Lauren Sloane - Investor Relations Stephen Herbert - Chairman and Chief Executive Officer Leland Maxwell - Interim Chief Financial Officer.

Jason Kreyer - Craig-Hallum Capital Group Josh Elving - Feltl and Company Gary Prestopino - Barrington Research Associate Mike Latimore - Northland Securities Kevin Dede - Rodman & Renshaw.

Good day, ladies and gentlemen, and welcome to the USA Technologies First Quarter 2017 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 with USA Technologies. You may begin..

Thank you and good morning, everyone. This is Lauren Sloane, and welcome to the USA Technologies first quarter of fiscal 2017 earnings conference call. With me on the call this morning is Stephen Herbert, Chairman and 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 all that statements included in this call other than 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 issued 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 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 includes 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 items and the 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 website, www.usatech.com. And now I would like to turn the call over to Steve Herbert.

Steve?.

Thank you, Lauren, and good morning, everyone. Thank you for joining us to discuss the results of our first quarter of fiscal year 2017. Revenues are off to a strong start for the year and we continue to be on pace to meet our 500,000 connection and $100 million revenue run rate growth objectives, either on time or early.

I want to provide a high level commentary on the numbers and a general business update, before I turn the call to Lee to discuss the financial statements in detail. The first quarter marked the 28th consecutive quarter of year-over-year growth, and the top line grew 30% from a year ago.

Taking a closer look at the first quarter, we had net connection adds of 19,000. Total connections now stand at 448,000. We added 350 new customers, bringing our customer count to 11,400. Revenue of $21.6 million, of which $16.4 million was in the recurring revenue line of license and transaction fees and $5.2 million was hardware.

In the first quarter alone, we processed 95 million transactions that amount to $183 million on our ePort Connect service. Consistent with our commentary last quarter, our SG&A was $6.9 million in line with our expectations and reflective of increases due to the SOX 404 assessment and audit.

As you’re aware and as discussed on our last earnings call, we saw an elevated SG&A profile in Q4 and in Q1. Despite the levels, we expect to improve our leverage over time, now that the 404 audit is complete.

It’s important to highlight that much of the SOX work and costs were an upfront expense 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 had a near-term impact.

The majority of the $2.2 million increase in operating expenses in Q1 over Q1 of a year ago was driven by an increase of $1.7 million in professional fees from those of the prior corresponding quarter and were related to SOX 404 compliance, internal audit, and audit of our financial statements.

This was primarily driven by our status as a first-time accelerated filer, which required an audit of our annual SOX 404 assessment. Now that we’ve completed the 404 process, I’m looking forward from here, we move quickly to a topic that is probably on everyone’s mind, profitability, and our general philosophy to it as we manage the business.

As USA Technologies has grown, our overriding approach has been to take a long-term view of the business, and operate the company with a balanced approach to delivering growth in an emerging market. In short, our objective will continue to be driving aggressive growth, controlling expenses, and expanding profitability.

We believe that the opportunity that the company is pursuing is massive, and each new connection’s long-term economics are compelling. As an addressable market, we see 13 million to 15 million potential connections in North America alone. We are the leader in our target markets, and right now, we only have roughly 450,000 connections.

We are still early in the process of capturing this opportunity, but in our view, profit is necessary as the company grows and expands, and each new connection helps build revenue and long-term value for shareholders.

Given the rapid uptake of cashless and mobile payments in self-serve retail, it’s important to maintain our leadership position as the market opens up, while also driving dollars to the bottom line, balancing aggressive growth, and capturing market share with strong margins and management of expenses of a rapidly growing enterprise in a swiftly moving emerging market.

The result is consistent with our outlook that we expect to see increasing profitability as we move into the fiscal year and beyond. Our activity in the market this quarter leads me to believe we can accomplish our goals.

We continue to drive penetration into more locations in vending, kiosk and other markets, as we see operators move deliberately towards Casa’s acceptance. It’s becoming a drum beat that the our customers are choosing to connect 100% of their locations to our ePort Connect service to reap the benefits of credit, debit, and mobile acceptance.

Choosing USAT provides our customers the payment industry’s leading solution and efficient ramp towards Casa’s acceptance, and as our data show an increased performance.

