Lauren Sloane - IR Steve Herbert - Chairman & CEO Lee Maxwell - Interim CFO.

George Sutton - Craig-Hallum Josh Elving - Feltl and Company Gary Prestopino - Barrington Research Mike Latimore - Northland Capital Markets.

Good morning, ladies and gentlemen, and welcome to the USA Technologies’ Fourth Quarter and Fiscal Year 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time.

[Operator Instructions] As a reminder, this call will be recorded. I would now like to introduce your host for today's conference Ms. Lauren Sloane, Investor Relations for USA Technologies. Your may begin..

Thank you and good morning, everyone. This is Lauren Sloane, and welcome to the USA Technologies' fourth quarter and fiscal year 2016 earnings conference call. With me on the call this morning is Steve Herbert, Chairman & Chief Executive Officer and Lee Maxwell, Interim Chief Financial Officer of USA Technologies.

Before we begin today’s call, I would like to remind you that all statements included in this call other than the statements of historical facts 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.

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 filed earlier this morning.

Listeners are cautioned not to place undue reliance on any such forward-looking statements, which reflect management’s view only as of today 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 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 items and a reconciliation of these non-GAAP financial measures to GAAP financial measures can be found in our press release issued earlier this morning and on the Investor Relations page of our Web site at www.usatech.com. I would now like to turn the call over to Steve, go ahead..

Thank you, Lauren and good morning everyone. Thank you for joining us to discuss our fourth quarter and fiscal year 2016 results. Our fiscal 2016 was a record breaking year for us for a number of reasons, including revenue connections, cash generation, and product growth through acquisition.

We are executing on the plan to drive cash flow streaming [ph] capability into unattended retail and in the process drive financial strength and shareholder value.

The fourth quarter marked another revenue record as we ended the year with momentum, continuing to grow the number of USAT connections with the proliferation of our ePort Connect service across self-serve retail. 2016 was our seventh consecutive year of revenue growth and we’ve completed 27 consecutive quarters of year-over-year growth.

Looking more closely at the fourth quarter, we had net connection adds of 28,000, and we added 96,000 connections in the fiscal year. Total connections to the service now stand at 429,000. This is obviously a record for us. Our customer count is now 11,050.

Revenue of 21.9 million, a record high for USAT of which 15.3 million was in the recurring revenue line of license and transaction, and 6.7 million was hardware. For the full year, revenue was approximately 77.4 million, growing 33% from 2015. Again, we’ve achieved USAT record with our annual and quarterly revenue numbers.

Cash from operations was $1.3 million, and we ended the quarter with more than $19 million in cash and cash equivalents. We processed $584 million in transactions on our service during the fiscal year.

We continue to see our key target market move deliberately towards cashless acceptance, and increasingly operators are choosing to connect 100% of their locations through our ePort Connect service, as just this quarter, we expanded our relationship with Coastal Canteen and A&A Vending.

Coastal Canteen has upgraded 1,500 machines to USAT’s ePort cashless solutions and has reported a 32% increase in sales. Similarly, A&A Vending is upgrading 1,200 machines and is showing positive early results with our ePort devices installed on their machines.

Both Canteen and A&A Vending are perfect examples of the positive benefits our customers can realize as they move toward 100% cashless, and are evidence that our operators see an ROI from acquiring a cashless acceptance device and connecting it to our service.

In most purchases around the economy, consumers have a clear expectation of the ability to use credit and debit cards and increasingly contactless and mobile payments. This expectation is quickly moving into unattended retail and operators across the self-serve retail market fear falling two payment methods behind.

Choosing USAT provides the payment industries leading solution an efficient ramp towards cashless acceptance, and as our data shows, increased profitability. Our solutions also make it simple for other types of locations to go cashless, such as laundry, parking, and kiosks.

For example, TouchTunes, the largest in-venue interactive music and entertainment platform with 65,000 locations nationwide has begun transitioning to our ePort Connect service in its digital Jukeboxes. To date, 73 TouchTunes operators have transitioned their locations to the ePort Connect service in their markets.

minuteKEY an innovative unattended kiosk based key duplication service added 3,400 connections to the ePort Connect service in our fiscal year 2016, and they can be found in locations like Lowe's Home Improvement centers and Wal-Mart stores. These are both exciting additions for us as we continue to penetrate additional verticals outside vending.

