Cantaloupe Inc (CTLP) 2017 Q2 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the USA Technologies second quarter 2017 earnings conference call. (Operator Instructions). As a reminder, this conference call may be recorded.

I would now like to introduce your host for today's conference, Lauren Sloane, with Investor Relations. Please go ahead.

Thank you, and good afternoon, everyone, this is Lauren Sloane. And welcome to the USA Technologies second quarter fiscal 2017 earnings call. With me this afternoon is Steve Herbert, Chairman and Chief Executive Officer; and Lee Maxwell, Interim Chief Financial Officer of USA Technologies.

Before we begin today's call, I'd like to remind you all that 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 and in the press release issued earlier this afternoon. 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 either 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 [GAAP] measures are supplemental to and not a substitute for GAAP financial measures, such as net income or loss. 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 earlier this afternoon and on the Investor Relations page of our website, www.usatech.com.

With that, 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 the results of our second quarter of fiscal year 2017.

As revenue in connections continued to grow, we've returned to a profitability path we were on in the early part of last year. And we're obviously on track to reach our long-term goals of 5,000 connections and $100 million annual run rate.

The second quarter marked the 29th consecutive quarter of year-over-year growth, and the top line grew 18% from a year ago. I want to provide a high-level commentary on the numbers and a general business update before I turn the call to Lee to discuss the financial statements in detail.

Taking a closer look at the second quarter -- we had net connection adds of 21,000, bringing total connections to 469,000. This growth is consistent with our usual seasonal patterns as we historically see the most robust connection growth during the second half of the fiscal year. We added 500 new customers in the quarter, bringing our customer count to 11,900. Revenue was $21.7 million, of which $16.6 million was in the recurring revenue line of license and transaction fees; and $5.1 million was in hardware.

In the second quarter alone, we processed 100 million transactions that amount to $192 million on our ePort Connect service. The tremendous growth in transaction dollar value has led us to believe we will be approaching an annual run rate of $1 billion in transactions by the end of fiscal year 2017.

As stated during last quarter's earnings call, we expected to see increasing profitability as we moved into the fiscal year and beyond. And I'm pleased to report that we earned $0.01 per share during the December quarter.

Our return to profitability was due not only to revenue growth, but also SG&A for the quarter declined $1.1 million quarter on quarter, to $5.8 million. Nearly all of the reduction was due to a decrease in professional services, as our first-time SOX audit was completed in Q1. And we've completed and integrated the VendScreen acquisition.

That said, we're leaving unchanged our SG&A outlook as a portion of the audit expenses will recur as the year progresses. However, we're heartened by the leverage we see in the model and the fact that we grew our profitability during the quarter.

Moving now to the business overview -- USAT provides the payment industry's leading solution and most efficient ramp towards cashless acceptance and self-serve retail, and, as our data shows, increased performance. We continue to drive aggressive growth through penetration into our existing customer base and into more locations in vending, kiosk and other markets, and through maximizing the value of these connections.

We see our customers increasingly choosing to connect 100% of their locations to our ePort Connect service to realize the benefits of credit, debit and mobile payment acceptance and drive improved performance.

Again, this quarter, we made progress acquiring new customers, helping existing customers to go 100% and toward expanding the value of our connections. I'd like to discuss these initiatives momentarily.

A significant set of new customers added recently is the group of six Pepsi bottlers in North and South Carolina. They're rolling out a combination of ePort Interactive and ePort G9 devices, all connected to our ePort Connect service, a total of more than 2,000 units. We believe this is a continuation of the increasing adoption of cashless payment solutions at unattended retail. And the addition of these Pepsi bottlers is a relationship that we believe will help build USAT's momentum for future growth.

This quarter, we added to our growing list of customers committing to 100% cashless payment technologies with [10M] Corporation, a family-owned canteen franchise based in South Louisiana. We're working with 10M to upgrade 1,000 of the company's locations through our ePort Connect cashless systems. Already, 10M has seen early positive results, as their consumers are spending 42% more when they pay with a card versus cash.

We also added Colorado-based Premier Services as a customer who's committed to offering cashless payments in 100% of their locations, by implementing the USAT ePort Interactive and ePort Connect platforms with our premium support services. We're currently working with Premier Services to deploy our solutions on all of their vending, coffee and micro-market kiosks throughout the Denver area.

