Cantaloupe - Earnings Call - Q3 2020

Transcript

Speaker 0

Ladies and gentlemen, thank you for standing by, and welcome to the USA Technologies Third Quarter Fiscal Year twenty twenty Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. I would now like to hand your conference over to your first speaker today, Alicia Nieva Woodgate, VP of Corporate Communications and Investor Relations for USA Technologies. Please go ahead.

Speaker 1

Thank you, and good afternoon, everyone. Welcome to the USAA Technologies third quarter fiscal twenty twenty earnings conference call.

Speaker 0

With me on

Speaker 1

the call this afternoon are Shyam Feeney, Chief Executive Officer Michael Wassifer, Chief Financial Officer Anant Agarwal, Chief Revenue Officer and Doug Bergeron, Chairman of the Board. Before we begin today's call, I would like to remind you that all statements included in this call, other than statements of historical facts, are forward looking in nature. 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 today. Listeners are cautioned not to place undue reliance on any such forward looking statements, which reflect management's view only as of the date they are made.

USA Technologies undertakes no obligation to update any forward looking statements, whether as a result of new information, future events or otherwise. This call will also include a discussion of certain non GAAP financial measures that we believe are useful for, among other things, evaluating USA Technologies' operating results. These non GAAP financial measures are supplemental to and not a substitute for GAAP financial measures such as net income or loss. Details of these non GAAP financial measures, a presentation of the most directly comparable GAAP financial measures and the reconciliation between these non GAAP financial measures as well as the most comparable GAAP financial measures could be found in our press release issued this afternoon, which has been posted on the Investor Relations section of our website at www.usatech.com. And with that, I'd now like to turn the call over to Doug Bergeron.

Doug?

Speaker 2

I wish we may have lost Doug. He's going to dial back in. So maybe we'll just jump to me. This is Sean Feeney, the Chief Executive Officer and Doug had a fabulous introduction that he was going to make about me. But we'll jump right into.

So it's a great pleasure to join you all today on my first earnings call. I look forward to reporting results that I've actually been involved in driving going forward. I joined U. S. Technologies because I believe the company has a great opportunity to build on its history and begin to write a great new chapter.

And I'm thrilled to have the chance to lead the company as we begin that journey. I want to first take this chance to thank the employees on our team at U. S. Technologies for their tenacity and hard work over the last few months as the company's endured change and worked through the conclusion of the proxy battle and adapted to the realities of working from home in the COVID-nineteen environment. The safety of our employees is always a top priority and it's been inspiring to see such a successful transition while continuing to support our customers.

First, I wanted to provide a little bit of context into what drew me to this opportunity. Through my diligence, when contacted about the opportunity, it was clear that USA Technologies is the leading player in the growing industry benefiting from secular tailwinds for many years to come. Despite the near term challenges of COVID-nineteen, which I'll touch on in a minute, it's our belief that the unattended retail industry will only accelerate further in a post COVID world. And we should be the beneficiary and we're focused on executing on this opportunity. With the benefit of a long career in software, cloud platforms and networks, I recognize the power of the combination of USA Technologies with Cantaloupe.

In my view, it was a game changer strategically, but was never fully executed on. I plan to change that. What has historically been poor execution in this regard is now a tremendous opportunity going forward. Management and the Board are laser focused on this and we will get it fixed. While we have withdrawn our financial guidance for fiscal year twenty twenty and are not providing any financial guidance today, what I will say is that this business can and should be generating better margins for the shareholders.

We will come back to you on the Q4 call with more granularity around this topic. I'm a customer facing sales driven leader. I enjoy and I love the competition in the market and building a winning team. We will build a sales focused culture in the company moving forward. In any business, nothing happens until somebody sells something.

I'm also focused on servicing our customers and driving towards zero churn in the customer base. Happy customers are critical to us driving growth in the market. We have some work to do in this area, and we are on it. Lastly, I wanted to briefly touch on governance, which was another component of my decision to join USA Technologies. Reputation for being blunt, the Board members that I've encountered and I have that in common.

I like that. I am accountable for our results and will be as transparent as possible with the key constituents that I have, shareholders, customers and employees. The depth of experience and expertise of this Board is unique for a company of our size, And it's something that actually drove me to want to compete for this job. I knew I could call on experts in almost every area of running a public company. They are highly engaged and we are fully aligned on our objectives going forward.

