Cantaloupe Inc (CTLP) 2015 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to USA Technologies third-quarter FY15 earnings conference call.

(Operator Instructions)

As a reminder, this conference call is being recorded. I would now like to hand the conference over to Ms. Lauren Stevens, Investor Relations with the USAT. Ma'am, you may begin.

Thank you, and good afternoon, everyone. This is Lauren Stevens, and welcome to the USA Technologies third-quarter FY15 earnings conference call. With me on the call today are Steve Herbert, Chairman and Chief Executive Officer; and Dave DeMedio, Chief Financial Officer of USA Technologies.

Before we begin today's call, I would like to remind you that all statements included in this call, other than statements of historical fact, are forward-looking statements. 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.

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 our useful for understanding USA Technologies and operations. These non-GAAP financial measures are supplemental to and not a substitute for GAAP financial measures such as net income or loss or net cash used in operating activities. Details of these items and the reconciliation of these non-GAAP financial measures to GAAP financial measures can be found in our press release issued this afternoon and on the Investor Relations page of our website, www.USATech.com.

I'd now like to turn the call over to Steve. Please, go ahead.

Thank you, Lauren, and good afternoon, everyone. Thank you for joining us to discuss our third-quarter results.

USA Technologies is making substantial progress on all fronts, including strategic initiatives, financial performance and customer penetration. Our results for the third quarter reflect our continued and forward momentum. First, I will provide a quick overview of the quarter, then give a strategic and operational update, as we've had many recent developments that I'd like to share with you.

Our revenue for the quarter was $15.4 million, growing 47% from a year ago and 20% from last quarter. A big jump in equipment sales drove overall growth, and more importantly, our license and transaction revenue showed healthy, sustainable growth.

We've described our QuickStart initiative in the past two earnings calls. As a reminder, it is our program to enable third-party financing of ePort hardware. We strategically designed and implemented QuickStart to improve our balance sheet by generating free cash flow.

We are very enthusiastic about the further acceleration of customer demand for QuickStart in the quarter, as it is responsible for growth of both hardware revenue and free cash flow. However, the increase in the number of connections is also an important component of the overall growth story.

We added gross connections of 24,000 and net connections of 14,000 for the third quarter of this fiscal year. Connection growth remains a significant metric for the future of USA Technologies.

Total connections now stand at a record 302,000, a level and growth rate that is evidence we are on the path towards achieving our three-year goal of 500,000 connections. This represents a growth of 24% from the 244,000 connections we reported in Q3 of 2014.

Despite the deactivation level, customer retention remains high. 6,600 of the deactivations in the quarter were driven by two sources. The previously discussed wind down with CCR, as well as the termination of customer relationship in a vertical other than vending with whom the Company no longer desires to do business.

We added 475 new customers, for 8,925 total customers on our ePort Connect service, a 34% increase year over year and more than we have ever had in the history of USA Technologies. As further evidence of our momentum, we expanded our relationship with seven refreshment services.

The leading provider of self-serve, micro market, kiosk vending and office coffee services in the Atlantic region. The increase includes 1,000 additional vending locations, as well as an additional 100 plus micro markets, cafeterias, office coffee service locations and back office billing for catering, ball quarters and delivery services.

In the third quarter, our service handled more than 51 million transactions, 27% above a year ago for a total transaction volume of nearly $98 million. Additionally, we hit another significant milestone, averaging more than $1 million in transactions per day.

The QuickStart program had an appreciable impact in the quarter, not only on revenue but also benefited our cash position. Consistent with our expectations for the leasing program, we dramatically reduced cash usage on the rental program and ramped up the QuickStart leasing program. The net effect was an increase in cash of more than $1.7 million from last quarter, primarily, as a result of our sale to a third-party leasing company of our rights to future lease payments under certain QuickStart leases.

We spent a lot of time in the quarter talking to customers about mobile payment, specifically the recently launched Apple Pay. Deloitte expects that 2015 will be an inflection point for the usage of mobile phones for NFC-enabled cashless payment.

With this current shift and our leadership position in the self-serve market, our customers have been coming to us asking of their machines are ready. Further, the smart customers are seeking to outfit all of their outlets with cashless payment capability.

Of course, this activity was in large part sparked by Apple Pay. Apple now reports that Apple Pay comprises $2 out of every $3 spent on purchases using contactless payments across the three major US card networks.