We believe these embedded systems in the kiosk market represent a significant opportunity to drive connections to our service, independent of a traditional device or hardware sale and also represent a robust example of how we're pioneering payments in an IoT enabled world.

Some operators are preparing for what we believe would be standard, the ability to positively impact their business via more robust consumer interaction at unattended point of sale and we're pleased with the progress we've made with our ePort Interactive Services.

Our customers are adopting ePort Interactive for our cloud-based interactive media and content management and delivery capabilities, which enable multimedia marketing campaigns, remote refunds, enhance loyalty programs for the unattended self-serve retail markets.

One such customer is VendPro Refreshment Services which added to our growing list of customers transitioning to cashless payment technology on over 50% of their machines. Working to connect 1,800 of our next-generation ePort Interactive devices, this marks our largest implementation to-date since the acquisition of VendScreen.

Earlier this year, we conducted a study in conjunction with Apple to investigate machine economics when you use ePort Interactive to market the availability of Apple Pay. We found that when our displays promote the awareness of mobile payment acceptance, it results in more transactions and revenue.

As we reported in June, when displaying Apple Pay capabilities, our initial findings show a 26% increase in overall transactions, 22% increase in total revenue, 12% increase in total contactless or mobile average ticket, and an 89% increase in revenue through contactless payment including Apple Pay. Recently, another catalyst may have emerged.

As you may be aware, the FDA recently issued requirements regarding the disclosure of nutritional information for the vending industry. In essence, requiring most operators to provide caloric or nutritional information for items in the machine, with a compliance deadline of December 2016.

A core capability of the ePort Interactive platform is the delivery of nutritional information to consumers at point of sale via the color touch screen on our ePort Interactive device. We believe this development with the FDA could have a positive impact on penetration of ePort Interactive into the vending market.

In addition to our core service, we're making it easier for operators to go cashless by reducing friction as they implement cashless options.

Part of the success we've demonstrated continues to be driven by our premium services capabilities which provides operators access to a bundle of best-in-class support services including deployment planning, project management, installation support, training of staff, the marketing of cashless, and mobile payment and loyalty programs.

Clearly USAT is leading the charge for cashless acceptance in the unattended retail market. Our top-line and connection metrics are robust and improving every quarter, but we acknowledge the SG&A expense for the quarter was higher than we previously anticipated.

We also want to reassure you, this is a temporal issue and we expect to improve our leverage overtime. Lee will cover the numbers in detail, but I want to provide an overview. There were two primary drivers of the increase in SG&A for both the quarter and the year, namely the VendScreen acquisition and the SOX 404 process.

Before delving into the line items driving the SG&A, I wanted to elaborate on the SOX 404 process. As you may know, our market cap has grown with the progress of our company. So we're now subject to the accelerated filer status and also the full SOX 404 audit.

It's important to highlight, that much of the 404 work in cost were an upfront expense which we can leverage year in and year out as our company continues to grow. These expenses are durable investments that should yield benefits for the company in future quarters, but also have a near-term impact.

To give you some idea, we now expect total first year SOX 404 compliance cost to be approximately $2 million which is more than we anticipated and more concentrated than we expected, specifically in Q4 and Q1. As such, we expect SG&A for the first quarter of fiscal '17 to be roughly within the same range as Q4 of fiscal '16.

Again, this is our first year as an accelerated filer and as such it is the first year of a full SOX stocks 404 audit. As it pertains to the material weakness designation that arose in connection with our year-end SOX audit, we're committed to remediating the control [decisions] that gave rise to the material weakness.

These internal controls are being evaluated by management and will be adjusted appropriately as soon as practical.

Notwithstanding the material weakness discussed, we and our external auditors have concluded that the consolidated financial statements we issue today presents fairly in all material respects our financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP principles.

I am confident USAT is poised for a sustained period of growth and we are preparing the company for it. The last major payment transition in our key target market was from coins to dollar bills, and the historical precedence provides an interesting lesson for us and our customers.

The adoption curve of the dollar bill acceptance technology is similar to that of our cashless payment technology. At one point, operators determined that dollar bill acceptors had to be on every machine and providers scrambled to meet demand.