Now let me discuss some of the initial observations I've had in the business having been here about fifty days. The key to improving the performance of any team is finding the talent and putting them in positions to be successful. In my first few weeks on the job, I have found people that care deeply about the company and its customers. With the uncertainties of the proxy contest now behind us, combined with a streamlined senior team, the company is reenergized and digging in. Common theme you may pick up on me from today is untapped potential of this business.

The employee base is no different. I recently reorganized the company into three groups reporting to me. Anat Agarwal, who is on the call with us, is one of the founders of Cantaloupe, and he will lead our customer facing revenue group as Chief Revenue Officer. He will own the customer life cycle with U. S.

Technologies, from marketing through sales and on to customer success. The Operations and Product Group, which is what I think of as the factory of a company like ours, will be led by Jeff Vogt in the role of Chief Operating Officer. The third group is Finance and Administration, led by Michael Wassifer. As Bill Parcells said when asked about talent on the New York Giants, our goal is the Super Bowl and we will add or subtract talent as necessary every day to get there. I am a similar possibly in running a company.

On the customer front, I've had the pleasure to speak with 20 plus customers over the last few weeks. They are the reason we exist. These interactions have made it clear the crucial value proposition that USA Technology brings to its customers in the unattended retail industry. Our seed product suite has been an essential tool for operators to navigate COVID-nineteen and customers have been appreciative of USA Technology's support and responsiveness in that regard. One customer told me in the conversation is he could not have navigated COVID-nineteen without the Seed platform and the things that it did to make his operation work well during these tough times.

While COVID impact in Q3 was actually minimal, it hit it has had a major impact on the company in Q4. We have taken several steps to help offset these headwinds. In my first day on the job, the Board and I implemented a 20% salary reduction through the end of the calendar year for the entire senior leadership team, myself included. We have also suspended the four zero one match for the remainder of 2020. In addition, we're consolidating a number of positions, which will contribute further to the cost rationalization.

And lastly, the Board deferred any cash based director fees until calendar year 2021. My last comment before I hand it over to Michael is on costs. In recent past, this company has relied heavily on third party consultants, and that has reflected in our operating expenses. The Board and I are addressing these costs aggressively. This is an area of key focus as we look forward to our fiscal year twenty twenty one budget.

As many of you are aware, my background is in private equity. Where managing a balance sheet and generating free cash flow is paramount. To that end, my focus is on profitable growth, not just growth for the sake of growth. I view the opportunity at USA Technologies as one not just around top line growth, but as importantly, one about rationalizing this company's cost structure and making a profit. There will be more to come on this topic during our Q4 call.

With that, let me hand it over to Michael to walk you through the Q3 financial results.

Speaker 3

Thank you very much, Sean. I'm wondering if our Chairman has joined us again.

Speaker 4

Yes, I'm here.

Speaker 3

If you want to speak a few words. Sure.

Speaker 4

As many of you are aware, the company experienced a substantial reconstitution of the board at the April following a settlement agreement with Hudson Executive Capital. And since that time, the new Board has been very actively engaged in what we believe to be just the beginning of a fundamental transformation of this business. As part of that transformation, in early May, the company named Sean Feeney as CEO after an extensive multi month search. Sean has proven experience leading successful businesses, having previously been CEO at numerous private equity backed software and technology companies. Sean has demonstrated success in assembling world class management teams, reinvigorating culture and delivering a strong record of metrics driven performance to the benefit metrics His focus on accountability and profitable growth makes him the absolute right choice to lead USAT into the future.

Thank you, Sean. Now turning it back over to Michael.

Speaker 3

Thank you very much, Doug and also Sean. I am pleased to have joined the company in February and I share your enthusiasm about the company's future opportunities. Let me begin by discussing USA Technologies fiscal third quarter results, which were published earlier today in the press release and have been disclosed in our 10 Q filing. I want to begin with revenue gross profit margin quarter over quarter. Our third quarter total revenue increased by 14% to $43,100,000 While license and transaction revenue increased by 11%, equipment sales increased by 31%.

Our gross profit margin stayed at 26, while the equipment margin decreased one percentage point to a negative 21%, our license and transaction margin remains at 36%. Revenue and gross profit year over year. Our total year to date revenue increased 23% to $130,500,000 In relative terms, the main growth driver again was equipment sales, which increased 57%. Our gross profit margin decreased by two percentage points to 27%, while the equipment margin decreased by five percentage points to minus 13%, our license and transaction margin improved to 36%. Operating expenses quarter over quarter.