With the transition to 100% cashless, Premier Services aims to better align its payment offerings with the consumer's expectations and growing preference to pay with cashless options, either a smartphone or a credit or debit card. Premier Services is also leveraging the full scope of our premium support services to speed implementation and to broaden awareness of noncash payment options in their customers' locations.

Another exciting development, announced at the Consumer Electronics Show in conjunction with Apple, is that we've begun to integrate our loyalty program with Apple Tech, which will allow operators in the unattended market to give their consumers a seamless loyalty and payment experience.

From the consumer's perspective, when using Apple Pay at an ePort-enabled location, a message regarding our MORE loyalty program will appear on their iPhone by offering the option to add the MORE loyalty program to their Apple Wallet. This offer or message will be pushed to the consumer via the ePort device, marking a new era of two-way communication at point-of-sale. Consumers and partners can use this capability to take advantage of exclusive offers and discounts on participating machines connected to our ePort Connect platform.

We're also seeing improved location performance as a result of point-of-sale advertising that our ePort Interactive platform is able to show. In late November, we released the findings of a six-month study that tested targeted point-of-sale advertising of Apple Tech. The conclusion was smartphone users shown digital advertising at point-of-sale through our ePort Interactive platform are more apt to use their phone to make a purchase and to spend more.

Specifically, we found that digital advertising on our ePort Interactive platform that highlighted Apple Pay availability at the point-of-sale resulted in an increase in overall sale by 36.5% and an increase in total transactions of 44.6%.

We're just scratching the surface regarding the possibilities with advertising at point-of-sale, and USAT is at the forefront of the industry with advanced solutions. We hope to partner with customers, consumer product brands and enabling technologies to continue moving this forward.

The role of mobile payments is also worth highlighting as it continues to be a determining factor for our customers in their decision to move toward noncash payments. At USAT, we've been investing in mobile capabilities for more than a decade to ensure our customers' seamless mobile payment adoption.

Toward that end, we just announced the availability of the ePort Connect platform's G10-S series, which has been certified for use on the Verizon wireless 4G LTE network. The G10-S provides our customers with the latest in wireless technology, with advances in telemetry and cashless payment processing, in addition to innovative mobile wallet and consumer engagement services.

With enhanced functionality, we're able to offer our customers an improved MORE loyalty program, with push messaging features in the G10 app, which includes the Apple Pay loyalty integration we discussed earlier.

Finally, I'd like to take a moment to acknowledge the great people we have at USA Technologies and express how honored I am to work with them and for this company. We've received some important recognition by the industry for the work we're doing, including the 2016 Frost & Sullivan North America Customer Value Leadership award.

Our growing customer list and deepening penetration into the market, which, when coupled with outside recognition, signals that USA is working in the right direction. The market is demanding cashless payment options, and we're positioned to capture that demand and increase performance for our customers.

Our strategic and financial progress are a testament to the growing momentum in the industry. And I'm positive we'll remain well positioned to capture the transition to cashless and mobile payments across the self-serve retail market.

With that, I'll now turn the call to Lee to review the numbers.

Thank you, Steve. Good afternoon, everyone.

USAT had a strong financial result this quarter. We achieved revenue and connection increases, significantly increased net income, positive net income per share, and strong cash generation from operations.

Now, to review the quarter -- echoing Steve's comments on revenue and connections, net connections for the quarter totaled 21,000, compared to 20,000 in the second quarter of last year. There were approximately 4,000 deactivations, which we would consider a typical level.

Revenue was up 18%, including a 22% growth in license and transaction fee revenue and 6% growth in hardware. We added 25,000 gross connections in the quarter compared to 23,000 gross connections in Q2 of last year. Connection growth is consistent to our normal patterns, as our growth is primarily back-loaded in the second half of the fiscal year.

We added 500 new customers, ending the quarter with a total of 11,900, a 12% increase in customers from December 31st a year ago. We continue to derive increases in connections primarily from deeper penetration of existing customer accounts.

We continued to growth both the number and the dollar value of transactions. This quarter, we had 100 million total transactions, representing 192 million in transaction volume, increases of 32% and 39% respectively from last year's second fiscal quarter.

