Ladies and gentlemen, thank you for standing by and welcome to the USA Technologies Fourth Quarter and Fiscal Year 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] I would now like to hand your conference over to your first speaker for today, Alicia Nieva-Woodgate, Vice President of Corporate Communications and Investor Relations for USA Technologies. Please go ahead.

Thank you and good afternoon everyone. Welcome to the USA Technologies’ fourth quarter fiscal 2020 earnings conference call. With me on the call this afternoon are Sean Feeney, Chief Executive Officer; Wayne Jackson, Chief Financial Officer; and Anant Agrawal, 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 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. 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 SEC 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. 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, a 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 could be found in our press release issued this afternoon, which has been posted on the Investor Relations section of our website at www.usatech.com. And with that, I would like to now turn the call over to Sean Feeney. Sean?

Thank you, Alicia and thank you everyone for joining us today. It’s hard to believe that I am already in my fourth month with the company. The new team has done a lot of work in a short time and I am very excited to update you on our progress. I will start by reviewing our fourth quarter results, giving you some perspective behind the numbers and then Anant and I will review our strategic initiatives for the year and then Wayne will follow to fully detail our fourth quarter results. Lastly, I will discuss our financial guidance for this fiscal year. As you saw in our earnings release and as we touched on during the last earnings call, the COVID-19 pandemic had a material impact on the company in the fourth quarter. Revenue of $32.6 million decreased 15.2% year-over-year. Gross margin was 34% compared with 25.3% in the prior year period due to mix of revenue during the quarter, which Wayne will discuss in more detail in a few minutes. Adjusted EBITDA of negative $0.1 million compared to negative $4.6 million in the prior year period. While these results were clearly impacted by the pandemic from a top line perspective, we are pleased with our ability to control costs during the quarter. On our last call, I mentioned some key cost-cutting moves such as consolidating and eliminating certain positions in the company that trend continues as we work through our new management initiatives as does the focus on reducing the number of consultants the company utilizes. We also implemented a 20% salary reduction for the senior leadership team for the rest of the year. Lastly, we noted that the board had deferred any cash-based director fees until calendar year 2021. Some additional key points you should know about which…

Thanks, Sean. As we exit fiscal year 2020 and we refocus on our growth potential, I find it helpful to start with understanding where we stand today. We are indeed largest and most respected player in the large and under-penetrated industry. Also, we have clear leadership position in technology with innovative solutions and a robust roadmap, backed by valuable intellectual property. In addition, despite the near-term challenges of COVID-19, we believe we have strong tailwinds and our industry is helping our business, which will only accelerate further in a post-COVID world. For example, we released stats yesterday that were based off the study that included hundreds of unattended retail operators spread across the U.S. The study found that one over 60% of their sales in July of 2020, were actually made with cashless payments. This is up from 53% in just January of this year. That’s a huge shift in consumer preference of cashless over cash in a very short amount of time. And two, these trends are important to the industry because on average, consumers spend more when they pay with cashless versus cash. In fact, our data says that approximately 43% more. As such as locations open back up safely in a post-COVID world, we believe these trends will encourage operators to accept cashless on more of their machines and our existing cashless devices will have higher volumes of processing than we have seen in the past. As a leader in the space, we believe we are best positioned to capture the upside driven by these exciting trends. Independent of these secular tailwinds supporting further adoption of cashless, we are well underway with our efforts to drive growth through various key initiatives. First, we want all our customers, existing and future to be fully deployed with Seed and…

