Slide 1: Shareholder Advocates for Value Enhancement: Business Improvement Plan
Shareholder Advocates for Value Enhancement USA Technologies, Inc. (NASDAQ: USAT) www.SAVEUSAT.com Business Improvement Plan Moving USAT Forward
Slide 2: Agenda
Agenda • History and Background pages 3-6 • A New Direction is Needed pages 7-30 • Ecosystem & Vision pages 31-32 • Moving USAT Forward pages 33-54 • SAVE’s Nominees pages 55-59 • Appendix pages 60-61 2
Slide 3: History and Background
History and Background Shareholder Advocates for Value Enhancement • SAVE is the largest shareholder of the Company owning approximately 9.8% • SAVE has a long history with the Company – March 2007: SAVE Principal Craig Thomas led a $10mm investment in the company while a portfolio manager at SAC Ca
Slide 4: USAT Corporate Governance Developments
History and Background USAT Corporate Governance Developments USAT’s own proxy statement identifies these corporate governance developments arising out of prior settlement agreements between SAVE and USAT: First Settlement Agreement • “the Company amended certain provisions of its bylaws, and agreed
Slide 5: USAT Litigation Tactics
History and Background USAT Litigation Tactics • Shortly after SAVE nominated its candidates for election to the Board, USAT filed a lawsuit against SAVE claiming SAVE violated a non-disparagement provision in a prior settlement agreement • Until this case is finally resolved, the preliminary injunc
Slide 6: USAT vs. Reality
History and Background USAT vs. Reality What USAT Says: What SAVE Believes is Reality: New CEO is “executing on a turnaround” Management forecasts are not credible Lawyer not on slate and five new SAVE nominated seven independents and independents in last six months has significant sharehold
Slide 7: A New Direction is Needed
A New Direction is Needed A New Direction is Needed Stock Performance • USAT’s stock price declined by more than 57% between May 31, 2011 and March 9, 2012, from $2.30 to $0.97 Operating Performance • USAT continues to burn through precious cash. In the first nine months of fiscal 2012, USAT has dep
Slide 8: Shareholders Choosing a New Majority
A New Direction is Needed Shareholders Choosing a “New Majority” • Company has nominated 5 new directors not previously voted on by shareholders • SAVE has nominated 7 new directors • In either case, shareholders are electing a new majority • SAVE believes that the new majority should be the most qu
Slide 9: Stock Performance
A New Direction is Needed Stock Performance Between May 31, 2011 and the last trading day before SAVE started buying shares on March 9, 2012, USAT Stock was down over 57%. USAT’s stock closed at $2.30 on May 31, 2011 and $0.97 on March 9, 2012 which was the last trading day before S.A.V.E. Partners
Slide 10: Net Losses, Operating Losses, Cash Burn in FY 2012
A New Direction is Needed Net Losses, Operating Losses, Cash Burn in FY 2012 • Net Losses of $2.4 million and operating losses of $4.4 million in the first nine months of fiscal 2012 • USAT continues to burn through precious cash • In the first nine months of fiscal 2012, USAT has depleted the cash
Slide 11: Increasing Connections Not Building Value
A New Direction is Needed Increasing Connections Not Building Value JumpStart: • Company added 29,000 units in first 3 quarters of FY2012, approximately 16,900 units were JumpStart, stock down over 30% from $2.22 on 6/30/2011 to $1.52 on 5/2/12 (date of 3Q earnings call) • JumpStart provides custome
Slide 12: Increasing Connections Not Building Value: Enterprise Value per Device
A New Direction is Needed Increasing Connections Not Building Value Enterprise Value per Device Falling Jun-2011 Sep-2011 Dec-2011 Mar-2012 SAVE BELIEVES AVERAGE COST OF A JUMPSTART DEVICE IS $194 NOT INCLUDING AN ALLOCATION FOR CORPORATE SG&A Source: USAT public filings Note: Enterprise value marks
Slide 13: Increasing Connections Not Building Value: Connections Per Customer
A New Direction is Needed Increasing Connections Not Building Value Connections Per Customer Falling 160,000 64.0 140,000 62.0 120,000 60.0 100,000 58.0 80,000 56.0 60,000 54.0 40,000 20,000 52.0 - 50.0 Jun-11 Sep-11 Dec-11 Mar-12 Connections Connections per Customer SAVE BELIEVES USAT DOESN’T GENER