For example, Burch Food Service, a canteen franchisee and USAT are working to equip 100% of their locations with cashless acceptance, and they found a 17% top line growth in transaction dollars on machines connected to our service between June 2015 and June 2016.

Another example is Fresh Brew Group, a specialty coffee roaster with a high-quality large self-service vending operation. They are using USAT’s premium services to quickly and efficiently deploy our technology across their fleet of 3,000 single serve coffee locations.

According to Fresh Brew, they are seeing cashless usage at 31%, and a revenue lift of approximately 15% to 20% on connected machines.

When we see these types of adoption numbers and economics, we believe that virtually all self-service locations, whether they be vending, kiosks, commercial, laundry, or parking and others will continue to migrate to cashless and mobile payments, as they see the increase in usage and transaction dollars at each location in addition to an improved consumer experience.

We’re seeing especially encouraging signs from kiosks and our customers where we use our QuickConnect embedded systems to drive connections to our service.

As we discussed last quarter and in our recent press release, minuteKEY, an innovative unattended kiosk-based key duplication service added 3,400 connections to the ePort Connect service at the end of last fiscal year.

And we recently announced, they are also moving toward ePort Connect enabling 100% of their locations, which include locations in Lowe’s Home improvement and Walmart stores. Our solutions make it simple for unattended point-of-sale businesses to go cashless.

And we believe, they embedded systems which leverage QuickConnect in the kiosk market represent a significant opportunity to drive connections to our service, independent of a traditional hardware sale, and also represent a robust example of how we are pioneering payments in an IoT-enabled world.

Mobile continues to be a determining factor for our customers in their decision to move towards non-cash payments.

In many vending and other unattended settings, for example, in universities, factories and office parks, people are sure to walk by with their phones, but they are increasingly less likely to have coins and dollar bills, and our operator customers want to know that they accept the payment methods available to those potential consumers.

That’s why we’ve been investing in mobile capabilities for more than a decade, and why we work closely with key stakeholders in mobile like Apple, Google, and Samsung to ensure seamless mobile payment adoption in unattended retail.

We participated in Money 20/20 at the end of October, where we featured our QuickConnect API and we demonstrated our new ePort interactive capabilities, highlighting additional engagement and loyalty possibilities through the platform, including services to enhance the consumer experience, reward loyalty through the MORE program, and potentially address the new FDA guidelines for Nutrition inventive.

Booth traffic at the show was brisk and we continue to advance our reputation as the leader for unattended solutions in the payment industry. In summary, the dynamics we are seeing at play are very encouraging.

Our growing customer list coupled with our deepening penetration with our existing installed base serve as proof that self-serve retail providers are capitalizing on the cashless payment trend.

At the same time, the market is beginning to demand cashless payment options, as consumers increasingly rely on non-cash payment methods as their preferred method of payment. We at USAT are propelling the market, as we expand into new verticals and seek to capture a vast array of opportunity.

As we work to sell our solutions across the market, we are seeing a simultaneous growing demand for our technology, as our customers yield better economics and consumers respond positively. Our momentum is a testament to the trends in the industry and I’m confident that although, we’ve made steady progress, we are just at the beginning.

As we continue to work to achieve our long-term targets, we will remain focused on growth and expanding profitability, as we remain positioned to capture the transition to cashless and mobile payments across the self-service retail market with the ultimate goal of driving shareholder value. I’ll now turn the call to Lee to review the numbers..

Thank you, Steve. Good morning, everyone. To echo what Steve said, we had a great revenue and connections quarter. Net connections for the quarter totaled 19,000 compared to 16,000 in the first quarter of last year, an increase of 19%. There were approximately 3,000 deactivations, which we would consider a typical level.

Revenue was up 30%, including a 27% growth in license and transaction fee revenue, and 42% growth in hardware. We added 22,000 gross connections in the first quarter compared to 20,000 gross connections in Q1 of last year.

We added 350 new customers ending the quarter with a total of 11,400 customers, an 11% increase in customer accounts from September 30, a year ago. We continued to derive increases in connections and revenues primarily from deeper penetration of existing customer accounts. We continued to grow both the number and the dollar value of transactions.