Operating expenses increased 55% or $7,500,000 As part of that, SG and A increased by 8,900,000.0 because of professional services, which increased by $4,500,000 For example, for additional monthly activities around control design and controls testing, as well as legal fees and expenses related to the proxy. In addition, 2,000,000 were spent on employment related costs for severance and the conversion of contractors to employees. Dollars 2,600,000.0 were accrued in our third quarter for legal expenses, which I will explain later. Operating expenses year to date with $64,400,000 operating expenses have increased by 31% or $15,300,000 over the comparable nine months in the prior year. SG and A increased by 80% or $25,300,000 to $56,900,000 mostly for the same reasons mentioned before.

This increase was partially offset with the elimination of integration and acquisition costs as well as by a 67% decrease in investigation and restatement expenses. Beginning in late April, the Board initiated robust review of all third party professional fee arrangements. The particular focus lies on the ordinary and routine monthly accounting and compliance activities as well as our legal activities. We are in the process of replacing expensive third party services with in house staff. We expect material rationalization of these costs in fiscal year twenty twenty one and we'll provide more color on this topic when we introduce fiscal year twenty twenty one guidance next quarter.

Few other financial highlights. Our operating loss for the quarter is $10,200,000 which compares to a loss of $3,700,000 in the prior year period. For the nine month period, operating loss increased 56% to $29,200,000 Net loss for the quarter is $9,600,000 or a negative $0.15 per basic share compared to a net loss of $4,600,000 or a negative $08 per basic share in the prior year period. Year to date, net loss increased by 44% to $29,800,000 Non GAAP net loss of $7,000,000 or negative $0.11 per share compared to non GAAP net loss of $1,500,000 or negative $02 per share in the prior year period. EBITDA of negative $7,400,000 compared to negative $1,800,000 in the prior year period.

Adjusted EBITDA of negative $5,900,000 compared to positive $200,000 in the prior year period. We ended the quarter with $25,900,000 in cash and cash equivalents. I'd like to speak about COVID-nineteen and how it has impacted our organization. We did not observe meaningful reductions in processing volume until mid March, when the average daily processing volume decreased approximately 40%. By mid April, processing volumes began to recover and have shown a steady improvement by approximately 30% over the mid March level.

Or in other words, we are back at 78% of where we used to be. In response, we introduced a customer relief program in April to aid operators first in remotely monitoring and identifying assets that may have been rendered unreachable during state mandated lockdowns, such as office buildings or schools. And second, by providing financial relief for many of our operators with affected devices. This program was received extremely positively by our customers and we continue to be highly engaged with helping them navigate the map. To offset some of these headwinds, we introduced liquidity conservation and cost saving initiatives.

In addition to the ones already mentioned by Sean, we entered into negotiations with and have received concessions from vendors in regard to cost reductions and or payment deferrals. We also increased our collection effort to reduce outstanding accounts receivable, and we have implemented various supply chain inventory improvements, which leads me to the next discussion point, liquidity. The initiatives I've just mentioned have a direct and positive impact on our current and future cash flow. Furthermore, we improved our liquidity in May by receiving approximately $3,000,000 in the Paycheck Protection Program loan funding. As discussed further in our 10 Q, based on the current financial forecast for the fourth quarter of fiscal year twenty twenty, without a refinancing or modification of the existing term facility with Antara, we anticipate that as of 06/30/2020, it is highly likely that the company will not be in compliance with certain covenants.

We are currently evaluating a variety of financing alternatives, included but not limited to negotiating modifications to the existing term facility with Antara. An investor has communicated to us that it is willing to provide sufficient financing if we cannot reach an agreement with Antara on modifications to the existing term facility. We believe that our current financial resources together with cash generated by operations and the financing available from the investor, if needed, will be sufficient to fund our current twelve month operating budget. I want to highlight two other legal matters that are disclosed in our 10 Q filing. As previously reported, various shareholder plus action complaints have been filed against the company as well as its CEO, CFO and directors at the relevant time of its May 2018 equity offering.

Earlier this month, the court granted preliminary approval of a settlement that the company had been reached whereby a payment of $15,300,000 is to be paid to the plaintiff. Thank you, I'm sorry. We anticipate that the majority of that payment will be covered by the company's insurance carrier. However, we expect to pay 2,600,000 towards the settlement in calendar year 2020 and that liability is reflected in our quarterly financials. Lastly, during the three months ending March 31, the company responded to a subpoena received by the U.

