Q3 2020 USA Technologies Inc Earnings Call
Technologies.
Order fiscal years 2020 earnings conference call at this time, all participants are not listen only mode. After the speakers presentation they'll be a question and answer session.
Now looking at your conference over to your first speaker today.
Jim you ever with Gates, VP, corporate communications and Investor Relations for USA technologies. Please go ahead.
Thank you and good afternoon, everyone.
Welcome to the USA technologies third quarter fiscal 2020 earnings conference call.
With me on the call this afternoon, or Sean Feeney, Chief Executive Officer, Michael will suffer Chief Financial Officer.
Our <unk> Chief revenue officer, and Dark Bergeron chairman of the board.
Before we begin today's call I would like to remind you that all statements included in this call other than statements of historical facts are forward looking in nature.
Actual results could differ materially from does contemplated by the forward looking statements as a result, certain factors, including but not limited to business financial markets and economic conditions.
A detailed discussion of the risks and uncertainties that could cause actual results and events to differ materially from such forward. Looking statements is included with our filings with the FCC and in the press release issued earlier today.
Listeners are cautioned not to place undue reliance on any such forward looking statements, which reflect management's view only as of the date they are made.
He would say technologies undertakes no obligation to update any forward looking statements, whether as a result of new information future events or otherwise.
This call will also include a discussion of certain non-GAAP financial measures that we believe are useful for among other things evaluating use evaluating USA technologies operating results.
These non-GAAP financial measures or supplemental too and not a substitute for GAAP financial measures such as net income or loss.
Details of these non-GAAP financial measures a presentation of the most directly comparable GAAP financial measures and the reconciliation between these non-GAAP financial measures as well as most comparable GAAP financial measures can be found in our press release issued this afternoon, which has been posted on the Investor Relations section of our website at Www USA truck's dotcom.
And with that I'd now like to turn the call over to Doug merger on.
[music].
So should we may have lost Doug he's going to.
Dial back in so maybe we'll just jump to that to me.
This is Sean Feeney, the Chief Executive Officer and.
Doug Fabulous introduction that he was going to make about me, but we'll jump right into so it's it's a great pleasure to join you all today.
First earnings call.
I look forward to reporting results that I've actually been involved in driving going forward.
I joined U.S. technologies, because I believe the company has great opportunity build on its history and begin to write a great new chapter and I'm thrilled to have the chance to lead the company as we begin that journey.
I want to first take this chance the thank the employees on our team USA technologies for their tenacity and hard work over the last few months as the company's endured change and work through the conclusion of the proxy battle and adapted to the realities.
Working from home in the co bid 19 environment.
The safety of our employees is always a top priority and it's been inspiring to see such a successful transition while continuing to support our customers.
First I wanted to provide a little bit of context into what drew me to this opportunity.
Through my diligence when contacted about the opportunity. It was clear that USA technologies is the leading player in the growing industry benefiting from.
Benefiting from secular tailwinds for many years ago. Despite the near term challenges Cobiz 19, which I'll touch on in a minute.
It's our belief that the unattended retail industry will only accelerate further in a post kobin world.
And we should be the beneficiary and we're focused on executing on this opportunity.
With the benefit of alone career and software cloud platforms in networks I recognize the power of the combination of USA technologies with cantaloupe.
In my view it was a g. game changer strategically.
Oh, it was never fully executed on.
And plan change that.
What is historically been poor execution in this regard is now a tremendous opportunity going forward management the border laser focused on this and we will get it fixed.
Well, we have withdrawn or financial guidance for fiscal year, 2020, and are not providing any financial guidance today, what I will say is that this business can and should be generating better margins for the shareholders. We will come back to you on the Q4 call with more granularity around this topic.
I'm, a customer facing sales driven leader.
I enjoy and I love the competition in the market and building a winning team.
We will build the sales focus culture in the company moving forward in any business nothing happens until somebody sell something.
I'm also focus on servicing our customers and driving towards zero churn and in the customer base happy customers are critical to us driving growth in the market. We have some work to do in this area and we are on it.
Lastly, I wanted to briefly touch on governance, which was another component of my decision to join USA technologies.
Reputation for being blog.
The board members that I've encountered and I have that in common.
I like that.
I am accountable for our results and will be as transparent as possible with the key constituents that I have shareholders customers and employees the depth of experience and expertise that this board is unique for a company of our size and it's something that actually drove me to want to compete for this job.
