Q1 2021 USA Technologies Inc Earnings Call
At this time all participant lines are in listen only mode. After.
After the speaker's presentation, there will be a question and answer session I will now.
I'd like to hand your conference over to your Speaker today, Louisiana, Leila would gate VP of corporate Communications and Investor Relations for USA technologies. Please go ahead.
Thank you and good afternoon, everyone.
Welcome to the USA technologies first quarter fiscal 2021 earnings conference call.
With me on the call. This afternoon are some Feeney Chief Executive Officer, Wayne Johnson, Chief Financial Officer, and enough or <unk> Chief revenue Officer.
Let me begin todays call I would like to remind you that all statements included in this call other than statements of historical fact are forward looking in nature.
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.
But he told 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 managements view only as of the date they are made.
And we gave you an update.
Last week, we announced the upgrade and expansion of our <unk> product portfolio to now, except ENV contact and contact less payments.
Earlier today, we also announced the cashless device upgrade plan to address this cellular sunsetting of the two intriguing networks.
And the upgrade to that hardware.
We continue to execute upon our aforementioned marketing initiatives showcasing our platform as a service with an emphasis on the benefits of the seed family of products.
As part of our efforts to become a more customer centric organization. We have continued to build out our customer service teams and have added additional account managers.
In addition, we have also invested in our sales team, including adding two new regional sales inspectors during the quarter.
Lastly are.
Our migration if I serve remains on track.
While we made a lot of progress past few.
In September we experienced the network and on our transaction platform, resulting in the inability to process payment transactions.
We re mediated the cause of the incident and replace them all devices that were slow to reconnect in order to speed up the recovery of customers.
We continue to look at further enhancements to the platform for our customers transactions on our seed platform, we're not infected.
I will now turn the call over to a not argall, our chief revenue officer to give you more color on the quarters business performance.
Up.
Thanks, Sean.
This quarter, we kept on executing upon a growth strategies from providing a customer experience that it's best in class to enhancing our pop format, the service and delivering the best cashless and software solution on the market.
Here are some key highlights.
As Sean mentioned last week, we announced the upgrade to our <unk> product portfolio, giving offer against the choice to accept contact and contact with in the so the half full optionality to choose their ENB investments wisely in many cases only needing to upgrade the card reader or their telemeter rather than the whole.
<unk>.
In addition, and to the delight of our customers we implemented a free over the air upgrade to a large number of our existing devices in the field.
<unk> eliminate the need for any equipment upgrades.
Along with the ENB enhancement, we've rolled out the upgrade plan for customers, who still have two G <unk> devices.
As you know the carriers are starting to sunset. There are two G and three D network and any customers with devices that are aligned in either of these network will need to upgrade.
Many of our three G devices in the field only needed telemetry upgrade versus a full cashless kit key benefit to the E port hardware design saving them significant investment dollars in most cases.
Similar to the advantages of incorporating ENB would eat pork devices that I mentioned before.
These are just a few examples of how the companies platform as a service leverages forward thinking technology to help customers get the most like out of their hardware investments with the heat platform.
In addition.
Mission to these initiatives, we continue to make strides towards getting our customers fully deployed with seeds and cashless.
As we've maintained on previous calls feed penetration within our existing customer base is a key focus for our business and we need great progress in Q1.
What has helped US is the fact that the onset of Covid has provided further evidence to the benefits of see through our existing T customers, who have been able to nimbly manage operating costs in real time maximizing profitability during this challenging environment.
And Ah recently published block coast, we highlighted how three operators Duncan Smith, President and Chief operating officer of all Star services.
With an operations manager at K in our vending services and Jarrod Detwiler VP of operations at one source office refreshment services have leverage off popcorn during covid to better serve their customers via frictionless service.
Our seed operators are getting creative and how they can quickly adjust to address the changes this volatile business environment introduces.
Ah leveraging all the capabilities of feed they have actionable real time data at their fingertips, which gives them the flexibility to adapt food orders combined route to minimize operating costs.
Streamlined operations across and bending micro markets and ocs by leveraging hybrid routes and ultimately maximize the profitability compared to their competition.
With our efforts to reinforce the benefits of seed coupled with the secular cashless tailwind. We believe we are well positioned to convert the vast majority of our customers onto the full platform.
As we mentioned in the press release, we have three new customer when that serve as a barometer to the success of our new go to market strategy of going all of it.