S. Department of Justice that sought records regarding company activities that occurred during prior financial reporting period, including restatement. The company is cooperating fully with the agency's queries. With that, I'll hand it back over to Sean. Sean?

Speaker 2

Great. Thank you, Michael, for that review. As I mentioned previously, the new Board and management are actively engaged in developing our 2021 budget. And we look forward to engaging with you on that topic on the next earnings call. I think we all know it's a little weird to be kind of talking about the third quarter when the fourth quarter is just about to end.

But concurrent with our budget review process, we are also reassessing the operating metrics and other KPI disclosures that the company has historically provided to The Street. Given my software and platform background, I'm focused not just on increasing the number of connections in our base, but also on growing recurring software revenue and gross margins in order to drive profitable growth. More to come on that topic on the Q4 call. With that, we will hand it back over to Lish. Lish?

Speaker 1

Sorry, operator, you can take over.

Speaker 0

Thank you. We will now take our first question from George Sutton with Craig Hallum. Your line is now open.

Speaker 5

Thank you. Congrats to everybody on the call. This is obviously a long time in coming, so really glad to move forward. I have a thousand questions, but I will limit it to two. Number one, Sean, you mentioned that you felt the Cantaloupe acquisition was a game changer and just not really executed upon.

I wondered if you could go into a little bit more detail on that. And secondly, could you give us a broad sense of market share and the competitive landscape as you see it? Obviously, there's been a lot of challenges over the last eighteen months and would love to get an updated thought where we feel USAT fits. Thank you.

Speaker 2

Sure. Thanks for the question. And I'll ask Anat in a second to comment on kind of the landscape and the market share. What I heard in talking to customers was that putting together Cantaloupe and USA Technologies brought together two leaders and really put us in an outstanding position to go and attack the market. When I talk about that we haven't executed on that well, I see a few areas.

One, in integration of the internal systems of the two companies, which has an impact on costs from the point of view of we do a lot of manual things and we have a lot of outside consultants helping us, we will ultimately get that fixed and we're on the road to beginning to do that. So there's an internal component. Secondly is there are opportunities for automation and taking human hands out of our process, whether that's in taking orders, feeding those orders through and ultimately being able to hold down costs on the customer service end and on the financial end. So when you think about it, the ability to enter a sales order, have it run all the way through into your financials and build from that system. That basic integration was not done in the bringing on of Cantaloupe.

The third thing, in thirty years in the software business, I heard some of the best comments about the seed platform that I've ever heard in doing this. I heard things like this was the best decision we ever made as a company over the last twenty five years going back to when my dad owned the company. We could not have gotten through the COVID-nineteen crisis without the efficiency that was added in the way we were quickly able to respond in the market with the Seed platform. Just great comments. There are also some negative comments in that the customer service and the customer outreach that we felt from USAT, which was much better on the cantaloupe side, has gone down over the last period of time.

And Anat and I are working to ultimately address that. So from a market point of view, I think we've got a great opportunity. We've got a lot of white space still in the USA Technologies side of the house to put the seed platform out there. And I think if I look out over the next twenty four months, I think we can execute on that very well. I can go much the way you've got 1,000 questions, I've got 1,000 kind of points that I have found and little things that I think we can ultimately do better.

But I'll ask Anat to comment on kind of market share, where we see ourselves and opportunity in the market. Anat?

Speaker 6

Sure. Thanks, Sean. Yes, from a competitive landscape perspective, much hasn't changed the last couple of years. I think one of the biggest pieces that shows the strength of our technology solution and how we deliver to the marketplace is that if you look over the last two years of the challenges the company has had, we've actually seen little to almost no churn. We have not really lost customers.

Devices continue to grow, and deactivations have not increased, and customers are not going to our competitors. So that is a great thing in the last couple of years. However, some of the challenges that Sean talked about true. Right? So we need to make sure we get in front of our customers like we used to, make sure we provide a full platform solution rather than just a cashless device sale, which currently a lot of our competitors that exist that we deal with, that's where they still are.

And so we still have the lead from a solution perspective, but we just need to deliver it, and we'll get back on track with the growth rates that we're used to.

Speaker 5

Great guys. I appreciate it.

Speaker 0

Thank you. Our next question comes from Gary Prestopino with Barrington Research. Your line is now open.