This quarter, we had 95 million total transactions, representing $183 million in transaction volume, increases of 38% and 45%, respectively, from last year’s first fiscal quarter.

Year-over-year, growth was driven by an increase in total connections to our ePort Connect service, which drove our total connections to 448,000, representing a 28% increase from the 349,000 at the end of the same quarter last year.

Approximately 80% – 86% of gross new connections came from existing customers, which is a strong indication to us of the increasing move by our customers toward 100% adoption of our cashless technology.

Total revenue this quarter was our highest first quarter revenue ever, a record $21.6 million, an increase of 30%, compared to $16.6 million recorded in the first quarter of fiscal 2016. License and transaction fees were $16.4 million, compared to $12.9 million in the year ago quarter, representing a 27% increase.

These fees which are comprised of the recurring monthly service plus transaction processing accounted for approximately 76% of our total revenue. Equipment sales were $5.2 million compared to $3.7 million in last year’s first quarter, representing a 42% increase.

The increase is attributable to the increasing demand for cashless acceptance in our target market of unattended retail facilitated by our QuickStart program. QuickStart in straight sales accounted for approximately 92% of new connections added during the quarter compared to 90% 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, which adds significantly to the company’s cash flow. Gross profit for the first quarter was $6.2 million, compared to $5 million in the year ago quarter, representing a 22% increase.

Total gross margins were 29%, slightly down from 30% in the same quarter a year ago. In terms of the L&T component of that, there was a decrease from 32.6% to 31.3%, which was attributable to the increase in Visa and Mastercard assessment fees and the change in mix of cards used.

In terms of the equipment margin, there was a decrease year-over-year from 22.5% to 20%, due to an increase in inventory reserves related primarily to products returned on to various upgrade programs. Increases to the reserve are charged to the cost of equipment in the statement of operations.

Consistent with our commentary on the last call, our operating expenses were in the same range as Q4.

SG&A expenses were $6.9 million for the first quarter, an increase of $2.1 million from a year ago, driven by the $1.7 million increase in professional service fees, reflecting the increase in audit fees and SOX 404 expenses and $0.4 million increase in salaries and benefits due to an increase in employee compensation, head count, and employee-related medical benefits.

We expect quarterly SG&A expenses to be in the mid $6 million range for the balance of fiscal 2017. Net loss for the first quarter of FY 2017 was $2.5 million, compared to net income of $360,000 for the comparable period a year ago.

This quarter’s net loss is primarily attributed to the increase in the fair value of warrant liabilities of $1.5 million, and the $1.7 million increase in professional service fees for SOX and audit, as already mentioned. As you know, the warrants have now expired and have now been exercised.

So the fair value charges will no longer affect future period financial statements. For the quarter, adjusted EBITDA was $0.7 million, compared to $1.7 million in the comparable period last year. The $1 million decrease was primarily due to increases in professional service fees and salaries and benefits reflected in SG&A.

Operating loss was $950,000 for the first quarter of FY 2017, compared to operating income of $112,000 in the corresponding quarter last year. On a non-GAAP basis, net loss was $955,000 for the first quarter of FY 2017, compared to a non-GAAP net income of $44,000 in the same quarter last year.

Adjustments 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 SLC investigation, the change in the fair value of the warrant liability, and the non-cash portion of the income tax provision.

Again, please refer to the table and the non-GAAP reconciliations in the press release, which has been posted on our website for additional information.

Looking now at the balance sheet, networking capital increased $9.1 million to approximately $14 million, as a result of the elimination of any warrant liabilities as of September 30, 2016, and a decrease in accounts payable as a result of the last day of the quarter occurring on a Friday.

Additionally, there was a $2.2 million increase in inventory to provide stock for anticipated sales in subsequent months.

Operating cash flow decreased by $6.6 million from the same period last year, due to $2.6 million used for accounts payable, as just described, $2.4 million used for inventory to provide stock for anticipated sales, and the $2.5 million net loss for the quarter. This concludes my remarks. And now, I would like to turn the call back to Steve.

Thank you..

