USA Technologies, Inc., a provider of wireless, cashless payment and M2M telemetry solutions for self-serve, small-ticket retail industries, reported results for the second quarter of fiscal 2012 ended Dec. 31, 2011.
Compared to the same quarter a year ago, USA Technologies:
Increased the number of customers on its ePort Connect Service 77 percent;
Increased the number and dollar value of small-ticket transactions handled by its network 50 percent and 54 percent, respectively;
Increased recurring revenue from license and transaction fees 49 percent;
Increased the number of connected devices 25 percent.
"The results for the second quarter of 2012 reflect the steady growth of our portfolio of customers in the vending, kiosk and other small-ticket, unattended industries as they continue to adopt cashless payment technology at their historically cash-only points of sale," said Stephen P. Herbert, chairman and chief executive officer of USA Technologies, Inc. in a prepared statement. "We are intently focused on our strategy to achieve profitability as soon as practicable by gaining wider acceptance of our technology and improving our operating efficiency."
With approximately 7,000 connections and 250 new customers added during the three months ended Dec. 31, 2011, connections to and customers on the company's ePort Connect Service at Dec. 31, 2011 increased to approximately 136,000 and 2,475, respectively, compared to approximately 109,000 and 1,400, respectively, at the same point a year ago. In the quarter, the company handled 24 million transactions representing $40 million in small ticket transactions, increases of 50 percent and 54 percent, respectively, compared to approximately 16 million transactions representing $26 million in volume during the second fiscal quarter of the preceding year.
The significant increase in connections, customers, and transaction volume drove revenue from recurring license and transaction fees up 49 percent to $5.6 million in the quarter compared to $3.8 million for the second quarter of fiscal 2011. The dollar gross profit on recurring revenues from license and transaction fees in the quarter was $1.6 million, up from $1.1 million in the same year ago quarter.
Herbert, commenting on the significant increase in recurring revenues, said, "We believe that the significant increase in recurring revenues illustrates that the rate of adoption and the penetration of cashless payments at the unattended, small-ticket point-of-sale is on the rise. The increase in transaction volume on our network is attributable to our expanded footprint, as additional devices are connected to our network, as well as increased usage of cashless payments. Driving increased volume on our network is one of the key elements of our strategy to achieve profitability as soon as practicable. The gross margin on recurring revenue this quarter rose slightly compared to the same year ago quarter, despite the dampening effect of a period of higher interchange rates during the quarter. Management addressed the higher debit interchange challenge with its successful negotiation of its October 2011 Visa Agreement."
Total revenue for the quarter increased 14 percent to $6.9 million, compared to $6.0 million in the second quarter of the prior year. Total dollar gross profits for the quarter were $1.9 million, compared to $2.5 million a year ago. Selling, general and administrative expenses in the quarter were $3.5 million up from $2.3 million in the like quarter a year ago. A majority of the increase in selling, general and administrative expenses ($886,000) was due to costs associated with the audit committee's investigation of postings concerning the company made on an internet message board and the severance arrangements with the company's former chief executive officer.
For the quarter, the company incurred an operating loss of $1.9 million, compared to an operating loss of $141,000 in the comparable year ago quarter. The increase in the operating loss in the quarter compared to a year ago primarily reflects higher cost of goods sold attributable to temporarily higher debit interchange rates and the costs associated with the audit committee's investigation and the severance arrangements with the company's former chief executive officer. The increased operating loss also reflects decreases in revenue from fewer activation fees earned in the current quarter and the Visa support funding in the prior year's same fiscal quarter. Net loss applicable to common shareholders for the quarter was $1.8 million, or ($0.06) per diluted share, compared to a net loss of $133,000, or ($0.01) per diluted share a year ago. Results for the second quarter of fiscal 2012 include a $152,000 gain on change in fair value of warrant liability, whereas there was no like gain in the year ago quarter.
The adjusted EBITDA loss for the quarter was $938,000 compared to positive adjusted EBITDA of $450,000 in the second quarter of last year.
Herbert concluded, "Over the past several months we have taken a hard look at our organization in order to implement strategies that will accelerate our path towards profitability as soon as practicable. One of the first indicators of progress that management expects to achieve on our path towards profitability would be sustainable positive adjusted EBITDA. The actions we have taken are focused on three primary strategies: to increase revenues, improve margins and reduce costs. In the quarter we signed a new processing agreement with Elavon, which we believe provides a solid foundation to support both improvements in functionality as well as continued increases in customers, connections and resulting transactions processed. Our ability to achieve growth despite the numerous distractions in the quarter is a testament to both a vibrant market and our ability to deliver outstanding value to our customers. Over the long term we believe our commitment to industry leadership will create value for our shareholders."