USA Technologies, Inc. (NASDAQ:USAT), a premier payment technology service provider of integrated cashless and mobile transactions in the self-service retail market, today reported results for its first quarter ended September 30, 2016.

First Quarter Financial Highlights:

  • Total quarterly revenue of $21.6 million, a year-over-year increase of 30%
  • 448,000 connections to ePort service, representing a year-over-year increase of 28%
  • Added 350 customers to achieve record 11,400 total customers compared to 10,275 as of a year ago, a year-over-year increase of 11%
  • Quarterly record license and transaction fee revenue of $16.4 million, a year-over-year increase of 27%
  • Ended the quarter with $18.2 million in cash
  • Quarterly GAAP net loss of $2.5 million, primarily attributable to the $1.5 million increase in the fair value of the warrant liabilities, as well the $1.7 million dollar increase in professional services included in SG&A related to SOX 404 compliance, internal audit, and audit of our financial statements driven primarily by our status as a first time accelerated filer which required an audit of our annual SOX 404 assessment
  • Quarterly Non-GAAP net loss of $1.0 million
  • Quarterly Adjusted EBITDA of $0.7 million

First Quarter Financial Highlights, Connections & Transaction Data:

   

As of and for the three
months ended
September 30,

      

(Connections and $'s in thousands, transactions in millions, eps is not rounded)

2016     2015 Change     % Change
Revenues:    
License and transaction fees $ 16,365 $ 12,925 $ 3,440 27 %
Equipment Sales   5,223     3,675     1,548   42 %
Total revenues $ 21,588   $ 16,600   $ 4,988   30 %
 
License and transaction fee margin 31.3 % 32.6 % -1.3 % -4 %
 
Equipment sales gross margin 20.0 % 22.5 % -2.5 % -11 %
 
Overall Gross Margin 28.6 % 30.4 % -1.8 % -6 %
 
Operating income/(loss) $ (950 ) $ 112 $ (1,062 ) -948 %
 
Net income/(loss) $ (2,464 ) $ 360 $ (2,824 ) -784 %
 
Net income (loss) per common shares - basic $ (0.07 ) $ - $ (0.07 ) -700 %
 
Net income (loss) per common shares - diluted $ (0.07 ) $ (0.01 ) $ (0.06 ) 600 %
 
Net New Connections 19 16 3 19 %
 
Total Connections (at period end) 448 349 99 28 %
 
Total Number of Transactions (millions) 95 69 26 38 %
 
Transaction Volume (millions) $ 183 $ 127 $ 56 44 %
 
Adjusted EBITDA $ 663 $ 1,751 $ (1,088 ) -62 %
 
Non-GAAP net income (loss) $ (955 ) $ 61 $ (1,016 ) -1666 %
 

“USA Technologies continued its strong connection and revenue growth and is executing in the market to drive cashless and mobile payments to self-service retail locations,” said Stephen P. Herbert, USA Technologies’ chairman and chief executive officer. “As we move further into our fiscal year, we expect to see both continued top line growth and expanding profitability as we drive wider adoption of our ePort Connect service to vending, kiosks, and other unattended retail locations. Our customers continue to see compelling economics which underpins their decisions to upgrade 100% of their locations to our technology. Further, as the market advances we expect our ePort Interactive Service, which enables a more robust consumer experience and yields improved performance at the location, to expand market share.”

Fiscal 2017 Outlook

For full fiscal year 2017, management expects to add between 115,000 and 125,000 net new connections for the year, bringing total connections to our service to a range of 544,000 to 554,000 and expects total revenue to be between $95 million and $100 million. We also expect to have year-over-year increases of adjusted EBITDA and non-GAAP net income.

Webcast and Conference Call

Management will host a conference call and webcast the event beginning at 8:30 a.m. Eastern Time today, November 9, 2016.

To participate in the conference call, please dial (866) 393-1608 approximately 10 minutes prior to the call. International callers should dial (224) 357-2194. Please reference conference ID # 8492228.

A live webcast of the conference call will be available at http://investor.usatech.com/events.cfm. Please access the website 15 minutes prior to the start of the call to download and install any necessary audio software.

A telephone replay of the conference call will be available from 11:30 a.m. Eastern Time on November 9, 2016 until 11:30 a.m. Eastern Time on November 12, 2016 and may be accessed by calling (855) 859-2056 (domestic dial-in) or (404) 537-3406 (international dial-in) and reference conference ID # 8492228. An archived replay of the conference call will also be available in the investor relations section of the company's website.

