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USA Technologies Inc (USAT) SPO


Malvern Pennsylvania is the home of USA Technologies, a town of just 3000 people. In Malvern it pays to think small. USA Technologies is trying to make it big by thinking small.

The words small ticket comes up frequently in USAT’s self-description. Here is why they are happy being a big fish in a small pond.

They provide 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 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.

Raising Money The New Fashion Way

The company is out to raise about $37 million having filed an S-1 on July 7, 2017. In a bit of an unusual twist it will be a spot offering at $4.50 per share. Proceeds will go entirely to the company for general corporate purposes. Translated into English, this means money for the growth of a business that is not yet throwing off loads of cash.

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 2016, 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 20% pace going from $29 million in 2012 to $77 million in the year ended June 2016.

For the nine months of fiscal 2017 the company matched all of last years total ringing up about $70 million in revenues, a 27% increase.

USAT has only one small blotch on its record. Earning consistent and sizable profits hasn’t been their habit.

You can forgive them for this faux pas. It is tuff-maximizing earnings while investing in expanding the business from its small base.

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.