Good day and welcome to USA Technologies Third Quarter and Fiscal Year 2014 Earnings Conference Call. Today’s conference call is being recorded. At this time, I would like to turn the call over to Veronica Rosa, Vice President of Investor Relations. Please go ahead.

Thank you and good morning. Before beginning today’s call, I would like to remind our listeners that all statements, other than statements of historical facts included in this call are forward-looking statements. 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. A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in our filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K and the Form 10-Q report for the quarter ended December 31, 2013. 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. 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 understanding our ongoing operations. 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 items and a reconciliation of these non-GAAP financial measures to GAAP financial measures can be found in our press release issued this morning and on the Investor Relations page of our website www.usatech.com. On our call this morning are Stephen Herbert, Chairman and Chief Executive Officer; and Dave DeMedio, Chief Financial Officer. We’ll begin this morning’s call with a review of our results relative to strategic priorities followed by a more detailed analysis of third quarter results by days. Steve will return for some brief closing remarks before opening the call to questions. So at this point, I’m going to turn the call over to Steve. Please go ahead, Steve.

Thank you, Ronnie and good morning, everyone. The third quarter included some great progress and important milestones for USAT. Revenue of $10.4 million grew 16% and license and transaction fee revenues representing 86% of total revenues in the quarter grew 19%. More importantly the steps we’ve taken to attract new connections to our service in vending, laundry, taxi amusement and other markets are yielding results with 22,000 gross connections added in our third quarter, the highest we’ve ever achieved. With 20,000 net connections added in the third quarter our total service base grew to 244,000 up from 196,000 as of March 31 one year ago, an increase of 24%. In addition the third quarter included several important news in vending and taxi and transportation that span beyond the quarter giving us a very healthy pipeline for new connections going into the fourth quarter. If you’ve already had a chance to review our press release another big event for USAT that most likely jumps off the page was the $26.7 million deferred tax asset recognized in the third quarter. This recognition event moved our GAAP net earnings per common share to $0.75, while non-GAAP net per common share came in at breakeven. For all of you who aren’t tax experts like myself essentially what this means is that based upon our recent earnings performance and our belief that we’ll continue to generate taxable earnings, this $26.7 million reflects the portion of future earnings on which the company will not be required to pay tax. We’re also very encouraged by what we’re seeing in the $120 billion self-serve retail industry that we address. There is a growing (awareness) on consumers, customers and partners that a cashless transition is well underway. As I mentioned last quarter this stage of an emerging markets requires…

Thank you, Steve. Our results for the third quarter reflect continued progress in growing our recurring revenue base including a strong quarter of new connections that will benefit future periods. As Steve noted our Q3 GAAP EPS included a $26.7 million benefit from income tax related to the reduction in our valuation allowance as we recognized deferred tax assets in the quarter. Under GAAP valuation allowance can be reduced as we have determined that is more likely to not that our net operating loss carry-forwards would be realized to offset future taxable income of USAT. We took a conservative approach to this analysis given among other things our (cross-server) to profitability in 2Q of last fiscal year with a $26.7 million representing a little over half of the total deferred tax asset. We will continue to revaluate the need to keep some or all the remaining $22.8 million valuation allowance on our deferred tax assets as we continue to grow taxable earnings. Reflecting the deferred tax asset, GAAP net income for the third quarter was $26.9 million. After deferred dividend GAAP net earnings per common share was $0.75 for the third quarter. On a non-GAAP basis which excludes the benefit of reducing our valuation allowance and the fair value of warrant adjustment non-GAAP net income was approximately $322,000 for the third quarter compared to non-GAAP net income for Q3 of fiscal 2013 of $293,000. After preferred dividends non-GAAP net loss per common share was essentially breakeven or zero for Q3 same as Q3 of last year. In all total revenues for the third quarter grew 16% to $10.4 million, license and transaction fees grew 19% in the third quarter to $9 million. License and transaction fees are generated by monthly fees and transaction processing fees that stem from connections to…