About USA Technologies

USA Technologies, Inc. is a premier payment technology service provider of integrated cashless and mobile transactions in the self-service retail market. The company also provides a broad line of cashless acceptance technologies including its NFC-ready ePort® G-series, ePort Mobile™ for customers on the go, ePort® Interactive, and QuickConnect, an API Web service for developers. USA Technologies has 78 United States and foreign patents in force; and has agreements with Verizon, Visa, Chase Paymentech and customers such as Compass, AMI Entertainment and others. For more information, please visit the website at www.usatech.com.

Forward-looking Statements:

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: All statements other than statements of historical fact included in this release, including without limitation the business strategy and the plans and objectives of USAT's management for future operations, are forward-looking statements. When used in this release, words such as "anticipate", "believe", "estimate", "expect", "intend", and similar expressions, as they relate to USAT or its management, identify forward looking statements. Such forward-looking statements are based on the beliefs of USAT's management, as well as assumptions made by and information currently available to USAT's management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors, including but not limited to, the ability of management to accurately predict or forecast future financial results, including earnings or taxable income of USAT, or increased revenues at a customer location; the incurrence by USAT of any unanticipated or unusual non-operational expenses which would require us to divert our cash resources from achieving our business plan; the ability of USAT to retain key customers from whom a significant portion of its revenues is derived; the ability of USAT to compete with its competitors to obtain market share; whether USAT's customers continue to utilize USAT's transaction processing and related services, as our customer agreements are generally cancelable by the customer on thirty to sixty days' notice; the ability of USAT to raise funds in the future through the sales of securities or debt financings in order to sustain its operations if an unexpected or unusual non-operational event would occur; the ability of USAT to use available data to predict future market conditions, consumer behavior and any level of cashless usage; the ability to prevent a security breach of our systems or services or third party services or systems utilized by us; whether any patents issued to USAT will provide USAT with any competitive advantages or adequate protection for its products, or would be challenged, invalidated or circumvented by others; the ability of USAT to operate without infringing or violating the intellectual property rights of others; whether USAT would be able to sell sufficient ePort hardware to third party leasing companies as part of the QuickStart program in order to improve cash flows from operations; whether USAT’s remediation efforts in connection with the control deficiencies that resulted in a material weakness in USAT’s internal controls over financial reporting as of June 30, 2016 would be effective; whether USAT experiences additional material weaknesses in its internal controls over financial reporting in future periods, and USAT is not able to accurately or timely report its financial condition or results of operations; and whether USAT's existing or anticipated customers purchase, rent or utilize ePort devices or our other products or services in the future at levels currently anticipated by USAT. Readers are cautioned not to place undue reliance on these forward-looking statements. Any forward-looking statement made by us in this release speaks only as of the date of this release. Unless required by law, USAT does not undertake to release publicly any revisions to these forward-looking statements to reflect future events or circumstances or to reflect the occurrence of unanticipated events.

Financial Schedules:

A. Statements of Operations for the 3 Months Ended September 30, 2016 and 2015

B. Five Quarter Select Key Performance Indicators

C. Comparative Balance Sheets as of September 30, 2016 and June 30, 2016

D. Five Quarter Statements of Operations and Adjusted EBITDA

E. Five Quarter Selling, General, & Administrative Expenses

F. Five Quarter Condensed Balance Sheets

G. Five Quarter Statements of Cash Flows

H. Five Quarter Reconciliation of Net Income/(Loss) to Non-GAAP Net Income (Loss) and Net Earnings/(Loss) Per Common Share – Basic and Diluted to Non-GAAP Net Earnings/(Loss) Per Common Share – Basic and Diluted

                           

(A) Statement of Operations for the 3 Months Ended September 30, 2016 and 2015

 
For the three months ended September 30,
($ in thousands, except shares and per share data) 2016

% of
Sales

2015

% of
Sales

Change % Change
 
Revenues:
License and transaction fees $ 16,365 75.8 % $ 12,925 77.9 % $ 3,440 27 %
Equipment sales   5,223   24.2 %   3,675   22.1 % 1,548 42 %
Total revenues 21,588 100.0 % 16,600 100.0 % 4,988 30 %
 