Thank you very much, Lee, and thank you, everyone, for joining us this morning. As you can tell, we’ve positioned the business and our offering to scale, as we grow both the top line and profitability. We consistently march forward adding connections and growing revenue and we are looking toward this year to scale and to build upon recent strengths.

As we look towards the entire fiscal year, we continue to expect to add between 115,000 and 125,000 connections, bringing total connections to our service to a range of 544,000 to 554,000. As is customary, we expect normal seasonality with a larger portion of the connection adds to happen in the back-half of the fiscal year.

We anticipate revenue to be in the range of $95 million to $100 million. Given these outlook on SG&A, we expect operating expenses to decrease as a percentage of revenue, resulting in growing operating leverage and overall profitability. With that, we would like to open the call for questions.

Operator?.

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

Good morning, gentlemen. This is Jason on for George..

Good morning..

Steve, on the call you talked about different vertical opportunities. You also mentioned you think there’s approximately 13 million to 15 million connection opportunities in North America. And just wondering if you can break that down a little bit? I know you have a strong presence in vending today.

But maybe you can talk about the additional, where you can see those additional opportunities, what verticals, and then where you currently have strength in verticals, and where you need beef up verticals to attack that large opportunity in North America?.

Sure. Jason, thanks for the question and good morning. The vertical outside of vending, I’ve said this many times on calls, in which we have really the most competence and most enthusiasm for is the kiosk vertical.

That I believe will continue to provide a significant avenue of growth for the company, not only, because it’s a large existing opportunity, but because of the fact that the kiosk business is expected to grow very significantly over time, as consumers move more and more to a self-serve economy.

We also have a fairly significant presence in commercial laundry, that continues to build as well. And we also have a presences that is expanding a little less slowly in the parking vertical, particularly the parking kiosks that people tend to see now and again, as you’re pulling into parking spots and paying for a parking spot via a kiosk.

Those are some of the places we expect to see growth outside of the vending vertical, and in fact, are seeing growth..

Okay. And then switching – so now that the VendScreen acquisition is a few quarters behind us.

Can you a little bit talk about just the purchasing trends that you are seeing from customers between the traditional ePort and ePort interactive?.

We still expect the mix to fall somewhere in that 15% to 20% range for the year. So that’s the pattern we are seeing. Customers are tending just like they always do with a slightly more expensive offering, they tend toward their best locations first. And with some exceptions, we find customers.

We have one customer that we announced recently that simply flipped to 100% interactive, those are fairly rare. But you can expect to see purchases in that range for this fiscal year..

Okay. Last for me, on the service margins, I think last quarter we talked about expecting service margins in the 33% to 34% range, and it came in a little bit below this quarter, and I know there were, I think, some Visa and Mastercard charges.

And so maybe you can just talk a little bit about what those charges were in Q1, and then if we should reset expectations as we go forward?.

Well, I’m going to answer the second part of that first. I think we ought to simply reiterate that we expect our L&T margins, we continue to expect our L&T margins to be in the low to mid-30s range. I think that’s a consistent drumbeat coming out of us, that will continue to be our target.

The charges, one of the examples of the charges that drove the margin down a little bit for Q1 was a shift – a mix shift more towards Mastercard, which costs slightly more than some of our other transactions to process. So it’s – in this case it’s simply a bit of a mix shift. Whether or not that mix shift will hold in the future, I couldn’t tell you.

But our goal regarding mid-30s to low 30s for L&T remains the same. On hardware, we’ve been saying mid-teens and we came in at 20, so that was a pleasant surprise for the quarter..

Okay, wonderful. Thank you..

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

Hi, good morning..

Good morning, Josh..

Hi. I just want to follow-up on that last question regarding the licensed gross margin. Do you have any sense, or can you quantify the potential impact of a higher mix of Mastercard volume? I thought that volume was very, very small for you..

Yes. It’s – yes, I don’t expect that mix would grow significantly over time. It may be that we’ve seen a shift that could continue in its current form. But as a mix of transactions, Mastercard and Mastercard debit continues to be a low – a relatively low portion of the mix..

Okay. So far as the expectations for licensed gross margin, I think, there’s obviously a lot of focus on that number. And I just want to make sure that we are modeling it correctly. Is the – and I don’t want to nitpick too much.