Speaker 7

Hi, good afternoon, everyone. Welcome, Sean. I have a million questions too, and I'll get in and out of the queue. But one of the things I didn't hear from you, Sean, on the Cantaloupe observations that you had was how well you actually were addressing the market from a sales basis, to how well the prior team had. So maybe you could elaborate on that.

It was always our impression that it was under marketed and the prior team would not give us any metrics as to what the penetration was across the enterprise. So if you could help us out with that and maybe some of the things you're doing to change that, that would be helpful.

Speaker 2

Yes, probably won't get as specific as you would like me to get Gary today, having been here a short period of time, but those are the kind of numbers that I want to give you going forward. And it may not be the next call, but that's ultimately what working towards. I think Anat and I are reorganizing our team to attack specific tiers within the industry and being a little being a bit more aggressive in the way that we go out into the market. That has basis in a number of different areas. So we'll look at organization of kind of who we have going after what.

Secondly is sales incentive plans that are built to drive what we want. I think the company has had a focus on connections as the be all and end all. I look at this as much more as a platform software company that is payment enabled And that is a very strong combination. It's very powerful in industry. So I think when you look at where we have white space that we can continue to move additional modules of the Seed platform or even in the Seed platform in general, that runs its gamut from the SMB up enterprise to level customers.

And we think that there is significant opportunity there to grow over the next twelve months. And so we want to ultimately build on that platform. Third thing is, I think we've had a little bit of a focus on trying to do everything ourselves. And I think there are what we want to be or what I want us to be is really the platform of record within this part of the industry and work a lot with partners in areas that we may not want to develop things or they've developed better products. And we want that integration to be very simple so that people can pick the best of breed to work with our platform, which of course is the best of breed.

And so those are the opportunities that we see. And then I think ultimately, we've got to get our house in order a little bit, but I do think that there are international opportunities that we can take advantage of as well. So I'm excited about the opportunities. We will organize the team to go at the opportunities we see. We will incite them.

I believe that we build incentive plans around what do we need them to do and what's the most important things. And those incentive plans will be built around building out the platform and filling in white space, not just connections. Connections are very important, but it's not the be all and end all. And that ultimately, I think, will have a benefit in that we can be we can kind of we're addressing the margins on the hardware side, which I think we can improve those as well. But I can't give you a tremendous amount of numbers in detail, which I know that you want, and we'll get there.

But we've a bit of work to do to get there. And I did notice that the first guy had 1,000 questions and you jumped that up to a million. So I assume the next guy is going to have a trillion.

Speaker 7

I still got one more question. I get one more question.

Speaker 2

Okay. All right. A

Speaker 8

Well, million and

Speaker 7

the first one was one. But then again, yes, mean, this whole thing with equipment sales, it's absolutely baffling to me that you would actually that the company, I'm not saying you, but the company would sell equipment at a loss. And is that really a function of that your the prior teams just trying to drive connections and giving away great deals or whatever? And I'm sure you're going to address that as well as you said you would.

Speaker 2

Yes. Look, it's hard for me to comment on prior management and the motivation around that. There are situations with large customers where it does make sense to take a loss upfront to get long term gain and get those in and ultimately driving those. I do think that we will evaluate and look at that. We do think there are some things we do in the way that we manage inventory, the way that we manufacture hardware.

I think the company did things a certain way for the last several years and maybe weren't as aggressive at looking at new ways to ultimately manage that. So Jeff Boat has been working on that for a period of time. I was impressed with what he had done so far. And so we've moved him into that area as well as tapping some of the expertise that the Board has in the hardware area for the best way to attack that. And should we be managing all of the inventory that we are?

Should we be manufacturing and designing what we are? Should we be utilizing other things? Those are all things that we'll be looking at. But when you look at it, and Michael talked a little bit about it is, when you look at the impact on transactions, it's been dramatic in COVID. But if you look at where our margin actually is, it's in the part of the business that not had a lot of impact.

And I think you'll see that when we show you the Q4 results. So I probably didn't get to the level of detail you wanted, but that's about as far as I can go today.

Speaker 7

No, that's fine. I appreciate it. Thank you.

Speaker 0

Thank you. Our next question comes from Jason Schmidt with Lake Street. Your line is now open.

Speaker 8

Hey guys, thanks for taking my questions. Just curious as you go forward and sort of balance growth versus profitability, if there have been any markets that have immediately jumped out at you that you think don't make strategic sense longer term?