First as a large operator in the Midwest, which was partially deployed legacy Newport customer, but fully ingrained with a competitors via mass and other casual solution.
They will now be completely moving to the <unk> platform plus deploy are full for G. E. M V cashless solution as the upgrade their existing three D caches devices.
We have also signed one of Los Angeles is largest independent vendors continental pending.
The company has gone all in on USA T. Switching all of its devices to report from a competitive cashless solution and signing up with seed by converting off of a competitive b M. S. In the process.
And last but not least we have fresh group group Ah legacy Usdt customer and the largest independent operator in Houston The company will be upgrading all of its three G devices to four G. N M V and what as well as migrating from our competitors Vms system to be fully deployed on seats. So they can be on a single platform.
These are significant players in the industry going all in in choosing our best in class platform and we look forward to accelerating the pace of upgrading all of our operated businesses to our full platform.
With that I would like to turn it back over to sharp Sean.
Thanks, not not.
How to move on to cover a few other highlights before turning it over to way earlier. This month that disconnects of left the company a few months ago for a large financial services firm.
Rejoined our organization and was named Chief architect we're very excited to have his expertise in 15 years of institutional USA knowledge back on the team.
We also continue to build out our finance organization with the hiring of Scott Stewart, our new Chief Accounting Officer. He has made some key hires first team, which speaks to our commitment to eliminate our reliance on outside consultants and reduce professional services fees.
The decrease was primarily due to lower hardware shipments during the first quarter of F Y 21, compared to the same period last year.
As you may recall and the prior your first quarter shipments of equipment increased significantly due to a large contract with a new customer.
Total gross profit margin for the quarter was 38, 6% compared with total margin is 26, 3% for the prior year first quarter and 34% in the fourth quarter of FY 20.
License and transaction margin improved to 41.6% in the first quarter of this fiscal year.
Up from 36, 2% in Q1 of last year as.
As the license revenue with higher margins was a larger percentage of LMT revenue in the current quarter compared to the prior year quarter.
The current period margin is more in line with queue for FY 20, or 42, 3% due to a similar mix of revenue between transactions and licenses.
As we noted on our fourth quarter earnings call transaction volumes and revenue are expected to sell accelerated during the second half of FY 21.
So we anticipate the LMT margins to be more in line with historical rates by the end of FY 21.
Equipment margin with a positive 12, 4% for the quarter compared to negative 12.6% in the prior year.
As more fully disclosed in our form 10-Q to be filed tomorrow, we recorded an adjustment of $800000. As a result of amounts due to the company for USA provided parts that were incorporated into the assembly of hardware that was ultimately sold to customers.
Operating expenses in the first quarter totaled $17.8 million, a 21.4% decrease over the prior year.
SG&A expenses in the first quarter of FY 21 totaled $16.8 million, which decreased two 4% from $17.2 million in Q1 of the prior year.
This decrease was driven by $228 million in lower professional services fees and $500000 in lower travel expenses.
Offset by $2.9 million of charges, primarily related to $1.1 million of costs associated with a network instant in one $8 million in compensation expense, which consisted primarily of an increase in stock based compensation.
The operating off for the first quarter was $3.6 million compared to a loss of $11.3 million in the first quarter of the prior year.
In addition to the higher gross margins for the current year first quarter. The other primary driver of the seven $7 million improvement from the first quarter of FY 20, with a $4.5 million reduction an investigation proxy solicitation and restatement expenses.
Net loss applicable to common shareholders for the first quarter was six $9 million or 11 per basic share compared to $11.8 million or 20 per basic share in the prior year period.
Adjusted EBITDA for the first quarter was a negative $500000 compared to a negative for $9 million and the prior year period.
Regarding liquidity the company had 34 $7 million of cash and cash equivalents on hand as of September 32020.
Moving to our guidance for the full year 2021, we continue to expect revenue to be between 170 and $180 million.
And adjusted EBITDA to be between two and $5 million.
In addition, we expect net loss applicable to common shares to be between $11.1 million and $14 $1 million.
This range assumes no further unforeseen covid related impacts that create substantial economic duress for the remainder of this year and into calendar 2021.
The first half of the fiscal year will be more negatively impacted both.
By COVID-19, and our continued turnaround in the business.
We will begin to see the benefits of our investments and refocus cells efforts in the second half of our fiscal year.
And the second half of our fiscal year will be a more robust yeah.