But is the language around low to mid-30s different than the pretty well-stated 33.5 kind of expectation offered up last quarter?.

I don’t – I really don’t – I don’t view it any differently. I think our message has been the same. We might have said 33.5 last quarter. But I think over quite a number of quarters, we’ve continued to say low to mid-30s is our target range for L&T..

Okay.

And then lastly, on that topic, longer-term, is it reasonable to assume you might see that, you give up a little bit of margin, as you see more and more opportunities, our chunkier opportunities longer-term and that kind of just knocks the bar down a little bit, or is that – do you feel like the long-term outlook is also in that kind of low to mid-30s?.

Longer-term, I like to think of us as having more leverage. So I would hope that we would be talking about different numbers in the future. As we think about, for instance, this fiscal year, we should think about the numbers that we just discussed..

Okay..

So I hope that answers your question..

No, that’s great, that’s encouraging. On the SG&A line, my sense was that we’d see SG&A expense relatively flattish. It was relatively a flattish sequential quarter. But then my understanding or expectation was that, it was going to drift lower throughout the course of the year, and that first quarter was likely a high watermark.

With the kind of mid-6s outlook for the balance of the year, can you kind of talk about cadence, or do you anticipate that falling off, or is this kind of like a new normal environment for SG&A?.

Well, this is what we would like to communicate in terms of expectations as we head through the year. It could be that we do slightly better than that in a given quarter. But we think it’s a good place to set expectations as we step down, which should sound familiar from our last call.

We – if you recall, we felt that we would peak on SG&A in Q4 and Q1, and then we would begin to step down. And we think that first step down is going to be into the mid-6s and we’ll work our way from there..

Perfect. Lastly, a lot of chatter about Japan and the Olympics and international opportunities. I know you have your hands full with opportunities available to you in the United States.

Have you contemplated any more about the potential for international expansion? And if so, what would that look like? Would that be an entry on your own, an entry with a partnership? Any color there would be great..

Well, I really like the way you asked that question. You set it up beautifully. First of all, the answer is yes. We certainly contemplated it. And secondly, you just described how we’ve always envisioned making our first entry, our first substantive entry, and that would be with one of our global customers and/or partners. Chase is a partner.

They have a footprint all over the place. We could do things with them. Starbucks is one of our customers. They’re obviously global. Compass Canteen is another global company we do business with. So we would anticipate going with an existing partner and/or customer to do that, exactly the way you described..

Have you contemplated any kind of timing, like would you be surprised to be in an international market say within a year?.

That wouldn’t surprise me within a year..

Thank you very much..

Thank you..

Thank you. We ask that you limit your comments and questions to one question and one follow-up. Our next question comes from Gary Prestopino with Barrington Research. Your line is open..

Hey, good morning, Steve, Lee. Couple of questions here, and I’ll try and fold them into one question.

I think Lee, you said you had about $1.7 million of SOX direct expense in Q1, is that correct?.

Yes..

Okay. So given your guidance for SG&A, that was a big ramp-up in the quarter. If you back that out, the professional service fees were probably about $820 million.

Is there some ongoing expense there on this – on that – the professional service side, that’s going to continue to keep these SG&A expenses at a $6.5 million rate going forward?.

SOX is a continuing process, and there will be expenses, they will be less, however. And what you see with our guidance for the mid-6s reflects reduction – significant reduction in that. However, it also reflects some additional investments that the company wants to make in R&D and marketing, and related personnel issues to build our infrastructure.

So the guidance is sort of a net number, given the reduction in SOX-related things offset to some degree by some increases in growth infrastructure-related items..

So when you are talking about infrastructure-related items, what would that be, because if you are adding personnel, that’s going to be in salaries and benefits, right?.

There’s some of that..

Could you maybe give us – go ahead..

Gary, that – if you think about one of the things you think about here is what we think the majority of the added costs are going to come from and they really are going to come from SOX and related activities.

So, for instance, if you take the approximately $2.5 million that was spent in Q4 and Q1 for SOX and audit of financial statements, and think about what that’s going to look like going forward, Lee, I believe we talked somewhere in the $1.5 million range.

