UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
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USA TECHNOLOGIES, INC.
(Name of Registrant as Specified In Its Charter)
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The following slide presentation was presented to Institutional Shareholder Services Inc. on June 13, 2012 by USA Technologies, Inc. (the "Company"), and may be used by the Company to make presentations to other corporate governance organizations or Company shareholders in the future.
ISS PRESENTATION
June 2012
SAFE HARBOR STATEMENT
2
All statements other than statements of historical fact included in this presentation 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 and the outcome of the pending proxy
contest. A detailed discussion of risks and uncertainties that could cause actual results and
events to differ materially from such forward-looking statements is included in USA’s most
recent filings with the Securities and Exchange Commission (the “SEC”), including the Form 10
-Q report for the quarter ended March 31, 2012, which you will find on our website,
www.usatech.com, under the “Investor Relations” tab and USAT’s Definitive Proxy Statement
filed with the SEC on May 18, 2012. Undue reliance should not be placed on any such forward
looking statements, which speak only as of the time they are made. The Company undertakes
no obligation to update any forward looking statement, whether as a result of new
information, future events or otherwise.
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 and the outcome of the pending proxy
contest. A detailed discussion of risks and uncertainties that could cause actual results and
events to differ materially from such forward-looking statements is included in USA’s most
recent filings with the Securities and Exchange Commission (the “SEC”), including the Form 10
-Q report for the quarter ended March 31, 2012, which you will find on our website,
www.usatech.com, under the “Investor Relations” tab and USAT’s Definitive Proxy Statement
filed with the SEC on May 18, 2012. Undue reliance should not be placed on any such forward
looking statements, which speak only as of the time they are made. The Company undertakes
no obligation to update any forward looking statement, whether as a result of new
information, future events or otherwise.
Non-GAAP Information: This presentation includes a discussion of Adjusted EBITDA which is
a non-GAAP financial measure which we believe is useful for an understanding of our ongoing
operations. This non-GAAP financial measure is supplemental to, and not a substitute for,
GAAP financial measures such as net income or loss. Details of these items and a reconciliation
of this non-GAAP financial measure to GAAP financial measures can be found in the Appendix
to this presentation and in our Form 10-Q report for the quarter ended March 31, 2012 which
is on our website, www.usatech.com, under the “Investor Relations” tab.
a non-GAAP financial measure which we believe is useful for an understanding of our ongoing
operations. This non-GAAP financial measure is supplemental to, and not a substitute for,
GAAP financial measures such as net income or loss. Details of these items and a reconciliation
of this non-GAAP financial measure to GAAP financial measures can be found in the Appendix
to this presentation and in our Form 10-Q report for the quarter ended March 31, 2012 which
is on our website, www.usatech.com, under the “Investor Relations” tab.
I. Business Overview
II. USAT is Executing In Line with Strategic Plan
to Generate Maximum Shareholder Value
to Generate Maximum Shareholder Value
III. Delivering on Shareholder Commitments
IV. Stronger Governance and a USAT Board that is
Highly Qualified and Already Actively Engaged
in the Business
Highly Qualified and Already Actively Engaged
in the Business
V. Why we Believe SAVE is Wrong for USAT
Agenda
3
I. Business Overview
4
USA TECHNOLOGIES OVERVIEW
5
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MARKET LEADERSHIP
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• Leading provider of wireless, cashless payment and machine-to-machine
solutions for small ticket, self-serve retail industries such as vending & kiosk • Provider of energy saving technology to the cold beverage industry
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LARGE, UNTAPPED
MARKET OPPORTUNITY |
• Cashless and contactless small ticket, unattended market is largely
untapped, having traditionally relied on cash transactions • Millions of potential locations (connections)
• Existing customers have potential for 2.5 million connections (USAT est.)