Speaker 2

I wouldn't say that there's anything we're doing today that I would say that we should exit. I think that we continue to think that areas like amusement and entertainment have are adjacent markets that have opportunity for us. They've been hard hit by COVID and that somewhat put those on hold. But, you know, and then probably the international with COVID will probably have to sit on for a period of time, know, unless we can drive to areas in North And South America to work on those. But when you look at I know previous management talked about Japan and we just can't get there.

And so we're while we continue to be excited about opportunities like that, I think we can stick to our knitting here in North America for the next six to twelve months and deliver on the results that we think we can do.

Speaker 8

Okay, that's helpful. And then I know you provided details sort of on the rebound on processing volume and fully understand you're not providing June guidance. But curious if you could discuss or provide some more color on how order momentum has been the past six weeks here?

Speaker 2

Yes, what we've seen is, kind of started decline in second week March, really the midpoint in March. And we probably hit a bottom point about the April. And we've seen it tick up a little bit each week. So as Michael said, we believe that we were down about 40% at the bottom and we've come back about 30% of that, somewhere in mid-70s of what we were at the same period last year. What lags behind is really the areas that are very hard hit like New York and other cities that are kind of still totally shut down.

Our customers who predominantly service offices and schools, coffee services, micro markets in those areas, those are still way down. The rest of the customer base where they have a diversified or are in more of a manufacturing type of environment or hospitals, for example, have really begun to see a recovery that is similar and in some cases even ahead of ours. And so we remain confident if there's not another reoccurrence of COVID and people return to school and offices after Labor Day, we'll be back on the upward swing. I think it will take a number of months to get back to kind of where we were in the January, February time of this year, but we're confident that we'll get back there at some point in fiscal twenty twenty one. And we've taken a pretty conservative approach in our initial cuts at the budget and we're continuing to kind of work at that as we go forward.

So we're encouraged in that it seems to be it is going up week by week. And as long as that continues, we'll get back to where we're in good stead. And as Michael also said, we're addressing the cost side of that as we go along and watching that closely.

Speaker 8

Okay. Thanks a lot, guys.

Speaker 0

Thank you. Our next question comes from Bob Napoli with William Blair. Your line is now open.

Speaker 9

Thank you and good afternoon. Good to meet you, Sean. Doug, maybe just to start for you with your background, I would expect and I know you haven't worked with Hudson and I think just from your prior background, even before Hudson, you probably knew a fair amount about USAT. I was just would like kind of your big picture view, if you could, on what attracted you to USAT over time and what you think and obviously Hudson, this business should be over the next three to seven years or so.

Speaker 4

Sure. And thank you for the chance. Yes, I started working on this investment prior to, becoming a full time partner at Hudson, over a year ago with my partner, Doug Bronstein. I knew the company. I knew of the company well.

I often refer to it as one of the few growth bright spots in domestic U. S. Payments. Domestic U. S.

Payments for the most part is a mid to high single digit growth world. There's obviously some exceptions to that in certain niches. But this is a business that even with previous management, who I won't comment on, and even with a proxy battle was growing at 30%. So we believe, and we're going to refrain from giving guidance today, but those long term revenue growth aspirations are absolutely achievable once Sean fixes this company. And frankly, he's using the COVID downturn as an excuse to take the company apart and put it back together again for when COVID is behind us.

But this could be a long term 30% top line grower. It's going to have good double digit 20 ish operating margins at some point. I don't know when, we're not giving guidance. And this business, if it can grow at 30%, 35% for a few years, should be a business three or four times the size of what it is today. There's ample growth opportunity here.

Not to mention, Verifone, since you honored me with that introduction, when I took over Verifone, we were basically a U. S. Company with a little bit on the outside. And Sean has an opportunity here. This company is basically the same, about the same size, almost all domestic.

And unattended payment and unattended retail is a phenomenon around all over the world, and they've got some unique opportunities to do that, perhaps using some relationships that I might be introducing to Sean over time. But in the meantime, you can't go to an airport, you can't get on an airplane. So Sean's got the pieces of the business on the table and he's putting it together in a very enviable way.

Speaker 9

Thank you. That's very helpful. And I liked the way, Sean, your view as a platform software company, payment enabled is, I think, the right place to be. The question on capital and the balance sheet, obviously, COVID has hit your business particularly hard. It doesn't change the long term outlook, in our view, maybe makes it even brighter.