I knew it could be call on experts in almost every area of running a public company.
They are highly engaged and we are fully aligned on our objectives going forward.
Now let me discuss some of the initial observations I've had in the business having been here about 50 days.
The key to improving the performance of any team is finding the talent and putting in Maine positions to be successful.
And my first few weeks on the job I have found people to care deeply about the company and its customers with the uncertainties are the proxy contests now behind this combined with this streamlined senior team.
The company is reenergized and digging it.
Common theme you may pick up on the from today is untapped potential of this business.
The employee base is no different.
I recently reorganized the company into three groups reporting to me.
And that our girl who is on the call with this is one of the founders of Cantaloupe and he will lead our customer facing revenue group as Chief revenue Officer.
He will own the customer lifecycle with U.S. technologies from marketing through sales and onto a customer success.
The operations and product group.
Which is what I think of as the factory of the company like ours will be led by Jeff vote in the role of Chief Operating Officer. The third group is finance and administration led by Michael was tougher.
As Bill Parcells said when asked about talent on the New York Giants.
Our goal is the Super Bowl, and we will add or subtract town as necessary everyday to get there.
I have a similar possibly running a company.
On the customer front I've had the pleasure to speak with 20 plus customers over the last few weeks.
They are the reason we exist. These interactions have made it clear the crucial value proposition that USA technology brings to its customers in the unattended retail industry.
Our seed products suite has been an essential tool for operators to navigate coded 19 and customers had been appreciative of U.S. It.
Technology support responsiveness in that regard.
One customer told me in the conversation as he could not have navigated cobot 19, without the seed platform and the things that it didn't make as operation.
You know.
Work well during these tough times, well cobot impacting Q3 was actually minimal it hit it hit it has had a major impact on the company in Q4.
We have taken several steps to help offset these headwinds and my first day on the job subordinate implemented a 20% salary reduction through the end of the calendar year for the entire senior leadership team myself included we have also suspended the four one k. match for the remainder of Twentytwenty.
In addition, we're consolidating the number of positions, which will contribute further to the crossroads rationalization and lastly, the board deferred any cash based director fees until calendar year 2021.
My last comment before I hand, it over to Michael is on costs.
In recent past this company has relied heavily on third party consultants that has reflected in our operating expenses.
The board and I are addressing these costs aggressively. This is an area of key focus as we look forward to our fiscal year 2021 budget.
As many of you are aware my background is in private equity, we're managing the balance sheet and generating free cash flow is paramount.
To that end my focus is on profitable growth not just growth for the sake of growth.
View the opportunity at USA technologies as one not just around top line growth, but as importantly, one about rationalizing this company's cost structure and making a profit.
There will be more to come on this topic doing our Q4 call.
With that let me hand, it over to Michael to walk you through the Q3 Q3 financial results.
Thank you very much Sean I.
I'm wondering if our chairman it has joined US again, yes I'm here.
If you want to see people.
Right.
Sure.
You know as many of your where the company experienced a substantial reconstitution of the board at the end of April following a settlement agreement with Hudson Executive capital.
Since that time, the new board has been very actively engaged and what we believe.
We just the beginning of a fundamental transformation of this business.
As part of that transparent information in early may become pretty name Sean feed <unk> CEO.
After an extensive multi month search.
Sean has proven experience leading successful businesses, having previously been CEO at numerous private equity back software and technology companies.
Sean has demonstrated success in assembling world class management teams.
Reinvigorating culture, and delivering a strong recruiting metrics truven performance to the benefit of shareholders.
His focus on accountability and profitable growth makes him the absolute great choice to lead U.S.C.T. into the future.
Thank you Sean no turning it back over to Michael.
Thank you very much a duck and also show.
I am pleased to join the company in February and their share your enthusiasm go up.
Future opportunities.
Let me begin by discussing USA technologies fiscal third quarter results, which were published earlier today in a press release and have been disclosed in north and you fine.
I want to begin with revenue gross profit margin quarter over quarter.
Our third quarter total revenue increased by 14% to $43.1 million.
Why license and transaction revenue increased by 11% equipment that increased by 31%.
Our gross profit margin stayed at 26%.
<unk> margins decreased 1% this points to a negative 21% all license and transaction margin remains at 30.
Revenue and gross profit year over here.
Our total year to date revenue increased 23% $230.500 million.
In relative terms the main growth driver again was equipment sales, which increased 67%.
Our gross profit margin decreased by two percentage points to 27%.
