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While playing defense in a proxy war with the company’s largest shareholder, vending-machine payments provider USA Technologies Inc.’s top executives are looking for growth through software-based services, and expansion into adjacent markets and other countries, particularly Japan.
“Our go-to-market strategy is to advance our sales efforts as an integrated software and payment solution provider that monetizes software by enabling digital and card payments by consumers,” Donald W. Layden Jr., USAT chairman and interim chief executive, said Wednesday morning on a conference call to review financial results for the second quarter of fiscal 2020 ended Dec. 31.
Malvern, Pa.-based USAT said it added 40,000 new connections to its network of vending machines and other unattended payment-accepting locations, a 16% year-over-year increase that brought total connections to nearly 1.26 million. Revenues from transaction fees and licensing rose 20.3% to $35.8 million and accounted for 81% of the company’s $44.1 million in total revenues, up 27.7%.
The remaining revenues came from $8.3 million for equipment, a nearly 75% increase. Despite the revenue increases, USAT reported a net second-quarter loss of $8.38 million, though that was an improvement from the $10.4 million loss a year earlier.
USAT in 2017 bought rival Cantaloupe Systems Inc. for $88.2 million. Cantaloupe’s Seed Cloud platform provides cloud- and mobile-based software for vending-machine route scheduling, merchandising, inventory management, warehouse and accounting management, as well as cashless vending. About half of USAT’s 19,000 customers use one or more Seed services, meaning the other half remains potential users, Layden said.
Meanwhile, Layden identified the laundry and amusement sectors as adjacent markets in which USAT sees growth opportunities. And while most of its operations are in the United States, USAT also has a presence in Mexico, Canada, and Australia, and it’s now looking to move into countries “where there is a significant deployment of vending machines that lack an integrated software solution with robust capabilities,” Layden said. He identified Japan, which he says has 4 million vending machines, as an especially good opportunity.
Layden’s goal is to achieve 25% annualized revenue growth and hit $500 million in five years. USAT reported revenues of $143.8 million in fiscal 2019 ended June 30. The financial plan also includes cost cuts, including a new transaction-processing agreement Layden said will chop annual processing costs from $6.8 million to $3 million.
But whether Layden will be the boss in five years is an open question. The company’s largest shareholder, New York City-based hedge fund Hudson Executive Capital, which holds 16.3% of USAT’s stock, has nominated eight director candidates to replace the company’s current board. Hudson Executive took on an activist role in the wake of an accounting mess under USAT’s previous management that resulted in a number of financial reports being restated or filed late, which in turn caused The Nasdaq Stock Market to delist USAT’s shares.
USAT is now current with its filings and has applied to have its shares relisted on the Nasdaq. But Hudson Executive isn’t happy with the Layden regime and has criticized a 2019 financing agreement USAT struck as far too expensive. The company’s annual shareholder meeting currently is set for April 30, though Hudson Executive wants it moved up.
According to Layden, a Hudson Executive takeover of the board could trigger a change-of-control provision in Pennsylvania law requiring the firm to pay USAT any profits from share sales for 18 months. He also said that without the financing deal, USAT’s auditor might have included a “going concern” notice in its audit report that could have resulted in lost sales and customers.