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RECURRING
REVENUES FUELED BY SERVICE MODEL |
• Growing and reliable revenue stream driven by value-added service model
(network service fees; transaction processing) • 80% of revenues 3Q FY12
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IMPROVING
OPERATIONAL PERFORMANCE |
• Working toward profitability ; building scale as connection rates and
customer wins grow • Achieved positive Adjusted EBITDA Q3 FY2012 ; expect to achieve GAAP
profitability Q2 FY2013 (Dec. 2012, see Financial Assumptions in Appendix) |
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TECHNOLOGY
BARRIERS |
• Proprietary technology with a strong patent portfolio
• 79 patents, trade secrets and “know how”
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STRENGTHENED
LEADERSHIP AND DIRECTION |
• New leadership; new strategic plan capitalizes on market trends, geared
towards sustainable growth and profitability • Stronger board composition
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USA TECHNOLOGIES’ SERVICE OFFERINGS
7
8
ePort Products
EPORT SERVICE AND PRODUCT PROFILE
ePort Connect
Service
Service
Telemetry and
Cashless Payment
Systems
Cashless Payment
Systems
Payment Processing,
Product, Customer and
Operational Data
Product, Customer and
Operational Data
• Targeted gross margin of 30-35%
• ePort G8 NFC enabled; 75,000 installed and mobile-ready
• Wireless
• PCI compliant
• USAT has accelerated market adoption through “JumpStart”
• Targeted gross margin 35-40%
• Generates 80% of USAT revenues
• Recurring revenue from monthly
fees
fees
• Customers and connections growing
G8
Edge
9
COMPETITIVE LANDSCAPE
USAT HAS 80% OF EMERGING MARKET(1)
USA TECHNOLOGIES
InOne Technology/Coinco
Cantaloupe Sys.
Crane Mdse
Sys.
Sys.
MEI
Device
Solution
Solution
Sales/Accounting
Solution
Solution
Card Processing/
Merchant Services
USAT is the only company that offers a complete
turn-key solution, from activation to customer
service—a distinct competitive advantage
turn-key solution, from activation to customer
service—a distinct competitive advantage
(1) USAT estimate
(2) USAT partner
(2)
(2)
(2)
Sources:
US Department of Transportation, 2008
IHL Kiosk Study, 2010 (2011 projections)
First Research, March 2011, June 2010
Automatic Merchandisers State of the Coffee Industry 2009
Vending Times Census 2010
Smart Card Alliance 2006
10
*Includes self-checkout systems, ticketing kiosks check-in
kiosks, food ordering kiosks, postal and other retail kiosks.
kiosks, food ordering kiosks, postal and other retail kiosks.
Kiosks $45B*
Vending $43B
Parking (not in total)
Commercial Laundry $11B
Tolls $8B
Automated Car Wash $4B
Amusement and Gaming $5B
Office Coffee $4B
$120 billion
The small ticket, self-serve market is largely untapped.
MARKET OPPORTUNITY IS VAST
11
II. USAT is Executing In
Line With Strategic Plan
to Generate Maximum
Shareholder Value
Line With Strategic Plan
to Generate Maximum
Shareholder Value
12
USAT STRATEGIC PILLARS - OVERVIEW
FINANCIAL
STABILITY
STABILITY
AND
FOOTPRINT
LEVERAGE
INTELLECTUAL
PROPERTY
CONTINUOUS
INNOVATION
CUSTOMER
FOCUSED
MARKET
LEADERSHIP
FOCUSED
MARKET
LEADERSHIP
• Fundamental financial strength (profitability; healthy balance sheet)
• Leveraging key strategic partners (e.g., Verizon, Visa, Elavon, etc)
• Access to lower cost financing to fund growth
• Competitive advantage
• Block/slow competition
• Create revenue through licensing/ avoid litigation with poor ROI
• Technology roadmap developed with customer input
• High ROI product development through internal development and
by leveraging suppliers/partners
by leveraging suppliers/partners
• Leverage dominant market share and customer base to:
• Grow connections
• Grow revenue per each connection
13
The confluence of several compelling trends
should further drive market adoption.
should further drive market adoption.
CONSUMER
MARKET(STAKEHOLDERS)
• VISA/MasterCard see
opportunity to drive
acceptance
opportunity to drive
acceptance
• Mobile payments
• Incremental business
CUSTOMERS
• Meet customer desire for cashless
• Reverse shrinking margins through
operational benefits
operational benefits
• Cashless solutions contribute to
increased revenues and net operating
profits
increased revenues and net operating
profits
TECHNOLOGY
• Wireless performance up/costs
down
down
• Migration to cloud based or
SAAS solution
SAAS solution
MARKET FORCES DRIVING ADOPTION
• Demand for convenience;
cashless preferred
cashless preferred
• Increasing reliance on
mobile phones
mobile phones
• Small ticket growth
• Increasingly “social”
14
GROWTH THROUGH MORE CONNECTIONS
Connections and Time
Existing Customer
Base
Expanded Reach
Vertical Markets
Vertical Markets
• USAT’s 3,000 customers operate approximately
2.5 million locations (USAT est.)