But in the short term, you would like to have a much stronger balance sheet, obviously. And you'd also like to be reinstated on NASDAQ, not to add a third question. But I just I would love some color on what you would like the balance sheet to look like and can you get the cash, start being cash flow positive to help support that balance sheet? Or and how much capital would you like to add to the current balance sheet?

Speaker 2

Sure. So look, that was a concern when I was interviewing for the position and working with Hudson on the company having the correct capital because everything that we've got is fixable. It just is going to take a little bit of time, a little bit of capital. So we're working with our current lender, Antero, and talking with them. They're a significant shareholder in the company.

But we are also working with other potential financing partners behind that. And we're confident that we will have the necessary capital to do what we want. And those are those discussions are pretty advanced, and we're pretty confident that we'll have that in short order in a matter of I got to remember, I'm a public company CEO now, so I got to be careful. I'm confident that we'll have the capital necessary in short order And we'll look to have the capital to do what we want to do with the business by the end of the summer, I think.

Speaker 4

I'll just add, although the companies engaged in this process, not Hudson. Hudson's providing as much help and oversight as we can as their largest shareholder. And the Hudson partnership has enormous and extensive experience in raising capital as facilitators of these types of transactions. So there'll be a good ending here.

Speaker 9

Thanks. And then just on NASDAQ, sorry, if I could see

Speaker 2

Yes, I was going to get to NASDAQ. We are engaged with NASDAQ. As you know, there's no checklist of things that you've got to do, but we look at we've extensively changed the entire board. I'm in the process of changing a good amount of the senior management team. And we're working with NASDAQ to ultimately get to get relisted.

And we think people are key to that and it's a new sheriff in town and I think we've cleaned up a lot of the things that they were concerned with. The DOJ investigation is looking at historical things and historical the restatements and things that went on and we're fully cooperating with that. But that's about all I can say about the DOJ investigation at this time. And frankly, I don't think the two are necessarily linked at all. I think we can show NASDAQ that we're doing the things that we need to do to hopefully get relisted, but that's not a clear cut road map, but we're engaged in working with them.

Speaker 9

Thank you. Appreciate it.

Speaker 0

Thank you. Our next question comes from Mike Latimore with Northland Capital. Your line is now open.

Speaker 8

Great. Yes, thanks very much. Nice to meet everybody here. Just I guess, you called out Cantaloupe as maybe one of the kind of bright spots of the company from a technology standpoint. I guess, as you think about the opportunity for Cantaloupe, is it more greenfield?

Is it replacing legacy systems? And how much of the opportunity there is sort of outside of vending, let's say?

Speaker 2

Mike, it's good to talk to a guy from Atlanta. So I appreciate your question. I don't want to talk only about Cantaloupe and the opportunities we have, but there is some significant green space or white space out there with current USAT customers, we do believe that there are other adjacencies that could benefit from the platform and the things that we ultimately do. Now we may need to partner a little bit more in some of those adjacencies to take advantage of them, but we think that there are good growth opportunities there. But we've got a lot of opportunity just in the customer base that we haven't either sold initially or upsold.

And there's there'll be some hardware migrations that will also provide us more sales opportunities as well.

Speaker 8

Got it. Got it. And then it's obviously sort of what it's obviously what the headwinds are around sort of COVID-nineteen. I mean, can you elaborate a little bit on what might be some of the mid longer term benefits that could come from this to you guys?

Speaker 2

Well, I think the quickest one would be as nobody wants to handle cash anymore. But if you look at it, that's probably a great question for Anat to address of what the opportunities we see around kind of post COVID and acceleration there. Nat, you want to comment on that?

Speaker 6

Yes, sure. Thanks, Sean. One of the interesting things that's come out of this, Michael and Sean would refer to doing some relief programs for our customers during COVID. But the number one thing that's actually come out from our customer base is how can they leverage our solutions to actually help navigate them through the pandemic. And so we've doubled down on things like webinars, case studies.

We've profiled customers and what they're doing with the solutions. And kind of the key factors that have come out of it are pretty amazing. One, which Sean just mentioned, is that a lot of people view cash as a vehicle for spreading that virus. And so a lot of clients are actually asking our customers who operate those machines, Can you take cash out? Which long term actually benefits us and our operators and customers say that they can deliver cashless solutions.

Shows that they're good civil servants to help battle the pandemic. The second is just managing the inventory and the stuff that's out there in the field. If you can't touch the machine, you can't service it. You can't take bad product out. It's only solutions like ours that actually help our customers reduce their inventory shrink and spoilage costs and that they can manage the service as needed, not just wasting time sending their people here and there, finding out that the locations are closed.