Thank you, David, and thank you all for your attention this morning. I can’t emphasize enough on our current (indiscernible) but what I’m seeing in the marketplace with our own improved execution in driving new connections for USAT. We had a record number of new connections for the third quarter. We’re driving 20% revenue growth even after a major headwind for the year. We have a very healthy pipeline going into Q4 and we still have more upside to recognize from Q2 and Q3 connections. Strategically reflecting the power of our service model to create added differentiation and new opportunities including more customers and more third-parties that want to do business with USAT. Lastly if you got the press release last week we’re very proud to be the recipient of Frost & Sullivan’s 2014 North American Award for Customer Value Leadership in Financial Services and Retail M2M Communication. Frost & Sullivan is a highly respected global research organization and to have their 10 step research process validate what’s happening in this industry and the leadership role played by USAT is simply another great milestone event for the USAT and for it’s shareholders. And now operator we’d be happy to take questions, so if you would please go ahead and provide instructions for our Q&A session. Thank you very much.

Thank you. (Operator Instructions) Our first question comes from the line of Gary Prestopino from Barrington Research.

Hey good morning everyone.

Good morning, Gary.

Couple of questions, I’ll just try and take them one at a time or I’ll get back in the queue. Could you maybe just in terms of these deactivations and the change in the gross margin where it’s basically been down the last couple of quarters. Could you explain how the deactivations impact that gross margin and then I guess the question going forward would be, had these annualized would that gross margin get back to where it was in the close to 40% range or has something changed in the industry competitively that will not allow you to do that?

Gary, thank you for your question. This is Dave. Regarding the deactivations and how the impact margins. The deactivations that came off the network of 21,000 over the past two quarters. We are at a slightly higher margin, slightly higher margin than some other connections that we had. And when you lose the 21,000 which is a significant component of our outstanding non connections that tended to decrease margin as those came off of the network. And again as I mentioned this quarter Q3 in particular was a first quarter where we had no revenue associated with those deactivations. In the prior two quarters we had partial recognition for maybe a month or two in each quarter of some of those deactivations. Regarding outlook for future quarters it’s our goal to structure particularly in the vending industry, our revenue targets and our billing to our customers to try to achieve a 40% margin. Given the certain marketing programs that we put in place began to drive strategic growth in market share. Quarter-to-quarter that could be impacted at 40% depending upon the volume and the type of marketing programs that we put in place.

Okay.

So hopefully that answers your two questions.

Sure. That’s fine. I’ll get back in the queue.

Okay. Thanks, Gary.

Thank you. Our next question comes from the line of Mike Latimore from Northland Capital.

Great. Thanks a lot. The – how would you envision CapEx plan in the fourth quarter and is the new G9 sort of can be the primary hardware sold in the quarter?

It will, Mike. It’s – in terms of hardware coming out of this company by and large other than things that we might sell with ePort Mobile or ePort GO that’s the primary hardware platform, it’s going out from an ePort perspective. So we have the full benefit of that in this quarter.

Can I – could I add to that, Steve. Mike, in addition in terms of Q4 CapEx it’s really going to be dependent upon how many connections in Q4 come from JumpStart. As you know we’re focused on achieving our goal for connections which is a – it’s a meaningful amount of connections that we need to achieve for Q4. So if we have a similar quarter in which 65% or a little over 65% come from JumpStart would probably have again a higher amount of cash used in the quarter for JumpStart. With that said if you look at the cash used in Q3 for JumpStart on a per unit basis you will see a marked reduction in terms of the cash used on a per unit basis. So we’re getting more connections now under JumpStart now with similar dollars that we’re spending.

Got it. Could you talk a little bit more about the strong start of this fourth quarter, is this a couple of big customers, is it a broad-based demand and what does the gross margin look like kind of the recent orders?