2.5 million locations (USAT est.)
• Drive penetration in these accounts
• Leverage performance data and new services
• e.g. Kiosks
15
GROWTH THROUGH CONNECTIONS - JUMPSTART
Jumpstart has accelerated adoption, increased
revenues and created competitive advantage
revenues and created competitive advantage
16
GROWTH THROUGH CONNECTIONS - EXPANDING CUSTOMER BASE
Customer base has more than tripled since
introduction of the JumpStart rental program
introduction of the JumpStart rental program
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GROWTH THROUGH MORE REVENUE EACH CONNECTION
Prepaid
and Loyalty
Program (1)
Interactive
Media
Services (1)
Two-tier
Pricing
Program
TRADITIONAL
OFFERINGS
OFFERINGS
NEW SERVICES
PLUS
(1) Anticipated commercial launch 3Q 2012
$ $
18
IMPROVING OPERATIONAL PERFORMANCE
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3Q - 3/31/2012
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3Q - 3/31/2011
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License and transaction fees
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$5,985
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80%
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$4,314
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78%
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Equipment fees
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1,542
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20%
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1,209
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22%
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Total revenues
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7,527
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100%
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5,523
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100%
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Cost of services
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3,750
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3,188
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Services gross margin
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37%
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26%
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Cost of equipment
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982
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782
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Gross profit
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2,795
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1,553
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Gross profit margin
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37%
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28%
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Operating expense
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3,432
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3,221
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Operating loss
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(637)
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(1,668)
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Other income ((expense)
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$99
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(847)
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Net loss
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$(538)
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$(2,514)
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Net interest income
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(4)
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(4)
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Non-cash adjustments
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878
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1,578
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Adjusted EBITDA (1)
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$336
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$(940)
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STATEMENT OF OPERATIONS
Select Financial Data
(in thousands)
• Substantially stronger
recurring revenue base
due to increased
connections and
customers
recurring revenue base
due to increased
connections and
customers
• More than $2 million in
annualized efficiencies
through revenue, cost and
expense actions taken
since CEO transition
annualized efficiencies
through revenue, cost and
expense actions taken
since CEO transition
• Enabled USAT to quickly
move to positive Adjusted
EBITDA for the third
quarter ended March 31,
2012(1)
move to positive Adjusted
EBITDA for the third
quarter ended March 31,
2012(1)
19
BALANCE SHEET
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3Q FY12 -
3/31/2012 |
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Cash and cash equivalents
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$ 6,194
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Other current assets
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6,891
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Total current assets
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13,085
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Property and equipment
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9,870
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Intangibles, net and goodwill
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9,081
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Other non-current assets
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393
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Total assets
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$ 32,429
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Total current liabilities
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$ 6,756
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Warrant liabilities
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749
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Other long-term liabilities
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729
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Total liabilities
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8,234
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Total shareholders’ equity
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24,195
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Total liabilities and shareholders’ equity
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$ 32,429
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CONSOLIDATED BALANCE SHEET
Condensed
(in thousands)
• No losses funded in 3Q;
this is expected to
continue for 4Q excluding
proxy contest costs (1)
this is expected to
continue for 4Q excluding
proxy contest costs (1)
• Currently, our primary use
of cash is JumpStart ; using
JumpStart strategically to
accelerate adoption,
increased revenues and
create competitive
advantages
of cash is JumpStart ; using
JumpStart strategically to
accelerate adoption,
increased revenues and
create competitive
advantages
• New credit line
commitment letter with
competitive terms marks
USAT’s improved
operational performance;
commitment letter with
competitive terms marks
USAT’s improved
operational performance;
(1) See reconciliation of Net Loss to Adjusted EBITDA included in Appendix.
License and Transaction Fees
are now 80% of revenues
Total Revenue
QUARTERLY REVENUE TREND
ADJUSTED EBITDA (1)
20
PATH TO PROFITABILITY FUELED BY GROWING RECURRING
REVENUE BASE
REVENUE BASE
Expect continued growth
in recurring revenues
in recurring revenues
• Positive Adjusted
EBITDA for 3/31/12
EBITDA for 3/31/12
• New customers and
connections continue
to fuel future revenue
potential
connections continue
to fuel future revenue
potential
• Expect 6/30/12
Adjusted EBITDA
(excluding proxy
contest costs) to be
higher than 3/31/12
Adjusted EBITDA
(excluding proxy
contest costs) to be
higher than 3/31/12
Excluding CEO severance
& related costs for
12/31/11 quarter
& related costs for
12/31/11 quarter
(1) See reconciliation of Net Loss to Adjusted EBITDA included in Appendix.