Well the equipment margins decreased by five percentage point to minus 13%.
Our license and transaction margin improved to 36%.
Operating expenses quarter over quarter.
Operating expenses increased 55% were $7.5 million.
As part of that F. DNA increased by 8.9 billion because of professional services, which increased by 4.5 million.
For example for additional monthly activity well control design and controls testing.
Well, it's legal fees and expenses related to the proxy.
In addition, $2 million were spent on employment related cost for severance and the conversion of contractors to employees.
Two but $6 million would accrue in our third quarter for legal expenses, which I can explain later.
Operating expenses year to date.
With 64.4 million operating expenses.
Increased by 31% or $15.3 million.
Over the comparable nine month in the prior yet.
That's unique increased by 80% or $25.3 million.
$56.9 million, mostly for the same reasons mentioned before.
This increase was partially offset with the elimination of integration and acquisition costs.
Well, it's by 67% decrease investigation and restatement.
Beginning in late April the board initiated robust review of all third party professionals to get regimen.
Particular focus less on the ordinary and routine monthly counting and compliance activities.
As well as our legal activities.
We are in the process that we facing expenses third party services with Intelsat.
We expect material rationalization of these costs in fiscal year 2021.
And we'll provide more color on the topic. When we can do this go get 2021 guidance next quarter.
Few other financial highlights.
Operating loss for the quarter. It is $10.2 million, which compares to also roughly 7 million in the prior year period.
For the nine month period operating love.
56%.
$29.2 billion.
Net loss for the quarter is 9.6 million or a negative 15 cents per.
For a basic share compared to a net loss of 4.6 million or a negative eight cents per basic share in the prior year period.
Year to date net loss increased by 44%.
$9.8 billion.
Yeah.
Non-GAAP net loss of 7 million or negative 11 cents per share compared to non debt net loss.
5 million on negative two cents per share in the prior year period.
EBITDA of negative 7.1 billion compared to negative 1.8 million the prior year period.
Adjusted EBITDA of negative.
5.9 million compared to positive.
Point 2 million in the prior year period.
We ended the quarter with $25.9 million cash cash equivalents.
I like to speak about but totally totally its 19 and all that it has impacted organization.
We did not observed meaningful reduction in processing volume until mid March.
When the average daily processing volume decreased approximately 40%.
But I mean April processing volumes began to recover and have shown steady improvement by approximately 30% over the mid March.
All right or in other words were back at 78% of revenues to be.
In response, we introduced a customer relief program in April to aid operator first.
Remotely monitoring and identifying assets that may have been vendor unreachable doing they and they look though that's an office buildings or school.
Second by providing financial release for many of operators with effective device.
This program was received extremely positively by our customers and we continued to be highly engaged with helping them navigate than that.
To offset some of these headwinds, we introduced liquidity conservation and cost saving initiatives.
In addition to the ones already mentioned by song we entered into the negotiations with and have received concessions from vendors in regard to cost reduction annual payments and for us.
We also increased our collection effort to reduce outstanding accounts receivable.
We have implemented various supply chain inventory improvement.
Which leads me to the next discussion points liquidity.
The initiatives I, just mentioned that the direct and positive impact on our current and future cash flow.
Furthermore, we improved our liquidity in May I, receiving approximately $3 million in the paycheck protection program loan funding.
Let's discuss further in our 10-Q based on the current financial forecast for the fourth quarter office forget Twentytwenty.
Oh, and refinancing or modification of the existing term facility within Tara.
Anticipate that as of June Thirtyth Twentytwenty. It is highly likely that the company will not be in compliance for certain covenants.
We're currently evaluating a virus variety of financing alternative.
Neither of them to two negotiating modifications to the distinct surfaces when Tara.
And Investor has communicated to us that it is willing to provide sufficient financing.
Cannot reach an agreement with antero on modifications to existing term facility.
We believe that our current financial resources together with test generated by operation.
If I had seen available from the investor if needed will be sufficient to fund our careers 12 month operating budget.
I wanted to highlight two other legal matters that are disclosed in our 10-Q filing.
As previously reported various shareholder action complaints filed against the company as well as Oh.
Oh, Yes, Oh and directors at the relevant time may 2018 equity offering.
Earlier this month the court granted preliminary approval of a settlement with the company has been reached whereby.
Payment of $15.3 million is to be paid people tend to think this insight.
We anticipate that the majority of that payment will be covered by the company's insurance area. However, we expect to pay $2.6 billion, what the settlement in Kevin and get 20.