Thanks, Anant. Now to move on to our two other strategic initiatives for the year, starting with the rationalization of our cost structure. While COVID is an exogenous factor to which we must adapt, rationalizing the cost base is something completely within our control and is a major focus this fiscal year. As I mentioned on our last call, my focus is on profitable growth, not just growth for the sake of growth. While we will continue to invest in our growth, it has become clear to me during my short tenure that there is plenty of opportunities to significantly cut costs that have nothing to do with driving our top line or better servicing our customers. Correcting the over-reliance on third-party consultants and elevated corporate overhead is a big focus of mine and our final initiative investing in our people and culture in order to achieve excellence. We have made a lot of changes in the leadership team over the last 100 days. My goal and the goal of these new leaders is to come together as a team to bring back a laser focus on our customer, our people and our stakeholders. Lastly and very important for me, a very sincere thank you to our employees for their continued dedication and resourcefulness over the past several months. The safety and well-being of our employees is always a top priority and it has been inspiring to see such a successful transition as they work from home, while continuing to support our customers. With that, let me hand it over to Wayne to walk you through the Q4 financial results.

Thanks, Sean. Good afternoon, everyone. I am excited to be with the company as its CFO during this transformational period and I look forward to getting to know many of our stakeholders over the coming months. I will begin by discussing the company’s FY ‘20 fourth quarter results. Revenue for Q4 FY ‘20 totaled $32.6 million, a decrease of 15.2% from the prior year fourth quarter. License and transaction revenue totaled $27.8 million for the quarter, a decrease of $15.6 million from Q4 FY ‘19, primarily as a result of lower transaction volumes in Q4 FY ‘20 over the prior year. Equipment sales of $4.8 million decreased by 13% in the prior year quarter primarily as a result of the impact of COVID on sales and shipments. Total gross profit margin for the quarter was 34% compared with total margin of 25.3% for Q4 FY ‘19. License and transaction margin improved to 42.3% in Q4 from 33.8%, while equipment margin was a negative 14.1% for the quarter compared with a negative 25.6% in the prior year. The primary driver of the improvement in overall margin was due to the revenue mix for the quarter. As the transaction volume and equipment revenues decreased due to COVID, the higher margins associated with our license revenue stream positively impacted the overall margin. While the discussions on this call are primarily related to our fourth quarter results, there is one item to highlight related to the full year. As more fully disclosed in the earnings release, we have reclassified certain items from SG&A into investigation, proxy solicitation and restatement expenses. We reclassified these amounts in order to more succinctly highlight the approximately $37 million we incurred related to these activities over the past 2 years as well as allow us to prospectively highlight the…

Thank you, Wayne. As you may have seen in our earnings release, while many of our peers are not giving financial guidance due to the uncertainty presented by COVID, we did introduce guidance for fiscal year 2021. For top line, we are expecting a range of $170 million to $180 million in revenue. As many of you know, COVID still raises a lot of uncertainty. So this range assumes no further unforeseen COVID-related impacts, which could create substantial economic duress later this year and into calendar year 2021. This range also expects that the first half of the fiscal year will be impacted both by the COVID-19 pandemic and our continued turnaround in the business. It also assumes that the second half of our fiscal year will be a more amenable environment than the first half in terms of office, school and hotel traffic. We expect that most of the heavy lifting of the turnaround will be completed during this calendar year and anticipate that we will begin to see the benefits of our investment and refocused sales effort in the second half of our fiscal year. While the impact of COVID to our top line is largely beyond our direct control, there are many other levers within our control as it relates to adjusted EBITDA. For the fiscal year, we are expecting a range of $2 million and $5 million. Just like the top line, we expect the EBITDA growth to accelerate in the second half of the fiscal year. In the fourth quarter, we achieved improvements in important areas, which we will believe – which we believe are reflective of disciplined execution of this new management team. While we are encouraged by the short-term results, our turnaround and full transformation of the business is not a short-term exercise. With the new senior management team now in place, a reorganized business structure, redesigned sales force and a stronger capital structure, I am excited about our jumping-off point for FY 2021. While we are not yet out of the woods, in terms of the headwinds presented by COVID and our G&A is not consistent with the business of our size, I strongly believe that the work and investment we are putting in during the first half will start to bear fruit in the second half of the year. Lastly, I know everyone is interested in getting an update on our NASDAQ re-listing efforts. I am personally involved in making sure we do everything we can do to achieve this goal as expeditiously as possible. We will provide updates as we know more. Just to wrap up. While we may experience a few bumps this year due to legacy and external factors, we have an incredible foundation from which to grow this business and will emerge stronger. With that, we will hand it back over to the operator for questions. Operator?