It has been a boost to the whole ecosystem. In an article dated November 5, 2014 by Ars Technica, an online publication, Google Wallet saw an increase of 50% in weekly transactions immediately following the launch of Apple Pay.

We believe the combination of Apple Pay, Google Wallet and other payment capabilities, together with self-serve retail and other cashless services is a perfect match. As such, we see unintended small purchases as the most likely to gain first adoption for mobile payments. USAT and its customers are in a position to take full advantage of this momentum and excitement in the market, and we anticipate that this would propel us towards more connections and increasing shareholder value through revenue and earnings growth.

In April, we announced a strategic relationship with Chase Commerce Solutions. Chase will be taking over as our payments processor and both companies intend to engage in several joint marketing and sales activities in the future.

The relationship with Chase allows us to broaden our reach for our ePort products and services. We believe Chase will be a solid partner for our go-to-market strategies, will help further our growth and will ultimately broaden USA Technologies' footprint. David will share some additional details on this important development.

Also in April, we attended NAMA, the largest trade event in the vending and refreshment services industry, where we demonstrated Apple Pay and Google Wallet capabilities and conducted joint educational sessions for our customers with MasterCard. MasterCard held demonstrations in our booth, and both companies had representatives on hand to jointly present to customers and answer questions. We also featured key customers, including Five Star Services, M&M Sales Company, Pepi Services, Southern Refreshment Services and others.

The trade show was a great success, as we highlighted USAT's capabilities, showcased our relationships with key partners and met with key customers and prospects to do business planning and review current performance. The data from our knowledge base is so compelling, especially in light of a positive mobile wallet trajectory referred to earlier, that several of these discussions lead to new and extended agreements being signed right there on the show floor.

Perhaps, equally as exciting was our presence beyond our booth, walking around the trade show floor, we saw evidence of our large market share, leadership position and traction by seeing our products featured in a dozen or more other booths hosted by companies representing a multitude of consumer brands, including Starbucks, Sega and TCBY. With such an array of providers, vendors, customers, resellers and partners participating with us, the team left NAMA with a renewed sense of USAT's challenging leadership, and what we believe is the strong upside potential in this evolving market.

As we move through the fourth quarter of our fiscal year, we believe we are accelerating growth driven by the combination of the solid technology we've been investing in for more than a decade, the actualization of strategic plans to generate sales and improve cash flow, and the growing trend of cashless and mobile payments. We are energized more than ever by the rapid change in the market towards adoption of our solutions. We believe we have a significant opportunity to capture market share and we are committed to accomplishing our long-term goals and maintaining or growing our market-leading position.

I'm now going to turn the call over to Dave for comments on our financial results for the third quarter. Dave?

Thank you, Steve. the gross connections added during the third quarter totaled 24,000 compared to 22,000 in Q3 of last year. Of the total gross connections, 82% came from existing customers and the balance from new customers added during the quarter.

Net connections for the quarter totaled 14,000 compared to 20,000 in last year's third quarter. We added 475 new customers, ending the quarter with a total of 8,925 customers. This is a 34% increase in the customer count from Q3 of FY14, which we believe is indicative of a broadening adoption and acceptance of cashless payments in the industries we serve.

For the third quarter, total revenue was $15.4 million, an increase of 47% compared to $10.4 million in the third quarter of FY14, and a 20% sequential improvement from the $12.8 million we recorded last quarter, which was driven by the increase in equipment sales under our QuickStart program.

License and transaction fees were $11.1 million compared to $9 million in the year-ago quarter, a 23% increase. These fees, which are comprised of recurring monthly service fees plus recurring transaction processing fees accounted for approximately 72% of total revenue. Growth was driven by the year-over-year increase in total connections to our ePort Connect service.

Equipment sales were $4.3 million compared to $1.4 million in last year's third quarter, a198% increase. This increase is related to our QuickStart program, which is having the positive impact on equipment sales and cash that we expected.

The uptake in QuickStart continued to grow during the third quarter, as the program accounted for approximately 65% of our gross connections, up from the 45% of gross connections experienced from September to December, while JumpStart remained at just 15% of gross connections. Gross profit was $5.1 million compared to $4 million in the year-ago quarter.