Many customers and industry professionals are pointing to and anticipating 100% penetration of cashless payment capabilities in the vending market. We're anticipating a similar inflection point and have already laid the foundation for success in an accelerated demand environment. We are working to ensure our readiness for that likely eventuality.

We're aiming our efforts in such a fashion because industry experts as well as management see a significant trend emerging. 100% conversion to cashless systems in the vending industry, if true we would expect this to drive significant growth over a number of years from this particular market segment.

I’ll now turn the call over to Lee to review the numbers..

Thank you, Steve. Good morning everyone. To echo what Steve said, we added 33,000 gross connections in the fourth quarter compared to 34,000 gross connections in Q4 of last year. Net connections for the quarter totaled 28,000 compared to 31,000 in the fourth quarter of last year.

We have 5,000 deactivations, of which 3,000 were from a former customer against whom we initiated litigation and removed their connections from our service. They were approximately 2,000 deactivations which we would consider a typical seasonal level.

We added 225 new customers ending the quarter with the total of 11,050, a 15% increase in customer accounts from the June quarter of 2015. We continue to drive increases in connections and revenues primarily from deeper penetration of existing customer accounts. We continue to grow both the number and the dollar value of transactions.

This quarter, we had 89 million total transactions representing 169 million in transaction volume increases of 43% and 50% respectively from last year’s fourth fiscal quarter.

Growth was driven by a year-over-year increase in total connections to our ePort Connect Service, which included 6,000 connections we obtained with the acquisition of VendScreen, driving our total connections to 429,000 which represents a 29% increase from the 333,000 at the end of the same quarter last year.

Approximately 83% of gross new connections came from existing customers which is a strong indication to us of the increasing adoption by additional connections by our current customer base. Total revenue for the fourth quarter was a record 21.9 million, an increase of 24% compared to 17.6 million recorded in the fourth quarter of fiscal '15.

License and transaction fees were 15.3 million compared to 11.9 million in the year ago quarter, a 28% increase. These fees, which are comprised as a recurring monthly service fees plus transaction processing fees, accounted for approximately 69% of our total revenue.

Equipment sales were 6.7 million compared to 5.7 million in last year’s fourth quarter, representing a 17% increase. The increase is attributable to the increasing demand for cashless acceptance in our target market of unattended retail facilitated by our QuickStart leasing program.

QuickStart and straight sales accounted for approximately 91% of all connections sold during the quarter compared to 89% in the same quarter last year.

The Company is focusing its direct sales effort and pricing terms to favor the QuickStart program with emphasis on 60 month funding provided by third-party financing, third-party financing continues to improve the Company's cash flow.

Primarily as a result of the third-party financing programs, the Company's cash flow from operations has improved significantly year-to-year. In fiscal 2015, the Company used 1.7 million for operations, but in fiscal 2016 we generated 6.5 million. Looking at revenue results for the full fiscal year.

Revenues for 2016 were 77.4 million, consisting a 56.6 million of license and transaction fees and 20.8 million of equipment sales, compared to 58 million for the fiscal year 2015, which consisted of 43.6 million of license and transaction fees and 14.4 million of equipment sales. Overall this is a $19.3 million increase in total revenues of 33%.

Revenue from license and transaction fees which represented 73% of total revenue for fiscal 2016 was due to the growth in ePort Connect service fees and transaction dollars which stems from the increased number of connections through our ePort Connect Service.

The 6.4 million increase in equipment sales is primarily attributable for selling more units versus renting units via our JumpStart program during the current fiscal year, due to the introduction of QuickStart in September of 2014.

Gross profit for the fourth quarter was 5.8 million compared to 4.8 million in the year ago quarter representing a 20% increase. Total gross margins were 26.4% slightly down from the 27.9% in the same quarter a year ago. The primary reason was a decrease in the license and transaction margins from 34% to 30.5% due primarily to non-recurring items.

Gross profit for the fiscal year of 2016 was 22 million compared to 16.8 million for the previous fiscal year, an increase of 5.1 million or 31% of which 18.5 million is attributable to license and transaction fees and 3.5 million of equipment sales, gross profit.

Overall gross profit margins for the year was 28% composed of unchanged license and transaction fee margins of 33% and by a slight decrease in equipment sales margins to 17% from 18% in the prior fiscal year. SG&A expenses were 6.7 million in the fourth quarter compared to 5 million in the year ago quarter.