Liabilities reflected in our quarterly financial.
Lastly, during the three months ending March 31st the company responded to the subpoena.
By the U.S. Department of Justice.
Records.
Regarding company activities that occurred during prior financial reporting period.
Including restatement.
The company is cooperating fully with the agency for.
With that I'll hand, it back over to shop.
Sean.
Great. Thank you Michael.
For that that review as I mentioned previously the new Board and management are actively engaged in developing our 2021 budget and we look forward to engaging with you on that topic on the next earnings call.
I think we all know it's a little weird to be kind of talking about the third quarter when the fourth quarters, just about Dan, but concurrent with our budget review process. We are also reassessing the operating metrics and other Kate <unk> disclosures that the company has historically provided to the street.
Given my software platform background I'm focused not just signed increasing the number of connections in our base, but also on growing recurring software revenue and gross margins in order to drive profitable growth would have come on that topic on the Q4 call.
With that we will hand, it back over to lift sluggish.
Sorry, operator, you can take over.
Thank you, we'll now open the call. It two questions. Please limit your call to two questions. If you have additional questions piece actually for up to the queue. Thank you doing that you've got first question.
George Sutton of Craig Hallum. Your line is now open.
Thank you congrats to everybody on the cost. This is obviously, a long time and coming so.
Really glad to move forward I have a thousand questions, but I will diminish the too.
Number one Sean you mentioned that you felt the cantaloupe acquisition was a game changer interest not really executed upon I wondered if you could go into a little bit more detail on that and secondly could you give us a broad sense of market share a and the competitive win.
Landscape as you see it obviously, there's been a lot of challenges over the last 18 months and would love to get an updated thought where we feel U.S.A.T. fits thank you.
Sure. Thanks for the question and I'll ask and not in a second to to.
Comment on kind of the landscape and the and the market share you know what I heard and talking to customers was that.
Putting together cantaloupe and USA technologies brought together two leaders and really put us in an outstanding position to to go and attack the the market.
When I talk about that we havent executed on that well you know I see a few areas one in integration.
Of the internal systems of the two companies.
Which has an impact on a cost from the point of view, a we do a lot of manual things and we have a lot of outside consultants, helping us we will ultimately get that fixed and we're on the road to to beginning to do that so there's an internal component. Secondly is there are opportunities for automation.
And taking human hands out of our process, whether that's in taking orders feeding those orders through and ultimately being able to hold down costs on the customer service and and on the financial and so when you think about it you know the ability to enter a sales order habit run all the way through into your financials and build from that system.
You know that basic integration was not done in the in the bringing on them.
Cantaloupe.
The third thing in 30 years in the software business I heard some of the best comments about.
The seed platform that I've ever heard you know in doing this.
Heard things like this was the best decision we ever made as a company over the last 25 years going back to when my dad owned the company, we could not have gotten through the cobot 19.
Crisis without the efficiency that was added in the way we were quickly able to respond in the market with the seed platform.
Just great comments there also some negative comments in that you know.
The customer service and the customer outreach that we felt from U.S. 18, which was much better on the cantaloupe side has gone down over the last period of time and the not and I are working to ultimately address that so from a market point of view I think we've got a great opportunity we've got to a lot of white space still in the USA technologies side.
At the house to put the seed platform out there and I think if I look out over the next.
24 months I think we can execute on that very well I can go much the way you've got a thousand questions I've got a thousand kind of points that I have found and little things that I think we can ultimately do better, but I'll ask and not to comment on kind of market share, where we see ourselves in that and the opportunity in the market not.
Sure. Thanks, Sean.
Yes from a competitive landscape perspective, you know much hasn't changed last couple years I think one of the biggest pieces that shared the strength of our technology solution and how we delivered in the marketplace is that if you look over the last two years of the challenges. The company's had we've actually seen little to almost no churn rate, we have not really long.
Customers devices continued to grow and Deactivations.
Not increased and customers are not going to our competitors. So that is a great thing lots appears however.
Some of the challenges as Sean talked about.
Our true right. So we need to make sure are we getting from our customers like we used to make sure we provide full platform.
Solution, rather than just a cashless device sell which currently a lot of our competitors that exist that we deal with that's there that's where they still are and so we still have the lead from a solution perspective, we just need to deliver it and we'll get back on track growth rates that were used to.
Great guys I appreciate it.