Costs of sales/revenues:
Cost of services 11,243 68.7 % 8,705 67.4 % 2,538 29 %
Cost of equipment   4,178   80.0 %   2,848   77.5 % 1,330 47 %
Total costs of sales/revenues   15,421   71.4 %   11,553   69.6 % 3,868 33 %
 
Gross profit 6,167 28.6 % 5,047 30.4 % 1,120 22 %
 
Operating expenses:
Selling, general and administrative 6,909 32.0 % 4,796 28.9 % 2,113 44 %
Depreciation and amortization   208   1.0 %   139   0.8 % 69 50 %
Total operating expenses 7,117 33.0 % 4,935 29.7 % 2,182 44 %
 
Operating income (loss) (950 ) -4.4 % 112 0.7 % (1,062 ) -948 %
 
Other income (expense):
Interest income 73 0.3 % 51 0.3 % 22 43 %
Interest expense (212 ) -1.0 % (119 ) -0.7 % (93 ) 78 %
Change in fair value of warrant liabilities   (1,490 ) -6.9 %   343   2.1 % (1,833 ) -534 %
Total other income (expense), net (1,629 ) -7.5 % 275 1.7 % (1,904 ) -692 %
 
Income (loss) before provision for income taxes (2,579 ) -11.9 % 387 2.3 % (2,966 ) -766 %
Benefit (provision) for income taxes   115   0.5 %   (27 ) -0.2 % 142 -526 %
 
Net income (loss) (2,464 ) -11.4 % 360 2.2 % (2,824 ) -784 %
Cumulative preferred dividends   (334 ) -1.5 %   (334 ) -2.0 % - 0 %
Net income (loss) applicable to common shares $ (2,798 ) -13.0 % $ 26   0.2 % $ (2,824 ) -10862 %
 
Net earnings (loss) per common share - basic $ (0.07 ) $ -   $ (0.07 ) -700 %
Net earnings (loss) per common share - diluted $ (0.07 ) $ (0.01 ) $ (0.06 ) 600 %
 
Basic weighted average number of common shares outstanding 38,488,005 35,848,395 2,639,610 7 %
Diluted weighted average number of common shares outstanding 38,488,005 36,487,879 2,000,126 5 %
             

(B) Five Quarter Select Key Performance Indicators

 
As of and for the three months ended
September 30,     June 30,     March 31, December 31, September 30,
2016     2016     2016     2015     2015
Connections:
Gross New Connections 22,000 33,000 34,000 23,000 20,000
% from Existing Customer Base 86 % 83 % 91 % 89 % 86 %
Net New Connections 19,000 28,000 32,000 20,000 16,000
Total Connections 448,000 429,000 401,000 369,000 349,000
 
Customers:
New Customers Added 350 300 125 350 675
Total Customers 11,400 11,050 10,750 10,625 10,275
 
Volumes:
Total Number of Transactions (millions) 95 89 82 76 69
Transaction Volume (millions) $ 183 $ 169 $ 151 $ 138 $ 126
 
Financing Structure of Connections:
JumpStart 7.7 % 6.5 % 7.4 % 10.1 % 13.8 %
QuickStart & All Others *   92.3 %       93.5 %       92.6 %       89.9 %       86.2 %
Total   100.0 %       100.0 %       100.0 %       100.0 %       100.0 %
 
*Includes credit sales with standard trade receivable terms
 

(C) Comparative Balance Sheets September 30, 2016 to June 30, 2016

                 
($ in thousands) September 30, June 30,
2016 2016 Change % Change
Assets
Current assets:
Cash $ 18,198 $ 19,272 $ (1,074 ) -6 %
Accounts receivable, less allowance 5,840 4,899 941 19 %
Finance receivables 3,349 3,588 (239 ) -7 %
Inventory, net 4,264 2,031 2,233 110 %
Prepaid expenses and other current assets 1,439 987 452 46 %
Deferred income taxes   2,271     2,271     -   0 %
Total current assets 35,361 33,048 2,313 7 %
 
Finance receivables, less current portion 3,962 3,718 244 7 %
Other assets 163 348 (185 ) -53 %
Property and equipment, net 9,570 9,765 (195 ) -2 %
Deferred income taxes 25,568 25,453 115 0 %
Intangibles, net 754 798 (44 ) -6 %
Goodwill   11,703     11,703     -   0 %
Total assets $ 87,081   $ 84,833   $ 2,248   3 %
 