As Steve mentioned, our operating expenses were higher in the fourth quarter this year due to the costs associated with the SOX 404 Compliance Program and VendScreen operations. For the full fiscal year SG&A expenses were 22.4 million, an increase of 5.9 million or 36% versus the prior fiscal year.

The SG&A charges for 2016 reflects the following cost. VendScreen acquisition, integration and operating costs, 1.6 million; SOX 404 expenses, 664,000; bad debt, 1.4 million namely in connection with the receivables issue discussed in last year's 10-K; legal and professional fees of 270,000 associated with the shareholder litigation.

While we expected some increases due to the acquisition of VendScreen and SOX 404 audit and associated professional fees, the SOX 404 fees turned out to be substantially higher than we anticipated. For the quarter adjusted EBITDA was 0.6 million compared to 1.3 million in the comparable period last year.

For the fiscal 2016 adjusted EBITDA was 6.0 million, a slight drop from 6.3 million for fiscal 2015. Again, please refer to the table and the non-GAAP reconciliations in the press release, which has been posted on our Web site for additional information.

Operating loss was 1.6 million for the fourth quarter of fiscal '16, compared to an operating loss of $357,000 in the corresponding quarter last year. GAAP net loss was 872,000 for this fourth quarter of fiscal '16 compared with a net loss of 200,000 for the fourth quarter of last year.

The primary cause of the difference is the $5.7 million non-cash expense for the fair value warrant liability adjustment. The adjustment was driven by an increase in the price of USA Technology's common stock. On a non-GAAP basis net loss was 1.4 million for the fourth quarter compared to a non-GAAP net loss of 392,000 in the same quarter last year.

As you know the warrants expire on September 17 so these warrant charges will be behind us after that. Net loss for the fiscal year of 2016 was 6.8 million compared to a net loss of 1.1 million for fiscal 2015. The net loss for this fiscal year reflects the $5.7 million non-cash charge for the change in the fair value of the warrant liability.

Non-GAAP net loss was 0.7 million for the fiscal year 2016 compared to non-GAAP loss of 0.5 million in fiscal 2015. Adjustments to net to GAAP net loss to arrive at non-GAAP net loss include non-recurring charges incurred in connection with the VendScreen integration and acquisition.

Professional fees incurred in connection with the class action lawsuit, change in the fair value of the warrant liability. And finally the non-cash portion of the income tax provision. Finally, cash provided by operating activities was positive for the sixth straight quarter as shown in the press release.

Cash provided by operations is 1.3 million in the quarter. It should be noted that the increase in our payables is a significant driver. Now I would like to turn the call back to Steve. Thank you..

Thanks very much Lee and thank you everyone for joining us this morning. As you can tell, we're obviously well on the way to achieving our long-term goal of 500,000 connections and a revenue run rate of $100 million.

As we look towards the next fiscal year, we expect to add between 115,000 and 125,000 net new connections, bringing total connections to our service to a range of 544,000 to 551,000. And we anticipate revenue to be in the range of $95 million to $100 million.

In closing we ended the fiscal year with record revenue in connections and we're committed to building upon our achievements from the year to expand our leadership in the self-serve retail payment industry. We're keenly focused on driving connections and revenue growth, while also managing expenses as we scale.

We're excited by the work we've done and confident in our ability to improve profitability and maintain our position as a leader for cashless payments in the self-serve retail market.

With that let me open the call for questions, operator?.

Thank you. [Operator Instructions] And our first question comes from George Sutton with Craig-Hallum. Your line is open..

So I wanted to talk about the guidance for a second. Steve just for perspective, your guidance is above the estimates that we have right now, so we are happy with that.

But you have prospectively talked about the industry at some point going through this significant inflection, the guidance that you lay out suggests a continuation of the growth rates we have seen.

So I wondered if you could just sort of put the guidance in the context of the opportunities we have talked about for that ramp up?.

It is really a simple answer, we don’t know exactly when the market -- The market right now, we believe, is in a bit of an inflection point and driving the growth and the opportunity that we’re seeing presently.

And we are pointing to what we believe based on historical events we are pointing to what we believe, and the industry is looking to another inflection point. We can’t predict when that will be, it could be in a year, it could be in two years, it could be in 18 months.