Total gross margin was 33.5% compared to 38.3% in the third quarter of last year. Gross margin on license and transaction fees was 35.3%, compared to 35.7% last year and up sequentially from this year's second fiscal quarter's margin of 31.7%. As we indicated last quarter, we expected license and transaction fee gross margins to improve as this fiscal year continued, predominantly as a result of us starting to bill for the JumpStart units that were deployed last fiscal year under a grace-period marketing program.

Also in the margin this quarter, when comparing to a quarter a year ago, was affected by the sale-leaseback transaction we executed in June of 2014 where the rental payments are larger than the depreciation charge, resulting in a decrease of gross margins. As a reminder, the sale-leaseback is a three-year agreement.

The equipment margin was 28.9%, compared to 54.3% in the year-ago quarter. The margin in the current quarter was positively impacted by a one-time recovery of $0.7 million and in the year ago quarter, was positively impacted by a one-time recovery of $0.2 million. Excluding these one-time items, generally the margin reduction reflects the shift of new connections coming from QuickStart and moving away from JumpStart, as well as, we did not charge higher margin activation fees on QuickStart connections added during the quarter.

Selling, general and administrative expenses were $4.3 million in the third quarter, compared to $3.5 million in the year-ago quarter, a 23% increase. The increase is the result of approximately $0.3 million increase in the reserve for doubtful accounts, approximately $3.3 million related to an increased compensation expense, of which 50% is due to non-cash equity related compensation, and the remaining approximately $0.2 million predominantly rates to an increase in the use of outside and/or consulting services.

For the third quarter, adjusted EBITDA was $2.4 million compared to $1.8 million in the comparable period last year. On a comparative basis, results this quarter were impacted by $0.4 million of cash rental expense from the sale-leaseback transaction, which are not excluded from adjusted EBITDA.

GAAP operating income for the third quarter was approximately $0.7 million, reduced by $1.3 million of other expenses and the provisions for income taxes, which consisted of a $1.1 million non-cash charge related to the change in fair value of warranty liabilities and a $0.1 million non-cash tax provision. Our GAAP net loss was approximately $0.6 million. After preferred dividends, GAAP net loss applicable to common shares was $0.03 per share.

On a non-GAAP basis, net income was $0.5 million, compared to non-GAAP net income of $0.3 million in the same period last year.

Cash at March 31, 2015 was $8.5 million, an increase of $1.8 million from the quarter ended December 31, 2014. The rapid uptake of QuickStart and the significantly reduced levels of JumpStart for new connections has had an impact on our cash flow statement. Under JumpStart, the use of cash for the rental program is categorized in investing activities and for the nine months ended March 31, 2015, we have only used $1.6 million of cash or $5.6 million less than we used in the nine months for the same period last year under this program.

During the nine-month period, we sold approximately $4.9 million of equipment under QuickStart, of which we received approximately $2.7 million in cash from the third-party lessor we recently brought on; of which, $1.8 million is reflected under financing activities. The remaining $0.9 million, $0.3 million was received prior to March 31, 2015 and improved cash flow from operations. The remaining $0.6 million of the $0.9 million was in accounts receivable and subsequently received to March 31, 2015.

As we previewed last quarter, the transactions and cash received through the third-party lessor was a significant contributing factor to the $1.8 million increase in the cash balance during the quarter. We had approximately $2.2 million of cash usage for QuickStart leases during the nine-month period that were not sole to the third-party lessor.

However, the Company recently received a commitment from a different third-party leasing company to purchase a substantial number of these leases. In addition, USAT and this leasing company are working together to establish an ongoing leasing program, which, if successful, would make this are second lessor for our QuickStart program.

As Steve mentioned, in April, we entered into a strategic relationship with Chase Commerce Solutions whereby, among other things, USAT would become a third-party processor and where Chase will act as the provider of credit and debit card transaction processing services, including authorization, conveyance and settlement of transactions. In addition to the strategic benefits Steve mentioned related to this relationship, we anticipate processing transactions within the next 60 days and begin to realize the financial benefits related to our transaction, license and transaction fee costs under this agreement at that time.

Given the revenue strength we saw in Q3, we now expect to see total revenue to be in excess of this $53 million for the full year, which was the high range of our previous guidance. License and transaction fee revenue is estimated to be in the lower range of $44 million to $47 million for an increase of 24% to 31%. We also expect net new connections in the range of 66,000 to 76,000 for an increase of 27% to 46%. We also expect fourth-quarter adjusted EBITDA to increase sequentially over the third quarter and to deliver an approximately 20% yearly growth over FY14 total adjusted EBITDA.

