Ladies and gentlemen, thank you for standing by and welcome to the USA Technologies Fiscal Year Second Quarter 2021 Earnings Conference Call. At this time all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. I would now like to hand your conference over to your first speaker 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 second quarter fiscal 2021 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 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 usatech.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. During the second quarter, we continue 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 continue to build out the team with talented new hires and we successfully preserve and grow 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 in products and services to better serve customers, as well as to systems that the company needs to scale in the years to come. This is the first time in a long time that the company has invested 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 continue to create a challenging operating environment. As it relates to transaction volumes, we saw a steady recovery from July to October of 2020. However in November, we saw a reverse net trend as COVID cases spiked, the second COVID wave led to additional lockdowns and further delayed openings of office buildings and schools and caused some operators to temporarily deactivate additional devices. I am optimistic that volumes will rebound relatively quickly once schools and businesses reopen. For equipment sales, we are seeing positive momentum in our efforts to upgrade customers to the 4G ePort device. Some operators, still cautious of their liquidity during the pandemic are committing to upgrades that are waiting…

Thanks, Sean. I want to touch on four focus areas today. First, our platform as a 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, cashless and logistic software. Jackson Brothers of the South is a great example of this. As we recently highlighted in a case study on our website, they decided to make a change from the legacy VMS solution in 2019 to the Seed platform bringing their ePort cashless devices and software solution onto a single platform. Since then, they have expanded their use of our platform to help manage growing their micro markets and office copy-lines of business. And now with the recent announcement on upcoming cellular sunsets, Jackson Brothers has decided to upgrade all their devices with us to 4G LTE and EMV simultaneously. As a result, Jackson Brothers now has one central place to view, manage and adapt to its client needs across the whole business with a single solution provider. Second, penetrating the broader unattended retail market outside of traditional vending. As an example, we recently expanded our business by deploying cashless on 100% of the machines 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 2020. We continue to see the shift to cashless payments accelerate in the study sample set from January 2020 to July 2020, we saw a cashless grew nearly 62% of total sales, while they use of cash continue to decline. When we look at our own data what transactions are down. We see cashless accelerate from 61% in September 2020 to 65% of total transaction volume at the end of December 2020. Our customers are seen similar trends where cash continues to accelerate across their business the Jackson Brothers that example, how operators are seeing the benefit of enabling all forms of payment particularly cashless. And Fourth, growth in international markets since Fernando joined us a few months ago, we have engaged with several potential in country partners and early anchored customers in Latin America. We are encouraged by the activity and the potential that 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 in full detail. Wayne?

Thanks a lot. Good afternoon, everyone. Revenue for the second quarter of 2021 totaled $38.3 million, a decrease of 13% over the prior year second quarter and an increase of 3.8% from Q1 license and transaction revenue totaled $33.2 million for the second quarter, a decrease of 7% in the prior year, which was not impacted by the COVID virus, license and transaction revenue increased slightly over Q1 as the transaction momentum gained in the second half of Q1, in the first half of Q2 was lost as COVID cases began to increase in 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 2021 compared to the same period last year which included a large contract with a new customer. Sequentially equipment sales increased 35% as we continued our focus on new customer growth and 4G conversions. Total gross profit margin for the quarter was 32.1% compared with total margin of 29% from the prior year second quarter and 38.6% in the first quarter of FY 21. License and transaction margin improved to 38% in the second quarter of this fiscal year, up from 36.8% in Q2 of last year as transaction revenue had higher margins and in the prior year. L&T margins declined from 41.6% in Q1 due to a lower percentage of license revenue. The total L&T revenue in Q2 equipment margin was negative 5.8% for the quarter, compared to negative 5% in the prior year as we provided incentives for 4G upgrades, equipment margins for Q2 declined from a positive 12.4% in Q1 as the prior quarter included a one-time out of period adjustments. Operating expenses in the second quarter totaled $14.9 million, a 28% decrease over the prior year. SG&A expenses in the second quarter of FY 21 totaled 13.8 million, which decreased 14% from 16.2 million in Q2 of the prior year. The change was driven by lower professional services cost and lower severance expense in 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 compared to the current quarter, the operating loss for the second quarter was $2.6 million compared to a loss of 7.8 million in the second quarter per year. In addition to SG&A savings, the other primary driver of the improvement in the second quarter of FY 20 is a $3.3 million reduction in investigations proxy solicitation and restatement expenses. Net loss of applicable to common shareholders for the second quarter was $2.9 million or a loss of $0.04 per basic share compared to $8.4 million or a loss of $0.13 per basic share in 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 are three more important Q2 updates to highlight. First, in November we were re-listed on the NASDAQ Global Select Market. This represents an important milestone in our journey to build a better, stronger company for our customers, employees and stakeholders that achieves [ph] and 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 our corporate identity to exclusively operate under the name Cantaloupe Inc with a new ticker symbol. This is another major milestone for us as the Cantaloupe name has great brand equity in 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 2021 puts our company in a great position to better compete in the growing global market and delivers on our mission to help the world buy it and go. Third, as I'm sure you saw in the earnings release, we have updated our device and customer count disclosures, which we believe are both better representations of our business. This is 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 have 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 in the last 12 months was 18,000 during the quarter. To wrap up, we continue to increase…