Certainly. [Operator Instructions] Thank you. Our first question comes from the line of Mike Latimore from Northland Capital Markets. Your question, please.

Great. Well, thanks. So I guess on the – on the gross margin, license and transaction gross margin, very strong as you think about transaction volumes coming back and the new processor, where does that normalize around?

Mike, I think that the product mix in Q4 was strong as transactions were down and also showed the strength of our license in – our license line. We would expect that that will come back a little bit more in line as the transactions grow as you know those are not as profitable as our license part of the business. So I would expect that that will come down a bit from what we saw in Q4.

And then I think last quarter you talked a little bit about transaction volumes kind of getting to a certain percent of pre-COVID levels and then you know improving from there. Do you have that kind of data sort of more recently here?

Yes. We have seen with – through the summer, I think the COVID kind of increase in transactions flattened a bit. What we are seeing is that compared to quarter-over-quarter, transactions are down somewhere 10% to 15% kind of on a weekly basis. Now that is a little bit not apples-to-apples and that there are – we do have more devices that are in the field. So we think that when it does begin to come back and people are back in offices, we will see some acceleration. If you look at kind of where we were in February kind of at the high watermark for this year, we are off somewhere in the 20% to 25% range on transaction volume. So significantly off where we were earlier in the year.

Got it, got it, okay, great. And just on OpEx, you talked about $12.5 million of SG&A and then I think it was $1.1 million in D&A. Is that kind of a good sort of baseline for the September quarter?

I will let Wayne answer that one.

Hello, Mike. Thanks for the questions. So relative to the first quarter, the revenue and EBITDA guidance that Sean gave sort of bakes in all of the – all of the quarters and how we see them now. Maybe a more direct answer is, it’s early innings and as Sean talked about, the first half is going to be continued investment which will impact our EBITDA and our SG&A cost and then in the second half of the year, we see that scaling.

Got it. Okay, great, thanks a lot and good luck.

Thank you.

Thank you.

Thank you. Our next question comes from the line of Bob Napoli from William Blair. Your question please.

Thank you and good afternoon. I guess, first question would just – would be on the Cantaloupe, the cross-sell and I think that you had said that, Anant that you felt you could get the penetration rate up to close to a 100% of the customer base. I was wondering what the percentage penetration is today and what gives you the confidence that you could increase the cross-sell that dramatically.

So, this is Sean. What I would say is, we would love to have it at 100% of our USAT customers. We believe that we are around 50% penetrated now and we have reorganized the sales organization and kind of focus then more on the Seed platform as an important part of their compensation plans. So it’s early and that we have got to change that direction and what we think we will see is growing pipelines in the first half with growth being starting to be delivered in the second half of the year.

Okay. Then maybe let me ask one on capital and the capital levels of the business and getting the financing from JP Morgan. Are you where, Sean, where you want to be on the capitalization of the business or is there more work to do? And do you need to do that not only for the health of the business, but also to get relisted?

I don’t think that has an impact on relisting, Bob. I think that we feel that we can fund the business with the capital we currently have. And we are looking at kind of – are there other actions that we should take, but no decisions at this point.

Okay. Maybe just to sneak in one last one, what are your views on the white space for your business, the TAM in the white space and your current share of the market? Kind of a broad question.

Yes, I think as we have talked about, we think that there is ample room for penetration of the Seed platform into the USAT customer base. I think that we do also believe that there is still room for expansion with our – with cashless and our platform as a whole. I think we have seen some of the adjacent kind of industries to vending be very negatively impacted by COVID, which has kind of brought those really to a halt or a stop or a significant slowdown. So we think there is ample time to get to the growth that we want by continuing to expand our cashless part of the business and really we are focused on the solution sale of our platform as a whole. And as Anant talked about, we are beginning to work on some international expansions as well while probably will not – may not bear fruit in this fiscal year, will definitely be counting on in fiscal year 2022.