Thank you. Our next question comes from gave 'cause subpoena banking research. Your line is now open hi, good afternoon.
Everyone Welcome Sean.
I have a million questions too and I'll get in and out of the Q, but.
One of the things I didn't hear from you've shown on the cantaloupe.
Oh observations that you had was how well you actually we're addressing the market from a sales basis.
How well the prior team had so maybe you could elaborate on that it was always our impression that it was under marketed and the prior team would not give us any metrics as to what the penetration was across the enterprise. So if you could help us out with that maybe some of the things you're doing to change that that would be helpful.
Yeah, I, probably won't get as specific as you as you would like me to get Gary today.
Having been here a short period of time, but those are the kind of numbers that I want to give you going forward. It may not be the next call, but that's ultimately what were.
What we're working towards I think a not an eye or reorganizing our team.
To attack specific tiers within the industry and being a little being a bit more aggressive and the way that we go out into the into the market that has you know basis in a number of different areas. So we'll we'll look at organization of kind of who we have going after what secondly, as sales incentive plans.
That are built to drive what we want I think the company has had a focus on connections as the be all in end all.
I look at this is much more as a platform software company that its payment enabled and that is a very strong combination it's very powerful in the in the industry. So I think when you look at.
Where we have white space that we can continue to move additional modules of the seed platform or even in the seed platform in general.
That runs its gamut from the SMB up to the up to the enterprise level.
Customers and we think that there is significant opportunity there to grow over the next.
12 months and so we want to ultimately build on that platforms. Third thing is I think we've had a little bit of a focus on trying to do everything ourselves and I think there are what we want to be or what I want us to be is really the platform of record within this part of the industry and work a lot with partners in areas that we may not want to develop thing.
Where they've developed better better products and we want that integration to be very simple. So that people can pick the best of breed to work with our platform, which of course is the best of breed.
And so those are the opportunities that we see and then I think ultimately we've got to get our house in order a little bit, but I do think that there are international opportunities that we can take advantage of as well. So I'm excited about the opportunities we will organize the team to go at the opportunities we see we will insight them.
I believe that we build and incentive plans around what do we need them to do and what's the most important things and those incentive plans will be built around building out.
The platform in filling in white space not just connections connections are very important but it's not to be all and all that ultimately I think we'll have a benefit in that we can be.
We can kind of.
We're addressing the margins on the hardware side, which I think we can improve those as well, but I can't give me a tremendous amount of numbers in detail, which I know that you want.
And we'll get there.
But we've got a we've got a bit of work to do to get there and I did notice that the.
The first Guy had a thousand questions. Then you jump that up to a million. So I assume the next guys going to have a trillion. So well I I spoke I wont work, what I get one more question okay.
I had a million.
Million went well the first one was one but then again.
Hello, This whole thing with equipment sales I did it it's absolutely baffling to me that you would actually that the company I'm not saying you, but the company would would sell equipment at a loss and is that really a function of that you're the prior teams just trying to drive connections and given away great deals or whatever and I'm sure you're going to address that.
As well as you said you would.
Yeah, I look it's hard it's hard to for me to comment on prior management in the motivation around that there are situations with large customers, where it does make sense to take a loss upfront to get long term gain and get those those in and ultimately driving those so I do think that we will have.
Hey, wait and look at that we do think there are some things we do in the way that we manage inventory.
The way that we manufacture hardware I think you know the company did things you know a certain way for the last several years and maybe weren't as aggressive at looking at new ways to ultimately manage that so Jeff mode is been working on that for a period of time.
I was impressed with what he had done so far and so we've moved him into that area as well as tapping some of the expertise that the board has in the hardware area for the best way to attack that.
And should we be managing all of the inventory that we are should we be manufacturing and designing what we are should we be utilizing other things those are all things that we'll be looking at.
But when you look at it and Michael talked a little bit about it is when you look at the impact on transactions, it's been dramatic encoded but if you look at where our margin actually is it's it's in the part of the business that has not had a lot of impact than I think you'll see that when we show your Q4 results. So okay.
Thank you I, probably didnt get to the level of detail you wanted but that's about as far as I go today no. That's fine I appreciate it. Thank you.
Thank you Sir our next question comes from Jason Schmidt with Lake Street. Your line is now open.
Hey, guys. Thanks for taking my questions. Just curious if you go forward and sort of balance corrode for sort of profitability. If there have been any markets that have immediately jumped out at you that you think don't make strategic sense longer term.
