Q2 2021 USA Technologies Inc Earnings Call
True.
Ladies and gentlemen, thank you for standing by and the back half of the USA technologies fiscal year's second quarter and stuff like that.
And that's one earnings conference call at this time also like the sponsor and a decent on the mode. After the speaker's presentation, there will be a question and answer.
That's the session.
I'd now like the hot and you contemplate I'll take care of them.
Our speaker today, Alisha and you have a wood.
<unk> Vice President Corporate Communications, Inc.
The start of Alicia and support USA technologies. Please go ahead.
Thank you and good afternoon, everyone welcome to the USA technologies second quarter fiscal 'twenty 'twenty, One earnings conference call.
With me on the call. This afternoon are Sean Feeney, Chief Executive Officer, Wayne Jackson, Chief Financial Officer, and are not Agarwal, Chief revenue Officer.
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 and nature.
Actual results could differ materially from debt as contemplated by the forward looking statements as a result of certain factors, including but not limited to business financial market and economic conditions and.
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 on 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 the of the date they are made.
USA 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 USA technologies operating results.
These non-GAAP financial measures are supplemental to and not a substitute for GAAP financial measures such as net income or loss details of these non-GAAP financial measures. The presentation of the most directly comparable GAAP financial measures and the reconciliation between these non-GAAP financial measures as well as the 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, <unk> USA, Texas Dot com and with that I would now like to turn the call over to our Chief Executive Officer, Sean Feeney Sean.
Thank you Alicia and thank you everyone for joining us today.
I hope, everyone is safe and well.
Sure.
During the second quarter, we continued to make an enormous amount of progress on the things within the company's control.
Even as the COVID-19 pandemic continues to have an adverse impact on most of our customers' operations, which is reflected in our second quarter results that Wayne will walk you through shortly.
During the quarter, we continued to build out of the team with talented new hires and we successfully preserved and grew our customer base, despite the difficult macro environment.
In addition, we further reduced the company spend on external professional services and reallocated some of those savings towards investments and products and services to better serve customers as well as the systems that the company needs the scale in the years to come and.
This is the first time and a long time that the company is investing in product innovation and platform infrastructure to drive future growth.
Although we made a tremendous amount of progress on the things within our control the variables beyond our control, namely COVID-19, and continue to create a challenging operating environment.
As it relates to transaction volumes, we saw a steady recovery from July to October of 'twenty and 'twenty. However in November we saw a reverse of that trend as COVID-19 cases, spiked and the second Covid wave led to additional lockdowns and further delayed openings of office buildings and schools.
And cause some operators to temporarily activate additional devices.
I am optimistic the volumes will rebound relatively quickly when schools and businesses reopen.
For equipment sales, we are seeing positive momentum and our efforts to upgrade customers to the <unk> port device.
Some operators still cautious of their liquidity during the pandemic are committing the upgrades that are waiting to take delivery on hardware until later this calendar year.
This upgrade effort is the key initiatives and cellular networks sunset to G and three G technology over the next few years.
As a result of Covid and persistence and our updated assumptions around timing of a successful vaccine rollout we have pushed out our expectations on when the virus will have less of an impact on our market and business.
Therefore, we have revised our fiscal year 'twenty 'twenty, one revenue guidance to be between $163 million and $171 million down from a range of $170 million to $180 million.
We have revised our net loss applicable to common shares to be between $21 million and $17 million down from 14.1.
And of 11.1 million.
We have revised our adjusted EBITDA range to positive 1 million to $4 million from the prior guidance of $2 million to $5 million.
So while the economy's recovery from Covid is several months behind the pace that we had anticipated my confidence and our growth. Once we return to normal is higher today than when I started back and met.
With the growing consensus amongst the business community that the economic impact of Covid will material diminished by this summer and into the fall I am prepared based on the progress we are making to tell you that we believe we can drive revenue growth in the mid teens and fiscal year 'twenty 'twenty two of.
