USA Technologies (USAT) Reports Q1 Fiscal 2017 Results
USA Technologies (USAT) reported quarterly results this morning that came in just about as expected. Revenue was up 30% to $21.6 million and EPS came in at -$0.03. It now has 11,400 customers after adding 350 more in the quarter. And it has 448K total connections (up from 349K) that processed $183 million worth of payments in the quarter (up from $127 million). Profitability continues to be elusive due to spending. SG&A spending was up 29% to $6.9 million, in part due to $1.7 million in the quarter to tighten up accounting practices since the company is a first-time accelerated filer, and a $1.5 million increase in warrant liability (they’ve now been exercised, so this won’t repeat). Management said SG&A spending should start to decrease to the mid-$6 million range next quarter, then step down further from there. License and transaction (L&T) fees were up 27% to $16.4 million, while equipment sales were up 42% to $5.2 million. Analysts on the call were wondering what the gross margin trends in these revenue streams are, and management took some heat for not growing margin. It sounds like we should continue to expect L&T gross margins in the low-to-mid 30% range, and equipment gross margins in the 18% to 20% range.
Management also gave guidance for the full fiscal year (ending September 31, 2018), saying it expects to end with 544K to 554K (up 115K to 125K) connections, and revenue of $95 million to $100 million (implying growth of 26% at the midpoint). It didn’t give EPS guidance, but did indicate that it expected EPS to be higher (my guess is to around $0.03) due to lower S&GA expenses. The company ended the quarter with $18.2 million in cash.
Management was asked about its two biggest potential markets outside of vending, and reiterated that kiosk and parking meters are extremely attractive verticals. And it said it sees 15% to 20% of new installations to be VendScreen units. When asked about global expansion, specifically Japan (Olympics), management said they would expect to expand with a partner. And when prodded if it could start this process within a year, the CEO said “That wouldn’t surprise me.”
Shares have been week in October and spiked down to long-term support early this morning. They came back throughout the day, and while the end result (down 3.5%) is uninspiring, I want to give the quarterly report a few days to marinate before changing my Hold rating on shares. We’ve seen this stock catch fire at times, and given that growth is still there, profits should grow (albeit not by a lot) and there is expansion potential so company could easily attract new investors. On the other hand, the business model doesn’t seem to allow for much leverage to grow profitability, and that is a concern. One would hope that 25% revenue growth next year could generate at least that much earnings growth for an established company. The stock’s action in the coming days will likely determine our next move. Hold on for now. We’re up around 18%. HOLD.
As a side note, the market rallied into the close today and we had several stocks up 3% or more. LeMaitre Vascular (LMAT), the day’s big winner, closed up over 7%. NanoString (NSTG) was up almost 5% and LogMeIn (LOGM) was up over 3%.