Company Strengthens Management Team and Enhances Controls and
Governance
MALVERN, Pa.--(BUSINESS WIRE)--Jan. 14, 2019--
USA Technologies, Inc. (NASDAQ:USAT) (the “Company”), a premier digital
payment, consumer engagement and logistics service provider for the
self-service retail market, today issued an open letter to shareholders
in connection with the internal investigation conducted by the Audit
Committee of the Company’s Board of Directors and actions being taken to
strengthen the Company’s management team and enhance internal controls
and governance.
The Company has also filed a Form 8-K (the “Form 8-K”) with the
Securities and Exchange Commission which reports further details on the
principal findings of the internal investigation and the actions the
Board of Directors and management are implementing as a result of the
investigation.
The full text of the letter follows:
Dear Shareholders,
I am writing to you today to provide an update on the internal
investigation we announced in September 2018. We greatly appreciate your
patience and understanding as we have worked through this process. The
Audit Committee, with the assistance of independent legal and forensic
accounting advisors, conducted a thorough internal investigation
relating to certain of the Company’s contractual arrangements. The
investigation is substantially complete and I want to provide you
certain of the Audit Committee’s findings and recommendations, as well
as actions the Company is taking to strengthen the management team,
improve controls and coordination within our Company, and enhance USA
Technologies’ governance.
We have grown significantly over the past several years and believe the
measures we are implementing will bring USA Technologies’ oversight and
control functions and corporate governance more in line with a company
of our size and with best practices. We also believe these measures will
enhance the Company’s coordination, enable tighter day-to-day running of
operations, helping us to be a stronger company and create value for
shareholders.
What Were the Audit Committee’s Findings Related to Previously
Reported Revenues?
The Audit Committee made a number of findings, including that, for
certain transactions which had been principally entered into during
fiscal years 2017 and 2018, the Company had prematurely or
inappropriately recognized revenue, and in some cases, the reported
number of connections associated with these transactions. The Audit
Committee and its advisors proposed adjustments to previously reported
revenues associated with certain of the transactions it reviewed. On a
net basis, the proposed aggregate reduction to previously reported
revenues relating to these transactions is not expected to exceed $5.5
million. In most cases, revenues that had been recognized prematurely
were, or are expected to be, recognized in subsequent quarters,
including quarters subsequent to the quarters impacted by the
investigative findings. The investigation further found that certain
items that had been recorded as expenses, such as the payment of
marketing or servicing fees, were more appropriately treated as
contra-revenue items in earlier fiscal quarters. As set forth in the
Form 8-K, neither the Company nor its independent auditor has completed
its analysis of the specific adjustments to previously reported revenues
identified by the investigation, and such analysis could result in
further adjustments that could be materially different from those set
forth above.
What Actions Are We Taking?
As a result of the Audit Committee’s recommendations, the Board has
determined to implement a range of measures, including but not limited
to the following:
-
A reorganization of the Company’s senior management team.
-
The addition of a Chief Operating Officer who will directly manage a
number of operating functions.
-
Enhancing internal compliance through the creation of a Compliance
Committee of the Board of Directors, and the hiring of a Chief
Compliance Officer who will report directly to the Committee.
-
A splitting of the roles of Chairman and CEO, with Stephen P. Herbert
continuing to serve as Chief Executive Officer and as a member of the
Board of Directors, and Albin (Al) Moschner appointed Non-Executive
Chairman.
-
Authorization for the Nominating and Corporate Governance Committee to
commence a search to identify two additional independent directors to
join the Board.
What’s Next?
Right now, in addition to working to implement these measures as soon as
practicable, we’re working diligently to complete and file our Annual
Report on Form 10-K for the fiscal year ended June 30, 2018, and the
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30,
2018. We look forward to providing you all with an update on our
financial results as soon as we are able. As set forth in the Form 8-K,
we are also determining whether or not a restatement is required in
connection with any previously filed financial statements and our
independent auditor continues to work towards completion of its audit
review procedures.
Throughout this entire process, we have never lost sight of delivering
world class service to our nearly 16,000 customers and approximately one
million connections to our service. We continue to focus on reaching new
customers and expanding our footprint within our existing customer base,
while driving towards our goal of revenue and margin expansion across
the business in order to deliver sustained, long-term shareholder value.
