USA Technologies, Inc. (NASDAQ: USAT) (“USAT” or the “Company”),
a leader of wireless, cashless payment and M2M telemetry solutions
for self-serve, small-ticket retailing industries, today
issued the following letter to shareholders:
Dear Fellow USA Technologies Shareholder:
We are writing to you today to set the record straight. We know
that you have received many verbal and written communications from
us as well as from dissident shareholder Brad Tirpak operating
under his self-laudatory moniker “S.A.V.E.” In an attempt to gain
control of your company Tirpak has, in our view, issued a barrage
of false and misleading statements.
In his recent communications to shareholders, Tirpak and his
hand-picked nominees have presented what we believe to be a deeply
flawed business plan which they wish to force upon USAT and its
customers, shareholders and employees. We believe Tirpak’s
so-called “business plan” is really no plan at all. In fact, in our
opinion, his plan underscores a dangerous void regarding Tirpak’s
understanding of USAT’s most basic operating principles, as well as
the needs of our customers and the trends regarding the markets we
serve.
The Facts Behind Tirpak’s “Business
Plan”
Tirpak’s “Plan”: Develop Low-Cost Hardware.
The Facts: We believe Tirpak’s fixation on hardware
demonstrates a fundamental lack of knowledge and understanding
regarding USAT’s business model and the markets we serve. For
example:
- Today, approximately 80% of our
revenues come from our ePort Connect® service. The best path
forward to maximize profits for USAT is to maximize recurring
service revenue. This is our highest-margin revenue source and by
growing it, we will grow our profits. While USAT continues to
expand its opportunity for profitable growth through a value-added,
recurring revenue service platform, Tirpak and his nominees
erroneously believe that our future is in hardware.
- Our customers and the markets we serve
are skewing towards new requirements such as mobile payment,
couponing, loyalty, and two-tier pricing -- all new services that
have been announced by USAT. In fact some have already been
implemented. These new services will add to the revenue generated
by each connection, thus improving return on JumpStart and all
other connections. Customer demand for such capabilities will add
some complexity and cost to future devices (e.g., an enhanced
display for advertising messages). We are working aggressively to
value engineer such enhancements to keep device costs down while
these capabilities are added. In our view, Tirpak’s claim that he
is going to design new devices that meet customer needs for such
enhancements while cutting device costs by 50 percent is highly
unrealistic.
Tirpak’s “Plan”: Increase Processing Profits.
The Facts: Again, we believe Tirpak’s claims in this
regard are uninformed. In order to realize additional meaningful
savings on processing, USAT would have to take on significant
transaction risk, add headcount and incur significant increases in
CAPEX, software development and systems integration expenses.
Tirpak omits that USAT recently negotiated an agreement which
substantially reduced costs of processing that helped contribute to
an approximately 28% increase in margins on recurring revenue from
license and transaction fees for the March 31, 2012 quarter as
compared to the preceding three-quarter average. Additionally, he
fails to mention that USAT introduced a lower-cost prepaid payment
offering at NAMA in April 2012.
Tirpak’s “Plan”: Selectively Expand
Internationally.
The Facts: As Tirpak is well aware, USAT already has a
plan to expand its ePort solution internationally involving global
partners and customers such as Verizon, Visa and existing customers
with international operations. Additionally, Tirpak fails to
mention that we have distributed our EnergyMiser product line in a
dozen countries globally. Most importantly, he also neglects to
explain how he will ramp up international expansion beyond what
USAT is already doing, while achieving his cost reduction goals.
Without any supporting detail, “expand internationally”, is not
part of a plan, it is simply an unfunded campaign promise.
Tirpak’s “Plan”: Develop Higher Functioning
Terminals.
The Facts: We strongly believe this is another example of
Tirpak’s fundamental lack of knowledge and understanding regarding
USAT’s business. USAT already has one of North America’s largest
installed bases of NFC enabled terminals (approximately 75,000 and
growing) capable of accepting the emerging mobile payment
technology.