Year over year, growth was driven by an increase in total connections to our ePort Connect service, which drove our total connections to 469,000, representing a 27% increase from the 369,000 at the end of the same quarter last year. Approximately 80% of gross new connections came from existing customers, which is a strong indication to us of the increasing move by our customers toward 100% adoption of our cashless technology.

Total revenue this quarter was our second-highest quarter revenue ever -- $21.8 million, an increase of 18%; compared to $18.5 million recording in the second quarter of fiscal 2016. License and transaction fees were $16.6 million, compared to $13.7 million in the year-ago quarter, representing a 22% increase. These fees, which are comprised of the recurring monthly service plus transaction processing, accounted for approximately 77% of our total revenue.

Equipment sales were $5.1 million, compared to $4.8 million in last year's second quarter, representing a 6% increase. The increase is attributable to the increasing demand for cashless acceptance in our target markets, facilitated by our Quick Start program.

Quick Start and [straight] sales accounted for approximately 93% of new connections added during the quarter, compared to 90% in the same quarter last year. The Company's Quick Start program of 60-month funding provided by third-party financing improves the Company's cash flow from operations.

Gross profit for the second quarter was $6.3 million, compared to $5.5 million in the year-ago quarter, representing a 16% increase. Total gross margins were 29%, an increase from 28% in Q1 of this year and a slight decrease from 29.6% in the same quarter a year ago.

In terms of the L&T component -- there is an increase to 31.6% from last quarter's 31.3%, and a decrease from 33.7% in the second quarter of last year. Our long-term target remains in the low to mid-30s. And we are working toward the high end of that range by reducing L&T costs and increasing revenue.

In terms of the equipment margin, there was an increase to 21.2% from 18% in the same quarter a year ago due to cost reductions with respect to our products this quarter compared to the same quarter of last year.

Consistent with our commentary on the last call, we reduced our operating expenses compared with Q1. SG&A expenses were $5.8 million for the second quarter, a $1.1 million decrease from the prior quarter, due principally to the reduction in professional fees related to first-time SOX audit expenses. Despite the reduction in Q2, we expect quarterly SG&A expenses to be in the mid-$6 million range for the balance of fiscal 2017.

For the quarter, adjusted EBITDA was $1.7 million, compared to $2.3 million in the comparable period last year. The decrease was primarily due to increases in SG&A expenses, mainly professional services and marketing expenses.

Operating income was $234,000 for the second quarter of FY 2017, compared to operating income of $594,000 in the corresponding quarter last year. On a non-GAAP basis, net income was $241,000 for the second quarter of FY 2017 compared to a non-GAAP net income of $686,000 in the same quarter last year. The decrease was primarily due to an increase in operating expenses that was partially offset by an increase in gross profit. Please refer to the table in the non-GAAP reconciliations in the press release, which have been posted on our website, for additional information.

Net income on a GAAP basis for the second quarter of FY 2017 was $233,000, compared to a net loss of $874,000 for the comparable period a year ago, due primarily to $1.2 million charge for the fair value warrant valuation in the second quarter of fiscal 2016. As you know, the warrants have now been exercised, so the fair value charges will no longer affect future-period financial statements.

Looking now at the balance sheet -- networking capital increased by $9.9 million, to $14.8 million, as a result of the increase in current assets and the reduction of current liabilities, including the elimination of the warrant liabilities as of December 31st, 2016.

Net cash provided by operating activities for the quarter was $1.1 million, an increase of $615,000 or 121% from the same period last year, due primarily to an increase in net income.

This concludes my remarks. And now, I would like to turn the call back to Steve. Thank you.

Thank you very much, Lee. And thank you, everyone, for joining us this afternoon.

USA Technologies continues to move the market for unattended retail payment as we grow revenue, connections and net income. As we look forward the entire fiscal year, we continue to expect to add between 115,000 and 125,000 connections for the year, bringing total connections to our service to a range of 544,000 to 554,000 connections. We continue to anticipate revenue to be in the range of $95 million to $100 million.

With that, we'd like to open the call for questions. Operator?

(Operator Instructions) Gary Prestopino, Barrington.

Couple of questions here. Number one -- it still looks like your revenue per transaction -- or, I would call it, your take rate -- continues to be moving down, despite the fact that your volume per transaction is moving up. So again, is that a function of -- I think last quarter, you had said there was more MasterCard transactions -- is that a function of card mix that that continues to deteriorate? And what would be a -- would you think would be a steady-state level for that metric?

