costs of sales/revenues 15,422 70.9% 15,421 71.4% 16,161 73.6% 14,689 72.1% 13,020 70.4%   Gross Profit: License and transaction fees 5,250 31.6% 5,122 31.3% 4,649 30.5% 5,024 34.1% 4,607 33.7% Equipment sales   1,084 21.2%   1,045 20.0%   1,134 17.0%   648 11.5%   876 18.1% Total gross profit 6,334 29.1% 6,167 28.6% 5,783 26.4% 5,672 27.9% 5,483 29.6%   Operating expenses: Selling, general and administrative 5,793 26.6% 6,909 32.0% 6,721 30.6% 6,094 29.9% 4,762 25.7% Depreciation 307 1.4% 208 1.0% 208 0.9% 173 0.8% 127 0.7% Impairment of intangible asset   — 0.0%   — 0.0%   432 2.0%   — 0.0%   — 0.0% Total operating expenses 6,100 28.0% 7,117 33.0% 7,361 33.5% 6,267 30.8% 4,889 26.4%                     Operating income (loss)   234 1.1%   (950) -4.4%   (1,578) -7.2%   (595) -2.9%   594 3.2%   Other income (expense): Interest income 200 0.9% 73 0.3% 182 0.8% 67 0.3% 20 0.1% Other income — 0.0% — 0.0% — 0.0% — 0.0% — 0.0% Interest expense (201) -0.9% (212) -1.0% (197) -0.9% (180) -0.9% (104) -0.6% Change in fair value of warrant liabilities — 0.0%   (1,490) -6.9%   18 0.1%   (4,805) -23.6%   (1,230) -6.6% Total other income (expense), net (1) 0.0% (1,629) -7.5% 3 0.0% (4,918) -24.2% (1,314) -7.1%   Loss before provision for income taxes 233 1.1% (2,579) -11.9% (1,575) -7.2% (5,513) -27.1% (720) -3.9% Benefit (provision) for income taxes — 0.0% 115 0.5% 703 3.2% 93 0.5% (154) -0.8%                     Net income (loss)   233 1.1%   (2,464) -11.4%   (872) -4.0%   (5,420) -26.6%   (874) -4.7%   Less interest income (200) -0.9% (73) -0.3% (182) -0.8% (67) -0.3% (20) -0.1% Plus interest expenses 201 0.9% 212 1.0% 197 0.9% 180 0.9% 104 0.6% Plus income tax expense — 0.0% (115) -0.5% (703) -3.2% (93) -0.5% 154 0.8% Plus depreciation expense 1,220 5.6% 1,257 5.8% 1,272 5.8% 1,190 5.8% 1,323 7.2% Plus amortization expense 43 0.2% 44 0.2% 44 0.2% 44 0.2% — 0.0% Plus (less) change in fair value of warrant liabilities — 0.0% 1,490 6.9% (18) -0.1% 4,805 23.6% 1,230 6.6% Plus stock-based compensation 233 1.1% 211 1.0% 198 0.9% 142 0.7% 237 1.3% Plus intangible asset impairment — 0.0% — 0.0% 432 2.0% — 0.0% — 0.0% Plus VendScreen non-recurring charges 8 0.0% 101 0.5% 258 1.2% 461 2.3% 106 0.6% Plus litigation related professional fees   — 0.0%   33 0.2%     0.0%   105 0.5%   — 0.0% Adjusted EBITDA $ 1,738 8.0% $ 696 3.2% $ 626 2.9% $ 1,347 6.6% $ 2,260 12.2%   See discussion of Non-GAAP financial measures later in this document  

(E) Five Quarter and YTD Selling, General, & Administrative Expenses

                      Three months ended December 31, % of September 30, % of June 30, % of March 31, % of December 31, % of ($ in thousands) 2016   SG&A 2016 SG&A 2016 SG&A 2016 SG&A 2015 SG&A Salaries and benefit costs $ 2,849 49.2 % $ 3,129 45.3 % $ 3,050 45.4 % $ 2,760 45.4 % $ 2,786 58.6 % Marketing related expenses 578 10.0 % 329 4.8 % 635 9.4 % 362 5.9 % 335 7.0 % Professional services 1,213 20.9 % 2,520 36.5 % 1,533 22.8 % 1,152 18.9 % 839 17.6 % Bad debt expense 352 6.1 % 97 1.4 % 470 7.0 % 505 8.3 % 239 5.0 % Premises, equipment and insurance costs 498 8.6 % 499 7.2 % 555 8.3 % 460 7.5 % 347 7.3 % Research and development expenses 173 3.0 % 124 1.8 % 123 1.8 % 131 2.1 % 37 0.8 % VendScreen non-recurring charges 8 0.1 % 101 1.5 % 258 3.8 % 461 7.6 % 106 2.2 % Litigation related professional fees — 0.0 % 33 0.5 % 51 0.8 % 105 1.7 % — 0.0 % Other expenses   122     2.1 %   77   1.1 %   46   0.7 %   158   2.6 %   73   1.5 % Total SG&A expenses $ 5,793     100 % $ 6,909   100 % $ 6,721   100 % $ 6,094   100 % $ 4,762   100 % Total Revenue $