We announced at NAMA in April 2012 that new services such as
two-tier pricing, prepaid, loyalty and couponing are or would be
available via our ePort Connect service. In this regard, we and our
strategic partner, Verizon Wireless, demonstrated the
capability of delivering location-based electronic coupons to
consumer’s smart phones via our service at CTIA (global wireless
conference) in New Orleans last month.
Tirpak’s “Plan”: Launch Vending Route Management and
Other Value-Added Services.
The Facts: USAT already has several partnerships with
companies to do just that. Many of our customers already benefit
from these partnerships. Our devices and service can move necessary
operational data to route management software packages which are
utilized by customers. USAT has already introduced value-added
services (two-tier pricing, prepaid, loyalty) which are valued by
our customers and that we anticipate will generate additional
revenue and margin for each connection. Again, given his service on
USAT’s board, for Tirpak to suggest that these types of initiatives
are unique to his so-called “plan” is misleading. It also suggests
a lack of understanding regarding our business, markets and
customers. He also neglects, again, to explain how he would spend
more in this area while cutting costs further than USAT has already
done. Yet another unfunded campaign promise.
Tirpak’s “Plan”: Boost Customer Confidence.
The Facts: Ironically, Tirpak has served to damage
customer confidence with his ill-advised proxy contest. Our
customers want us focused on delivering value for them – not
wasting time and resources on a dissident shareholder.
Our customers are loyal. We have over 3,000 customers on our
ePort Connect service representing 155,000 connections with
virtually no turnover.
Tirpak suggests the “new” concept of building confidence by
communicating a roadmap to customers. We developed our roadmap with
input from customers – not in a ”hedge fund sandbox”. We have
remained a leader in our market by demonstrating a pattern of
delivering new products and services to our customers. Tirpak, who
we believe has never operated a business, has in our view, little
knowledge as to how to develop and commercialize what our customers
desire.
Tirpak’s “Plan”: Reduce Operating Costs.
The Facts: USAT and its 43 employees run a very lean and
efficient operation. Additionally, as USAT has stated publically on
several occasions, which Tirpak fails to mention, USAT recently
implemented a dozen separate actions aimed at driving $2 million in
annual efficiencies. These actions have helped produce a turnaround
in USAT’s finances. For example:
- Positive Adjusted EBITDA in the 3/31/12
quarter of $336,000;
- Positive Adjusted EBITDA for the
current 6/30/12 quarter that is expected to exceed the $336,000
achieved in the 3/31/12 quarter (excluding expenses expected to
result from the proxy contest);
- There are no material “executive
perks”. We have no so-called ”additional office space”. These are
either fabrications on the part of Tirpak or a reflection of his
lack of basic knowledge and understanding regarding the operations
of USAT;
- Legal fees: Tirpak’s representations in
this regard are a slap in the face to USAT shareholders. He has
repeatedly made these assertions knowing full well that USAT’s
legal expenses, obtained at below market rates and of unquestioned
quality, were necessary services for a public company; and,
- Interestingly, Tirpak gladly accepted
his cash retainer for serving on the board and in a revealing act,
Tirpak received a further cash payment after his resignation
from our board of directors in March 2012 covering a period of time
following his resignation when he did not even serve on our board
of directors.
Two key points summarize our thoughts regarding Tirpak’s “plan”.
First, several elements of Tirpak’s plan consist of knowledge he
took with him from the USAT boardroom, and his claims to the
contrary are in our view quite disingenuous. Secondly, some of the
elements of his “plan” highlight a concerning lack of knowledge of
USAT’s business, our customers and the unique needs of the
small-ticket, self-serve market.
The Future of USA Technologies Is In
Your Hands
VOTE FOR YOUR
BOARD’S NOMINEES ON THE WHITE PROXY
CARD TODAY
Your vote is extremely important, no matter how many or how few
shares you own. Whether or not you plan to attend the Annual
Meeting, you have an opportunity to help protect your investment by
voting the WHITE proxy card. We
urge you to vote today by telephone, by Internet, or by signing and
dating the enclosed WHITE proxy
card and returning it in the postage-paid envelope provided.