So I mean that’s really the answer, it's -- we can't predict that and there we can't predict that inflection point and therefore our guidance really falls in line with where we have gone to-date..

During the quarter, you had a while still high 80 plus percent existing customer contribution, it was actually a bit lower than last quarter, which suggests you possibly brought in more new customers.

I wondered if you could talk about the new label opportunities that you are seeing in the market, new customer opportunity?.

Well we continue to -- there are a couple of contributors to connections coming outside of our existing customer base, which by the way we think they are both great, having a good piece of your business come out of your existing base, very good that means they are seeing good results, we know we have a lot of runway with those customers.

But on the other side of that, having robust growth with new customers is good, and it's primarily coming from two areas, one is new customers whether they are in vending or in any other market; two new customers that weren’t in the vending market that I highlighted a few minutes ago were in the kiosk market and those are just terrific nice wins for the company.

And I know in conversations with you and others, people frequently ask, Steve which of the other verticals? Are you most optimistic or excited about? And I always say kiosks, that’s I do think that represents a nice opportunity for our company, and those are two great examples that impacted the numbers in a significant way in fiscal '16..

Lastly from me, maybe a question for Lee, relative to the warrants outstanding, I know you typically will hear from the warrant holders because they need to exercise through you, how many more do we believe we have left potentially over the next several days?.

Several days, or for Q1, while the warrants [Multiple Speakers]..

Well obviously the warrants expire [Multiple Speakers]..

[Multiple Speakers] number 17..

I'll go head and take that. George we had -- there has been some activity related to the exercise of warrants, and of course that's impacted the cash position of the company. We're somewhere around and this is ballparked around 1.5 million shares that are still out there.

Some of these shareholders -- this is a security that was issued over, I think over five years ago or approximately five years ago. So, the -- some of these folks we haven't heard from in a very long time, it could be that some of these go unexercised..

Thank you. And our next question comes from Josh Elving with Feltl and Company. Your line is open..

I wanted to just try to understand the license gross margin a little bit better.

I know that tends to move around a little bit, and Lee I know you mentioned there were a couple non-recurring items that may have impacted it in the fourth quarter, can you review that with me again and perhaps maybe add a little detail?.

Sure Josh, these do happen occasionally, and this quarter it did happen, both in the area of some charges non-recurring and some offsets in the revenue area also non-recurring, my estimate is about 80% of that difference is non-recurring, the -- a little bit of it that may recur, but primarily it's non-recurring in both categories..

And I'm sorry, can you offer up the size of what that -- those charges of one-time items or primarily one-time items were?.

The size is approximately $500,000, some of them are related to the costs processing related, and others as I stated, revenue..

Okay.

And so I've asked this question before and I just try to get a sense for what the kind of -- how to think about the gross margins -- the license gross margin going forward? Again I know that you have these items have popped up from time-to-time, I keep hoping we're going to work our way back to that 35% level, and I guess I don’t have the opportunity to adjust that number for the fourth quarter, so I don't know what a normalized number was for the fourth quarter and could you maybe offer your thoughts about your outlook for 2017 on that license gross margin line?.

Sure, you've seen in -- generally from 32% to 34% is what we've been running if you look at the multiple quarters, and I would say something like that going forward 33%-34%, reasonable kind of margins, I would expect..

Okay, great..

On an adjusted basis, if you add it back, some of these things would probably be in that neighborhood..

Yes..

Yes, I just did it real quick, it looks like 33.8, so that sounds ballpark, okay.

And then with regard to the connections outlook, I mean very strong outlook for connections growth and you've never been a management team that's been really aggressive on your outlook, and so I'm wondering obviously, you continue to have traction and the business continues to -- or cashless continues to be desired that transformation is happening.

Is there any, I know that there's some large potential RFPs out there, the opportunity to take down from sizeable wins, is there any near-term visibility that is perhaps driving a, what I would view as a very nice outlook for connections next year?.