21,756

 

$

21,588

 

$

21,944

 

$

20,361

 

$

18,503

 

SG&A expenses as a percentage of revenue

26.6

%

32.0

%

30.6

%

29.9

%

25.7

%     Six months ended December 31, % of December 31, % of ($ in thousands)         2016 SG&A 2015 SG&A   Salaries and benefit costs $ 5,978 47.1 % $ 5,471 57.2 % Marketing related expenses 907 7.1 % 668 7.0 % Professional services 3,733 29.4 % 1,621 17.0 % Bad debt expense 449 3.5 % 475 5.0 % Premises, equipment and insurance costs 997 7.8 % 746 7.8 % Research and development expenses 297 2.3 % 228 2.4 % VendScreen non-recurring charges 109 0.9 % 123 1.3 % Class action professional fees 33 0.3 % — 0.0 % Other expenses   199   1.6 %   226   2.4 %

 

Total SG&A expenses $ 12,702   100.0 % $ 9,558   100.0 %   Total Revenue $ 43,344 $ 35,103 SG&A expenses as a percentage of revenue 29.3 % 27.2 %  

(F) Five Quarter Condensed Balance Sheets

            ($ in thousands) December 31, September 30 June 30, March 31, December 31, (unaudited) 2016 2016 2016 2016 2015   Assets Current assets: Cash $ 18,034 $ 18,198 $ 19,272 $ 14,901 $ 14,809 Accounts receivable, less allowance 6,796 5,840 4,899 8,345 6,976 Finance receivables, less allowance for credit losses 1,442 3,349 3,588 1,677 1,503 Inventory, net 4,786 4,264 2,031 2,341 2,849 Other current assets 1,764 1,439 987 1,060 902 Deferred Income Taxes   2,271   2,271   2,271   1,276     1,258 Total current assets 35,093 35,361 33,048 29,600 28,297   Finance receivables, less current portion 3,956 3,962 3,718 3,042 2,435 Other assets 145 163 348 337 326 Property and equipment, net 9,433 9,570 9,765 10,584 10,856 Deferred income taxes 25,568 25,568 25,453 25,701 25,607 Intangibles, Net 711 754 798 1,273 432 Goodwill   11,492   11,703   11,703   11,703     7,663 Total assets $ 86,398 $ 87,081 $ 84,833 $ 82,240   $ 75,616   Liabilities and shareholders' equity Current liabilities: Accounts payable and accrued expenses $ 12,002 $ 12,605 $ 15,812 $ 15,368 $ 9,992 Line of credit, net 7,078 7,258 7,119 6,980 7,000 Warrant Liabilities - - 3,739 5,964 - Other current liabilities   1,242   1,527   1,507   1,485     1,384 Total current liabilities 20,322 21,390 28,177 29,797 18,376 Long-term liabilities           Total long-term liabilities   1,446   1,528   1,631   2,016     3,945 Total liabilities   21,768   22,918   29,808   31,813     22,321   Shareholders' equity:           Total shareholders' equity   64,630   64,163   55,025   50,427     53,295 Total liabilities and shareholders' equity $ 86,398 $ 87,081 $ 84,833 $ 82,240   $ 75,616   Total current assets $ 35,093 $ 35,361 $ 33,048 $ 29,600 $ 28,297 Total current liabilities   20,322   21,390   28,177   29,797     18,376 Net working capital $ 14,771 $ 13,971 $ 4,871 $ (197 ) $ 9,921  

(G) Five Quarter Statements of Cash Flows

      Three months ended December 31,   September 30,   June 30, March 31, December 31, ($ in thousands) 2016 2016 2016 2016 2015 OPERATING ACTIVITIES: Net (loss) income $ 233 $ (2,464 ) $ (872 ) $ (5,420 ) $ (874 )   Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:   Charges incurred in connection with the vesting and issuance of common stock for employee and director compensation 233 211 198 142 237 Gain on disposal of property and equipment (31 ) — (110 ) (15 ) (41 ) Non-cash interest and amortization of debt discount (79 ) 33 13 — — Bad debt expense 352 97 470 506 238 Depreciation 1,220 1,257 1,272 1,190 1,323 Amortization of intangible assets 43 44 43 44 — Impairment of intangible asset — 432 — — Change in fair value of warrant liabilities — 1,490 (18 ) 4,805 1,230 Deferred income taxes, net — (115 ) (748 ) (93 ) 154