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 8,693 $ 12,354 $ (3,661 ) -30 %
Accrued expenses 3,912 3,458 454 13 %
Line of credit, net 7,258 7,119 139 2 %
Current obligations under long-term debt 834 629 205 33 %
Income taxes payable 8 18 (10 ) -56 %
Warrant liabilities - 3,739 (3,739 ) 100 %
Deferred gain from sale-leaseback transactions   685     860     (175 ) -20 %
Total current liabilities 21,390 28,177 (6,787 ) -24 %
Long-term liabilities
Long-term debt, less current portion 1,517 1,576 (59 ) -4 %
Accrued expenses, less current portion 11 15 (4 ) -27 %
Deferred gain from sale-leaseback transactions, less current portion   -     40     (40 ) -100 %
Total long-term liabilities   1,528     1,631     (103 ) -6 %
Total liabilities   22,918     29,808     (6,890 ) -23 %
 
Shareholders' equity:
Preferred stock, no par value 3,138 3,138 - 0 %
Common stock, no par value 244,996 233,394 11,602 5 %
Accumulated deficit   (183,971 )   (181,507 )   (2,464 ) 1 %
Total shareholders' equity   64,163     55,025     9,138   17 %
Total liabilities and shareholders' equity $ 87,081   $ 84,833   $ 2,248   3 %
 
Net working capital $ 13,971 $ 4,871 $ 9,100 187 %
                           

(D) Five Quarter Statement of Operations and Adjusted EBITDA

 
($ in thousands) For the three months ended
September 30,    

 

    June 30,    

 

March 31,

 

December 31,

 

September 30,

 

2016    

% of Sales

     2016    

% of Sales

     2016    

% of Sales

     2015    

% of Sales

     2015    

% of Sales

Revenues:
License and transaction fees $ 16,365 75.8 % $ 15,263 69.6 % $ 14,727 72.3 % $ 13,674 73.9 % $ 12,925 77.9 %
Equipment Sales   5,223   24.2 %   6,681   30.4 %   5,634   27.7 %   4,829   26.1 %   3,675   22.1 %
Total revenue 21,588 100.0 % 21,944 100.0 % 20,361 100.0 % 18,503 100.0 % 16,600 100.0 %
 
Costs of sales/revenues:
License and transaction fees 11,243 68.7 % 10,614 69.5 % 9,703 65.9 % 9,067 66.3 % 8,705 67.4 %
Equipment sales   4,178   80.0 %   5,547   83.0 %   4,986   88.5 %   3,953   81.9 %   2,848   77.5 %
Total costs of sales/revenues 15,421 71.4 % 16,161 73.6 % 14,689 72.1 % 13,020 70.4 % 11,553 69.6 %
 
Gross Profit:
License and transaction fees 5,122 31.3 % 4,649 30.5 % 5,024 34.1 % 4,607 33.7 % 4,220 32.6 %
Equipment sales   1,045   20.0 %   1,134   17.0 %   648   11.5 %   876   18.1 %   827   22.5 %
Total gross profit 6,167 28.6 % 5,783 26.4 % 5,672 27.9 % 5,483 29.6 % 5,047 30.4 %
 
Operating expenses:
Selling, general and administrative 6,909 32.0 % 6,721 30.6 % 6,094 29.9 % 4,762 25.7 % 4,796 28.9 %
Depreciation 208 1.0 % 208 0.9 % 173 0.8 % 127 0.7 % 139 0.8 %
Impairment of intangible asset   -   0.0 %   432   2.0 %   -   0.0 %   -   0.0 %   -   0.0 %
Total operating expenses 7,117 33.0 % 7,361 33.5 % 6,267 30.8 % 4,889 26.4 % 4,935 29.7 %
         
Operating income (loss)   (950 ) -4.4 %   (1,578 ) -7.2 %   (595 ) -2.9 %   594   3.2 %   112   0.7 %
 
Other income (expense):
Interest income 73 0.3 % 182 0.8 % 67 0.3 % 20 0.1 % 51 0.3 %
Other income - 0.0 % - 0.0 % - 0.0 % - 0.0 % - 0.0 %
Interest expense (212 ) -1.0 % (197 ) -0.9 % (180 ) -0.9 % (104 ) -0.6 % (119 ) -0.7 %
Change in fair value of warrant liabilities   (1,490 ) -6.9 %   18   0.1 %   (4,805 ) -23.6 %   (1,230 ) -6.6 %   343   2.1 %
Total other income (expense), net (1,629 ) -7.5 % 3 0.0 % (4,918 ) -24.2 % (1,314 ) -7.1 % 275 1.7 %
 