21
License and Transaction Fees
are now 80% of revenues
Total Revenue
GAAP NET INCOME IS NOW IN SIGHT
QUARTERLY REVENUE TREND
Expect continued
growth in recurring
revenues
growth in recurring
revenues
We expect USAT will achieve quarterly net income for the quarter ending
December 31, 2012.
December 31, 2012.
• Based upon our improved performance and visibility as a result of efforts to increase
recurring service revenues, reduce expenses and enhance gross and operating
margins
recurring service revenues, reduce expenses and enhance gross and operating
margins
• Assumes, among other factors, minimum connections of approximately 8,000 per
quarter (= 32% growth calendar 2012)
quarter (= 32% growth calendar 2012)
• For full list of assumptions, see Financial Assumptions for 12/31/12 Quarter
included in Appendix
included in Appendix
III. USAT’s Board is
Delivering on Shareholder
Commitments
Delivering on Shareholder
Commitments
22
Turnaround Strategy: Four Defined Objectives
Drive to sustainable profitability
Increased customer value
Improved visibility, transparency
High standards of governance
USAT made a commitment to these four areas clear in January’s letter to
shareholders. USAT has made progress on each and every front.
shareholders. USAT has made progress on each and every front.
23
Turnaround Priorities - Delivering
§ First EVER quarterly earnings call, 12/31/2011 (2Q)
§ In-house investor relations; instituting best practices of public companies
Improved visibility, transparency - DELIVERED
Increased customer value - DELIVERING
§ 71% growth in customers; 300% growth in connections (3/31/12 yr. to yr.)
§ New service introductions that grow the value of a USAT connection
§ Five new independent directors; new lead independent director
§ 8 of 9 nominees independent
§ Key committees comprised solely of independent directors
High standards of governance - DELIVERED
§ 3Q FY 2012: USAT is Adj. EBITDA positive $336,000 (1)
§ 4Q FY 2012: expect to be Adj. EBITDA positive (excluding proxy contest costs)
§ 2Q FY 2013: strategies to grow service base and operational improvement actions
result in expectation for GAAP net income for quarter (2)
result in expectation for GAAP net income for quarter (2)
Drive sustainable profitability - DELIVERING
24
(1) See reconciliation of Net Loss to Adjusted EBITDA included in Appendix.
(2) See Financial Assumptions for December 31, 2012 quarter included in Appendix
IV. Stronger Governance and
a USAT Board that is
Highly Qualified and
Already Actively Engaged
in the Business
a USAT Board that is
Highly Qualified and
Already Actively Engaged
in the Business
25
The Compensation Committee utilizes an outside consulting firm, Buck
Consulting for compensation practices for executives and board members.
Consulting for compensation practices for executives and board members.
Leadership & Compensation Practices
• The Board began working on the leadership transition in November
2011.
2011.
• Stephen P. Herbert was identified by the Board as the candidate of
choice based on the following attributes:
choice based on the following attributes:
• Dynamic leader
• Extensive industry experience
• Strategic qualifications
• Compatible with customers, employees and board for smooth transition
• Commitment to carrying out strategic initiatives upon succession
• Executive comp is based, in part, on performance of keyoperational
and financial targets such as connections, revenues,operating
expenses and operating earnings
• Board members receive a mixture of cash and equity compensation
• Tax gross up provisions removed September 2011
• Buck Consulting utilized for 2012 Incentive Compensation Plan
Board &
Management
Compensation
Improvements
Management
Compensation
Improvements
Chairman and CEO
Selection
Selection
26
The Board of Directors has taken a proactive approach to corporate
governance and has adopted best corporate governance practices. These
steps include the following:
governance and has adopted best corporate governance practices. These
steps include the following:
Strengthened Governance
• The board has adopted, is subject to, and is required to annually
certify compliance with USAT’s Code of Business Conduct and
Ethics
certify compliance with USAT’s Code of Business Conduct and
Ethics
• The board has adopted a Director Majority Voting Policy
• The board has adopted Stock Ownership Guidelines
• In November 2011, the independent directors unanimously named
Steven D. Barnhart as lead independent director
Steven D. Barnhart as lead independent director
• 9 director nominees, 8 of whom are independent
• Five new independent directors since last slate
• Wealth of experience and depth of industry knowledge relevant to
USAT’s strategy and operations
USAT’s strategy and operations
• Nominees have wide, diverse backgrounds and accomplishments in a
range of functional areas including the payment industry, high-
volume transaction processing, wireless, global sales and marketing,
emerging markets and finance
range of functional areas including the payment industry, high-
volume transaction processing, wireless, global sales and marketing,
emerging markets and finance
Board
Independence
Independence
Governance
Practices
Practices
Board
Composition
Composition
27
Experienced Board of Directors
The Nominating Committee agreed on specific criteria and areas of experience
believed to be most relevant in support of USAT’s strategic direction.