Now, I would like to turn the call back over to Steve.

Thank you very much, Dave, and thank you everyone for joining us this afternoon. In closing, we believe the team has delivered on the initiatives we laid out over previous quarters, including driving revenue growth, improving cash flow, and growing the number of connections and recurring revenue. We believe that well remain well positioned for increased traction and continued success to deliver enhanced shareholder value.

We would now like to open up the call for questions. Operator?

(Operator Instructions)

George Sutton from Craig-Hallum.

It's Jason on for George. I wanted to just ask. You reiterated your connections growth for the year of 66,000 to 76,000, and that would suggest that you are off to a pretty good start here in Q4. Just wondering if you can give any details on why you are confident in that number and what you're seeing in the marketplace right now?

Jason, it's Steve Herbert. A couple of things, typically, we have a very strong fourth quarter as a Company, from a connections standpoint, and we are encouraged by the pipeline that we see it in the market -- with the Company, right now. There are a number of things. Those are two examples.

Maybe we could revisit the long-term margin expectation? The margins in Q3, here, were better than what we were looking for. Just wondering what your thoughts would be following the termination of the grace period or once that gets work out of the system and now the benefits from the new Chase strategic agreement?

Jason, for Q4 -- well, the benefits related to the Chase agreement will impact FY16 as we'll probably start to process with Chase sometime in June, so we won't get much of an impact from that relationship until FY16. In terms of Q4 license and transaction margin, we would expect them to be in line or along what we saw for Q3, as a lot of those units that went out under the grace period are almost all being billed now. Then, when we circle back, probably on our next call for guidance or outlook for next year, I think we may update the long-term, at least FY16 outlook for margins on a go forward.

That's helpful. Last one for me. Just wondering if you can give a couple additional details on the churn that we saw this quarter? You've called out the bulk of the churn and wondering if you could talk a little bit more about those customers? And if you are seeing anything else in the pipeline, or you think it should remain at the typical levels of churn that we see?

Jason, it's pretty typical stuff, outside of the two that I believe I mentioned in my remarks. It's really up and down the street business with -- we have close to 9,000 customers on the service.

They're constantly activating and deactivating things and moving them around. Those are things that we will probably see on a pretty regular basis. In the short version of the answer, outside of the two, there was really nothing out of the ordinary.

Jason, just to follow up as it relates to CCR, the remaining connections at the end of the quarter, March 31 quarter, were approximately 800. Largely, those connections and the impact of deactivation from those are largely behind us, now.

That was my next question, so that takes care of it for me. Thanks a lot, guys.

Gary Prestopino from Barrington Research.

Couple of questions here. First of all, could you give us what the percentage of gross new connections were from ePort vending versus newer adjacent markets?

Approximately 90% of our connections this quarter, gross connections this quarter, came from the vending market. That left about 10%, which came from other verticals, and those were equally spread between laundry and kiosk and amusement and gaming.

Then, as far as the breakdown of new connections between the percentage with QuickStart and JumpStart in the quarter? Could you give us those, too?

Sure. The percent of QuickStart of gross connections was 65% this quarter, and JumpStart was 15%, one five.

At this point, given that the NAMA show and Apple Pay and all that, are you seeing more and more of your net adds being NFC enabled? Could you maybe give us what that percentage breakdown of connections are that are NFC enabled at this point?

It's Steve. It's 100%. For all intents and purposes, it's 100%.

All of your new connections are?

It's a very rare customer that doesn't understand the importance of mobile payment and that NFC capability.

So, the new ones are 100% and your total base -- I think it was somewhere around 70%, 75% at one time. Is it now gravitated more to 100%, Steve?

We still have some number of mag stripe only out there. I'm going to wait Dave for to come up with a percentage. It's a large percentage of our base.

Off the top of my head, I'm going to say something like 70% of the 300, more than that, actually. I think I saw a number of 220, recently, so let's call that somewhere between 70% and 75% of our base. Dave, did I get that right?

Yes, that's about right.

Just a couple of quick other ones, because I was writing so fast and trying to listen. This new agreement with Chase, does that come with better rate on charges for processing, or was I misunderstanding that?