Yes. Gary, you're referring to -- I'm sorry, you're referring to the revenue -- is it revenue per transaction that you're referring to, or connections?

Yes. No, revenue per transaction. It looks like it keeps moving down. It looks like -- I get about almost 166 cents, $0.166, per transaction. Looks like it's moving down. And I'm just wondering, what is causing that to happen?

Yes, Gary, the overall average ticket -- I think what will happen is maybe Lee and I will answer this question for you together. The overall average ticket for our customers, or average spend -- I think it's in the five-quarter run somewhere in the earnings release. The average ticket continues to go up. That has continued to go up over the last five quarters, and probably over the last five years. And I think that's somewhere around $1.92.

So I think it's some other metric that you're looking at. I'm going to let Lee respond to that.

Gary, I think we've got a couple of things going on here. Occasionally, the Company does do some strategic adjustments, I guess I would say, with some customers where we get some benefit. It doesn't necessarily happen immediately, but, on the long run, is better for us. It does reduce to some degree revenues in the near term. But we gain some significant benefits going forward.

We also are working on that whole revenue aspect, so that, to the extent that we have some going in that direction that I just mentioned, we're actively working in the other direction to bring the L&T revenues up, so that I think going forward, you're going to see a trend that's not maybe what you've seen for a few quarters here now.

But those things do happen occasionally, where we make some conscious decisions to benefit the Company in the long run, which has produced a temporary little blip.

And, Lee, I think (inaudible) referring to, working on the other side of the equation, if we're referring debt to L&T. And I think that's what you're talking about.

Yes, yes.

If you're referring to L&T, the things we're working on on the other side of the equation, Gary -- and I hope this is answering your question -- we are working on the revenue side and the cost of goods side.

For instance -- and I think we mentioned this on our last call -- with certain customers, we've begun -- actually, at the beginning of this year, we began to take price specifically on processing with a select group of customers. And we'll begin to see the benefit of that as the second half of fiscal year unfolds. We also have been successful at negotiating some cost reductions on the service side, which -- we had a minor slice of benefit in the 12/31 quarter on some cost reductions on wireless, which will see the full benefit in the 3/31 quarter.

So I hope we answered your question.

Okay.

And then, in terms of the SG&A, it was down from where you had guided. You mentioned that it was professional fees. So was there anything in there that you did not spend in the quarter that you're pushing out in the back half of the year? Because it was my understanding that there were some things for maybe increased sales, increased R&D or whatever. Because you're kind of leading us to a $6.5 million run rate for the back half of the year. And I'm just trying to understand what happened in this quarter because the SOX fees come down that is going to change in the ensuing next two quarters.

The short answer, Gary, is no, there's nothing that was pushed out. Having said that, the reason for the mid-sixes on a go-forward basis is that, by design, the Q2 activity, both from our external auditors and our internal auditors in the Company, was at a lesser rate. And going forward, a lot of the activity Q3, Q4 will ramp up just as it did last year, not as much as it did last year, because we're in our second year. But it will be more, which is why this is nice to have a $5.8 million SG&A. But it will go up a bit.

We're a growing company, and we need to provide the right kind of infrastructure support and get the SOX activity done. And it will ramp up in Q3 and Q4, and in Q1, frankly, next year.

Okay.

And then, lastly (multiple speakers) --

We're holding, as we stated in the prepared remarks, we're holding to that guidance that we gave last quarter of mid-sixes.

And then, lastly, how did you -- you've increased your client base and all. And I think -- just trying to get an understanding of, if you look at all the potential connections that your client base has right now, where are you in terms of penetration of that base? Are you still around 20%, or is that too high?

Gary, I believe we're somewhere between 20% and 25%, so we're probably a little high. We believe those 12,000 customers are operating somewhere north of two million locations. So if you do the math, if you do the math at, say, 500,000, we would be 25% of the way there, if they were at two million.

So I think a good estimate is between 20% and 25% penetration.

Okay, thank you.

Thank you, Gary.

Josh Elving, Feltl.