It's just, it's really not one or two deals and I think we're fortunate in that regards and that our business comes across, you know it comes from first of all that 80% of it, a large net part of our connections comes across from a customer base of 11,000 customers and so it’s spread out, the orders range in size from 50 connections to 5,000 and/or 3,000, 5,000 is a big one, but you know we don't, we're not counting on, we're not counting on home runs to get to that type of number, a significant home runs maybe give you a little upside to that kind of number, and that's a good problem and that's when you revise things upward a little bit, when you bring that kind of thing in, it's not that we don't have our eye on home runs we do, but the number you're looking at is a blocking and tackling across the customer base, mixed with some customer business both in vending and outside..

I think that's fantastic, okay.

Last question, just from 10,000 feet and thinking about profitability of the business I know currently it’s our view is that you have perhaps taken advantage of the opportunity to grow and perhaps foregone some profitability in order to add connections, which should I think appears to be the right thing to be doing right now.

I know the company has talked about some targets for EBITDA margin overtime that you know perhaps could approach high-teens maybe as high as 20% overtime.

I know you're not giving kind of profitability guidance, can you give us some sense for maybe how to think about EBITDA margins over the next couple of years, from a ballpark perspective, can we get to north of 10% by the end of ’18?.

Josh I would think you know along the lines of, I'm going to give you some numbers that are a little, they're not even numbers, I would think in the low-teens to maybe the high-teens, that's as we look out and we think about the leverage and we think about getting through some of this near-term turbulence, if we all think low-teens to maybe mid to high-teens I think that's a fair number to look at right now..

Thank you. And our next question comes from Gary Prestopino with Barrington. Your line is open..

Getting back to these charges on the gross margin line, these non-recurring things, did you back those into your adjusted EBITDA calculation at all or not?.

Mean, did we back -- no I mean they affected directly..

Okay. So there's not an adjustment on the adjusted EBITDA side for that number, okay..

Correct..

Okay.

This deal with TouchTunes that you got Steve, did you say, you said there were 65,000 locations you have signed what 73?.

I am glad you asked that question, so we could clarify. I tried to make it clear in the comments, but the TouchTunes has 65,000 essentially digital Jukeboxes and most of us have probably seen those in the marketplace, it's just a different way to hear music in a public venue. So they have 65,000 nationwide, they are the largest company of their type.

And we have signed on to-date I believe it is 72 or 73, I can't remember the exact it is one of the other. Like 72 or 73 of their operators, their operators operate in markets, so they have multiple, they have many locations, so we have transitioned the operators not individual locations..

Okay. So that’s why it's getting you know when you have the [Multiple Speakers]..

It's much like signing on a vending company, except they have digital jukeboxes..

So if you just take a look at it in total, do you know how many digital jukeboxes that you have signed up through these operators?.

I believe right now, we are in the high 100s in terms of the number that they have migrated over, they have a little work to do in terms of making that happen and those operators that we brought on are in the process of doing so, so that number will we anticipate will continue to go up..

Okay.

So do you have like any kind of with the Company itself, any kind of preferred provider agreement or was this just your salesforce is out there hitting all the operators to try and get these things signed up?.

We have a relationship with the parent company and I don’t know that we have preferred status, but I do know that they are promoting us to their -- they are actively promoting us to their universe of operators..

Okay that’s fine.

A couple more quick question, I want to get a little more drill down on these SG&A numbers, you said it's going to be similar in Q1, but then going forward into the rest of the year what does that settle in at? And you can give us a range obviously but trying to get an idea of what to expect when some of these elevated expenses are down and then I think you finished integrating VendScreen, so is that still going to be an issue in terms of elevating the SG&A expenses?.

I am sorry Gary, I missed the tail-end of your question..

I am trying to drill down on the SG&A expenses for next year you said it will be about the similar to Q4 for Q1..

Right, right so we are at, right..

And that [Multiple Speakers] thought that there is some VendScreen, but then what I am trying to get at is going forward, the SOX numbers keep impacting the rest of the year, does the VendScreen keep impacting the rest of the year, is that 6.7 range good for the rest of the year or what?.

I don’t think it is, and I think that’s really the way to look at it. I think you just hit on it. What we're seeing I think right now is we're kind of seeing a peak, I feel what we believe will be a peak in that six-seven range in Q4 and Q1, we think that's going to be similar. And from there we would expect to then trail off a bit.