Loss before provision for income taxes (2,579 ) -11.9 % (1,575 ) -7.2 % (5,513 ) -27.1 % (720 ) -3.9 % 387 2.3 %
Benefit (provision) for income taxes 115 0.5 % 703 3.2 % 93 0.5 % (154 ) -0.8 % (27 ) -0.2 %
         
Net income (loss)   (2,464 ) -11.4 %   (872 ) -4.0 %   (5,420 ) -26.6 %   (874 ) -4.7 %   360   2.2 %
 
Less interest income (73 ) -0.3 % (182 ) -0.8 % (67 ) -0.3 % (20 ) -0.1 % (51 ) -0.3 %
Plus interest expenses 212 1.0 % 197 0.9 % 180 0.9 % 104 0.6 % 119 0.7 %
Plus income tax expense (115 ) -0.5 % (703 ) -3.2 % (93 ) -0.5 % 154 0.8 % 27 0.2 %
Plus depreciation expense 1,257 5.8 % 1,272 5.8 % 1,190 5.8 % 1,323 7.2 % 1,350 8.1 %
Plus amortization expense 44 0.2 % 44 0.2 % 44 0.2 % - 0.0 % - 0.0 %
Plus (less) change in fair value of warrant liabilities 1,490 6.9 % (18 ) -0.1 % 4,805 23.6 % 1,230 6.6 % (343 ) -2.1 %
Plus stock-based compensation 211 1.0 % 198 0.9 % 142 0.7 % 237 1.3 % 272 1.6 %
Plus intangible asset impairment - 0.0 % 432 2.0 % - 0.0 % - 0.0 % - 0.0 %
Plus VendScreen non-recurring charges 101 0.5 % 258 1.2 % 461 2.3 % 106 0.6 % - 0.0 %
Plus litigation related professional fees   -   0.0 %   -   0.0 %   105   0.5 %   -   0.0 %   -   0.0 %
Adjusted EBITDA $ 663   3.1 % $ 626   2.9 % $ 1,347   6.6 % $ 2,260   12.2 % $ 1,734   10.4 %
 
See discussion of Non-GAAP financial measures later in this document
                                 

(E) Five Quarter Selling, General, & Administrative Expenses

 
Three months ended
($ in thousands) September 30,     % of     June 30, % of March 31, % of December 31, % of September 30, % of
2016 SG&A 2016 SG&A 2016 SG&A 2015 SG&A 2015 SG&A
 
Salaries and benefit costs $ 3,129 45.3 % $ 3,050 45.4 % $ 2,760 45.4 % $ 2,786 58.6 % $ 2,685 56.0 %
Marketing related expenses 329 4.8 % 635 9.4 % 362 5.9 % 335 7.0 % 333 6.9 %
Professional services 2,520 36.5 % 1,533 22.8 % 1,152 18.9 % 839 17.6 % 782 16.3 %
Bad debt expense 97 1.4 % 470 7.0 % 505 8.3 % 239 5.0 % 236 4.9 %
Premises, equipment and insurance costs 499 7.2 % 555 8.3 % 460 7.5 % 347 7.3 % 399 8.3 %
Research and development expenses 124 1.8 % 123 1.8 % 131 2.1 % 37 0.8 % 191 4.0 %
VendScreen non-recurring charges 101 1.5 % 258 3.8 % 461 7.6 % 106 2.2 % 17 0.4 %
Litigation related professional fees 33 0.5 % 51 0.8 % 105 1.7 % - 0.0 % - 0.0 %
Other expenses   77       1.1 %       46       0.7 %       158       2.6 %       73       1.5 %       153       3.2 %
Total SG&A expenses $ 6,909       100 %     $ 6,721       100 %     $ 6,094       100 %     $ 4,762       100 %     $ 4,796       100 %
 
Total Revenue $ 21,588 $ 21,944 $ 20,361 $ 18,503 $ 16,600
SG&A expenses as a percentage of revenue 32.0 % 30.6 % 29.9 % 25.7 % 28.9 %
                   