Slide 14: Increasing Connections Not Building Value: JumpStart Benefits
A New Direction is Needed Increasing Connections Not Building Value Benefits of the JumpStart Program from What SAVE Believes: USA Technologies include:* • Hardware provided with no upfront capital • Hardware subsidies should be accompanied cost by long-term financial commitments from the customer •
Slide 15: Outdated Commodity Hardware
A New Direction is Needed Outdated Commodity Hardware • SAVE believes current hardware is becoming obsolete and a commodity • Devices run on 2G network without “pinned debit” capability o 2G networks will see reduced coverage soon o Fed stated that generally every debit card must have access to two
Slide 16: SAVE Believes USAT's Technology is Falling Behind
A New Direction is Needed SAVE Believes USAT’s Technology is Falling Behind At the vending industry’s largest trade show this year, the National Automatic Merchandising Association (NAMA) honored 21 Innovation Award Winners… 21 companies were recognized for innovations including VendScreen, CocaCola
Slide 17: SAVE Estimates USAT is Losing Money in Transaction Processing
A New Direction is Needed SAVE Estimates USAT is Losing Money in Transaction Processing Background: Anatomy of a Transaction: • SAVE estimates USAT is losing money in debit card transaction processing based on pre- Durbin Amendment interchange fees Telecom Gateway • Durbin Amendment resulted in a si
Slide 18: Losses in Transaction Processing: Visa Debit Example
A New Direction is Needed Losses in Transaction Processing: Visa Debit Example Transaction Processing Revenue Per Transaction Processing Cost Estimate (2) Vend USAT Average Transaction is $1.65 (1) Example: Visa Debit Card Estimate, Most Common USAT Charges Transaction Fees of 3.00%-5.95% Transactio
Slide 19: Potential Harmful Dilution
A New Direction is Needed Potential Harmful Dilution • In the first nine months of fiscal 2012, USAT has depleted the cash on its balance sheet by more than 50%. • SAVE believes cash burn may lead to dilution of existing shareholders • SAVE believes lack of management credibility may impact cost of
Slide 20: Guidance & Past Promises in FY 2012
A New Direction is Needed Guidance & Past Promises in FY 2012 February 8, 2012 Q2 Conference Call “We are not at this point prepared to point to a certain quarter and say this is the quarter when we expect to generate positive cash flow” March 14, 2012 Roth Conference Presentation “we think we have
Slide 21: Cash Flow Negative Company Taking on Leverage
A New Direction is Needed Cash Flow Negative Company Taking on Leverage • On June 6, 2012, Company announced a commitment letter with Avidbank, an “innovative financial solutions” provider for a secured asset based loan (ABL) • Details of the financing are sparse, but Company can borrow up to $3mm •
Slide 22: George Jensen and Yahoo! Message Boards
A New Direction is Needed George Jensen and Yahoo! Message Boards • George Jensen resigned as Chairman and CEO in October 2011 after an investigation discovered inappropriate posts on a Yahoo! message board • The investigation determined that Mr. Jensen had posted approximately 450 comments on a Yah
Slide 23: Audit and Compensation Committee Overlap
A New Direction is Needed Audit and Compensation Committee Overlap • Sept. 2011: The Compensation Committee was composed of Jack Price and Steven Barnhart and the Audit Committee was composed of Jack Price, Steven Barnhart and Joel Brooks • Sept. 27, 2011: Company renewed CEO George Jensen’s contrac
Slide 24: Reactionary Measures and Poor Alignment with Shareholders
A New Direction is Needed Reactionary Measures and Poor Alignment with Shareholders • Appointed one new Board member after SAVE nominated directors (Albin Moschner) • Re-nominated outside corporate counsel and then withdrew his nomination after SAVE filed preliminary proxy statement • After serving
Slide 25: Legal Matters