Year in terms of office school and hotel traffic.
With that we will turn it back over to the operator questions operator.
Mmm, we will now open the call to questions. Please limit your call to two questions. If you have additional questions. Please add yourself back to the queue. Thank you. We will now take our first question from my clan Tomorrow with Northland can't pick on Martin.
Great. Thanks.
They're very nice.
I guess you just trying to he's talking of asked about transaction volumes on a year over year <unk> last time, you talked about down 10% to 15% I guess.
What what are you seeing currently and have you seen any kind of sequential improvement.
I would say that looking at our revenue you've seen a little bit of sequential quarter improvement, but when you look year over year, we're still down in that.
10 to 12, 13% off.
And while that sounds like it's been consistent remember transactions were growing in.
Our our transactions do continue to grow just we're about 10% to 12% off of a year over year on a weekly basis, that's kind of how I look at it.
Okay got it got it.
And then in terms of the visibility and to sort of new connections.
Should we think about connections kind of building every quarter sequentially, where fourth quarters and I and I know you guys focused on connections versus overall sat but is that generally the way to think about it.
Yeah, I think we would expect that you would see continued connections growth. We continue to focus on that while I think it's not the the best measure. It's one we've traditionally given and continue to continue to look at so yeah, I would I would look at it that way.
Okay. Thanks.
Next question George Hudson from Great column.
Thank you Uhm, Sean one of the things you mentioned as a primary goal is substantial organic growth and I wondered if you could just give us a better sense of what you view as substantial organic growth and at what point.
Would you expect that Ah normalize situation to enable that kind of a race.
Having covered this space for a long time, we rarely frankly see wholesale takeaways, particularly on the payment side.
Im curious what you see changing is this really driven by seed or is there something else that's driving.
These these takeaways.
Yes, sure. So I think it's a couple of pieces. One is I think a lot of companies as we've been talking about or seeing the value of being on a single platform for both cashless and logistics software, which is really what our platform is a lot of units solutions out there fairly clean energy.
Oh.
[noise], Chris Your line is open.
Oh, Hey, guys. Thanks for taking the question when you look at think about the business. What do you think the long term margin opportunity is for the company.
Chris What I would say is that's a work in progress for US you know Wayne in the end, Scott and were really kind of.
Adding some additional people that.
The team is new.
And while we think that there's positive margin there I'm not ready to give you kind of what I think that that number.
We will ultimately ultimately look like but as we've said we believe that there is a good growth opportunity here and we want to do that while being being.
We have a a positive earner, so we're working towards that and as we get more clarity and begin to look into next year, we'll probably give us some some thought on that but.
Yeah, I think you can tell from the guidance that we've we've.
Continued with that.
We're optimistic.
That we're making progress.
Okay and then another one.
Expanding beyond the core vending market is a key opportunity for you guys can you give an update on the progress you've made.
You know we continue to look for those opportunities and continue to kind of.
Selling those we did close a deal in the <unk> and the airbag space in the quarter.
And.
Between that between that and then looking kind.
Kind of a geographic expansion, but we also think we have got in.
In the near term.
A lot of good growth just in the in the vending.
Space as well.
Okay. Thank you guys.
As a follow up question, we have for Mike Latimore from Northland capital markets.
Okay great.
Just trying to think through the ASG M&A line here at $16.8 million in the corner.
I think you've mentioned some onetime charges.
Well it is kind of a good baseline that's you the numbers will be working with here.
So this is Wayne.
The the reduction of the 2.8 in the <unk> is real I think while we sorta delivered in cash.
Real savings the two and a half million dollars professional services, while we still have some work to do and that was that a high watermark last year's first quarter, we still have some work to do to convert.
Attunity uhm to potentially replace people and of course, our competitors see it as an opportunity to replace us. So I got a lot of confidence in are offering an in our sales team and we're out there doing battle every day.
Great. Thanks.
There are no more questions for centers you may continue with any closing remarks.
Great.
Thank you everyone for your your interest in the business and we look forward to talking to many of you over this evening and over the next couple of weeks and you know we're focused on I'm I'm getting to some of the questions that you asked in your your focus on the right areas of the business and we continue to be excited about what we're doing in the op.
Fortuity in front of US here at USA technology. So thank you very much and the operator, thanks for your help with the call.
Hello, welcome ladies and gentlemen, thank you for thank you all for participating. This concludes today's conference call here now and disconnect have a good day.
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