USA Technologies: Thinking Small To Grow Fast

Malvern Pennsylvania is the home of USA Technologies, a town of just 3,000 people. In Malvern it pays to think small.  USA Technologies (USAT: NASDGM) is trying to make it big by thinking small.

The word small ticket comes up frequently in USAT’s self-description. Here is why they want to be a big fish in a small pond.

What They Do For A Living

USAT provides wireless networking, cashless transactions, asset monitoring, and other value-added services to the small ticket, unattended Point of Sale (“POS”) market.  This sounds super cool, but what does it mean?

USAT developed something they call ePort technology.  When it is installed into things like vending machines, commercial laundries, amusement games, or stand alone kiosks so you no longer have to carry cash.  It is another application of network technology and it is spreading rapidly.

While thinking small, USAT also developed ePort Connect, which amounts to a Payment Card Industry Data Security Standard (PCI DSS)-compliant, comprehensive service that includes simplified credit card processing and support, consumer engagement services as well as telemetry, Internet of Things (“IoT”) and machine-to-machine (“M2M”) services, including the ability to remotely monitor, control, and report on the results of distributed assets containing electronic payment solutions.

Competitive Position

Company CEO Stephen Herbert claims the company is a leading provider in the small ticket, beverage and food vending industry.  They are expanding solutions and services to other unattended market segments, such as amusement, commercial laundry, kiosk and others.

Historically, these businesses have relied on cash for payment in the form of coins or bills, whereas, USAT systems allow the acceptance of cashless payments through the use of credit or debit cards or other emerging contactless forms, such as mobile payment.

How Does USAT Make Money

Revenues are generated from the sale of equipment and from license and transaction fees.  It is this last source that helps make USAT most interesting.

During the fiscal year 2017, 73.0% of revenues came from recurring license and transaction fees related to ePort Connect service and just 27.0% from equipment sales.

CEO Herbert believes that a service based business model, will create a high-margin stream of recurring revenues as a foundation for long-term value and continued growth.

Financials: Small Is Getting Big Quickly

USAT strategy seems to be paying off handsomely.  Revenues over the past five years have been growing a better than a 25% pace going from $29 million in 2012 to $104 million in the year ended June 2017.

For the six months ending December 2017 the company surpassed last years total ringing up about $43 million in revenues, a 30% increase.

In their February 8th earnings release, the company raised guidance for fiscal 2018 revenues to $140-$145 million and for adjusted EBITDA to between $13.5 and $14.5 million.

At this time four Wall Street firms cover the company and these folks expect USAT to earn $0.06 per share this year before tripling in fiscal 2019 to $0.18.

Cantaloupe Acquisition

Back in November USAT signed an $85 million deal to acquire Cantaloupe Systems, Inc based in San Francisco.  Just like USAT, Cantaloupe is a provider of cloud and mobile solutions for vending, micro markets and office coffee service.  The two companies tout the deal as bringing together complementary portfolios for the purpose of creating the industry’s top solutions platform.

The acquisition had only minor benefits to reported USAT first half results.  On a pro-forma basis, if the acquisition had occurred on July 1, 2016, first half consolidated revenue would have increased 26% year-over-year.

Management With Beverage Industry Background

CEO Stephen Herbert has considerable history in the beverage industry and has been CEO at USAT for over 5 years. In other words, he needs no on the job training.

For the 10 years prior to joining USAT in 1996, Herbert had been with Pepsi-Cola in their beverage division vending area.

The company believes Herbert’s intimate knowledge and experience with all aspects of USAT for over 20 years and his extensive vending experience at PepsiCo before joining USAT provide the requisite qualifications, skills, perspectives, and experiences to serve.  We would tend to agree.

Featured image courtesy of Shutterstock. 

Author:
James Waggoner is a veteran Wall Street analyst and hedge fund manager who has spent the past few years researching the fintech possibilities of cryptocurrencies. He has a special passion for writing about the future of crypto.