Mike, I don’t I’m not quite sure we were able to hear you clearly there. Would you repeat your question please.

Sure, sorry about that, yes. In terms of – you talked about strong demand starting in the – start of the fourth quarter here. Could you talk a little bit about that, is that a couple of big customers or is it more broad-based process of several customers and then what does the gross margin look that like some of these new orders coming in?

Okay. Well the customers there are a couple of customers that makeup a fair amount of the – that makeup a fair amount of the backlog. One would be the canteen operator that I mentioned and another would fall into the taxi space. And by the way Mike not to digress looking forward one of the points I wanted to make and you can get to when Dave was talking about JumpStart expenditures going forward I think there is some Intel we provided in today’s prepared remarks that kind of gives you an idea that JumpStart as a percentage of our whole may change. And if you particularly look at laundry and taxi and partners like AirVend just three examples that we talked about today. As you look out past – into QA and into next year the dynamics with JumpStart will change in addition to Dave’s comment of getting more for relapse with the G9. So I wanted to add a little bit on that capital question but also clarify on your question regarding the customers driving the backlog.

Yes, okay. Thank you.

Thank you. And our next question comes from the line of Alexander Renker from Sidoti.

Hi, good morning.

Good morning.

Just questions a little bit more general but I’m curious, do you have a sense of what profitability would look like if at the expense of say growing taxi and laundry revenue, the company were exclusively focused on vending. I guess that might be another way of asking, what are some of the startup costs with the ramp in connections for taxi and vending given that it’s a small component of revenue at this point?

Well Alex thanks for the question. In terms of startup costs and development costs, those taxi customers in particular that we’re bringing on today came through our ePort QuickConnect service which is really a total use for developers of other types of equipment other than vending machine that connect to our service. The onus really is then on the OEM as those devices and the costs are on the OEMs to develop and integrate to our network. So there is little startup in development cost that we put into this application in particular and in terms of market development we’re using third-party resellers to help us sell into that marketplace and utilizing the footprint of those resellers to help us distribute products.

Well if you (indiscernible) in taxi and transportation as an example Verizon is selling that solution for us. So not only do the systems integrators and the OEMs of the world do the development work to connect to our service, but we’re also leveraging on the other end of the equation we’re leveraging our partners such as Verizon to use a big example to drive distribution in this space. So to answer your question in a longwinded sort of way the answer is no, there aren’t a lot of startup costs and it’s really the thing for laundry where Setomatic Systems did their own integration work and certified on our system and their the fee on the street out there all day everyday selling and installing this solution. So it’s a great question for a small company like ours but I can tell you that lion’s share of the resources go into our core market and that spending we’re – with our direct sales force and our operations people etcetera they spend the majority of their time on that market. Thanks for that question. I hope that helps.

Yes, it does absolutely. Thank you.

Thank you. Our next question comes from the line of Jim Gentrup from Val Vista Capital Management.

Good morning. Can you hear me okay.

Hear you, great.

Just wanted to ask a couple of quick questions. The seasonality that you guys usually have in Q4 I mean – have you already factored that into your guidance a little bit here or do you expect that strong seasonal fourth quarter as usual for connections?

We typically do have a strong fourth quarter and I don’t think this fourth quarter should be any different in that regard it’s we’re not counting on some giant spike, it’s where we’re headed with the quarter is somewhat predictable. So it will look much like past fourth quarters but perhaps not quite as pronounced.

Yes, I just wanted like this year your gross ads every quarter have been sequentially higher. And I can’t recall and then hear since I thought you kind of – this sequential jump each quarter, so I just want to kind of had that comment I guess it seems like you’re getting some momentum especially on the gross ads like..

Well I really picked up on that gaming momentum comment, that’s very much what it feels like in the business right now. And just away that given somewhat my prepared comments I talked about how customers are looking at things. The example of the Compass operator I gave they decided to go to 60% of their base from a small number to 60% of their base and that’s a big move. Customers are starting to behave in different ways which is and particularly in vending which is manifesting itself in our connection numbers and so forth.