No I wouldn't say that there is anything we're doing today that I would I would say that we should exit.
I think that.
We continue to think that areas like amusement entertainment.
You know have our adjacent markets that have opportunity for us they've been hard hit by cold It and that's somewhat put that those on a on hold but you know and then probably the international with co bid will we'll probably have to sit on for a period of time.
You know unless we can we can drive to areas in north and South America.
To work on those but when you look at I know previous management talked about Japan, and we just can't get there and so we're well be we're continue to be excited about opportunities like that I think we can stick to our knitting here and.
In North America for the next six to 12 months and and deliver on the results that we think we can do.
Okay. That's helpful. And then I know you provided detailed sort of on the rebound on.
Processing volume and fully understand you're not providing june quarter guidance, but curious if he could discuss your provide some more color on how order momentum has been in the past six weeks here.
Yeah, what we've seen is.
Kind of started decline and second week March really the midpoint in March and we probably hit a bottom point about the middle of April and we've seen it you know tick up a little bit each week, so as Michael said.
We believe that we were down about 40% at the bottom and we've come back about 30% of of that somewhere in the in the mid Seventys of what we were.
At the same period.
Last year.
What lags behind is really the areas that are very hard hit like New York.
In other cities that are kind of still totally shut down our customers, who predominantly service offices and schools coffee services micro markets in those areas.
Those those are still way down you know the rest of the customer base, where they have a diversified or are in more of a manufacturing type of environment or hospitals. For example have really began to see a recovery that is similar and in some cases, even ahead of ours.
And so we remain confident if there's not another re occurrence of co bid and people return to school and office is after labor day, we'll be back on the upward swing I think it will take a number of months to get back to kind of where we were in the January February time of this year, but we're confident that.
We'll get back there at some point in fiscal two.
2021, we've we've taken a pretty conservative approach in our initial cuts at the budget and we're continuing to kind of work at that is as we go forward. So we're encouraged in that it's seems to be got it it is going up week by week.
And.
As long as that continues we'll get back to where we're in we're in good stead and as Mike loss was said, we're addressing the cost side of that as we as we go along and watching that closely.
Okay. Thanks, a lot guys.
Thank you. Our next question comes from Bob Napoli with William Blair. Your line is now open.
Thank you and good afternoon.
Good to meet you Sean.
No.
Doug maybe just to start for you with your background.
Yeah, I would expect.
Going you haven't worked with Hudson and I think just from your prior background, even before hats, and you probably knew a fair amount about us 80.
Just.
We'd like it kind of your big picture view.
If you could.
You know on what attracted you to U.S. 80 overtime and what are you think it obviously hudson its business should be over the next.
Three to seven years or so sure. Thank you for the chance I started working on this investment prior to becoming a full time partner at Hudson.
Over a year ago with my partner Bronstein I knew the company I knew of the company will.
I often referred to it as one of the.
You growth breaks Brock spots in domestic U.S. payments.
Domestic Qs payments for the most part.
You know is.
Good to high single digit growth World. There's obviously, some exceptions to that certain leases, but this is a business that even with previous management, who I won't comment on and even with a proxy battle was growing at 30%. So we believe.
We're going to refrain from giving guidance today, but those long term revenue growth.
Promotions are absolutely achievable once Sean fixes this company and frankly, he's using the co vid downturn.
As an excuse to take the company apart and put it back together again for when covert is behind us.
But this could be long term, 30% topline grower, it's going to have.
Good double digit.
20 ish Inc. Twentyish ish.
Operating margin at some point.
Don't know when we're not giving guidance in this business grew at 30%, 35% for few years should be a you know a business three or four times the size.
Of what it is today, there's ample growth opportunity here not to mention you know verifones situ honored to be without introduction.
When I took over Verifone, we were basically a U.S. company with a little bit on the outside and.
Sean has an opportunity here at this company is basically the same about the same size.
Almost all domestic and.
Unattended payment in Riet unattended retail is a phenomenon in around all of the world and they've got some unique opportunities to do that perhaps using some relationships that I might be introducing to Sean overtime, but in the meantime, you can't go to an airport you can't get an airplane so Sean Scott got the piece.
So the business on the table and he's putting it together and then.
Very enviable way.
Hi, Thank you that's very helpful.
And I liked way Sean a your view as a platform software company payment enabled is I think the right place to be a the question on capital into balance sheet.
Yes, obviously.
Kogut it hit your business, particularly hard.