Gary, we do expect efficiencies in terms of our costs and licensing transaction fees. But, the main reason we entered into that agreement was for the strategic relationship and the upside of that partnership with Chase. Any of the efficiencies we gain in terms of costs and margin improvement are going to be seen FY16 forward.

You also reiterated, you said that you are looking for your EBITDA to be up 20% this year?

Right, for total year over year, from 15% compared to 2014, yes.

One last question. When does impact of the warrants come into your share flow?

There's [$]4.2 million warrants that expire September of 2016. They are in the money. They have an exercise strike price of $2.61. They come into the share flow if and when the exercised.

So, it's not a function of the price in the market, it's when their exercised?

Correct. In terms of a fully diluted calculation, as long as they are in the money, they would come into the fully diluted calculation if all the accounting metrics were met and they weren't anti-dilutive. They weren't included in this quarter's fully diluted number because inclusion would have caused those to be anti-dilutive. In a sense, they would have reduced the loss.

Okay. I see what you are saying. Thank you, then.

(Operator Instructions)

Mike Latimore from Northland Capital.

Nice quarter there, guys. On the QuickStart contribution, 65% of gross connections, is that what you're targeting going forward, or is that a little bit elevated?

Mike, thanks for the kind words. To answer your question, I think we said we were enthusiastic about the response in the marketplace. If it remains on this trajectory, we'll be very pleased.

I have to say, that our customers moving over from a rental to a hard five-year commitment to both our devices and our service has happened at a more rapid pace than I thought. If it remained at 65%, that would be great. Candidly, I don't think it's going to stop here, but we'll have to see. It's something new.

Sure. Then, on the equipment gross margin. Did you say there was a $0.7 million one-time benefit? I guess that's the first question. Second, if we -- if that's the case and you back it out, is that a good run rate for gross margin?

Mike, you have that correct. It was that one-time benefit. If you back that out, that is probably -- we would expect margins to be somewhere in the high teens, low 20% margin for equipment. If you back that out, that's where you are going to land. To answer question, yes. It would be sort of a normal expected run.

Did you get more connections from your largest customer this quarter?

We did. We actually received significant orders from them in Q3.

Okay. Great. SG&A, is that the quarter amount here? Is that a good run rate going forward, SG&A?

Mike, no. Of that $4.2 million, I would estimate $350,000 to $400,000 is one time for this quarter.

Okay.

So, I would expect it to come down in Q4.

Got it. Okay, and also just to clarify, did you say the transaction dollar amount was close to $98 million?

Yes.

Great. Very good. Thanks a lot.

Kevin Dede from H.C. Wainwright.

Steve, just back on the Chase deal. I get the feeling there's two aspects, right? There's the transaction side and then there's marketing side. If was wondering if you could peel back the onion just one layer and give us a little more detail on each aspect, there? If you think I'm thinking about it the right way.

Well, in a nutshell, I think we said it right there. There are efficiencies to be gained on the transaction processing side. As Dave said, those will become apparent in the beginning of FY16 and our starting July 1, approximately. Actually, it will kick in a little later than that.

On a macro level, there's that facet of the relationship. Then, there's also a -- there's a strong desire on the part of both companies to penetrate this space. As we all know, there is a lot of what some people call blue ocean in this market space.

They have a lot of arms and legs, and it's one of the things -- and very broad reach, not only in the United States, but globally. That's something we were very attracted to in the discussions with Chase.

Do you have, maybe, anything up your sleeve that you could offer as an example of how you think you might be able to leverage this arrangement with them? Just something that might be able to make it a little more tangible? As I'm hearing it here, it's just very high level, and I'm just curious as to what it means in terms of boots in the street?

The fact of the matter is that -- let me just preface this by saying one of the things that we don't want to do, is tip our hand to competition before we're ready to launch, say, a specific joint marketing effort with a partner, with really, with any partner. We don't want to tip our hand on that stuff. We're not being cryptic, to be difficult, of course. We always want to be as transparent as we can.

Theoretically, to give you an example, as I mentioned, this is a market space that we both have a high degree of interest in and feel that it has great promise. Chase does, to use your phrase, they do have a lot of boots on the ground. Theoretically, you could see someone like Chase offering our service to, say, a marketplace that, perhaps, has nothing to do with vending but has a lot to gain from this type of pinion service. So, I hope that helps.