Thank you. Appreciate it.

Thank you. Our next question comes from the line of George Sutton from Craig-Hallum. Your question please.

Thank you, and first welcome to Wayne. So I wondered if you could break down, how you are thinking about equipment versus license and transaction business going forward, in particular, how you are thinking about equipment sales? Are you looking to bring more partners in, particularly from a financing perspective that might alter the way your revenues flow but obviously have a favorable effect on margins?

George, we have – we focused on looking at the supply chain part of our business. We hired a gentleman in the fourth quarter that came to us from Ingenico and was involved their supply chain. So we are looking at kind of all aspects of that and ways that we can best manage that part of the business from a cost point of view. I think that we have partners for leasing and financing of hardware for people and I think that we will look to expand that and have as many options as we can for customers. And so we are kind of looking at all of that, but not a lot that decision wise that I can talk about, yes.

Could you give us a bit of detail on the sales force realignment? How are you now structured differently than you were before?

Sure, I will ask Anant to kind of talk through what he has done with his organization to kind of focus them on the customer and sales in the various segments. Anant?

Sure. So in the previous organization, sales, marketing and customer service were different functions reporting to different layers in the business. And what we found is that it was fairly siloed off. So in terms of the overall kind of customer experience of working with our company and our solution, lots of hands off, hands on kind of transition issues when questions have come up or sales opportunity come up it just wasn’t very efficient. And so what we have done is, we have – under my organization brought all those function under one umbrella. So for marketing to sales to customer service to implementation teams and operations, all that now comes under one umbrella. So now when sales opportunity is coming up all the leaders of each of those functions are aligned, they are communicating a lot more and that’s kind of what we are evolving to in terms of driving them our SaaS enterprise level consumer experience working with our business. Specific to the actual sales force itself, we are realigning what we call different tiers of how we attack the market in terms of kind of the small, medium, large operator base and kind of putting the right skill set that were a little bit misaligned before and hiring more people against the enterprise and larger size operators.

Got you. Finally, and this is a – since NFL season has started and we are going to start betting again, I am going to make a bet that Fernando does better than 8x that he did at VeriFone in your Latin American market over the next 3 years. And I will take any bets, any comers. That’s it for me.

I would love to be on that side of the bet with you, George. We have got high expectations for Fernando and he will hit the ground running in a little – at about a week and a half. So we are excited to have him and you know you did some great things for Doug Bergeron at VeriFone and Doug strongly endorse that we bring him on and having begin working in that part of the market.

That’s great, thanks.

Thank you. [Operator Instructions] Our next question comes from the line of Gary Prestopino from Barrington Research. Your question please.

Alright. Good afternoon, everyone. I wanted to just ask on Anant, some of the things that you were talking about in terms of new verticals and new markets. I didn’t quite get the markets first of all. Did you say Mexico was one and then did you give us another one?

Yes. So we are focused on our international expansion for markets around Asia and in Latin America.

Okay. Asia and Latin America, okay. And your platform can work in all of those different regions, you can go international with the platform that you have, right?

Correct. And like I said, mentioned in the earlier talk, our focus is really to leverage our IoT and software services as kind of our tip of the spear into those markets. Cashless is something we are going to lean on partners as we get into these countries. And probably because I think a lot of people know it takes a lot of time and is very focus to certify cash installations in new markets. And so that’s kind of our strategy as we look at these two regions.

Okay. So that led me to the second question. You talked about, they always used to lead with cashless under the prior regime. Now you are going to be moving more towards trying to sell that enterprise solution that you got from – with the Seed – or the Cantaloupe acquisition. And if cashless comes, it comes that’s secondary?

Yes, the way we view this – oh sorry, Sean.

No, go ahead, Anant.