 

Recognition of deferred gain from sale-leaseback transactions

(215

)

(215

)

(215

)

(215

)

(215

)

Changes in operating assets and liabilities:

Accounts receivable

(1,309 ) (1,038 ) 2,977 (1,872 ) (448 )

Finance receivables

2,125 (5 ) (2,587 ) (154 ) 214

Inventory

(467 ) (2,223 ) (82 ) 250 649

Prepaid expenses and other assets

(318 ) (224 ) (397 ) (160 ) (254 )

Accounts payable

397 (3,661 ) 329 4,154 (1,623 )

Accrued expenses

(1,061 ) 486 115 1,166 (13 )

Income taxes payable

  (1 )   (10 )   453     —     (70 )

Net change in operating assets and liabilities

  (634 )   (6,675 )   808     3,384     (1,545 )

Net cash provided (used) by operating activities

1,122 (6,337 ) 1,273 4,328 507

 

INVESTING ACTIVITIES:

Purchase and additions of property and equipment

(441 ) (168 ) (207 ) (164 ) (118 )

Purchase of property for rental program

(693 ) (642 ) — — —

Proceeds from sale of property and equipment

61 — 265 19 101

Cash paid for assets acquired from VendScreen

  —     —     —     (5,625 )   —   Net cash provided by (used in) investing activities (1,073 ) (810 ) 58 (5,770 ) (17 )   FINANCING ACTIVITIES: Cash used for the retirement of common stock — (31 ) (173 ) — (40 ) Proceeds from exercise of common stock warrants — 6,193 3,237 1,652 — Proceeds (payments) from line of credit, net — 72 138 33 3,000 Repayment of long-term debt   (213 )   (161 )   (162 )   (151 )   (233 ) Net cash provided by (used in) financing activities

 

(213 )   6,073     3,040     1,534     2,727     Net increase (decrease) in cash (164 ) (1,074 ) 4,371 92 3,217 Cash at beginning of period   18,198     19,272     14,901     14,809     11,592   Cash at end of period $ 18,034   $ 18,198   $ 19,272   $ 14,901   $ 14,809     Supplemental disclosures of cash flow information: Interest paid in cash $ 382   $ 87   $ 147   $ 191   $ 107   Income taxes paid by cash $ —   $ —   $ 501   $ —   $ —   Depreciation expense allocated to cost of services $ 967   $ 1,083   $ 1,139   $ 1,051   $ 1,186   Reclass of rental program property to inventory, net $ (55 ) $ (11 ) $ 415   $ 347   $ 777   Prepaid items financed with debt $ —   $ 54   $ —   $ —   $ —   Warrant issuance for debt discount $ —   $ —   $ —   $ 52   $ —   Debt financing cost financed with debt $ —   $ —   $ —   $ 79   $ —   Equipment and property acquired under capital lease $ 18   $ 254   $ —   $ 409   $ —   Disposal of property and equipment $ 570   $ —   $ 555   $ 189   $ 238     Disposal of property and equipment under sale-leaseback transactions $ —   $ —   $ (52 ) $ 52   $ —  

 

         

(H) Five Quarter Reconciliation of Net Income/(Loss) to Non-GAAP Net Income (Loss) and Net Earnings/(Loss) Per Common Share – Basic and Diluted to Non-GAAP Net Earnings/(Loss) Per Common Share – Basic and Diluted

  Three months ended ($ in thousands) December 31, September 30, June 30, March 31, December 31, (unaudited) 2016     2016   2016   2016   2015   Net income (loss) $ 233 $ (2,464 ) $ (872 ) $ (5,420 ) $ (874 ) Non-GAAP adjustments: Non-cash portion of income tax provision - (115 ) (792 ) (38 ) 224 Change in fair value of warrant adjustment - 1,490 (18 ) 4,805 1,230 VendScreen non-recurring charges 8 101 258 461 106 Litigation related professional fees   -   33     51     105     -   Non-GAAP net income (loss) $ 241 $ (955 ) $ (1,373 ) $ (87 ) $ 686     Net income (loss) $ 233 $ (2,464 ) $ (872 ) $ (5,420 ) $ (874 ) Cumulative preferred dividends   -   (334 )   -     (334 )   -   Net income (loss) applicable to common shares $ 233 $ (2,798 ) $ (872 ) $ (5,754 ) $ (874 )   Non-GAAP net income (loss) $ 241 $ (955 ) $ (1,373 ) $ (87 ) $ 686 Cumulative preferred dividends   -   (334 )   -     (334 )   -   Non-GAAP net income (loss) applicable to common shares $ 241 $ (1,289 ) $ (1,373 ) $ (421 ) $ 686     Net earnings (loss) per common share - basic $ 0.01 $ (0.07 ) $ (0.02 ) $ (0.16 ) $ (0.02 ) Non-GAAP net earnings (loss) per common share - basic $ 0.01 $ (0.03 ) $ (0.04 ) $ (0.01 ) $ 0.02   Net earnings (loss) per common share - diluted $ 0.01 $ (0.07 ) $ (0.02 ) $ (0.16 ) $ (0.02 ) Non-GAAP net earnings (loss) per common share - diluted $ 0.01 $ (0.03 ) $ (0.04 ) $ (0.01 ) $ 0.02     Basic weighted average number of common shares outstanding   40,308,934   38,488,005     37,325,681     36,161,626     35,909,933     Diluted weighted average number of common shares outstanding 40,730,712 38,488,005 37,325,681 36,161,626 35,909,933