Please discard any GOLD proxy cards sent to you by Brad
Tirpak.
If you have previously voted using a proxy card sent to you by
Brad Tirpak, you can subsequently revoke it by using the
WHITE proxy card to vote by telephone or Internet, or by
signing, dating and returning the enclosed WHITE proxy card
in the postage paid envelope provided. Remember, only your latest
dated proxy will count – any proxy may be revoked at any time prior
to its exercise at the Annual Meeting as described in our Proxy
Statement.
Your vote is important, no matter how many or how few shares you
own. If you have any questions or need any assistance voting your
shares, please contact MacKenzie Partners, Inc., which is assisting
USA Technologies in this matter, at 800-322-2885.
On behalf of USA Technologies’ Board of Directors, we thank you
for your continued support.
Sincerely,
Stephen P. Herbert
Chairman and Chief Executive Officer
Steven D. Barnhart
Lead Independent Director
About USA Technologies:
USA Technologies is a leader in the networking of wireless
non-cash transactions, associated financial/network services and
energy management. USA Technologies provides networked credit card
and other non-cash systems in the vending, commercial laundry,
hospitality and digital imaging industries. USAT has been granted
79 patents and has agreements with Verizon, Visa, Compass, Crane
and others. Visit our website at www.usatech.com.
Non-GAAP Financial Measures: Adjusted EBITDA
Reconciliation of GAAP Net Earnings to Adjusted Earnings
Before Interest, Taxes, Depreciation and Amortization (Adjusted
EBITDA)
Three months
ended
March 31, 2012
Net loss $ (538,618 ) Less interest income
(14,029 ) Plus interest expense 10,520 Plus income tax expense --
Plus depreciation expense 631,330 Plus amortization expense 258,600
Less change in fair value of warrant liabilities
(95,074
)
Plus stock-based compensation
83,300
Adjusted, EBITDA
$ 336,029
This document includes the following financial measure defined
as a non-GAAP financial measure by the Securities and Exchange
Commission: Adjusted EBITDA.
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, stock-based compensation, as it does not reflect the
cash-based operations of USAT. 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 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, and are not a substitute for or a measure of USAT’s
profitability or net earnings. 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.
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 document, including without
limitation the financial position, anticipated connections to our
network, business strategy and the plans and objectives of the
Company'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, business, financial market and
economic conditions, including but not limited to, the ability of
USAT to retain key customers from whom a significant portion of its
revenues is derived; the potential costs and management
distractions attendant to Mr. Tirpak’s purported nomination of
himself and six other candidates as director nominees at the 2012
annual meeting of shareholders; the outcome of the proxy contest
and related litigation; whether the actions of our former CEO which
resulted in his separation from USAT or the Securities and Exchange
Commission’s recently commenced investigation would have a material
adverse effect on the future financial results or condition of
USAT; the ability of USAT to compete with its competitors to obtain
market share; the ability of USAT to obtain widespread commercial
acceptance of it products; and whether USAT's existing or
anticipated customers purchase 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.
If you have any questions, require
assistance with voting your
WHITE proxy card, or need
additional copies of
USAT’s proxy materials, please
contact:
MACKENZIE PARTNERS, INC.
105 Madison Avenue
New York, NY 10016
USAT@mackenziepartners.com
(212) 929-5500 (Call Collect)
(800) 322-2885 (Toll Free)
Your vote is important, no matter how
many or how few shares you own!
To vote via telephone or internet simply
follow the instructions printed
on the enclosed WHITE proxy card.
You may vote by mail by using the
enclosed postage paid envelope. We
encourage you to disregard
and not return any gold proxy cards that
you receive from the
SAVE Committee even as a vote of protest
against Mr. Tirpak.
If you hold shares in “street name”, use
the enclosed WHITE instruction
card to tell your bank or broker to vote
for our nominees.
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