believed to be most relevant in support of USAT’s strategic direction.
Those criteria included the following:
• Public company senior leadership experience;
• Independence;
• Payment and wireless industry experience;
• High volume transaction processing environments;
• Bringing technology to market;
• Scaling a growth company;
• Sales leadership; and
• Public company board experience.
28
USA Technologies’ Board of Directors
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Key Areas
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Herbert
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Barnhart
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Brooks
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Schoch
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Arnold
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Petito
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Moschner
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Price
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Reilly
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Public company
leadership experience |
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Finance and deal
experience |
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Payments industry
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Wireless industry
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High volume
transaction processing |
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Bringing
technology to market |
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Scaling a growth
company |
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Sales & marketing
leadership |
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Public company
board experience |
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Experienced Board of Directors
29
The Right Team to Lead….
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Stephen P.
Herbert
Chairman and
CEO |
• Formerly USAT’s President and COO
• Pepsi-Cola (field and headquarter roles in operations, sales and marketing),
directed development of market strategy for the vending channel and subsequently the supermarket channel for Pepsi-Cola in North America • USAT Board of Directors since April 1996
|
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Steven D.
Barnhart Lead
Independent |
• Formerly SVP & CFO, Bally Total Fitness, CEO & President of Orbitz
Worldwide • Chairman of our Nominating Committee
• USAT Board of Directors since October 2009
|
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Deborah G. Arnold |
• VP, Global Consumer Products at Visa International; founding member, now director,
NFC Forum (near field communications; emerging mobile market) • USAT Board of Directors since February 2012
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Joel
Brooks
|
• CFO & Treasurer Senesco Technologies, CFO Blades Board and Skate, CFO
Cable & Company Worldwide, Controller, USA Detergent, Inc. • Chairman of Audit Committee
• USAT Board of Directors since March 2007
|
NEW
30
The Right Team to Lead….
|
Albin F.
Moschner
|
• Formerly COO, Leap Wireless; President Verizon Card Services, Verizon Communications
for Verizon Credit Card - sales and manufacturing leadership roles • USAT Board of Directors since May 2012
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Frank A.
Petito, III
|
• President of Orbitz for Business, VP M&A Hambrecht & Quist, Morgan Stanley
(investment banker) • USAT Board of Directors since February 2012
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Jack E.
Price
|
• Formerly President and Division Chief Executive Officer of Philips Medical Systems North
America - $800 million to $5 billion in revenues; VP and GM, General Electric Medical Systems; President and CEO of NovaRay Medical Inc.; President and CEO of VSM MedTech Ltd. • USAT Board of Directors since October 2009
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William J.
Reilly, Jr.
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• President and CEO of Realtime Media, Inc.; COO, SVP of the Americas and Pacific RIM and
VP of Sales for Checkpoint Systems, Inc.; Independent consultant; principal for Chesterbrook Growth Partners • USAT Board nominee June 2012
|
NEW
NEW
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William J.
Schoch |
• President and CEO of Western Payments Alliance; VP Emerging Market Initiatives for Visa
International VP at Citibank, N.A.; Associate Director at NACHA (industry trade association and the administrator of the automated Clearing House (ACH) Network • Serves on the boards of Western Payments Alliance and NACHA (Steering Committee of
NACHA’s Council for Electronic Billing and Payment) • USAT Board nominee June 2012
|
NEW
31
NEW
IV. Why we Believe SAVE
is Wrong for USAT
is Wrong for USAT
32
Tirpak and S.A.V.E.