Some of the SOX costs will go away and some other costs will come down. So, if you think of it, on a bit of a curve we popped up for a couple of quarters here, Q4 and Q1 primarily driven by VendScreen and SOX, some portion of those SOX expenses will go away, other things will happen and I believe we'll trail down from the levels of Q4 and Q1..

Okay.

And then the last question is what is the capacity for your partners in terms of the ePort business in terms of financing the ePort's do you just have, you still have two that you're dealing with or are they at or near capacity or do they have the ample capacity going forward?.

I think they're meeting our needs at this point and I know we're always having discussions with other companies who want to provide these types of services to our customers. It's -- we don't want to have too many.

If we have two that have enough capacity to meet the needs of our customers, then that keeps things simple for -- and streamline for our salesforce and for the people back here processing orders. Just every leasing company has a different process. So, I wouldn't expect that the company would move past say maybe three or four.

Because it means you have got different processes with each of them and we like to keep things simple and streamlined..

Thank you. Our next question -- I'm sorry [Operator Instructions] Our next question comes from Mike Latimore with Northland Capital. Your line is open..

I guess in terms of the just the hardware versus license and transaction mix, any reason that mix would be noticeably different in fiscal '17 versus fiscal '16?.

Mike I don't think so, and good morning by the way..

Good morning..

I don't think that mix will be significantly different. We have seen a shift in that as a result of QuickStart over the last I don’t know we will call it eight quarters, I think what we're seeing is a steady kind of a slow increase in hardware revenues. But I don't expect Mike for that to be pronounced.

And in fact in cases where you -- there maybe a quarter where we add up a large number of connections from customers such as TouchTunes or minuteKEY, there is no hardware sale.

So, it could be that hardware sales may as a percentage could dip in a particular quarter, just depending upon the mix, but I think we feel pretty comfortable that the mix we're at now is one that is fairly steady state..

And then I know a lot of the new net connections are going on QuickStart obviously, are you seeing many customers that had historically been on JumpStart migrate over to QuickStart such that it's not really a new connection it's just a different type of connection or is that not happening in any material way?.

Well, it did, when we brought QuickStart to market there was a -- and we’d call it a mass migration for those who remember that migration happened much more quickly than we anticipated that it would. At this point I really don't think we have many customers that are moving from JumpStart to QuickStart.

I think JumpStart it's still in the single-digits as a percentage of our mix. It'll probably remain so. It's a nice high margin sale that is typically made to an SMB customer so it gives us a good return, so if we're in the 7% to 10% range on JumpStart, that would be a good thing..

I think a more on, instead of percent of new connections in the quarter I think you just, in terms of a percent of total connections overall let's say, what percent JumpStart at this point?.

Well, if you look at the last number of -- I'll just give you a few quarters, the December 31 quarter was 10.1% of the connections, the March 31 quarter was 7.4 and the June 30 quarter was 6.5, so as a percentage it’s declining in real numbers it's not that pronounced because the numbers are going up.

But like I said if we're in the 6% to 10% range on JumpStart, as our numbers, connection numbers you know continue to go up year-to-year it's, as I say it is a nice high margin sale for us, a rental..

Right..

So we would welcome that business..

All right I guess, let's say on the 429,000 total connections what percent are JumpStart at this point would you say?.

Well, for the year..

Sort of the total base..

There are, out of the 429 that are out there we still have approximately 130,000 JumpStart units in the market..

All right got it, that's great, and thank you..

That were, if that is -- and I'm sorry if I didn't answer the question directly but I misunderstood it. [Multiple Speakers] Hopefully we exchanged some good information in the process..

And then just curious, the SOX expenses, I assume that goes into the professional services bucket that you break out in the SG&A line there and then I assume you have the other portion of that is the premium support process I just want a little clarification on that?.

I don't think for premium support necessarily, not necessarily all of it goes into professional services there are other things that go into professional such as legal and things like that.

But a good portion of that professional services line that you are looking at right now and particularly any delta you might be seeing, it is largely driven by the professional service fees associated with SOX..

Okay. At this point we do not have any time for any further questions. I would now like to turn the call back to management for closing remarks..

I’d like to thank everyone for taking the time for our call today. We appreciate your consideration and your support. So we are looking forward to a bright fiscal '17 and look forward to updating all of you on our next call. Hope you have a terrific day..

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. Your may all disconnect. Everyone have a great day..