And so a combination of all these aspects, we actually believe that the demand for our solutions, even within our existing base, but even outside of that, are increasing. And that is just vending in verticals that we're in, which is this kind of a solution not only is it great when you're growing and you want to cut costs and drive sales, but it's great when sales go down, which you can then very quickly ratchet down sales. So we see that actually helping our business long term. And even during this time, have slowed down some, but a lot of our customers are actually taking the time as they are right now to actually reinvest, upgrade the equipment, migrate under the seed platform and come out of this thing stronger.

Speaker 8

Yes. Yes. All right. Makes sense. Yes.

Good luck this year, you guys.

Speaker 2

Thanks.

Speaker 3

Thanks.

Speaker 0

Thank you. Our next question comes from Gary Prestopino with Barrington Research. Your line is now open.

Speaker 7

Yes. Thank you. Just a couple of quick follow ups. The SG and A expenses that were up like $8,900,000 I couldn't quite write or hear exactly what that encompassed. I mean, maybe if you could just tell me of that $8,900,000 how much of that was really non recurring, non operational?

Speaker 2

Michael, is that a question you'd like to take?

Speaker 3

Of course, of course. All right. Hold on a second. Okay. So we have as I mentioned, we had an increase of let me go back to this number.

On the SG and A side, we had an increase of $8,900,000 primarily from professional services, 4,500,000.0 from professional services that were leftovers largely from the restatement project, not necessarily going back into prior periods and activities for prior periods, but with the restatement project, prior management brought in many, many outside resources. And they took over monthly routine activities in the accounting department and also on the compliance side. So they're still nestled in there, and we're in the process of getting them out of there by hiring people actually redesigning the internal processes and automating some of that. So out of the $8,900,000 4,500,000.0 into just professional services. That also includes legal fees.

Going forward, I believe Sean has mentioned, we are hiring a general counsel that is going to orchestrate all internal, first all internal legal activities, and then also of course the external service providers. Again, we're going to internalize these activities and save a bundle of money by doing that.

Speaker 2

Great. Let me just ask

Speaker 7

Let you a me just ask you again. So $4,500,000 was professional services and that includes legal fees?

Speaker 3

Yes.

Speaker 7

Okay. Thank you. Thank you.

Speaker 0

Thank you.

Speaker 2

Yes. I think that, one of the first things I noticed when I got here was that we've made a lot of consulting firms and law firm partners over the last couple of years. And I want to bring that to an end and get to where we're we have the proper numbers and staff. We ought to be doing a number of these things ourselves of a company our size. And as Michael said, I've hired a General Counsel that will start in July.

She will easily pay for herself in reducing those. And Michael and our finance team have the operation of starting to do these things ourselves. Some of that is driven by the restatements and the things that have gone on, but people are just a little bit scared. And so they ask consultants to make sure they're doing things right. And we'll get that corrected and get it fixed going forward.

So as I said earlier, it'll take a couple of quarters, but we'll get these outside fees under control. And some of this is driven by some of the proxy fights, some of it's driven by things that we've been doing to get restated. But we're well down the path on a lot of our controls and the integration stuff we're doing will drive this out of it. And we got to go back over a little bit of the bad road to get to the good road, but we're on that path and we're going to make it happen.

Speaker 4

When I interviewed Sean, he said to me, he would never want to follow Bill Belichick as the head coach of the Patriots. And I shared with him my view that there was so much opportunity here. Some of these costs obviously are incidental. The proxy battle, the runoff from the restatement, the compliance rebuilding for NASDAQ, now the DOJ stuff, the shareholder lawsuit, but a lot of it is just, the company was overly reliant on paying professional services firms 700 or $800,000 a year per head for people that could be hired good quality people in Philadelphia or Atlanta or Denver for $150,000 And you start multiplying those times a big number and you get to obscene numbers that you see in these financial results. So it does not escape us for New York minute.

Speaker 0

Thank you.

Speaker 3

I would

Speaker 0

now like to turn the call back over to management for closing remarks.

Speaker 2

Great. Thank you, operator, and thank you for your interest in the company. I look forward to, as I said upfront, reporting on the results that myself and my team were here to drive and take forward. And I look forward to you guys holding us accountable and driving things forward. And with COVID, we ask that you all stay safe and wear a mask.

And this concludes the call. Thanks for your interest.

Speaker 0

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.