Yes, it does. Thank you. Now, not that you are directly connected with Apple Pay, but there is certainly a lot of other credit card companies that are. I'm wondering, number one, is this Chase arrangement exclusive? Number two, is a still an opportunity or interest in your part, to perhaps make arrangements with, say, American Express or Visa?

Well, our relationship -- we're certainly free. We have separate agreements with the card associations. We have a strategic agreement with MasterCard. We have a strategic agreement with Visa. So, we are free to do those things. We can partner with people like Apple Pay. We certainly have maintained the freedom to do those things.

Okay. Given the traffic on the show floor at NAMA and what appears to be a pretty bullish outlook on Q4 in terms of connections, is there a chance that you might come back to the Street or investors, in general, and give us an indication on how that's trending? I'm thinking about it, otherwise, we are not going to see your full-year report until sometime late summer. I'm just wondering if there's a chance you might be able to relay some of that information prior to that?

I don't know that we, at this point, have anything planned. At this point, I would have to say the answer to that is no. We don't have anything planned. However, if it becomes clear that we need to do so, we should do so, then will circle the wagons with the IR team and figure it out.

Could you talk about the correlation between connections and equipment sales? It's kind of tough to try. I'm just wondering what to expect on the equipment side, given an uptick in what you expect on connections in this current June quarter?

Kevin, the correlation between connections and equipment sales largely has to do with the percent of those connections coming from QuickStart. At this moment, the best information we have is the last seven months of QuickStart activity. It's been favorable, 65% of our gross connections this quarter were QuickStart. Right now, we see no indication that Q4's connections would not be similar to that.

Fair enough, Dave. Thanks. It's fair to say, then, you are expecting a pretty bullish return on equipment sales and you gave us a range on margins. I know I asked you -- I think last quarter -- about continued refinements in the equipment you are developing. Is there anything on the horizon that you can speak to?

Not at the moment. One of our suppliers was coming out with both pieces of our design. We are looking into that, possibly purchasing both pieces of our equipment from a single-source supplier. Other than that, nothing at the moment. A little longer out, EMV is something both contactless and contact EMV is something that we're looking into for our customers.

Right. Okay. I've seen more of that in the news, lately, too.

Just back to NAMA, again, and relationships developed there. What sort of lag time do think there is between a new agreement and, then, actually starting to see those connections work into your connection base?

Mike, typically when we sign an agreement with someone, the connections start to flow pretty quickly. It's not like we have a backlog as a Company or a customer wants to wait. It's rare that a customer wants to wait a long time after signing an order or an agreement. I hope that helps.

It does. Would it be fair to say that the kick up that you see in this current quarter is primarily a result of that show, or is just general seasonality in this quarter? How much do you think of that filters through to your first-half FY16 outlook?

Honestly, I understand you're not going to offer guidance on that year just now, I'm just wondering on -- there's so many things happening. There's a confluence of so many drivers, right now, it's kind of hard to synthesize the impact of any one. I'm just wondering how much you can help me get my arms around that?

In the forward-looking part of your question, you are talking about a confluence of different things. We have things like mobile and other things like that. I always characterize things like Apple Pay and Google Wallet and the emergence of mobile payment as a nice tailwind for us.

One could say that it was unexpected if they weren't watching the industry closely, or one could say if you are flying an airplane it was in your good pilot, it was in your flight plan. We expect a tailwind from that. It's affecting this year, and it will likely affect next year.

We are optimistic about that, that along with the convergence of some other factors. It has affected, to answer your question, some of the things had affected this year and will affect the way this year wraps up. Certainly, we would expect those things to drop off as we go into next year.

Okay, Steve. Fair enough. That's all I've got at the moment. Thanks very much.

Bill Sutherland from Emerging Growth Equities.

Good quarter, guys. On pricing, I assume it's looking pretty good and wondering if given the demand for QuickStart, in particular, if you're considering starting to charge some activation fee again?

That's a possibility, particularly -- and by the way, thanks for the kind words about the quarter on behalf of the team. It's a possibility that is something that could happen in the future, particularly as customers are -- they are beginning to dial up services when they activate that go over and above the core services, the core ePort Connect service that we've been offering in the past. I know we talked about things like More, our loyalty program.