A New Direction is Needed Legal Matters • Douglas Lurio, the Company’s outside corporate counsel, sits on the Board • SAVE believes this presents a significant conflict of interest • SAVE knows of no other publicly listed companies that currently use Lurio + Associates • Company also retains other o
Slide 26: Cashless is a Commodity
A New Direction is Needed Cashless is a Commodity SAVE’s View of USAT Today: Cashless focused company offering a commodity card reader product with technologically inferior hardware and implementing a low ROI JumpStart strategy SAVE’s Vision for USAT Tomorrow: Innovative customer-centric company wit
Slide 27: SAVE Believes Window of Opportunity is Shrinking
A New Direction is Needed SAVE Believes Window of Opportunity is Shrinking SAVE Believes: • Technology is rapidly changing the vending industry • USAT’s window of opportunity is shrinking • Upstarts with less capital are applying competitive pressure o On March 13, 2012, Cantaloupe Systems announced
Slide 28: Defending USAT's Intellectual Property
A New Direction is Needed Defending USAT’s Intellectual Property “The Company believes that one or more of its patents, including U.S. Patent No. 6,505,095 entitled “System for providing remote audit, cashless payment, and interactive transaction capabilities in a vending machine” and U.S. Patent No
Slide 29: Lack of Vision
A New Direction is Needed Lack of Vision • SAVE urges shareholders to review past forecasts made by the current management team in FY 2012 • The Company has not presented a technology roadmap • The Company apparently sees the opportunity as cashless transactions NEW INITIATIVES APPEAR LIMITED TO PRE
Slide 30: Conclusion
A New Direction is Needed Conclusion: A New Direction is Needed • Stock Performance • Operating Performance • Potential Harmful Dilution • Governance Issues • Lack of Vision • Competitive Industry Landscape 30
Slide 31: Value Creation is in the Network
Ecosystem and Vision Value Creation is in the Network Transform USAT from a commodity cashless hardware provider into an innovative leader supplying customers with cashless payment solutions, vending route management, and other value-added services Brands Operators Consumers 31
Slide 32: Overcoming Obstacles & Current Industry Dynamics for USAT Transformation
Ecosystem and Vision Overcoming Obstacles & Current Industry Dynamics for USAT Transformation SAVE Believes Obstacles Are: SAVE’s Solution Is: Lack of vision; cashless, hardware Bold, compelling services-based solutions with focus on commodity data and network USAT Board lack of industry Highly-qual
Slide 33: Moving USAT Forward
Moving USAT Forward Moving USAT Forward • Part I: Create a new compelling vision and roadmap • Part II: Establish a highly-qualified board ready to hit the ground running on day one • Part III: Reduce operating costs • Part IV: Improve the JumpStart business model • Produce low-cost hardware and inc
Slide 34: Establish A Highly-Qualified Board
Moving USAT Forward Establish A Highly-Qualified Board IBM - Pepsi – Frito Lay - Citigroup – Corsidian - Boston Consulting Group - CSFB - Hypercom John Ajoy Rodman Andrew Craig Bradley George Deep Functional Expertise: Ioannou Karna Reef Salisbury Thomas Tirpak Wallner Hardware /Software
Slide 35: Reduce Operating Costs
Moving USAT Forward Reduce Operating Costs Background: • Culture: SAVE believes USAT lacks a pay-for-performance culture • Corporate car allowances • The Company leases two separate locations in Malvern, PA • Corporate counsel sits on the board SAVE’s Business Improvement Plan: • Culture: Implement
Slide 36: Improve the JumpStart Business Model
Moving USAT Forward Improve the JumpStart Business Model JumpStart Program: • Approximately 58% of the card readers USAT added in the first nine months of fiscal 2012 were subsidized • The Company provides the hardware at no upfront cost with no long-term contract • The average cost of these card re
Slide 37: Upgrade Hardware
Moving USAT Forward Upgrade Hardware SAVE Believes: • Outsourced development results in higher cost manufacturing • ePort Edge and G8 do not have most current technology • Higher end services like Google Wallet demand faster communication • Current device uses 2G networks that will eventually be shu
Slide 38: Hardware Improvements