So the way we view the platform, when we talk about platform, it’s all the services we provide, right, ultimately, a platform that provides IoT, data, logistics, cashless payment. All of these are services around essentially the full platform that we are providing. Our customers that are all in with us, leverage all of those technologies and get the best benefit from the full platform. However, when you go into new markets, when you talk to operators, you talk to customers, some may have cashless as a priority, some may have logistics optimization as a priority. Some may just want connectivity and historically if it wasn’t cashless first, we didn’t really know how to engage with those customers. With the Cantaloupe platform integrated with the ePort platform, we now have a breadth of all those services and now we are making it easier for our sales organization and our customer service organization to engage with customers to get onto our platform in any of those services as a first piece, but with the eye towards bringing it all on over time.

Okay. And then I just wanted to ask about the remote pricing. Are you the only one in the market now that has that?

Anant, do you want to comment on that?

Yes, sure. So the promise of remote pricing has probably been talked about in this industry for 15 years, 20 years. And functionally at a high level, selling an enterprise a machine is not, it’s not a hard part. The hard part really is how do you build it into an operative workflow processes, where if they are doing remerchandising their machines, they have to get a software platform and tell them, these are the products you want to take. Well, then you need to also change the prices if the prices are different. And so there’s a whole bunch of different use cases that use the underlying technology of remote parts change. And then today, I believe we are the only ones that have actually delivered on some of these workflow processes. That take into account, not just the actual RPC piece, but how does an operator use it at scale.

Okay, thank you.

Thank you. Our next question is a follow-up from the line of Bob Napoli from William Blair. Your question please.

Just a question on your – the health of the customer base, obviously, I mean your market segment has been – portions of it had been hit really hard by COVID. Have you seen customers go out of business or have you seen many customers go out of business and maybe – just maybe some commentary around the strength of the customer base?

Yes, I think we have definitely seen some small customers either sell out or in some cases not many, go out of business. And we have really seen kind of a mix of impact. So if you can imagine if your business is predominantly a coffee in an office in a major city, your business is really struggling. I was with a customer the other day that said that they had seen good kind of beach seasons but now that they – this is normally when the beach ends and school and college comes back. Their school business K-12 was down 90% plus over year-over-year and their college was off 45%. So we really need kind of to get back as I said earlier and to, I think it was George that talked about the NFL. We need people back in offices, kids back in school, kids in college fully engaged, people back in hotels. I have been traveling a little bit hotels are – while a little bit more than they were a month ago, they are still predominantly empty and then sporting events. There is a lot of vending at sporting events. So COVID – while the stock market is up, continues to kind of really hit our customer base pretty significantly.

And that’s what I would expect, I guess. On the technology side, what upgrades, where do you need to invest, where are you investing and what kind of new releases or upgrades are you working on?

So the biggest thing that Jeff Vogt and I and the team have been working on is the prior management made a lot of commitments to partners, a lot of commitments to customers that they did not follow through on and have a really good discipline process. And so we have been rationalizing kind of well over 100 kind of deliverables down into the ones that make the most sense. And in some cases, we are doing a lot of work for very little revenue while we let things that could drive good revenue stand in line behind us. And so that’s the main thing that we are working on through the first half of the year. We are working on with our customers with remote price change and getting all of the various ePort devices available to work with that and that really begins to unlock the power there. We are looking at a number of other things that we think can drive revenue. And to the earlier question around international, of course, there would be translation work and some integration work. Ultimately, what we want is our platform to be very easily integratable to other pieces of software, and as you get into larger customers that becomes more and more important, and that is an area of focus for us of looking at how we can do that faster, quicker and it could potentially also be a revenue line for us.

Thank you. And then just a follow-up on Latin America, what’s the game plan from a team hiring or marketing? What is that –what is the expense that’s going to go along with that, the exact time frame to like get material results may be a year from now or something like that, it sounds like and what’s the opportunity?