Thank you. [Operator Instructions] We will now take our first question from the line of George Sutton. Your line is now open.

Thank you, Sean. I wondered, you had mentioned that you are continuing to grow in spite of the COVID scenario. As you know, industry numbers are hard to come by, I'm 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 providers, we are probably seeing more kind of some of our current operators expanding their, their cashless devices as well as some new operators that are coming in as you know, there is a lot of kind of in this probably the lower end of the market. Those guys are going to come in and out of business. And there's been a number of sales of those businesses. So, some take away some new customers and then some expansion of existing customers is what we've seen.

Got you. My other question you and we've been, first thing for new KPIs. So, we appreciate those and there is about 200,000 [ph] between active devices and total connections and I'm curious if you could give us a sense of, is that an opportunity set that exists, if once COVID become 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 to look at what we have, essentially the connections number was basically all the active devices that were in devices that were sold at one time, they may have then loss they may not have been connected. It just is a tighter representation of what's active in the field. So, there may be some there but I wouldn't look at it is as 200,000 [ph] there, we just need to turn on.

Got you. Perfect, thank you.

Thank you. Your next question comes from the line of Gary Prestopino from Barrington Research. Your line is now open.

Good afternoon, everyone. And Gary could, would you get a read on 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 USAT. 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 an uptake from customers that are not taken will be Logistics Software?

Sure. I think what we've talked about is the penetration of Seed probably being somewhere in the neighborhood of 50% of our existing customers and probably tilted more towards the large end of that and we're beginning to put in place some sales or some incentives for our salespeople and really what we're trying to drive is kind of all in. So, we are focused on ePort devices that don't have Seed and trying to expand that and we've talked about our model of being all in. We are also looking at I think one of the things that are not talked about is for a couple of years post acquisition. The company used the Seed software and probably deeply discounted and we're living with some of those, those deals in order to get connections. So, what we are doing is we're working with some potential partners that we think can increase the penetration in the entire market. We're also working on trying to make it easier to install at the lower end of the market and we're really kind of got our entire team incented around pushing kind of all in not just selling connections with selling our total solution.

Okay, that's helpful. And then in terms of [indiscernible] devices that you signed up, which is I think phenomenal can have the country is closed. And are you basically seeing more of a concentration with the new devices with bigger entities? and I guess the other question would be is that given what's going on in the industry. Are you seeing a lot of consolidation, a lot of the smaller operators just basically selling out to the bigger players in the market?

As always, you've are fully wrap several questions into your one, but let me take a crack it. So, I do think that you've seen a good amount of what I would call movement in the market as when we see that when we get contacted to transfer devices. So, I would say, what we saw and probably this quarter was probably a little bit of an acceleration of some of the M&A opportunities, I think what we also saw as we've talked about the de-activations, as we saw some operators more on the smaller end just get to the point where they couldn't hang in anymore without another PPP loan. And so, we saw increased the activations, were they just had to take the devices out and movement there and the new devices it's really kind spread across of course a larger operator 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 around manufacturing and those sorts of facilities. And if you've. We have a number of operators who are supporting some retail players who are expanding greatly you can kind of guess who they are, those are doing well and adding additional devices because those retail outlets are building out additional warehouses and delivery centers.

Okay, thank you. You're welcome.

Thank you. Your next question comes from the line of Mike Latimore from Northland Capital Markets. Your line is now open.

Great. Yes, thanks a lot. Good afternoon. On the move to the new payment processor. Can you give an update there and I think as you said, it was on track, but maybe an update there and when you see that might be influencing the license and transaction gross margin?

Yes, I think you're talking about our move to Fiserv and we are in the, in the process continues to move board. We are, I think we're finishing up one last certification, we're testing data and we will begin migrating customers within this current quarter. So, it's going well. We're probably 30 or 60 days behind where I would have liked to have been when I got here, but any time I've been involved with this at all, no is run into a few issues at the very end, but we're working very closely. We're getting great support from Fiserv and they are doing a great job helping us move that. So, I think when you begin to see some of the savings that have been outlined in past quarters by prior management really that full impact will be in '22, because we're going to be careful and moving people over and it will take us most of the second half to kind of get everybody over. And so, think about it in '22 not really having much impact this fiscal year.