In conclusion, we reiterate our most sincere thanks for your patience
over the past number of months, and as always, our thanks for your
interest and investment in USA Technologies.
Sincerely,
Stephen P. Herbert, Chief Executive Officer
About Albin (Al) Moschner
Mr. Moschner joined the Board of Directors in May 2012. He brings over
40 years of C-Suite and Senior Management experience in various
Industries including: Telecommunications, Consumers Electronics and
Computing. Mr. Moschner served at Leap Wireless International, Inc. as
the Chief Operating Officer and as a Director of the Company from July
2008 to February 2011 and as Chief Marketing Officer from August 2004 to
June 2008. Prior to joining Leap Wireless, Mr. Moschner served as
President of the Verizon Card Services division of Verizon
Communications, Inc. Mr. Moschner currently serves on the Nuveen Fund
Board and USA Technologies. He also serves on the Board of Advisors of
Catholic Charities of Chicago, Board Emeriti of the Corporations of
Wintrust Financial, Pella Windows, and Polaroid and the Kellogg School
of Management. Mr. Moschner holds a Bachelor of Engineering in
Electrical Engineering from The City College of New York and a Masters
Degree in Electrical Engineering awarded by Syracuse University.
About USA Technologies, Inc.
USA Technologies, Inc. is a premier payment technology service provider
of integrated cashless and mobile transactions in the self-service
retail market. The company also provides a broad line of cashless
acceptance technologies including its NFC-ready ePort® G-series, ePort
Mobile® for customers on the go, ePort® Interactive, and QuickConnect,
an API Web service for developers. Through its acquisition of Cantaloupe
Systems, Inc. ("Cantaloupe"), the company also offers logistics, dynamic
route scheduling, automated pre-kitting, responsive merchandising,
inventory management, warehouse and accounting management solutions.
Cantaloupe is a premier provider of cloud and mobile solutions for
vending, micro markets, and office coffee services.
Forward-looking Statements
“Safe Harbor” Statement under the Private Securities Litigation Reform
Act of 1995: All statements other than statements of historical fact
included in this document are forward-looking statements. When used in
this document , words such as “anticipate,” “believe,” “estimate,”
“expect,” “intend,” and similar expressions, as they relate to the
Company or its management, identify forward looking statements. Such
forward-looking statements are based on the beliefs of the Company’s
management, as well as assumptions made by and information currently
available to the Company’s management. Actual results could differ
materially from those contemplated by the forward-looking statements as
a result of certain factors, including but not limited to, uncertainty
as to the scope, timing and ultimate findings of the internal
investigation; the costs and expenses relating thereto; the impact of
the internal investigation on the Company, its management and
operations, including potential financial impact on the Company; the
risk of litigation or regulatory action arising from the internal
investigation and its findings or from the failure to timely file the
Annual Report on Form 10-K for the fiscal year ended June 30, 2018 (the
“Annual Report“) or Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 2018 (the “Quarterly Report“); the ability of the
Company to regain and maintain compliance with Nasdaq’s continued
listing requirements; the timing of the review by, and the conclusions
of, the Company’s independent auditor regarding the investigation and
its impact on the financial statements; possible default by the Company
under its credit facility; the potential identification of control
deficiencies, including potential material weaknesses in internal
control over financial reporting and the impact of the same; potential
reputational damage that the Company may suffer as a result of the
matters under investigation; the impact of the pendency of the
investigation on the value of the Company’s common and preferred stock;
whether the additional audit procedures required by the Company‘s
independent auditor or the Company‘s analysis of the proposed
adjustments resulting from the investigation will result in a
restatement of previously issued financial statements of the Company;
and the risk that the filing of the Annual Report or Quarterly Report
will take longer than currently anticipated. Readers are cautioned not
to place undue reliance on these forward-looking statements. Any
forward-looking statement made by us speaks only as of the date of this
release. Unless required by law, the Company does not undertake to
release publicly any revisions to these forward-looking statements to
reflect future events or circumstances or to reflect the occurrence of
unanticipated events.
USAT-F
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Source: USA Technologies, Inc.
Media:
Joele Frank, Wilkinson Brimmer Katcher
Tim Lynch /
Meaghan Repko
212-355-4449
or
Investors:
Blueshirt
Group
Monica Gould, +1 212-871-3927
monica@blueshirtgroup.com