§ Tirpak’s recent history with USAT
§ March 2012 - Tirpak asked to resign, and does, from USAT board
§ March/April 2012 - Tirpak’s S.A.V.E. group accumulates USAT shares
§ April 2012 - Tirpak’s S.A.V.E. group commences proxy contest
§ May 2012 - Federal Judge rules that Tirpak violated the Non-Disparagement Agreement
entered into one year ago
entered into one year ago
§ Tirpak’s recent ethical issues cannot be disassociated from his nominated slate
§ In our view,
§ Tirpak’s “plans” for the business only highlight his lack of knowledge regarding
our markets, customers and business operations
our markets, customers and business operations
§ Two of SAVE’s six other nominees had already been evaluated and rejected by the
board’s Nominating Committee in favor of more qualified candidates who have
since joined the board
board’s Nominating Committee in favor of more qualified candidates who have
since joined the board
§ Remaining nominees do not add any level of expertise that USAT’s carefully
selected and actively engaged board do not already provide
selected and actively engaged board do not already provide
Based on Brad Tirpak’s plans for USAT’s go-forward strategy, we believe
shareholders would suffer if Tirpak assumed control of the USAT Board
shareholders would suffer if Tirpak assumed control of the USAT Board
33
Tirpak’s Misleading Information
2. “USAT continues to
burn through significant
cash.”
burn through significant
cash.”
§ The stock price continues to recover from two
significant events since Fall of 2011 (1) industry fears
created by the Durbin Amendment in September (2)
removal of former CEO in October
significant events since Fall of 2011 (1) industry fears
created by the Durbin Amendment in September (2)
removal of former CEO in October
§ As a result of assertive actions taken by new CEO, USAT
did not use any cash to fund losses in its 3Q FY 2012 (1)
and would NOT be using cash to fund losses in 4Q
FY2012 if not for proxy contest.
did not use any cash to fund losses in its 3Q FY 2012 (1)
and would NOT be using cash to fund losses in 4Q
FY2012 if not for proxy contest.
§ The financial performance of JumpStart over a 5 year
period is similar to an equipment purchase while ALSO
accelerating USAT’s growth via customer-oriented sales
approach, as evidenced by growth in connections and
customers since inception of program.
period is similar to an equipment purchase while ALSO
accelerating USAT’s growth via customer-oriented sales
approach, as evidenced by growth in connections and
customers since inception of program.
§ USAT is a public company that requires either inside or
outside general counsel. Services questioned by Tirpak
were obtained at below market rates.
outside general counsel. Services questioned by Tirpak
were obtained at below market rates.
§ Not true.
4. “Eliminate Wasteful
Spending by Terminating
General Counsel.”
Spending by Terminating
General Counsel.”
1. “USAT's stock price
declined by more than
57% between May 31,
2011 and March 9, 2012.”
declined by more than
57% between May 31,
2011 and March 9, 2012.”
3. “We do not believe USAT's
JumpStart Program is
supported by a sound
business plan.”
JumpStart Program is
supported by a sound
business plan.”
S.A.V.E. says
The reality…
34
(1) See reconciliation of Net Loss to Adjusted EBITDA included in Appendix.
5. “USAT loses money on
transaction processing.”
transaction processing.”
All of the concepts presented by S.A.V.E. are either already underway, under
discussion, or have already been considered by the board and rejected.
discussion, or have already been considered by the board and rejected.
We Believe Tirpak’s Plan is Ill-Advised
§ USAT works to value engineer high-demand service enhancements to
keep device costs down while adding new service capabilities. Tirpak’s
plans to upgrade while cutting costs by 50 percent is unrealistic and not
customer-focused.
keep device costs down while adding new service capabilities. Tirpak’s
plans to upgrade while cutting costs by 50 percent is unrealistic and not
customer-focused.
§ In order to realize additional meaningful savings on processing, USAT
would have to take on significant transaction risk, add headcount and
incur significant increases in CAPEX, software development and systems
integration expenses.
would have to take on significant transaction risk, add headcount and
incur significant increases in CAPEX, software development and systems
integration expenses.
§ Our devices and service can already move necessary operational data to
route management software packages which are utilized by customers.
USAT has already introduced value-added services (two-tier pricing,
prepaid, loyalty) which are valued by our customers and that we
anticipate will generate additional revenue and margin for each
connection.
route management software packages which are utilized by customers.