(F) Five Quarter Condensed Balance Sheets

 
($ in thousands) September 30, June 30, March 31, December 31, September 30,
2016 2016 2016 2015 2015
 
Assets
Current assets:
Cash $ 18,198 $ 19,272 $ 14,901 $ 14,809 $ 11,592
Accounts receivable, less allowance 5,840 4,899 8,345 6,976 6,448
Finance receivables 3,349 3,588 1,677 1,503 946
Inventory, net 4,264 2,031 2,341 2,849 3,718
Other current assets   3,710   3,258   2,336     2,160   1,883
Total current assets 35,361 33,048 29,600 28,297 24,587
 
Finance receivables, less current portion 3,962 3,718 3,042 2,435 3,525
Other assets 163 348 337 326 342
Property and equipment, net 9,570 9,765 10,584 10,856 11,890
Deferred income taxes 25,568 25,453 25,701 25,607 25,761
Goodwill and intangibles   12,457   12,501   12,976     8,095   8,095
Total assets $ 87,081 $ 84,833 $ 82,240   $ 75,616 $ 74,200
 
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 12,605 $ 15,812 $ 15,368 $ 9,992 $ 11,615
Line of credit, net 7,258 7,119 6,980 7,000 4,000
Warrant Liabilities - 3,739 5,964 - -
Other current liabilities   1,527   1,507   1,485     1,384   1,497
Total current liabilities 21,390 28,177 29,797 18,376 17,112
Long-term liabilities          
Total long-term liabilities   1,528   1,631   2,016     3,945   3,116
Total liabilities   22,918   29,808   31,813     22,321   20,228
 
Shareholders' equity:
Total shareholders' equity   64,163   55,025   50,427     53,295   53,972
Total liabilities and shareholders' equity $ 87,081 $ 84,833 $ 82,240   $ 75,616 $ 74,200
 
Total current assets $ 35,361 $ 33,048 $ 29,600 $ 28,297 $ 24,587
Total current liabilities   21,390   28,177   29,797     18,376   17,112
Net working capital $ 13,971 $ 4,871 $ (197 ) $ 9,921 $ 7,475
                     

(G) Five Quarter Statements of Cash Flows

 
Three months ended

($ in thousands)

September 30, June 30, March 31, December 31, September 30,
2016     2016     2016     2015     2015
OPERATING ACTIVITIES:
Net (loss) income $ (2,464 ) $ (872 ) $ (5,420 ) $ (874 ) $ 360

Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:

Charges incurred in connection with the vesting and issuance of common stock for employee and director compensation

211 198 142 237 272
Gain on disposal of property and equipment - (110 ) (15 ) (41 ) (1 )
Non-cash interest and amortization of debt discount 105 13 - - -
Bad debt expense 97 470 506 238 236
Depreciation 1,257 1,272 1,190 1,323 1,350
Amortization of intangible assets 44 43 44 - -
Impairment of intangible asset - 432 - - -
Change in fair value of warrant liabilities 1,490 (18 ) 4,805 1,230 (343 )
Deferred income taxes, net (115 ) (748 ) (93 ) 154 27
Recognition of deferred gain from sale-leaseback transactions (215 ) (215 ) (215 ) (215 ) (215 )
Changes in operating assets and liabilities:
Accounts receivable (1,038 ) 2,977 (1,872 ) (767 ) 38
Finance receivables (5 ) (2,587 ) (154 ) 533 (583 )
Inventory (2,223 ) (82 ) 250 649 219
Prepaid expenses and other assets (224 ) (397 ) (160 ) (254 ) 48
Accounts payable (3,661 ) 329 4,154 (1,623 ) (1,044 )
Accrued expenses 486 115 1,166 (13 ) (2 )
Income taxes payable   (10 )       453         -         (70 )       -  
Net change in operating assets and liabilities   (6,675 )       808         3,384         (1,545 )       (1,324 )
Net cash provided (used) by operating activities (6,265 ) 1,273 4,328 507 362
 
INVESTING ACTIVITIES:
Purchase and additions of intangible assets, property and equipment (168 ) (207 ) (164 ) (118 ) (49 )
Purchase of property for rental program (642 ) - - - -
Proceeds from sale of property and equipment - 265 19 101 4
Cash paid for assets acquired from VendScreen   -         -         (5,625 )       -         -  
Net cash provided by (used in) investing activities (810 ) 58 (5,770 ) (17 ) (45 )
 