The 12,000 that you talked about that were delayed or deferred the licensing and transaction. Is that a typical delay or did you get them – was there some sort of a competitive negotiation where you have to push it out a little bit more?

Our customers typically need a little time to get their devices in. We happen to give as part of an overall transaction we happen to give a couple of customers a little extra time to do so and so it’s – it was part of a process.

Okay. But you did get the activation fees in those 22,000 drag in Q3?

For the 12,000, I really don’t recall whether or not, I don’t recall whether or not we did get the activation fees on those specific customers.

No, I mean I guess I didn’t ask the question correctly enough. The 22,000 gross ads that you put in and you did recognize the activation fee in Q3, didn’t you?

We do. Generally every connection particularly in vending has an activation fee. Some other connections those outside of vending like in taxi we have different selling parameters with them, some of those don’t carry an activation fee. But generally in places where we’re able to charge an activation fee we charged an activation fee. Each customer is at separate negotiation so there may have been some of the vending connections that went out that didn’t have an activation fee charge.

Okay.

But in general yes and that was one of the reasons we mentioned for an improvement in equipment revenue activation fees for the quarter.

Okay. And then last question if I may. The sales and marketing expenses have been pretty uniformly up throughout the year. Can you help us out a little bit thinking you only have one quarter left and I assume that same impact or similar impact will be on Q4, but what about going forward, are you continuing to add what we have another pickup in next fiscal year?

Jim, well I think we’ve stated that we will continue to be aggressive in sales and marketing and I don’t think we’re done adding resources in sales and marketing. So I think there – we haven’t guidance for next fiscal year but I think generally if you takeaway is that we’re going to remain aggressive in sales and marketing and that may mean adding resources in that department.

Alright. Thanks guys.

Thank you.

Thank you. Our next question is a follow-up from the line of Gary Prestopino from Barrington.

Hey Dave just for our purposes as we’re trying to model Q4 I know you don’t give direct guidance. But you kind of pulled back and said it’s going to be challenging to get 40% year-over-year growth in adjusted EBITDA and 25% growth in license and transaction revenues. What ranges are you kind of thinking here so we at least have some idea of where we should bring our quarterly numbers into?

Gary, it’s a good question. Generally obviously we’re targeting to achieve those milestones. Conservatively though I think if we have another Q4 that somewhat in line with the Q3 you’re probably looking at adjusted EBITDA in the range of 27% to 35%. And in terms of license and transaction fee growth in the range of 20% to 23%.

Okay. Alright. And then do you guys put any number on the amount of connections that are in your pipeline, is that something you’ve stated in the past or you could share with us?

Gary, I don’t think we normally comment on that. Although – but I think it’s safe to say we went into Q4 direct what we would call a healthy pipeline.

Okay. And then in terms of just looking at the net ad sequentially I mean it’s obviously increased pretty dramatically. That’s obviously pointing to number one more adoption correctly within your existing base but going into some of these new vertical markets as well, do you show some color on that?

Well I think if you hit their nail on the head I can’t remember the exact percentage. A large portion David it’s 70 odd percent.

75%.

75% of the connections to the quarter came from our existing base. That will continue to be the case. I think Gary as we gain momentum in our customer base I think using that one example I get going from a relatively small number and making the decision we go to 60% penetration. These are new market dynamics that are very encouraging to us and support the fact that as we move into the fourth quarter and into next fiscal year that a lot of our business will come from the existing base. However on the other hand you’ve got things like – just to use two examples that we talked about today taxi and transportation as well as laundry picking up momentum, our partners are picking up momentum in terms of the number of connections that they’re bringing to us. So we’re really hoping for a healthy mix of connection additions as we move forward.

Okay. Just to be clear we’ve taken notes as you’re talking. You added 2,000 new taxi connections this quarter. Was that from the existing business that you signed a couple of quarters ago that I believe was in Washington DC or is that a new taxi entity?