Doesn't change the long term outlook in our view, maybe makes it even brighter but in a short time, you would like to have a much stronger balance sheet, obviously and it also like to be reinstated on Nasdaq.
To add a third question, but but it just that I would love some color on what you would like the balance sheet to look like and can you get the cash.
The start being cash flow positive to help support that balance sheet or and how much capital would you like to add to too.
The current balance sheet.
Sure. So I look that was a concern when I was a interviewing for the position and working with Hudson on the on the company, having the correct capital because everything that we've got as fixable. It just is going to take a little bit of time, a little bit of capital. So we're working with our current lender and Tara.
And talking with them, there's significant shareholder in the company.
But we're also working with the other potential.
Financing partners.
Behind that and we're confident that we will have the necessary capital.
To do what we want and those are those discussions are pretty advanced.
And we're pretty confident that we'll we'll have that in in short order.
You know in them in a matter of Oh.
I got to remember I'm, a public company CEO now so I got to be careful.
I'm confident that we'll have the capital necessary and short order.
And we'll look to to have the capital to do what we want to do with the business.
By the end of the summer I think.
I'll just add although.
The companys engage in this process not Hudson Hudson's, providing as much help and oversight as we can as or larger shareholder in the Hudson partnership has enormous and extensive experience in raising capital.
Uh huh.
As facilitators, besides the transaction so there'll be a good ending here.
Thanks and just.
Right, Okay, Yep, I was going to get to NASDAQ. We are engaged with NASDAQ as you know there's no checklist of things that you've got to do but we look at we but essentially change the entire board I'm in the process of the of changing a good amount of the the senior management team and we're working.
And with NASDAQ to ultimately get to get re listed and we think people are key to that and its a.
You know as new Sheriff in town and I think we've we've cleaned up a lot of the things that that they were concerned with the DJ investigation is looking at historical things in historical.
The restatements and things that went on and.
We're fully cooperating with that but that's that's about all I can say about the DJ investigation that at this time and frankly I don't think the two are necessarily linked at all I think.
We can we can show NASDAQ they were doing the things that we need to do to hopefully get re listed but that's not a clear cut roadmap, but we're engaged in working with them.
Thank you appreciate it.
Thank you Sir our next question comes from Mike Latimore with Northland Capital Your line is Falcon.
Great. Thanks, very much less I mean, everybody here.
Just look I guess, Sean you called out Cantaloupe is maybe one of the kind of a bright spots as a company from a technology standpoint again do you think about the opportunity for Cantaloupe is it you know more greenfield is it replacing legacy systems and how much the opportunity there sort of outside of.
Ending let's say.
Mike It's good to talk to a guy from Atlanta. So I appreciate your your your question and.
No I don't want to you know talk only about cantaloupe and the opportunities we have but there there is some significant green space.
Our white space.
Out there with current USA TV customers. We do believe that there are other adjacent sees that could benefit from the platform and the things that we ultimately do now we may need to partner a little bit more in some of those adjacent seems to take advantage of them.
But we think that there are good good growth opportunities there, but we've got a lot of opportunity just in the and the customer base that we haven't to.
Either sold initially or Upsold.
And there's a there'll be some hardware.
Migrations that will also provide us more.
Sales opportunities as well.
Got it and.
And then you know, it's obviously sort of what it's obvious what the headwinds are around sort of coven 19, I mean can you elaborate a little bit on what might be some of the mid longer term benefits. It could come premise to you guys.
Well you know I think the quickest one.
Would be is nobody wants to handle cash anymore, but a you know if you looked at it that's probably a great question for a nice to address of but what the opportunities we see around.
Kind of post co bid and.
Acceleration there not you want to comment on that.
Yes sure. Thanks, John one of the interesting thing that come out of this Michael in Charlotte referred to on doing some relief programs very customers Genco that.
But the number one thing that's actually come out from a customer bases, how can they leverage our solutions to actually help navigate them through the depend Dominic.
And so you know weve doubled down on things like Webinars case studies, we profiled customers on what they're doing with the solutions and kind of the key factors that have come out of that are pretty amazing. One was showing just mentioned is that a lot of people view cash as a vehicle for spreading that virus and so a lot of clients are actually asking are.
Customers, who operate those machines can take cash out, which you know long term actually benefits.
And our operators and customers say that they can deliver cashless solutions.
Shows that they're good you know civil servants to help.
Kind of the pandemic second it's just managing the inventory and be the stuff that's out there in the field. If you can't touched the machine you can't service. It you can't take bad product out.