USAT has already introduced value-added services (two-tier pricing,
prepaid, loyalty) which are valued by our customers and that we
anticipate will generate additional revenue and margin for each
connection.
§ USAT’s plan for international expansion involves global partners and
customers such as Verizon. USAT’s strategy is balanced with path toward
profitability.
customers such as Verizon. USAT’s strategy is balanced with path toward
profitability.
§ USAT is a lean, yet scalable 43 employee company. $2M of annualized
costs and efficiencies already taken. Public companies require legal
services and USAT’s rates are below market and of high quality. And,
there are no material “executive perks”.
costs and efficiencies already taken. Public companies require legal
services and USAT’s rates are below market and of high quality. And,
there are no material “executive perks”.
1. Develop New
Hardware
Hardware
2. Increase Processing
Profits
Profits
3. Launch Vending
Route Management
and Other Value-
Added Services
Route Management
and Other Value-
Added Services
4. Expand
Internationally
Internationally
5. Cut Costs,
Including Legal,
Executive Perks
Including Legal,
Executive Perks
S.A.V.E.’s “plan”
The reality…
35
S.A.V.E.’s Track Record - Direct Insite
On May 25, 2011,
Bradley Tirpak,
Thomas, S.A.V.E.
and other
shareholders in
their group gained
control of the board
of Direct Insite
Corp. (OTCB: DIRI) .
On May 25, 2011,
the date of Tirpak’s
takeover, Direct
Insite shares traded
at $1.20 per share.
Bradley Tirpak,
Thomas, S.A.V.E.
and other
shareholders in
their group gained
control of the board
of Direct Insite
Corp. (OTCB: DIRI) .
On May 25, 2011,
the date of Tirpak’s
takeover, Direct
Insite shares traded
at $1.20 per share.
One year later, on
May 25, 2012,
Direct Insite traded
at only 66 cents per
share.
May 25, 2012,
Direct Insite traded
at only 66 cents per
share.
In the following weeks,
the new board
appointed a new
chairman and a new
CEO. The board
appointed the son-in-
law of a fellow board
member to the position
of Chief Executive
Officer. The father-in-
law/director also
served with Craig
Westley Thomas (of
S.A.V.E.) on the
Compensation
Committee, the same
committee that
establishes the son-in-
law’s compensation.
the new board
appointed a new
chairman and a new
CEO. The board
appointed the son-in-
law of a fellow board
member to the position
of Chief Executive
Officer. The father-in-
law/director also
served with Craig
Westley Thomas (of
S.A.V.E.) on the
Compensation
Committee, the same
committee that
establishes the son-in-
law’s compensation.
In contrast to their
stated battle-cry
against board
entrenchment, on May
25, 2011, Thomas
became a Class III
Director. Thomas, who
will not stand for
reelection to the Direct
Insite Board until 2014,
is now Chair of both the
Audit and Nominating
Committees. In our
view, chairs of these
two committees should
be held by separate
board members.
stated battle-cry
against board
entrenchment, on May
25, 2011, Thomas
became a Class III
Director. Thomas, who
will not stand for
reelection to the Direct
Insite Board until 2014,
is now Chair of both the
Audit and Nominating
Committees. In our
view, chairs of these
two committees should
be held by separate
board members.
Direct Insite has
reported that as of
12/31/2011 and
3/31/2012, its
disclosure controls and
procedures were not
effective. In its 10K, they
state: “…we believe that
these controls and
procedures were not
effective as a result of the
departure of the
Company’s Chief
Financial Officer and
appointment of an Acting
Chief Financial Officer at
the end of the third
quarter, as well as
limited resources in the
accounting and financial
function…”.
reported that as of
12/31/2011 and
3/31/2012, its
disclosure controls and
procedures were not
effective. In its 10K, they
state: “…we believe that
these controls and
procedures were not
effective as a result of the
departure of the
Company’s Chief
Financial Officer and
appointment of an Acting
Chief Financial Officer at
the end of the third
quarter, as well as
limited resources in the
accounting and financial
function…”.
S.A.V.E.
Takes Control
Takes Control
Takeover
Nepotism
Poor
Governance
Governance
Operational
Neglect
Neglect
Lost Value
DIRI stock:
$1.20/share (5/25/11)--------------------------------------------------.$.66/share (5/25/12)
36
USAT’s Board is Best for Shareholders
37
Now Is Not The Time to Halt Our Progress
Turnaround is underway.