See discussion of Non-GAAP financial measures later in this document

 

Discussion of Non-GAAP Financial Measures:

This press release contains certain non-GAAP financial measures. Generally, a non-GAAP financial measure is a numerical measure of a company's performance, financial position or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. Reconciliations between non-GAAP and GAAP measures are set forth above in Financial Schedules (D) and (H).

The following non-GAAP financial measures are discussed herein: adjusted EBITDA, non-GAAP net income (loss) and non-GAAP net earnings (loss) per common share – basic and diluted. The presentation of these additional financial measures is 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 provided/used by 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 above in Financial Schedules (D) and (H) the 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 costs or benefits relating to any adjustment for fair value of warrant liabilities and non-cash portions of the Company’s income tax benefit (provision), non-recurring fees and charges that were incurred in connection with the acquisition and integration of the VendScreen business, and professional fees incurred in connection with the class action litigation and the SLC investigation. Non-GAAP net earnings (loss) per common share - diluted is calculated by dividing non-GAAP net income (loss) applicable to common shares by the number of diluted weighted average shares outstanding. Management believes that non-GAAP net income (loss) is an important measure of USAT’s business. Non-GAAP net income (loss) is a non-GAAP financial measure which is not required by or defined under GAAP (Generally Accepted Accounting Principles). The presentation of this financial measure is not intended to be considered in isolation or as a substitute for the financial measures prepared and presented in accordance with GAAP, including the net income or net loss of the Company 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 the Company’s net income or net loss as determined in accordance with GAAP, and are not a substitute for or a measure of the Company’s profitability or net earnings. Management believes that non-GAAP net income (loss) and non-GAAP net earnings (loss) per share are important measures of the Company'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 this non-GAAP financial measure serves as a useful metric 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 (United States’ Generally Accepted Accounting Principles) financial measures and our reconciliations, enhance investors’ overall understanding of our current and future financial performance. Additionally, the Company utilizes non-GAAP net income (loss) as a metric in its executive officer and management incentive compensation plans.

As used herein, Adjusted EBITDA represents net income (loss) before interest income, interest expense, income taxes, depreciation, amortization, non-recurring fees and charges that were incurred in connection with the acquisition and integration of the VendScreen business, professional fees incurred in connection with the class action litigation incurred during the third quarter of the prior fiscal year, impairment charges related to our EnergyMiser asset trademarks, 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 gain or charge that is not related to the Company’s operations. We have excluded the non-cash expense, stock-based compensation, as it does not reflect the cash-based operations of the Company. We have excluded the non-recurring costs and expenses incurred in connection with the VendScreen transaction in order to allow more accurate comparison of the financial results to historical operations. We have excluded the professional fees incurred in connection with the class action litigation as well as the trademark impairment charges because we believe that they represent a charge that is not related to the Company's operations. Adjusted EBITDA is a non-GAAP financial measure which is not required by or defined under GAAP (Generally Accepted Accounting Principles). The presentation of this financial measure is not intended to be considered in isolation or as a substitute for the financial measures prepared and presented in accordance with GAAP, including the net income or net loss of the Company or net cash provided/used by operating activities. Management recognizes that non-GAAP financial measures have limitations in that they do not reflect all of the items associated with the Company’s net income or net loss as determined in accordance with GAAP, and are not a substitute for or a measure of the Company’s profitability or net earnings. Adjusted EBITDA is presented because we believe it is useful to investors as a measure of comparative operating performance. Additionally, the Company utilizes Adjusted EBTIDA as a metric in its executive officer and management incentive compensation plans.

F-USAT

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Investor Contact:The Blueshirt GroupMike Bishop, +1 415-217-4968mike@blueshirtgroup.com