It's only solutions like ours, the actually help our customers.
Reduce their inventory shrink and spoilage costs and that they can manage the service as you did not just wasting time, sending their people here and they're finding out that the location to close and so.
Combination of all these aspects, we actually believed that the demand for solution, even within our existing base, but even outside of that are increasing and that is just you know like vending in the into verticals ever in which is this kind of a solution not only is a great when you're growing and you want to cut costs and drive sales, but it's great ones will go down which you can then.
You know very quickly right you don't so so we see that actually helping our business long term and even during this time sales have slowed down some but a lot of our customer you're actually taking the time as they are right now to actually reinvest upgrade the equipment migrated on to see platform and come out of this thing.
Stronger.
Yeah.
Makes sense.
I'd like to Syria.
Thanks.
Thanks, Steve Thank you.
As a reminder to ask a question you'll need to press star one on your telephone.
Next question comes from gay Prestopino with Bank in research. Your line is good. Thank you I'm just a couple of quick follow ups.
The Sta expenses that were up like 8.9 million I couldn't quite writer here exactly what that encompass I mean, maybe if you could just tell me of that 8.9 million how much of that was really nonrecurring non operational.
Michael is that a question you'd like to take.
Of course for us.
Oh, okay.
So.
Uh huh.
We have.
As I mentioned, we had an increase off.
On the M&A side.
You had an increase of 8.9 million.
Primarily from professional services $4.5 million hopeful on professional services.
That were leftovers largely from the restatement project.
Necessarily going back into prior period and activities for prior periods, but.
With the restatement project we.
Well, Brian management brought in.
Many many outside resources.
And.
They they took over a monthly routine activities and the accounting Department.
And the authentic.
Five so they're so net Linda and we're in the process of getting them out of there by hiring people and.
And actually we did not counting the internal process either automating some of that so <unk> out of the of 8.9 million 4.4, 0.5 thoughts into into professional services.
So I think also includes legal fees.
Going forward I.
I believe Sean its mentioned.
We are hiring a general counsel that are going to orchestrate all internal first all internal legal activities and then also fourth the external or service providers.
Again, we're going to internal license activity and.
I think a bundle of money by doing that.
Okay, Great. Let me just asked a question let me just ask again. So you 4.5 million was professional services and that includes legal fees.
Yes.
Okay. Thank you.
Thank you.
Thank you I think that one of the first things I noticed when I got here was that we've made a lot of consulting firms and law firm partners over the last couple of years and you know I want to bring that to an end.
And get to where where we have the the proper numbers and staff, we ought to be doing a number of these things ourselves of the company our size as Michael said I've hired a general counsel them started July she will easily pay for herself in reducing knows and Michael in our finance team have the operations starting to do these things ourselves some of that is driven by.
You know, but the restatements and the things that have gone on people are just a little bit scared and so they ask consultants to make sure they're doing things right and you know, we'll we'll get that corrected and get it fixed going forward. So as I said earlier, it'll take a couple of quarters, but Oh, we'll get these outside fees under control.
Some of this is is driven by some of the proxy fight salvage driven by a you know things that we've been doing to get restated, but we're well down the path on on a lot of our controls and you know the integration stuff. We're doing will will drive this out of it and you know we gotta go back over a little bit of the bad road to get to the good road, but where we're on that path.
And we're going to make it happen.
What I interviewed Sean He said to me he would never want to follow Bill bullish because the a coach the Patriots.
Hi.
Shared with in my view that there were so much opportunity here. Some of these costs obviously are incidental.
The proxy battle the.
The run the run off from the restatement at the compliance rebuilding for NASDAQ fee.
Now the deal Jay.
Stuff the shareholder lawsuit, but a lot of it is just.
The company was overly reliant on paying professional services firms seven or $800000 year per head for people that could be hired good quality people in Philadelphia, or Atlanta, or Denver for 150000, any certain multiplying those times, a big number and you get to obscene.
Numbers that you see in these financial results. So we it does not escape us for New York minute.
Oh.
Thank you and I like to turn the call back over to management for closing remarks.
Great. Thank you operator, and thank you for your interest in the company.
I look forward to as I said upfront reporting on the results that that myself and my team. We're here to drive and take forward and I look forward to you guys holding its accountable and and driving things board and.
With that with Covance, who asked that that you all stay said safe and.
And where im asking this concludes the call. Thanks for your interest.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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