FINANCING ACTIVITIES:
Cash used for the retirement of common stock (31 ) (173 ) - (40 ) -
Proceeds from exercise of common stock warrants 6,193 3,237 1,652 - 29
Proceeds (payments) from line of credit - 138 33 3,000 -
Repayment of long-term debt   (161 )       (162 )       (151 )       (233 )       (128 )
Net cash provided by (used in) financing activities   6,001         3,040         1,534         2,727         (99 )
 
Net increase (decrease) in cash (1,074 ) 4,371 92 3,217 218
Cash at beginning of period   19,272         14,901         14,809         11,592         11,374  
Cash at end of period $ 18,198       $ 19,272       $ 14,901       $ 14,809       $ 11,592  
 
Supplemental disclosures of cash flow information:
Interest paid in cash $ 87       $ 147       $ 191       $ 107       $ 106  
Depreciation expense allocated to cost of services $ 1,072       $ 1,139       $ 1,051       $ 1,186       $ 1,199  
Reclass of rental program property to inventory, net $ (11 )     $ 415       $ 347       $ 777       $ (279 )
Prepaid items financed with debt $ 54       $ -       $ -       $ -       $ 103  
Warrant issuance for debt discount $ -       $ -       $ 52       $ -       $ -  
Debt financing cost financed with debt $ -       $ -       $ 79       $ -       $ -  
Equipment and software acquired under capital lease $ 254       $ -       $ 409       $ -       $ 35  
Disposal of property and equipment $ -       $ 555       $ 189       $ 238       $ 99  
             

(H) Five Quarter Reconciliation of Net Income/(Loss) to Non-GAAP Net Income (Loss) and Net Earnings/(Loss) Per Common Share – Basic and Diluted to Non-GAAP Net Earnings/(Loss) Per Common Share – Basic and Diluted

 
Three months ended
($ in thousands) September 30,     June 30,     March 31, December 31, September 30,
2016     2016     2015     2015     2015
 
Net income (loss) $ (2,464 ) $ (872 ) $ (5,420 ) $ (874 ) $ 360
Non-GAAP adjustments:
Non-cash portion of income tax provision (115 ) (792 ) (38 ) 224 27
Change in fair value of warrant adjustment 1,490 (18 ) 4,805 1,230 (343 )
VendScreen non-recurring charges 101 258 461 106 -
Litigation related professional fees   33         51         105         -         -  
Non-GAAP net income (loss) $ (955 )     $ (1,373 )     $ (87 )     $ 686       $ 44  
 
Net income (loss) $ (2,464 ) $ (872 ) $ (5,420 ) $ (874 ) $ 360
Cumulative preferred dividends   (334 )       -         (334 )       -         (334 )
Net income (loss) applicable to common shares $ (2,798 )     $ (872 )     $ (5,754 )     $ (874 )     $ 26  
 
Non-GAAP net income (loss) $ (955 ) $ (1,373 ) $ (87 ) $ 686 $ 44
Cumulative preferred dividends   (334 )       -         (334 )       -         (334 )
Non-GAAP net income (loss) applicable to common shares $ (1,289 )     $ (1,373 )     $ (421 )     $ 686       $ (290 )
 
Net earnings (loss) per common share - basic $ (0.07 )     $ (0.02 )     $ (0.16 )     $ (0.02 )     $ -  
 
Non-GAAP net earnings (loss) per common share - basic $ (0.03 )     $ (0.04 )     $ (0.01 )     $ 0.02       $ (0.01 )
Basic weighted average number of common shares outstanding 38,488,005 37,325,681 36,161,626 35,909,933 35,848,395
 
Net earnings (loss) per common share - diluted $ (0.07 )     $ (0.02 )     $ (0.16 )     $ (0.02 )     $ (0.01 )
Non-GAAP net earnings (loss) per common share - diluted $ (0.03 )     $ (0.04 )     $ (0.01 )     $ 0.02       $ (0.01 )
Diluted weighted average number of common shares outstanding 38,488,005 37,325,681 36,161,626 35,909,933 36,487,879
See discussion of Non-GAAP financial measures later in this document
 

Discussion of Non-GAAP Financial Measures:

This press release contains certain non-GAAP financial measures. Generally, a non-GAAP financial measure is a numerical measure of a company's performance, financial position or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. Reconciliations between non-GAAP and GAAP measures are set forth above in Financial Schedules (D) and (H).