Moving USAT Forward Hardware Improvements SAVE’s New Product Technology Roadmap: • ePort Energy 3G • Develop low cost 3G device to replace current 2G Edge device SOON • Improve collaboration with existing outsourced manufacturing team to reduce costs • SAVE estimates the engineering of this device w
Slide 39: Invest In Advanced Devices: Sweet Betty
Moving USAT Forward Invest In Advanced Devices: “Sweet Betty” • Develop Higher Function Terminals o Color touch screens with the ability to accept pinned debit and meet the needs of new regulations and standards o NFC and emerging payments capabilities o Ability to communicate offers and process cou
Slide 40: Improve Transaction Processing Profits
Moving USAT Forward Improve Transaction Processing Profits SAVE’s Business Improvement Plan: • SAVE intends to recruit a qualified executive with small ticket transaction experience to become VP, Transaction Processing • Benchmark and analyze every transaction to reduce chargebacks and identify tran
Slide 41: Analyze Every Transaction
Moving USAT Forward Analyze Every Transaction • Upgrade senior management with new hires • Benchmark and analyze every transaction • Convert payments into a strategic asset • Goal is to become the lowest cost payment processor in industry “…navigating the payment-card processing system can be an ove
Slide 42: Cashless Alone is Not a High Value Proposition
Moving USAT Forward Cashless Alone is Not a High Value Proposition • Average machine generates $6,000 per year and average vend is $1.75* • Northland estimates average vending machine has approximately 3,400 vends per year or 280 vends per month • SAVE estimates approximately 33% of transactions are
Slide 43: Vending Route Management Creates Value
Moving USAT Forward Vending Route Management Creates Value SAVE Nominee John Ioannou was President of Next Generation Vending, LLC, operator with 200 Routes and 25,000 vending machines Item Traditional Online Percent Benefit (April 2009) (March 2010) Change Routes 13 6 -53.8 % Eliminate 7 Routes Ave
Slide 44: Vending Route Management is a Necessity
Moving USAT Forward Vending Route Management is a Necessity SAVE Believes: • Vending operators need a complete end-to- end solution that includes route management, remote monitoring, pre-kitting, merchandising and cashless to improve machine sales, reduce expenses and eliminate cash leakage from rou
Slide 45: Develop Other Value-Added Services
Moving USAT Forward Develop Other Value-Added Services Cashless Route Management Warehouse Automation Cashless enables a machine to accept a Vending Route credit card and SAVE Management can reduce the number of routes Data can allow each believes is rapidly operator to pre-kit becoming a and increa
Slide 46: Improve Sales, Distribution & Marketing
Moving USAT Forward Improve Sales, Distribution & Marketing Background of Sales and Distribution: • Company goes to market with a direct sales force to ~3,000 existing clients • Company has not announced a significant contract with a major bottler in FY 2012 • Avanti Micro • Limited web-based fulfil
Slide 47: Improve Sales, Distribution & Marketing
Moving USAT Forward Improve Sales, Distribution & Marketing Background Marketing: • USAT was not a sponsor of the 2012 NAMA Trade Show • Apriva, BofA and Cantaloupe Systems sponsored a technology panel • SAVE believes USAT has no significant on-line marketing presence in paid search or industry webz
Slide 48: Invest in International Growth
Moving USAT Forward Invest in International Growth SAVE Believes: • According to a report by Global Industry Analysts, Inc., the worldwide installed base of vending machines is expected to reach 35 million units by 2015 • The Company does not offer ePort products internationally except in Canada • C
Slide 49: Protect Intellectual Property
Moving USAT Forward Protect Intellectual Property Background: • Company has 79 patents and more than 10 pending • Company has not disclosed any ongoing patent enforcement litigation • Cantaloupe Systems and Apriva are growing placements quickly • Company has not meaningfully developed and expanded i
Slide 50: Reduce the Cost of Capital