And then, in terms of the just the upgrade 4G devices. Can you give us some sense of what percent of the volume hardware volume, you're seeing relates to that?

Yes, what we've seen 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 got to go right now. And we've been educating that you have time, but also, I think we've got the people would be going a little bit quicker. With the ongoing COVID people are being very careful with their liquidity. So, they are 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 have moved so far.

I just, I guess last question would be on transaction volumes. I think in December has some of the holiday. I guess what about January any improvement in January?

We saw January was pretty similar to what we saw in December and we planned when we do our forecasting for that seasonality. So we've seen, as I said on the call or on the prepared remarks November, December in January kind of been flat. And thanks, we've done some excellent operators and talk to them and they have 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. Secondly, while you while you look at 61% to 65% cashless that's a pretty dramatic swing in a short period of time. So, we believe that when things come back, we have more devices and we are seeing a greater percentage of cashless so I'm optimistic it, it will come back pretty well. I think it will take time to get a lot of the devices and things that are in offices to come back, but it's coming and there's more and more vaccines and you look at the results that we're seeing in Israel, where a great deal of the population of to two of the vaccines, I'm optimistic that it's coming, it's just several months later than I thought it would be back and when we put together the guidance, and thanks for this year.

Yes. Great, thank you.

Thank you. Your next question comes from the line of Robert Napoli William Blair. Your line is now open.

Hey guys, thanks for taking the questions. And I appreciate the details in the press release, Sean, you mentioned the goal of getting to mid-teens growth in fiscal 2022. Can you talk about 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. The piece that I don't know price is we will get as aggressive as we have to maintain our share of the 3G, 2G upgrades, people are you know we've got competitors and pricing may get to where that has a short-term negative impact on margins. And so, I do expect that it will be improved. But I'll give you that caveat that that we may need to do that. And look, as we've talked before, the value of a cashless endpoint, and we expect that these 4G devices will be out there for anywhere from 5 to 10 years. We have to go a little bit short-term hit to margin, I'm willing to do that and I'm very confident in our sales organization that we will, that we will do very well in this this opportunity that we have.

Okay, great. And then you mentioned the international opportunity. Can you talk about the structural differences outside the US 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 kind of being there. What we've seen so far. And one of the reasons we changed the name of the company to Cantaloupe was to be able to go internationally a little bit better. We've been very excited by the gentleman that we've hired down and in [indiscernible] 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 I wouldn't say surprised, but it confirms that we thought people knew who we were and were able to get meetings and we're working on several partnerships. There'll be - I would say, what we're seeing is that and we believe there very well may be a software and a cashless device capability, what we've also talked about as you got to have a local partner to work with that we are talking with, I've had several conversations with the CEO at FiServ [ph] about how they may be able to help us we're talking to any number of other partners in certain regions that would be 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 [indiscernible] fiscal year '22 and into '23 because it will take us long time, we've got a little bit more ambitious goals in that, but I would say for you guys to plan that's probably where I would look.

Great, thanks a lot.

Thank you. Your next question comes from the line of Gary Prestopino from Barrington Research. Your lights are open.

Yes, just in terms of the cost structure of the business now, Sean and Wayne, have you got it to where you want it to be? I mean, your SG&A expenses look like they were $13.8 million this quarter, obviously, not a lot of TME in there. So, as the business ramps up, you would expect that to go up, but is that kind of the state of play where you want to be?

Thanks for the question. This is Wayne. So, the SG&A for this quarter. We look at SG&A on a sort of a cash basis, which basically is SG&A minus stock-based comp and depreciation, amortization. So, I ask this quarter's over $12 million to $12.2 million. I think as we ramp up some of the cost that should impact about Q3 and Q4 on investments. I think in terms of $12.5 million to $13 million, and then going forward, we don't see any major changes to that. Unless it's to drive revenue or to drive some development and products that we want to get to the market. Pretty good that [indiscernible].

I'm sorry, where that number is without stock comp and what else was the other thing?

The depreciation, amortization and those numbers. You can find it. And in the adjusted EBITDA calculation.

Right. Yes, I just wanted to make sure. Okay, thank you very much.

You're welcome.

Thank you. There are no further questions. You may continue.

Great. Well, we appreciate your interest in the company. As I said, I'm excited about the things that we're doing. And I've got the team built now and now it's known it's about executing and I just need to and we all need pandemic to if that thing on the run. And I go to bed every night Brain for the more vaccines in more needles in arms. So, we look forward to kind of the one-on-one meetings and 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.