The following non-GAAP financial measures are discussed herein: adjusted EBITDA, non-GAAP net income (loss) and non-GAAP net earnings (loss) per common share – basic and diluted. The presentation of these additional financial measures is not intended to be considered in isolation from, or superior to, or as a substitute for the financial measures prepared and presented in accordance with GAAP (Generally Accepted Accounting Principles), including the net income or net loss of USAT or net cash provided/used by operating activities. Management recognizes that non-GAAP financial measures have limitations in that they do not reflect all of the items associated with USAT's net income or net loss as determined in accordance with GAAP. These non-GAAP financial measures are not required by or defined under GAAP and may be materially different from the non-GAAP financial measures used by other companies. USAT has provided above in Financial Schedules (D) and (H) the reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures.

As used herein, non-GAAP net income (loss) represents GAAP net income (loss) excluding costs or benefits relating to any adjustment for fair value of warrant liabilities and non-cash portions of the Company’s income tax benefit (provision), non-recurring fees and charges that were incurred in connection with the acquisition and integration of the VendScreen business, and professional fees incurred in connection with the class action litigation and the SLC investigation. Non-GAAP net earnings (loss) per common share - diluted is calculated by dividing non-GAAP net income (loss) applicable to common shares by the number of diluted weighted average shares outstanding. Management believes that non-GAAP net income (loss) is an important measure of USAT’s business. Non-GAAP net income (loss) is a non-GAAP financial measure which is not required by or defined under GAAP (Generally Accepted Accounting Principles). The presentation of this financial measure is not intended to be considered in isolation or as a substitute for the financial measures prepared and presented in accordance with GAAP, including the net income or net loss of the Company or net cash used in operating activities. Management recognizes that non-GAAP financial measures have limitations in that they do not reflect all of the items associated with the Company’s net income or net loss as determined in accordance with GAAP, and are not a substitute for or a measure of the Company’s profitability or net earnings. Management believes that non-GAAP net income (loss) and non-GAAP net earnings (loss) per share are important measures of the Company's business. Management uses the aforementioned non-GAAP measures to monitor and evaluate ongoing operating results and trends and to gain an understanding of our comparative operating performance. We believe that this non-GAAP financial measure serves as a useful metric for our management and investors because they enable a better understanding of the long-term performance of our core business and facilitate comparisons of our operating results over multiple periods, and when taken together with the corresponding GAAP (United States’ Generally Accepted Accounting Principles) financial measures and our reconciliations, enhance investors’ overall understanding of our current and future financial performance. Additionally, the Company utilizes non-GAAP net income (loss) as a metric in its executive officer and management incentive compensation plans.

As used herein, Adjusted EBITDA represents net income (loss) before interest income, interest expense, income taxes, depreciation, amortization, non-recurring fees and charges that were incurred in connection with the acquisition and integration of the VendScreen business, professional fees incurred in connection with the class action litigation incurred during the third quarter of the prior fiscal year, impairment charges related to our EnergyMiser asset trademarks, and change in fair value of warrant liabilities and stock-based compensation expense. We have excluded the non-operating item, change in fair value of warrant liabilities, because it represents a non-cash gain or charge that is not related to the Company’s operations. We have excluded the non-cash expense, stock-based compensation, as it does not reflect the cash-based operations of the Company. We have excluded the non-recurring costs and expenses incurred in connection with the VendScreen transaction in order to allow more accurate comparison of the financial results to historical operations. We have excluded the professional fees incurred in connection with the class action litigation as well as the trademark impairment charges because we believe that they represent a charge that is not related to the Company's operations. Adjusted EBITDA is a non-GAAP financial measure which is not required by or defined under GAAP (Generally Accepted Accounting Principles). The presentation of this financial measure is not intended to be considered in isolation or as a substitute for the financial measures prepared and presented in accordance with GAAP, including the net income or net loss of the Company or net cash provided/used by operating activities. Management recognizes that non-GAAP financial measures have limitations in that they do not reflect all of the items associated with the Company’s net income or net loss as determined in accordance with GAAP, and are not a substitute for or a measure of the Company’s profitability or net earnings. Adjusted EBITDA is presented because we believe it is useful to investors as a measure of comparative operating performance. Additionally, the Company utilizes Adjusted EBITDA as a metric in its executive officer and management incentive compensation plans.

F-USAT