Moving USAT Forward Reduce the Cost of Capital Cost of Capital: Gross Cash - Underwriting / Placement Fees Cost of Capital = Net / Gross Cash - Black Scholes Warrant Value Net Value Received SAVE believes new leadership will bring credibility, which SAVE believes can lead to a lower cost of capital
Slide 51: Conclusion: Fix and Grow the Business
Moving USAT Forward Conclusion: Fix and Grow the Business Lower Customer Acquisition Cost Improve Profitability Develop low-cost hardware Improve profitability in transaction processing Reduce cost of customer acquisition Develop value added services like with web marketing and fulfillment V
Slide 52: Conclusion: Moving USAT Forward
Moving USAT Forward Conclusion: Moving USAT Forward • Part I: Create a new compelling vision and roadmap • Part II: Establish a highly-qualified board ready to hit the ground running on day one • Part III: Reduce operating costs • Part IV: Improve the JumpStart business model • Produce low-cost hard
Slide 53: SAVE's Business Improvement Plan: Summary of Key Strategy Elements
Moving USAT Forward SAVE’s Business Improvement Plan: Summary of Key Strategy Elements and Align Incentives Profitability Enhanced Customer Fix Cost Structure New Hardware and Profitable Transactions Experience Strong Customer & Execution-Oriented Culture 53
Slide 54: The Role of the New Board
Moving USAT Forward The Role of the New Board The Role of the New Board: • Hire premier CEO and management team • Develop and approve strategy and allocation of capital • Set goals and use incentives to align management with shareholders • Evaluate performance and demand accountability The Current
Slide 55: SAVE vs. USAT Nominees
SAVE’s Nominees SAVE vs. USAT Nominees SAVE’s Nominees USAT Slate George Wallner, Hypercom, Roam Data Steven Herbert, current Chairman & CEO, former COO Jack Price Rodman K. Reef, Citishare, NYCE, Maestro, Electronic Funds Transfer Association (EFTA) Steve Barnhart, CFO Bally Total Fitness Joel Broo
Slide 56: SAVE's Experienced Nominees
SAVE’s Nominees SAVE’s Experienced Nominees • George Wallner (Age 61) founded Hypercom Corporation, a global payments technology provider, and served in various positions, including Chief Executive Officer, Chairman, Chief Technology Officer and Chief Strategy Officer, from its inception in 1978 unt
Slide 57: SAVE's Experienced Nominees
SAVE’s Nominees SAVE’s Experienced Nominees • John S. Ioannou (Age 56) has served as President and Senior Managing Director of SCFGlobal Management LLC, a specialty finance holding company (“SCFGlobal”), since July 2011. From January 2011 to March 2011, Mr. Ioannou served as an advisor to SCFGlobal.
Slide 58: SAVE's Experienced Nominees
SAVE’s Nominees SAVE’s Experienced Nominees • Craig W. Thomas (Age 37) co-founded and has served as a managing member of Shareholder Advocates for Value Enhancement, an organization dedicated to enhancing long-term value for shareholders, and its related funds since October 2009. Since October 2008,
Slide 59: Disclaimer
• This presentation is for discussion and general informational purposes only. It does not have regard to the specific investment objective, financial situation, suitability or the particular need of any specific person who reads this presentation, and should not be taken as advice on the merits of
Slide 60: Appendix: Cost Per Device Calculation
Appendix Cost Per Device Calculation • From the Company’s 10-Q for period ended 3/31/2012: o Consolidated Statements of Cash Flows “Reclass of inventory to fixed assets for rental units” is $3,282,512 o SAVE believes that this line reflects the cost of units in the JumpStart program • From the Compa
Slide 61: Appendix: EnergyMisers
Appendix EnergyMisers • SAVE believes EnergyMisers are heavily subsidized o Tuscon Electric provides $100 rebate o The City of Palo Alto provides a $90 rebate o The City of Chula Vista provides $95 – $125 rebate o NStar offers a $75 debate • Average sales price of $100 per device • “Utility Turnkey
Slide 62: Shareholder Advocates for Value Enhancement
Shareholder Advocates for Value Enhancement USA Technologies, Inc. (NASDAQ: USAT) www.SAVEUSAT.com Business Improvement Plan Moving USAT Forward