Great, great, great question. I think that what we believe is that Fernando who we have hired knows that market very well as, he has worked there for a great number of years. I think he has had a lot of success with partnering. We believe that the success internationally is looking for partnerships that we can work with and drive. And so in the near term, he is basically assessing the various markets and looking for opportunities that we can ultimately grow. And as I said earlier, I would love to see something in this year, but it is probably a 2022 before we begin to see impact on that but Fernando has done it before, and I am counting on him to find us some great opportunities that that we can take advantage of. As we sit here today –

There is something software.

We know the software works, there maybe some localization that we need to do and may be some integration that we need to do there as well.

Is there something to acquire that makes sense, other platforms, other small businesses or anything that you are looking at or would be interested in?

Yes, I think that’s all part of our strategy. I think in the near term, I am trying to get the company on very solid financial footing, so those sort of opportunities when they arrive we have the capability to take advantage of them. But many times, moving into new markets, M&A is a way to do it, partnering is another way. I don’t think you will see us just go by ourselves in new markets. That’s just – that’s very difficult.

Thank you. Appreciate it.

Great.

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

Yes. Is it possible to just get some statistics for Q4? I didn’t see them in the release. But can you give like what’s the gross connections were – number of transactions in the dollar volume, transaction volume?

Wayne, I don’t know if you have that.

I don’t.

Okay. Yes. Alright and then Sean, I just wanted to ask you as you have gone around and talked to your client base what were, what were some of the pinch points there that the client base may be cited of things that were not done correctly or were not done to their liking with the – that you can really strive to improve going forward.

I think there is a couple. One is we need to be better in our customer service area, and what I heard from customers was you are not servicing as well. And so in the near term, we are adding some people there and looking at how we can best do that, but we have got some people that are not happy with the way that we have serviced them over the last couple of years. Secondly, I think as I talked earlier, the sales organization made a lot of commitments that were not necessarily well coordinated through the organization, and we are working our way through our – through that and working our way out of it. But I think that there are things that we have let sit through various reasons that we are correcting and in some cases having tough conversations with people that we are not going to do this, there’s just not enough revenue. In other cases, we are trying to accelerate deliverables because they ultimately could drive revenue.

Okay, alright, thank you.

Gary, excuse me, this is Wayne. The connections are $35,000 for the quarter, brings our total connections to $1.3 million.

No, we have that. I was asking what the gross connections were and what the transactions in the volume. That is the data that you usually give, you put it in the Queue, but obviously the K is not going to be ready for a while. So if you don’t have that handy, that’s fine.

Yes, I don’t. Yes.

Okay, thank you.

Thank you. Our next question is a follow-up from the line of Mike Latimore from Northland Capital, your question please.

Great. Yes, I just had a question about further Seed penetration. So if you are at kind of 50% penetration a base and you have another 50% to go. How much of that incremental amount is kind of greenfield versus replacing a legacy system that may be in place.

Anant, you want to comment on that?

Yes, sure. So I don’t have the rough percentages for you on this call, but directionally, most of the larger operators out there, thousands of machines, they are usually and they are not on Seed already, they are usually on some sort of competitive software solution in the marketplace. They tend to be fairly old legacy platforms and so that’s been a big target for our sales organization. On the small operator side, they basically have nothing. And so we feel like to that’s a really large white space that we’re going to go after with some investments on the Seed side.

Great. And then regarding the study you did about – where you had some data on contactless transactions. I guess, do you have visibility into what percent of your current transactions are sort of contactless credit card or Apple Pay?

Yes. As we said, we have seen really a lot of growth in contactless within our transactions, it’s grown from about 9% in the beginning of the year to the high teens through the first two calendar quarters. Now, there is a lot of focus around contactless in the market, and while growing off a small base that’s pretty significant growth.

Yes, definitely. Alright, thanks.

Thank you. This does conclude the question-and-answer session. I’d like to now turn the program back to management for any further remarks.

Well, thanks everyone for listening and your interest in USA Technologies. And we will talk to you soon. Thank you, operator.

Thank you, and thank you ladies and gentleman for your participation in today’s conference. This does conclude the program you may now disconnect. Good day.