I think Gary touched on a question I wanted to try to flesh out a little bit better. And I just want to maybe explain the way I understand the license line, kind of split between processing and then like a monthly service fee. And, I guess, in looking at the license being up, the license line being up, let's see, about 22% in the quarter, and gross dollar volume being up I think closer to 40% -- were you suggesting that your revenue yield, your processing revenue yield, perhaps you had given up some pricing there, such that the kind of monthly service fee was maintained somewhat? Does that make sense?

I think what Lee was referring to was the opposite. On the monthly service fee, sometimes, strategically, we will make a decision to -- we'll make a decision to back off a bit on a monthly service fee with a customer. And again, it's typically strategic in nature and so forth. So it's actually the monthly service fee that we'll sometime give relief on to position ourselves for a longer-term gain.

On the processing side of the equation, what we're doing, and what I mentioned, is that we're actually taking -- we're taking that rate up with certain parts of our customer base. So we'll be generating a little bit more revenue. We don't make a lot on the transactions. We don't make much at all. But we're going to squeeze a little more revenue out of the transaction side of the L&T line.

That makes sense.

And then, I think Lee provided a couple comments regarding license gross margin expectation, and I think I missed it. Do you still -- are you still thinking that 32%-ish range over the balance of the year makes sense? Or where do you see that gross margin moving? And, I guess, in addition, how about equipment as well?

We're going to hang tough with the low to mid-30s on our predictions for L&T margins. And what we're trying to do as a result, particularly on the revenue side of the equation and the cost of goods side of the equation -- we're trying to push ourselves up that curve. We really want to move up the curve from the low to the mid-30s.

So this is a very concentrated effort to get that done. And I'm hoping next quarter, we'll see -- for insurance, with a full quarter of the wireless benefit, we'll see something a little bit different. So hopefully, we'll be working our way up that curve.

On the hardware side of the equation, I think we've said mid-teens. And we're coming in above that right now, which is great. Hopefully, we can stay in that range. And then, that would be good. So hope that helps.

Great. No, that is helpful.

And then, in speaking about the SG&A, obviously, there was seemingly an over, or a nonperformance in the December quarter, $6.5 million over the balance of the year on a quarterly basis. Any color looking into 2018? And would we see that potentially grow with revenue growth, albeit at a lesser rate? Or how do we think about kind of the outlook for SG&A into 2018?

Josh, I apologize. You broke up there. We didn't catch the question. I don't know what happened, but you broke up. So could you please repeat your question?

Sure. So you talked a little bit about SG&A expectations over the balance of this year, at around $6.5 million. Any color on 2018? Should we expect that to grow with revenue growth in 2018, albeit at a slower rate?

It would certainly be at a slower rate. The mid-sixes that we're looking at and that we're thinking about, for instance, for Q3 and Q4, will for the most part be driven by the audit costs that we think will come in related to SOX, and getting through that process for the second time. I don't think it'll be anywhere near where we were last year.

But as we go into 2018, I don't -- I see some SG&A growth. I think we see that in the plan. But it's not at a substantial rate.

Okay. That's helpful.

Last question for me -- just a little bit more color on connections in the quarter. I guess, looking at the year-over-year growth, maybe a little bit slower than what you need to do to hit your guidance for the full year. Was there anything unusual in the quarter? Were there any push-outs? Or can you kind of give us a little bit of color of your expectations versus the connection growth you saw in the quarter?

Yes. Well, typically, we're always back-loaded.

Sure.

We all know (multiple speakers), but it's typically back-loaded. In this particular quarter, and really, in any given quarter, we always -- we have a lot of customers. We added 500 new customers. And we were negotiating during the quarter with many, many customers. And this was one of those situations where a few pieces of business didn't come in in the timing we expected. So they'll fall into this quarter.

That said, the amount of activity and the work that was done during the quarter as a part of these negotiations, and the signals that customers are sending, are very encouraging. So (inaudible) is the color you were looking for.

Good. Thank you very much.

Yes.

George Sutton, Craig-Hallum.

This is Jason on for George.

Wanted to dig into these monthly service fees just a little bit more. You talked about kind of giving relief on the monthly service fee side to some customers. Just wondering if this is a product of the premium services, where you're trying to provide benefits to customers that are going to 100%. Or is this something you're doing to land new customers? Was wondering if you can give more context on where you are providing these discounts.

Yes, that's a great question. And it's actually -- it's not so much related to premium services. But it is related to two things that you just mentioned.