As we continue to add value, when someone connects, I really do think it will give us the opportunity for some sort of activation fee in the QuickStart program. We'll have to see.

Unfortunately, we don't act in a vacuum. Part of it is market driven and part of it is driven by the breadth of the service that we offer and the ability to justify such a thing.

Did the leasing company accept all the deals you brought them in this quarter?

Thanks for the question. The leasing company this quarter, we brought on, in May, with the initial purchase of $1.8 million. Then, we brought them on for the ongoing program around the first or second week of March. From that time to the March 31, they purchased $900,000 worth of leases, which was predominantly most of the activity in the last several weeks of the quarter.

Okay.

We always anticipated having several leasing companies in the arsenal, just like any other company that is successful at leasing equipment or hardware or cars, whatever it is. You typically have multiple sources.

Sure, and you're going to have a second one by the end of the quarter, you said?

I think it's safe to say that we do have a second one.

(Laughter) Just noticing again the proportion of the gross connections being heavy in vending in the quarter -- I'm sure it moves around quarter to quarter, but just wondering -- a little color on what's happening in the adjacent markets? Maybe that's the best way to ask the question.

We still have a significant amount of activity in commercial laundry, in kiosk and amusement. It wasn't as high this quarter as it has been in previous quarters as a percentage of the overall business. I would still say that those are active.

We'll continue to push on that. Remember, we go to those channels through intermediaries. We are having to work through other boots on the ground, if you will, to get that done. It never happens as quickly as we would like. That is typically the case with reseller type arrangements.

We recently attended a major trade event with our commercial laundry partner, Samax Systems. It's my understanding that they were there highlighting with us. We were in their booth with them. We helped staff it. Apple Pay was just a huge hit in that market. We will have to see if that translates into connections in subsequent quarters.

Okay. That's it for me. Thanks, everybody.

Barry Kitt from Pinnacle.

Congratulations on the great quarter. Appreciate it. First, a question. When you first gave your forecast for year-end June 17, if I recall correctly was 500,000 connections, $100 million in revenue, $15 million of free cash flow and $20 million adjusted EBITDA. Do I recall that correctly?

Yes.

My question is, at the time you gave that forecast, was that based on US or domestic only, or did that include any international opportunities?

That was largely, Barry, domestic only. It also contemplated, for the most part, our business model with JumpStart. With QuickStart and the impact on equipment sales that QuickStart has, you might be able to achieve at least the top line revenue number sooner than 0.5 million connections. The run rate of $100 million sooner than a 0.5 million connections. But, I think, as we go into next year with guidance and outlook, that's something we're going to have to take a look at as to how that impacts that goal.

Can you talk a bit about the JPMorgan Chase agreement that you recently announced? How does that impact or what opportunities does that give you in the international marketplace?

There has been interest from outside the US, in terms of our solution, particularly in vending. Chase has a much broader footprint in terms of, I think they have the ability -- 120 different currencies throughout the globe, so they definitely give us more breadth in terms of going into various countries.

It will just depend on the opportunity as they come to us, and the particular region that they come from, as to whether or not we will be able to grow with that relationship. We, obviously, think that their breadth allows us to do that more so than our previous relationship. I hope that answers your question.

Sorry. I'm juggling conference calls. If I missed a few minutes where you already discussed it or disclosed this. Can you flush a bit how the JPMorgan Chase relationship is going to help you get new customers other than who you have been getting before? I think you talked earlier, before you signed this agreement you were looking for not just a new processor or a new processing agreement from somebody, but you're looking for somebody who could essentially be a partner in bringing in new customers. Is that what you got with JPMorgan Chase?

We believe so. They have a lot of customers, and as Stephen mentioned, we are going through some of these other verticals through intermediaries through indirect sales channels. They may have a customer relationship in another vertical market that could utilize the service like USA Technology. We might be able to benefit from that existing relationship that they have.

Thank you very much.

That's just one example.

I appreciate that. Thank you.

Thank you. At this point, we do not have time for any further questions. I will now turn the call over to Management for closing remarks.

Thank you, everyone, for taking the time for our call today. We appreciate all of the great questions and all of your interest in our Company and enthusiasm. Thank you, again, on behalf of the whole team. I hope you all have a nice evening.

Ladies and gentlemen, thank you for participating in today's conference. This concludes our program. You may all disconnect.