üNew strategic direction and initiatives implemented by new
CEO
CEO
üDemonstrating execution at every level
üIncreased exposure and accountability to our investors
üNew leadership needs time to harvest improvements in
business model and capitalize on customer and market
opportunities being seeded
business model and capitalize on customer and market
opportunities being seeded
38
39
Appendix
40
NON-GAAP RECONCILIATION
Adjusted EBITDA represents net income (loss) before interest income, interest expense, income taxes, depreciation, amortization, 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 charge that is not related to USA Technologies' (USAT) operations. We have excluded the non-cash expenses, stock-based compensation, as
it does not reflect the cash-based operations of USAT. 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 measured prepared and presented in accordance with GAAP, including the net income or net loss of USAT 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 USAT's net income or net
loss as determined in accordance with GAAP, and are not a substitute for or a measure of USAT's profitability or net earnings. Adjusted EBITDA is presented
because USAT believes it is useful to investors as a measure of comparative operating performance and liquidity, and because it is less susceptible to variances in
actual performance resulting from depreciation and amortization and non-cash charges for changes in fair value of warrant liabilities and stock-based
compensation expense.
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 charge that is not related to USA Technologies' (USAT) operations. We have excluded the non-cash expenses, stock-based compensation, as
it does not reflect the cash-based operations of USAT. 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 measured prepared and presented in accordance with GAAP, including the net income or net loss of USAT 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 USAT's net income or net
loss as determined in accordance with GAAP, and are not a substitute for or a measure of USAT's profitability or net earnings. Adjusted EBITDA is presented
because USAT believes it is useful to investors as a measure of comparative operating performance and liquidity, and because it is less susceptible to variances in
actual performance resulting from depreciation and amortization and non-cash charges for changes in fair value of warrant liabilities and stock-based
compensation expense.
ADJUSTED EBITDA
41
12/31/2012 NET INCOME EXPECTATION
1. Fair value of warrant liability: Assumes no increase in the fair value of USAT’s warrant liabilities at
December 31, 2012 compared to the fair value of the warrant liabilities at September 31, 2012. Changes
in fair value of USAT’s warrant liabilities create a non-cash expense and/or income in the Consolidated
Statement of Operations.
December 31, 2012 compared to the fair value of the warrant liabilities at September 31, 2012. Changes
in fair value of USAT’s warrant liabilities create a non-cash expense and/or income in the Consolidated
Statement of Operations.
2. Connections: Assumes USAT is able to maintain its existing level of connections, which were
approximately 155,000 as last reported by USAT and that USAT adds new connections at a minimum
level of approximately 8,000 per quarter.
approximately 155,000 as last reported by USAT and that USAT adds new connections at a minimum
level of approximately 8,000 per quarter.
3. Margins and Expenses: Assumes USAT maintains or slightly improves gross margin percent and
maintains the approximate same level of SG&A expenses as the March 31, 2012 quarter.
maintains the approximate same level of SG&A expenses as the March 31, 2012 quarter.
4. Regulated debit interchange rates: Assumes (1) USAT renews its existing agreement with Visa expiring
in October 2012 or (2) regulated debit interchange rates promulgated by Visa and MasterCard return to
rates that existed prior to the Durbin Amendment or (3) in the event 1 or 2 do not occur, USAT is
successful in implementing its Two-Tier Pricing Program with customers so any increased interchange
rates can be passed through by them to end users.
in October 2012 or (2) regulated debit interchange rates promulgated by Visa and MasterCard return to
rates that existed prior to the Durbin Amendment or (3) in the event 1 or 2 do not occur, USAT is
successful in implementing its Two-Tier Pricing Program with customers so any increased interchange
rates can be passed through by them to end users.
5. Proxy contest: Assumes there is no negative impact on customer retention, existing connections, rate of
new connections to the ePort Connect service, or costs or charges associated with the proxy contest
incurred or accrued during the December 31, 2012 quarter.
new connections to the ePort Connect service, or costs or charges associated with the proxy contest
incurred or accrued during the December 31, 2012 quarter.
Financial Assumptions Related to December 31, 2012 Net Income Expectation
Steve Herbert
Chairman and CEO
sherbert@usatech.com
David DeMedio
CFO
ddemedio@usatech.com
www.usatech.com
NASDAQ: USAT
800.633.0340
Veronica Rosa
VP Investor
Relations
Relations
vrosa@usatech.com