First of all, when a customer wants to go 100%, and it's a substantial commitment on their part -- let's call it a couple thousand locations, whatever that might be -- we might give that customer some relief. Other customers -- and they're early in the game, they're early in the game, they're valuable -- every customer that goes 100% sends a message to the marketplace -- hey, this thing's going to go all the way. And just in the vending market, there are six million locations in the United States. Got a long way to go in this market, and we can create a lot of value for everyone, including customers and shareholders.

So those 100% commitments are valuable. They're valuable strategically, and they're valuable in the way of number of connections. So that's one place. That's a great example you brought up of where we might want to strategically give someone some relief on a monthly fee.

On the other hand, you might have a very large early adopter who is capable of moving the market on their own, where you might want to give relief as well. So those are two examples where you might do that on the monthly service fee.

Okay.

On that same topic, just wondering if you can give some perspective on the funnel of customers that want to move to 100%. I know you've announced quite a few new names on this call and on past calls. But are you seeing more interest from customers that want to make them move? Is it becoming an easier sell to get people to get to that 100% threshold?

Well, if I said easy, somebody might [check] my door down. But I don't think it's fair to say easy. It's a pretty significant commitment on the part of a customer, just in terms of the work they need to do.

But what I would say is that the dialog regarding customers going 100% -- it used to be that there would be a customer a quarter or a few customers a quarter that you'd be having a dialog like that with. Now, it's dozens per quarter. And we're in various stages of working with those customers in getting them to those commitments. So the fact is that there are more conversations going on in that regard.

And I think importantly, and something that we all need to think about a little bit longer term for the industry -- and I believe we've talked about this before, yourself and George and I, and people from our company -- the industry is sending all the signals and using all of the rhetoric around connecting all the machines and having cashless capability in all the machines, very much the same way that they brought dollar bill validators, dollar bill acceptors, to the whole industry.

So the rhetoric in the industry as a whole, I think, is very important as well. And that's something that we continue to hear.

Okay, thanks for the color on that.

Another question on a different topic here, but -- nice win with the Pepsi Bottlers Group. Wondering, is that a good proxy for what you're seeing for customer interest as far as the interactive ePort versus the standard ePort? Or was there something unique that caused a higher proportion of interactive devices with this customer?

I'm not sure if I remember this correctly. But the fact of the matter is I think they took what we had left. And I think they had to take some G9. So we sold everything we had in the quarter in terms of interactive. We continue to dial up that production. And we still expect that to be about 20% of our mix for this fiscal year.

So the interest level is good on the customer side, and the interest level is very good because of some of the test results we've put out. The interest level is good on the advertising side. And we expect to see some activity there.

So putting those two together, just those two factors -- that product line and service has a bright future.

Great. Thanks, guys.

Mike Latimore, Northland Capital Markets.

Just on the Pepsi announcements, I guess six bottlers -- are these six separate contracts, or is there sort of a master (inaudible) with some Pepsi organization that helps to enable these deployments? Or are these really kind of six separate wins here?

Well, Mike, actually, it's a little bit of both. There's an arrangement with -- it's called Carolina Canners. There's an arrangement with that group. But the actual -- if I remember correctly, the actual buying decision really comes to each individual bottler. They make their own decision, even though they're part of a group. Strategically, they decided to go in this direction. And we're going to be doing some interesting things with them over and above simply giving them cashless capability.

But they're actually -- when you look at them, they're six individual bottlers who make their own buying decisions.

Okay.

And then, the volumes you talk about there, do you know what percent cashless that gets these six bottlers to?

Mike, I don't have that information. But just from my experience with Pepsi -- seems like a long time ago now -- I can guarantee you they had more than 2,000 machines out there among those six bottlers. So we're really just getting started with them. So I can't tell you what percent penetration that is.

Okay.

And then, in the December quarter, how many of the, say, 25,000 gross adds were the ePort Interactive?

I would always think somewhere in the neighborhood of 20%. Just think, for the year, that we're probably going to land in that 20% range. I don't know exactly what it was for the quarter. But if I had to make a bet, we'd be right in that range.

Okay.

And then, just on the additional levers to get the license and transaction gross margin improved a little bit, I guess, how important will sort of renegotiating with your card processors be? And would they be willing to do that mid-contract, let's say, before they renewed it?