So, I guess, the point I’m trying to make is that there will be substantive ongoing costs as it relates to SOX compliance for the company. And that would be, that really represents the majority of what you are seeing in the increase in SG&A. The other adds are minor by comparison..

Okay. And then just lastly, getting back to this gross margin on license and transaction, and I’ll ask follow-up questions when I speak to you. I don’t know how you negotiate your deals with the credit card companies.

But I would have assumed that there’s not much of a variance on the interchange that you’re going to pay with a Visa or Mastercard, to the extent that it would be that detrimental to the margin.

Can this be explained in some cases, is that you’ve got a shift from debit to more credit card transactions in the quarter vis-a-vis year-over-year?.

Well, it – what – one of the components for the quarter was a shift not, it was a shift to Mastercard and particularly Mastercard debit, where our fees are higher, for instance, than other instruments, such as Visa credit, Visa debit, which probably makes up 70% to 75% of all of the transactions.

So it’s a relatively low base, but we did see a shift there. So it’s specifically, Gary, a shift that we saw to Mastercard debit, which tends to cost a little bit more. And we don’t know if that’s a temporary phenomenon, or something that will continue over time.

But we have other levers that affect our margins in L&T, and we continue, you mentioned the key word negotiate. We continue to negotiate with, not only the credit card companies, but the wireless providers and those folks that help make up the cost base for delivering that service..

Can I ask one more question? I’m not getting this. My understanding is that, it should cost you less to process a debit card transaction. There’s is not or am I wrong there? There shouldn’t be the level of interchange on a credit card transaction.

And if I’m wrong, that’s fine, but if I’m not wrong, how is it costing you more to process a debit card transaction then?.

It costs more to process a Mastercard debit transaction. It costs more, for instance, than a Visa debit transaction.

A large majority of our transactions, and this has nothing to do with credit or debit, it’s really about a shift from Visa debit primarily to Mastercard debit in a given quarter in the purchasing patterns, and those transactions happen to cost more than Visa debit transactions..

Okay. Thank you..

Sure..

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

Yes, thanks. Nice quarter there, guys..

Thanks, Mike..

In terms of the bad debt expense that came down a fair amount sequentially year-over-year.

Is that kind of a good new run rate on that front?.

There’s going to be some quarterly fluctuations still. I wouldn’t say that it’s a good run rate necessarily. But you’re not going to see going forward the kinds of provisions that you saw as we cleaned up from the end of FY 2015. That’s been taken care of and we did benefit from, I would call it certainly an unusually low bad debt provision.

If you look at our past even before we started to clean-up, it was higher than the $97,000 that you see there. So I would expect to go back to more traditional ranges before the clean-up..

Got it, okay.

And then as you think about the connections that you want to add throughout the year, are you expecting any, like one customer to add a big chunk of that say a 10,000 or 15,000 connection new customer, or is it going to be just a normal broad mix?.

Mike, it’s Steve, obviously. The – I think the distribution will remain largely the same. We’ll obviously have a significant number of the connections coming from existing customers. It’s not uncommon for us to have customers in the thousands.

It’s not outside of the realm of possibility for someone to cross into five figures, particularly as the market continues to open up. I would call that the clearly the exception, not the rule, but it’s not inconceivable..

Got it. Okay, thanks..

Yes..

Thank you. And our next question comes from Kevin Dede with Rodman. Your line is open..

Thanks, good morning. I have a couple things for you. Could you, Steve, sort of characterize your new customer additions versus your addressable market and the customers you are currently serving? I mean, you added 350 new ones.

I was hoping you could just sort of dive in and maybe give us, I guess, your version of their demographic profile in terms of the size of network that they are operating, and how that compares to some of the larger customers that you’re already serving? And then, I guess, I was hoping you could look at it from the other perspective, which would be whether or not they are in kiosk, laundry, parking?.

Great, thanks. Thanks for the question. The – first of all, the – a good majority of our new customers in any given quarter come out of what we call SMB, small to medium business. So it tends to be – these customers tend to be on the smaller side of the spectrum, it doesn’t mean all of them come from there.