Of course, as the circumstances around Covid and continue to become clearer, we will update our outlook in future quarters.
Turning back to the second quarter, we remain focused on the initiatives that position the company to capitalize on and economic rebound and optimize our long term growth opportunity as a reminder, the strategic initiatives. We laid out for this fiscal year are positioned the company to drive sustainable organic growth.
Rose.
And right size of the company's cost structure, and invest and people and culture in order to achieve excellence.
Keeping these and mine, let me give you some highlights for the quarter.
First as part of our ongoing investment and talent. We recently appointed Ravi then could pass and as Chief Technology Officer, a newly created position for the company the.
He joined US from back of subsidiary of Ice where he was the head of innovation and was previously the CTO of breakthrough solutions and innovative loyalty platform.
He is responsible for our technology products and innovation strategy I'm thrilled to have someone of robbie's caliber and expertise.
We have been successfully educating our customer base on the critical importance of setting a conversion timetable before the inevitable to G. III the sunset of devices as a result as I previously mentioned, we are starting to see the steady migration and transition to <unk> and.
In December we added a new feature to seed mobile that has been very well received by our customers. This new feature enables real time feedback from our drivers and the field this will be and integral feature for some of the future product launches.
And while we're on the topic of new products, we were recently awarded and exciting new patent, which not arc wall and Mandy Aurora co founders of Cantaloupe authored a few years ago titled method and system of personal debt.
The technology is focused on creating and unmatched shopping experience and and unattended retail location.
<unk> the customer journey through the consumers mobile device.
Were thrilled to receive this recognition of our culture of innovation.
I will now turn the call over to and not our Chief revenue officer to give you more color on the quarter's business performance and not.
Yeah.
Thanks, Sean.
I wanted to touch on four focused areas today.
First our platform as the service.
We continue to make progress with existing and potential new customers, who are seeing the value of being on a single platform for both the cashless and logistic software.
Cash and brothers and the South is a great example of the.
As he recently highlighted and a case study on our website they decided to make the change from the legacy Vms solution and 2019 to the seed platform.
The E sport cashless devices and software solution onto a single platform.
Since then they have <unk>.
Expanded their use of our platform to help manage the growing their micro markets and office coffee lines of business.
And now with our recent announcement on upcoming cellular Sunsets Jackson brothers has decided to upgrade all of their devices, where the us to forge LTE and E M B simultaneously.
As a result, Jack and brothers now has one central place to view manage and adapt to its client needs across their whole business with the single solution provider.
Second penetrating the broader unattended retail market outside of traditional venting.
As an example, we recently expanded our business by deploying <unk> cashless on 100% of the machine at a major commercial water dispensing company that has thousands of machines across the country and is growing at a rapid pace.
Third the move to cashless.
Following the study we published in September 'twenty, and 'twenty, we continue to see the shift to cashless payments accelerate.
And the study sample set from January 2020 to July 2020, we saw cashless growth of nearly 62% of total sales while the use of cash continues to decline.
And when we look at our own data while transactions are down we've seen cashless accelerate from 61% in September 2020% to 65% of total transaction volume at the end of December 'twenty and 'twenty.
Our customers are seeing similar trends when cash is continues to accelerate across their business. The.
And the Jackson brothers and he said he exemplifies how operators are seeing the benefit of enabling all forms of payment, particularly cashless.
And fourth growth and the international markets.
Hence Fernando joined Us and a few months ago, we have engaged with several potential in country partners and early anchored customers in Latin America.
We're encouraged by the activity and the potential the international unattended retail markets represent as an opportunity for the business.
With that I'd like to turn it over to Wayne to review, our second quarter results and full detail Wayne.
Thanks, and good afternoon, everyone.
Revenue from the second quarter of FY, 'twenty, one and totaled $38 $3 million, a decrease of 13% over the prior year second quarter and an increase of three 8% from Q1.
License and transaction revenue totaled $33 $2 million for the second quarter.
A decrease of 7% from the prior year, which was not impacted by the Covid virus.
License and transaction revenue increased slightly over Q1 as the transaction momentum gained and the second half of Q1 and the first half of Q2 was lost as Covid cases began to increase and mid November.
Equipment sales for the current quarter of $5 $1 million decreased 39% compared to the prior year quarter of $8 $3 million.
The decrease was primarily due to lower hardware shipments during the second quarter of FY 'twenty, one compared to the same period last year, which included the large contract with the new customer.
Sequentially equipment sales increased 35% as we continued our focus on new customer growth and <unk> conversions.
Total gross profit margin for the quarter was 32, 1% compared with total margin of 29% from the prior year second quarter and.
And 38, 6% and the first quarter of FY 'twenty one.
License and transaction margin improved to 38% and the second quarter of this fiscal year up from 36, 8% and Q2 of last year as transaction revenue had higher margins and and the prior year.
LNG margins declined from 41, 6% and Q1 due to a lower percentage of license revenue. The total <unk> revenue in Q2.
Equipment margin was negative five 8% for the quarter compared to negative 5% and the prior year as we provided incentives for four G upgrades.
Equipment margins for Q2 declined from the positive 12, 4% and Q1 as the prior quarter included a onetime out of period adjustment.
Operating expenses and the second quarter totaled $14 $9 million, a 28% decrease over the prior year.
SG&A expenses and the second quarter of FY 'twenty, one totaled $13 8 million, which decreased 14% from $16 2 million and Q2 of the prior year the.
The change was driven by lower professional services costs, and lower severance expense and the current quarter compared to the prior year.
Sequentially SG&A decreased 18%, primarily due to lower professional service fees and network outage costs incurred in Q1.
Paired to the current quarter.
The operating loss for the second quarter was $2 $6 million compared to a loss of $7 8 million and in the second quarter our year.
In addition to SG&A savings and the other primary driver of the improvement from the second quarter of FY 'twenty is a $3 3 million dollar reduction and an investigation proxy solicitation and restatement expenses.
Net loss applicable to common shareholders for the second quarter was $2 $9 million or a loss of four cents per basic share compared to $8 $4 million or a loss of 13 cents per basic share and the prior year period.
I will now turn the call back over to Sean for closing remarks, Sean.
Thanks Wayne.
Before we open it up for questions and our three more important Q2 updates the highway.
First in November we were re listed on the NASDAQ Global select market. This represents an important milestone and our journey to build a better stronger company for our customers employees and stakeholders.
The achievement reflects the operational and financial progress we have accomplished in the past six months the fundamental strength of our core business and our ability to capitalize on the opportunities that lie ahead.
In November we also announced that we will transition of our corporate identity to exclusively operate under the name Cantaloupe, Inc. With a new ticker symbol <unk>.
This is another major milestone for us as the Cantaloupe name is great brand equity and the industry strong customer loyalty and communicates our vision as the leading hardware and software platform for a contact less economy.
The adoption of the new brand later in 'twenty and 'twenty, one puts our company and a great position to better compete and the growing global market and delivers on our mission to help the world by it and go.
Third as I'm sure you saw on the earnings release, we have updated our device and customer count disclosures, which we believe are both better representations of our business.
As the result of my team digging into the historical data and creating systems to monitor key operating metrics, which I will use to track our business drivers and measure progress against our targets.
First.
Active devices, which includes devices that are connected with us in the last 12 months was 1.15 million during the quarter.
Second active customers, which now includes customers with at least one active connection and the last 12 months was 18000 during the quarter.
To wrap up.
We continue to increase active devices and active customers throughout the pandemic.
And while growth has been slower than anticipated we are not.
Sitting idle we are squarely focused on positioning the business to capitalize on the rebound.
Over the past six months, we've introduced new products brought on Ravi and the increased investments, we are making and our tech roadmap and product development. We are very excited about our future offerings, which we will rollout and the next 12 months.
We continue to make investments and our go to market team and strategy that we believe will pay dividends and both growing our current customer base domestically and internationally.
As well as fortifying our existing customer base as they migrate their devices the <unk> technology.
And while our near term 'twenty 'twenty, one guidance has been impacted by the pandemic.
I'm optimistic that we are taking the necessary actions within our control to best position ourselves to capitalize on the exciting market opportunity in front of US. We believe we have the right team and place the tailwind that we expect will drive our business for years to come such as the shift of unattended retail and the increased demand for cashless products.
And as well as making the right investment.
<unk> for success.
With that let me hand, it over to the operator.
Thank you and you will now open the call for questions. Please limit your calls the two questions.
You have additional questions. Please add yourself back to the the key thank.
Thank you Hugh the will now take our first.
Question from the line of George Sutton.
Your line is now open.
Thank you Sean.
Sean and I wondered you you had mentioned that you are continuing to grow in spite of the COVID-19 scenario.
As you know industry numbers are hard to come by I am curious if you think you are gaining share in this environment. If you could just give us some perspective there.
George I think that what we are seeing is.
We are seeing some conversions from other.
The other providers.
We are probably seeing more kind of some of our current operators expanding there.
Uh huh.
Their cashless devices as well as some new operators that are that are coming in as you know there is there is a lot of kind of.
And the probably the lower end of the market.
Those guys kind of come in and out of business and Theres been a number of sales of those businesses. So some takeaway some new customers.
And then on expansion of existing customers as what we've seen.
Gotcha.
My other question you and we've been thirsting for new Kpis. So we appreciate those and there is a bout of 200000 delta between active devices and total connections and I'm curious if you could give us a sense of is that and opportunity set that exists.
And if once COVID-19 becomes sort of normalized.
No I don't think the way to look at it is and as an opportunity George I think it's active devices is just a better way look at what we have.
Essentially the connections number.
<unk> was basically all of the active devices that were.
Are the devices that were sold at one time. They may and then lost they may not have been connected it just is it tighter representation of what's active in the field. So.
And there may be some there, but I wouldn't look at it is as boy Theres 200000, there, we just need to turn on.
Gotcha perfect. Thank you.
Sure. Thank you. Thank you. Your next question comes from the line of Gary Christina from Barrington Research and your lifestyle.
Good afternoon, everyone.
Hey, Gary could could we get a read on.
You know are not talked about the.
Cashless and logistics software on a single platform.
As I recall, when cantaloupe legacy Cantaloupe was purchased.
There was very little penetration across the legacy customer base of use at.
So could you give us some idea of where that penetration stands right now.
And what you are doing to try and really aggressively get and uptake.
From customers that are not taken hold logistics software.
Sure I think what we've talked about is the penetration of of seed.
And probably being somewhere in the neighborhood of the 50% of our existing.
On customers and and probably tilted more towards the large and of of that and and we're beginning to put in place some.
And some sales or some and.
Incentives for our salespeople and and really what we're trying to drive is kind of all in so we are focused on.
And E sport devices that don't have seed.
And trying to expand that and we've talked about our motto of being.
All in.
We are also looking at I think one of the things that are not stocks about is.
For a couple of years post.
The acquisition the company used.
The seed software and probably deeply discounted it and we're living with some of those those deals in order to get connections.
So what we're doing is we're working with the.
Some potential partners that we think can can increase the penetration and the entire market.
We're also working on trying.
And trying to make it day.
Easier to install at the lower end of the market.
And we're really kind of got our entire team and Senate around pushing kind of all in not just selling connections with selling our total solution.
Okay, that's helpful and.
And then.
And in terms of the the acts of devices that you signed up which as you know I think phenomenal concern and half the country is close and.
Are you are you.
You're basically seeing.
More of a concentration with the new devices with with bigger entities.
And I guess the other question would be is that given what's going on and the industry are you seeing a lot of consolidation and a lot of the smaller operators, just basically selling out to the bigger players and the market.
As always you have artfully wrapped several questions into your one but the limit.
Let me take a crack at so.
I do think that you've seen a a good amount of.
And what I would call.
No movement in the market.
And we see that when we get them.
Contacted the transfer devices. So I would say, what we saw and probably the this quarter was probably a little bit of and acceleration of some of the M&A.
The opportunities I think what we also saw as we talked about the day Activations as we saw some operators.
More on the smaller and just get to the point, where they couldn't hang and anymore without another PPP loans.
And so we saw increased the activations and where they just had to take the devices out.
And.
Movement.
They're on the new devices, it's really kind of spread across the of course, the larger operator can can move the move the needle a little bit more but I would say, it's been fairly consistent across the customer base of where we've picked up.
Active devices and you know there are some areas where people are doing quite well you know around manufacturing.
You know and and those sorts of facilities.
And if you've we of a number of operators who are supporting.
On some retail players who are expanding greatly you can kind of guess who they are.
Those operating doing well and adding additional devices because those those retail outlets or building out additional warehouses.
Warehouses and delivery centers, okay. Thank you.
Youre welcome.
Thank you. Our next question comes from the line of Mike Latimore from Northland Capital markets. Your line is now open.
Great. Thanks, a lot and good afternoon.
On the.
Most of the new.
Payment processor can you give an update there and I think and he said it was on track, but maybe an update there and when do you see that might maybe influencing the license and transaction gross margin.
Yeah, I think youre talking about our move to.
The five serve and we are in the <unk>.
And the process continues to move forward.
Sure.
And I think we're finishing up one last certification work.
Testing data and we will begin migrating customers.
Within this current quarter, so it's going well.
30, or 60 days behind where I would've liked to have been when I got here.
But you know anytime I've been involved with this at all of the always run into a few issues at the very and but we're working very closely we're getting great support from fiserv and the they are doing a great job, helping us move that so.
When you begin to see some of the savings that have been outlined in past quarters by prior management.
That full impact will be in the in 'twenty two.
Because of the you know.
We're going to be careful and moving people over and it it'll it'll take us most of the.
The second half the kind of get everybody over and so think about it and 22 not really having much impact this fiscal year.
Got it.
And then in terms of the just the upgrade the <unk> devices can you give some sense of what percent of the volume hardware volume you're seeing relates to that.
Yeah, what we've seen and as I highlighted in the comments that.
We're seeing people very interested.
I think we've seen some of our competitors trying to scare people that they've gotta go right now.
And we've been educating the debt that you have time.
But also I think we.
We thought that people would be going a little bit quicker with the ongoing COVID-19 people are being very careful with their liquidity, so theyre holding off or they're committing and then taking orders later in the later in the year I think if you look at the numbers of our customers.
It's sub 10% that of move so far.
And just I guess last question would be on transaction volumes.
I think December has some of the holidays and then.
I guess, what about January any any improvement in January.
We saw January was pretty similar to what we saw in December and we planned when we when we do our forecast and core that seasonality. So.
And we've seen as I said on the call or on the the.
And the prepared remarks.
November December and January of kind of been flat.
And we've done some index with operators and talk to them and they've seen similar things so.
But again as I said I'm very optimistic.
We've seen kind of two things one is I think we've increased the number of devices.
Lee while you while you look at 61% to 65% cashless.
And that's a pretty dramatic swing and a short period of time. So we believe that when things come back we will have more devices.
And we were seeing a greater percentage of of cashless, So I'm optimistic it'll it'll come back.
You know pretty well I think it will take time to get a lot of the devices and things that are and offices to come back but the.
It's coming and there's more and more vaccines and you look at the results that we're seeing and Israel, where a great deal of the population of Ed to two of the the vaccines on I'm optimistic that it's coming it's just the several months later than I thought it would be back and when we put together the the guidance and things of this year.
Yes.
Great. Thank you.
Thank you. Thank you.
Your next question comes from the line of Keith Kennedy Apathy of the MB.
Yeah.
All of them.
Hey, guys. Thanks for taking the questions and I appreciate the details and the press release.
Sean you mentioned the goal of getting to mid teens growth and fiscal 2022 can you talk about the the margin profile of the business next year.
Well I think that we will we expect to see the margin.
Profile, probably improve a little bit we're working hard to take cost out of the business. We're working hard on you know as I've talked before on the margins on our hardware.
And the piece that I don't know prices is we will get as aggressive as we have to.
To maintain our share of of the three G. G. G upgrades and people are we've got competitors and pricing may get to where that has a short term negative impact on on margins and so I do expect and it'll be improve but I'll give you that caveat that.
That we may need to do that and and look as we've talked before the value of of the cashless endpoint and we expect that these four J devices will be out there for anywhere from five to 10 years.
And you have to go a little bit short term hit to margin and I'm willing to do that and I'm very confident and our sales organization.
We will that we will do very well on this this opportunity that we have.
Okay, Great and then you mentioned the international opportunity can you talk about the structural differences outside the U S and how that would impact your margins.
Well you know.
What I would say is let us give you a little more detail when we get a little bit closer to kind of the kind of being there what we've seen so far and.
One of the reasons, we changed the name of the company. The Cantaloupe was the to be able to go.
Internationally, the little bit better we've been very excited by the gentleman that we hired down and.
And in the Latam Asia, He's got a lot of activity going we've got some great partnership discussions going the thing. That's nice is he knows everybody and we've been pleasantly and.
Wouldn't say surprised but it confirms that we thought people knew who we were and were able to get meetings and we're on.
Working on several several partnerships there'll be I would say, what we're seeing is that in and Latam we.
We believe there very well may be a software and a cashless device.
Capability, what we've also talked about is you've got to have a local partner to.
And two.
To work with that we are talking with the.
And I've had several conversations with the CEO at the at Fiserv about how they may be able to help us we're talking to any number of other partners.
And certain regions that would be the best the best place to operate there so.
It's early days, we're happy with the activity.
Revenue kind of contribution would be in the back half of 'twenty fiscal year, 'twenty, two and and into 'twenty three because it will take us a long time, we've got a little bit more ambitious goals and that but I would say for you guys. The plan, that's probably where I would look.
Great. Thanks, a lot.
Thank you. Your next question comes from the line of Gary You press the piano.
And from borrowings on we start kicking of our lifestyle okay.
Just in terms of the cost structure of the business now show on and Wayne have you got it to where you want it to be I mean, you know your SG&A expenses looked like they were $13 8 million. This quarter, obviously, not a lot of T and there. So you know as the business ramps up you would expect that to go up but.
Is that kind of the state.
Play, where you want to be.
Thanks for the question this is Wayne.
The.
The SG&A from this quarter, we look at SG&A on a scale of cash basis, which basically please SG&A minus stock based comp and depreciation and amortization so for us this quarters little over 12 million.
Two points to $12 2 million.
As we ramp up some of the cost of Shannon talked about Q3 and Q4 on on investments.
I think in terms of 12 five to 13.
And then going forward, we don't see any major changes of that unless it's to drive revenue or to drive some development and products that we want to get to the market pretty quickly that'd be the net debt.
And.
And I'm sorry, the way that number is without stock comp and what else was the other thing.
The depreciation and amortization and those numbers, you can find and and and the.
Adjusted EBITDA the calculus right, Yeah, just want to make sure. Okay. Thank you very much.
Youre welcome.
Thank you there are not part of your questions you may continue.
Great well, we appreciate your interest and the and the company as I said I'm I'm excited about the things that we're doing and I've got the team build now and now it's now it's about executing and I just need to and we all need the pandemic too.
Get that thing on the run and the you know.
And I go to bed every night praying for the more vaccines and more needles and arms. So.
We look forward to kind of the one on one meetings and the things with you guys from here, but I appreciate the interest. Thank you.
This concludes today's conference call you may now disconnect. Thank you.
And then.
[music].
Okay.
Yeah.
[music].
And it is.
[music].
And.