It was actually – it was at least one if not two new partners.

Okay. Two new partners, okay. And then you also said my notes here again you have 12,000 in the pipeline or 12,000 that couldn’t get connected in the quarter or is that.

I think what we said and Dave can elaborate on this if he wants to but. There were 12,000 connections that were out there that didn’t impact, we told they didn’t – they haven’t impacted – they didn’t impact our third quarter.

So that’s 12,000 connections.

That did impact – that went out earlier in the year and they didn’t impact Q3.

Okay, alright. Thank you.

Yes.

Thank you. And our next question comes from the line of Mike Latimore from Northland Capital.

Hey great. Just a couple of other questions here. On the connections that were not JumpStart. How many were kind of hardware sales versus the situations where there was a software endpoint?

Well the – I can say the two – well Dave I’ll let you answer that, you have your own, you have the question.

Yes, I did. Mike, roughly 80% of our connections came in vending. Of that approximately if I only back-out of the 100% of all our connections 10% roughly were ePort sales which is part of that 80% that went for vending. So the remainder would have been under JumpStart. And then I had mentioned the 10% came in each taxi that was non JumpStart and then the other 10% that came in amusement, laundry, and other market segments were non JumpStart.

Okay. And then was EnergyMiser revenue big in the quarter or low or.

Miser was down year-over-year quarter comparatively. Miser is becoming less and less of the part of our business. It represented less than 3% of quarterly revenues this quarter, but some quarter-to-quarter it was down and that was one of the reasons for part of the equipment revenue being down as well as some of the sequentially quarter-to-quarter Miser sales have been relatively down and flat from prior years. So it’s becoming less and less the part of the total revenue of the company.

Okay. And just last on license and transaction gross margin. I know you have fair line of getting to 40% periodically. But do you think this is the number in this quarter is sort of the bottom, is this the floor, do you view it as (floor)?

Well I view it as a floor in terms of vending connections, yes. As we look out into new fiscal years with some of these new market segments that we’re getting into and I think we’ve got this call – this question on a previous earnings call what will these new connections do in terms of mix of GP margins. And we’re going to get back to the market as these connections start become meaningful part of our overall connection base and start to materially impact the results. But in terms of where we are today and with the amount of vending connections we expect to continue to get and expect to remain a majority of our connections going forward. I would expect that this would be a bottom, yes.

Yes, thank you.

Thank you. And our next question is a follow-up from the line of Jim Gentrup from Val Vista Capital Management.

Yes. The 2,000 deactivations you had this quarter, that’s correct number, right 2,000?

Yes.

Was that the same customer as previously, the same customer, the large customer that was deactivated the 21,000, is that the same one?

Some of those connections yes came from that existing customer.

Is that an existing customer I am sorry, go ahead.

The majority of order of deactivations that we talked about came from the same customer.

Correct.

Everything (indiscernible), yes. It’s that one customer and we’re working our way through that customer, a little bit faster than we anticipated which is both good and bad. But the good news is that we’re getting it behind us, the bad news is that it gave us a little more headwind this year than we expected. But candidly I’d rather clean it up cater behind us and move on, it’s a one-time event.

Alright. Do they have many connections left?

They have about 6,000 left.

Okay. Thanks.

So those will go away over time. And from a financial perspective you have to think about it as we have the majority of it behind us.

And we had said on the previous call the amount of revenues associated with the remaining connections was approximately $175,000 per quarter. So as Steve said it’s largely behind us.

That number actually would be lower than now obviously?

Slightly lower as they removed some of those, yes.

Alright. Thank you.

Thank you. And that concludes our question-and-answer session for today. I’d like to turn the conference back to management for any closing comments.

That wraps it up. So I think if anybody has any follow-up calls please call Investor Relations, 484-359-2138, and thanks so much for tuning in today.