Some customers come on, minuteKEY is a great example. Some customers come on that are quite large and bring a large number of connections. Touch Tunes is a customer that we talked about last quarter, that was a new customer that came on and they have over, I think, 55,000 potential locations, and we are working with their distributor.

So on the one hand, we – some of our new customers are quite large. A large portion of them, though, come from of the 350 for the quarter. You can bet came from the SMB effort, and those customers can operate anywhere from 500 locations to 1,500 locations. Some of them may even be smaller. They may have 250 locations.

So that sort of falls in the sweet spot of SMB. The market, you asked about the verticals. Once again, we’ve had customer wins clearly outside of the vending vertical, like TouchTunes, like minuteKEY, and there is some portion of those SMB customers that come from outside of vending.

But right now the vending market is the market that’s moving the most briskly in terms of adoption. So you can bet, I don’t have the mix in front of me.

You can bet that a good majority, 70%, 75% of those, and I’m estimating this number, 70% to 75% of those 350 new customers for the quarter came from the vending industry, because of the traction in that industry right now..

All right. Then again, from yet another perspective, Steve, could you take a look at or at least describe to us how you see the competitive environment changing? I mean, these macro trends increase – the potential increase in labor and the flexibility in mobile payment aren’t lost on other companies.

And from our view, we are seeing intensified competition. There was an ignite program launched by T-Mobile, even the folks with on track innovations are trying to take things into their own hands.

I’m wondering how you are seeing that, how much pressure you are seeing, how that might change your pricing policies, and your marking activities?.

Well, that’s a great question and you’re right. The opportunity is not lost on other customers. That intensified activity in a market that is an emerging market with so much blue ocean, that’s a double-edged sword. On the one hand it helps open up the market faster, and that nurse to our benefit, that actually helps us.

On the other hand you have more competitive activity. The large majority of what we see in terms of competitive activity, really comes primarily right now from two companies. There are only two other companies that have any sort of presence that we seem to feel on a day-to-day basis, and that’s Crane and Cantaloupe.

And they both – they are both fine companies, and they have fine solutions. They too, I think, are benefiting from a lift in the market. But the fact of the matter is that we continue – this gets back to the balancing act. We are keenly aware of that competition.

We’ve done everything we can and will continue to do everything we can to position our company, as the company that has the broadest array of offerings, creates the most value for consumers, for instance, adding interactive capability was an important thing that we did to add value to our service.

So we have to continue to push the envelope on value that we are bringing to customers. We don’t want to compete on price. We want to compete on the value of our service, and bringing what has historically been the dominant solution and the best solution and the highest value-creating solution to our customers, and we’ll continue to do that.

Our key goal there is to build upon the leadership position that we have..

All right. Last question, a remaining fact of the competitive environment, given a major change in the administration and Republicans holding onto the House and Senate.

I’m curious as to how you see that type of political environment changing your business environment? I mean, I know you’re in great touch with the leaders in this industry, and I’m sure that people have been talking about the potentialities here, and I’m wondering what you might be able to share with us?.

Well, I think tell you this. We – first of all, we probably like every other American, we’re regardless of how you feel, glad yesterday is over. And we will simply continue, regardless of what sort of administration we have, whoever’s hands it falls into, we will continue to block and tackle and execute our strategy as a company.

I don’t think that we’re going to see in our business a major impact from this going one way or the other. How it will affect things on a macro level, we’ll all see, that’s a different topic.

But when it comes to our business and executing our strategy, I really don’t see it having a significant impact on our business, and particularly, I don’t see it having an impact on how we execute..

Thanks very much for entertaining my questions, Steve. Thank you..

Sure. Thanks..

Thank you. That concludes our Q&A session for today. I would like to turn the call back to management for closing remarks..

We would like to thank, everyone, for taking time out of your day today to join us to discuss our first quarter highlights. We obviously continue to be very optimistic about where our market, our target market is headed. And I can assure all of you that the people in our company are energized and dedicated to what they are doing.

We appreciate your encouragement and your support, and hope you all have a terrific day. Thank you for your time..

Ladies and gentlemen, thank you for participating in today’s conference. This concludes today’s program. You may all disconnect. Everyone have a great day..