Well, we're constantly in dialog with the people in the value chain on the card side. You've got the associations, notably Visa and MasterCard. And we have constant discussions with them about various things, including pricing. And in addition, of course, you have our key processor, Chase. So those conversations -- and I don't want to call them negotiations, but those conversations are ongoing.

And then, there are other components, cost components, most notably the wireless, which is a significant component on the cost side for the service. Those are conversations that are ongoing as well. But in particular, we concluded one negation that, as I mentioned, benefitted the 12/31 number just a bit. And we'll see the full impact of that in the next quarter.

So I would -- just think of that cost component, the various elements of the cost, just -- we're constantly in discussions with those companies regarding how we can take cost out of the system and provide more value for less. That's what we're trying to do.

I think LTE is a great example. We're going to be giving our customers more bandwidth, greater speed. So we're all accustomed to what happens with that as consumers. And we're not taking price up, at least at this point. And of course, we're not paying a greater price to get that additional capability.

Got it.

And then, just MasterCard as a percent of volume in the quarter -- any change from the September quarter there in any material way?

I don't think there was a material change. MasterCard debit has become -- we talked about it last quarter -- it's become a bit more of the debit card mix. But it's really still heavily dominated by Visa. I think Visa debit is somewhere in the neighborhood of 75% of all of the debit card transactions. And most of our transactions are debt. So Visa's got the lion's share of it.

I don't think -- to answer your question directly, I don't think it was a material increase of MasterCard debit in this particular quarter.

Got it.

And then, just last one -- just to be clear, when you talk about mid-$6 million, you're talking SG&A. And that excludes the depreciation and amortization, is that right?

Correct.

That's right.

Okay. And what do you expect D&A to be?

I'm sorry, say again?

What do you expect depreciation and amortization to be going forward, quarterly?

Not dissimilar from what we've seen --

About 300 grand.

Yeah, it was $307,000 or some (multiple speakers).

It's about $300,000, Mike. I don't think we expect it to change notably.

Okay. Thanks.

Okay. Good. Thank you, Mike.

Gary Prestopino, Barrington.

Just a quick question -- when you're talking about making accommodations to some new accounts, or accounts that I would assume are high-transaction volume accounts, do you have any minimum transactions that they have to fulfill in order to uphold their side of the contract? Because you're giving up that monthly fee to a high-transaction volume account. It would seem that they would have to make some commitment to you on a quarterly basis that they will do enough transactions to kind of mitigate the loss of that fee.

Yes. Gary, we're not giving that up entirely. We may give some ground on that. But that's really not where we're giving the relief. We're giving that relief for a customer who's flipping over to 100%, or maybe they're a very large strategic early adopter or an influencer of some type. But it's definitely not a one-for-one exchange.

And I think what you might be -- one of the things you might be referring to is a customer who comes on via our QuickConnect service, maybe with a kiosk, where there is no monthly fee at all. And we're making money based upon the transactions. Is that what you're referring to?

Yes, that's what I'm referring to. Because I think there was some talk of there's some accommodation for high-volume accounts. So --

Right. That's a different -- sure, that's a different animal. Just to be clear with everyone, we have certain customers who come onto the service -- typically, it might be a kiosk customer -- and they'll come onto the service. And they don't pay a monthly fee at all.

They have -- and, Gary, to answer your questions very directly, we have their -- typically, we have their transaction history. So we know what their average ticket is, and we know what their annual volume is, going in. So we know, typically, we're going to make more. By the time they ramp up, we're going to make more on that connection than a regular connection. Because we make a nice spread. It's a high-average ticket. Our cost of doing the transaction is much lower. It's down in the high twos or low threes, so we can make -- in terms of percentages. So it's a nice spread.

And sometimes, the average tickets are around $50. They can be very high. So --

Yes, that's what I'm kind of --

That's (inaudible).

Okay, thank you.

Sure.

Thank you.

At this time, we don't have any more time for additional questions. I would now like to turn the call back over to Mr. Herbert for closing remarks.

Wanted to thank everyone for taking the time today to join us for our call. We feel good about the results that we reported for the 12/31 quarter. And everyone on the team has knuckled down to deliver good results for our third quarter.

But we appreciate everyone's enthusiasm and support and look forward to reporting to you at our next interval.

Thanks, and have a great evening.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect.