Earnings Call Transcript - CTLP Q3 2020

Operator, Operator

Thank you for joining us for the USA Technologies Third Quarter Fiscal Year 2020 Earnings Conference Call. I would like to turn the call over to Alicia Nieva-Woodgate, VP of Corporate Communications and Investor Relations for USA Technologies. Please proceed.

Alicia V. Nieva-Woodgate, VP of Corporate Communications and Investor Relations

Thank you and good afternoon, everyone. Welcome to the USA Technologies third quarter fiscal 2020 earnings conference call. With me on the call this afternoon are Sean Feeney, Chief Executive Officer; Michael Wasserfuhr, Chief Financial Officer; Anant Agrawal, Chief Revenue Officer; and Douglas Bergeron, Chairman of the Board. Before we begin today's call, I would like to remind you that all statements included in this call, other than statements of historical facts are forward-looking in nature. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors, including, but not limited to, business, financial, market and economic conditions. A detailed discussion of the risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included with our filings with the SEC and in the press release issued earlier today. Listeners are cautioned not to place undue reliance on any such forward-looking statements, which reflect management's view only as of the date they are made. USA Technologies undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise. This call will also include a discussion of certain non-GAAP financial measures that we believe are useful for, among other things, evaluating USA Technologies' operating results. These non-GAAP financial measures are supplemental to and not a substitute for GAAP financial measures, such as net income or loss. Details of these non-GAAP financial measures, a presentation of the most directly comparable GAAP financial measures and the reconciliation between these non-GAAP financial measures as well as the most comparable GAAP financial measures could be found in our press release issued this afternoon, which has been posted on the Investor Relations section of our website at www.usatech.com. And with that, I'd now like to turn the call over to Doug Bergeron. Doug?

Sean Feeney, CEO

Alicia, we may have lost Doug. He is going to dial back in. So maybe we will just jump to me. This is Sean Feeney, the Chief Executive Officer and Doug had a fabulous introduction that he was going to make about me, but we will jump right into it. So it's a great pleasure to join you all today on my first earnings call. I look forward to reporting results that I’ve actually been involved in driving going forward. I joined USA Technologies because I believe the company has a great opportunity to build on its history and begin to write a great new chapter. And I'm thrilled to have the chance to lead the company as we begin that journey. I want to first take this chance to thank the employees on our team at USA Technologies for their tenacity and hard work over the last few months as the company has endured change and worked through the conclusion of the proxy battle and adapted to the realities of working from home in the COVID-19 environment. The safety of our employees is always a top priority, and it's been inspiring to see such a successful transition while continuing to support our customers. First, I wanted to provide a little bit of context into what drew me to this opportunity. Through my diligence when contacted about the opportunity, it was clear that USA Technologies is the leading player in a growing industry benefiting from secular tailwinds for many years to come. Despite the near-term challenges of COVID-19, which I'll touch on in a minute, it's our belief that the unattended retail industry will only accelerate further in a post-COVID world. And we should be the beneficiaries, and we're focused on executing on this opportunity. The benefit of a long career in software cloud platforms and networks, I recognize the power of the combination of USA Technologies with Cantaloupe. In my view, it was a game changer strategically, but it was never fully executed on. I plan to change that. What has historically been poor execution in this regard is now a tremendous opportunity going forward. Management and the Board are laser-focused on this and we will get it fixed. While we have withdrawn our financial guidance for fiscal year 2020 and are not providing any financial guidance today, what I will say is that this business can and should be generating better margins for the shareholders. We will come back to you on the Q4 call with more granularity around this topic. I'm a customer-facing, sales-driven leader. I enjoy and I love the competition in the market and building a winning team. We will build a sales-focused culture in the company moving forward. In any business, nothing happens until somebody sells something. I'm also focused on servicing our customers and driving towards zero churn in the customer base. Happy customers are critical to us driving growth in the market. We have some work to do in this area, and we are on it. Lastly, I wanted to briefly touch on governance, which was another component of my decision to join USA Technologies. I’ve a reputation for being blunt. The Board members that I've encountered and I have that in common. I like that. I am accountable for our results and I'll be as transparent as possible with the key constituents that I have: shareholders, customers, and employees. The depth of experience and expertise of this Board is unique for a company of our size. And it's something that actually drove me to want to compete for this job. I knew I could call on experts in almost every area of running a public company. They are highly engaged, and we are fully aligned on our objectives going forward. Now let me discuss some of the initial observations I've had in the business, having been here for about 50 days. The key to improving the performance of any team is finding the talent and putting them in positions to be successful. In my first few weeks on the job, I have found people that care deeply about the company and its customers. With the uncertainties of the proxy contest now behind us, combined with this three-line senior team, the company has re-energized and digging in. A common theme you may pick up on from me today is the untapped potential of this business. The employee base is no different. I recently reorganized the company into three groups reporting to me. Anant Agrawal, who is on the call with us, is one of the founders of Cantaloupe, and he will lead our customer-facing revenue group as Chief Revenue Officer. He will own the customer life cycle with USA Technologies, from marketing through sales and onto customer success. The operations and product group, which is what I think of as the factory of a company like ours, will be led by Jeff Vogt in the role of Chief Operating Officer. The third group is Finance and Administration led by Michael Wasserfuhr. As Bill Parcells said when asked about talent on the New York Giants, 'Our goal is the Super Bowl and we will add or subtract talent as necessary every day to get there.' I have a similar philosophy in running a company. On the customer front, I've had the pleasure to speak with over 20 customers over the last few weeks. They are the reason we exist. These interactions have made it clear the crucial value proposition that USA Technologies brings to its customers in the unattended retail industry. Our seed product suite has been an essential tool for operators to navigate COVID-19, and customers have been appreciative of USA Technologies' support and responsiveness in that regard. One customer told me during the conversation that he could not have navigated COVID-19 without the seed platform and the things that it did to make his operation work well during these tough times. While COVID impact in Q3 was actually minimal, it had a major impact on the company in Q4. We've taken several steps to help offset these headwinds. In my first day on the job, the Board and I implemented a 20% salary reduction through the end of the calendar year for the entire senior leadership team, myself included. We have also suspended the 401(k) match for the remainder of 2020. In addition, we're consolidating a number of positions which will contribute further to the cost rationalization. And lastly, the Board deferred any cash-based director fees until calendar year 2021. My last comment before I hand it over to Michael is on cost. In the recent past, this company has relied heavily on third-party consultants, and that has reflected in our operating expenses. The Board and I are addressing these costs aggressively. This is an area of key focus as we look forward to our fiscal year 2021 budget. As many of you are aware, my background is in private equity. We're managing a balance sheet and generating free cash flow is paramount. To that end, my focus is on profitable growth, not just growth for the sake of growth. I view the opportunity at USA Technologies as one, not just around top-line growth, but as importantly one about rationalizing this company's cost structure and making a profit. There will be more to come on this topic during our Q4 call. With that, let me hand it over to Michael to walk you through the Q3 financial results.

Michael Wasserfuhr, CFO

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

Douglas Bergeron, Chairman of the Board

Yes, I'm here.

Michael Wasserfuhr, CFO

... if you want to speak a few words, Doug?

Douglas Bergeron, Chairman of the Board

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

Michael Wasserfuhr, CFO

Thank you very much, Doug and also Sean. I am pleased to have joined the company in February and I share your enthusiasm about the company's future opportunities. Let me begin by discussing USA Technologies' fiscal third quarter results, which were published earlier today in a press release and have been disclosed in our 10-Q filing. I want to begin with revenue and gross profit margin quarter-over-quarter. Our third quarter, total revenue increased by 14% to $43.1 million. While license and transaction revenue increased by 11%, equipment sales increased by 31%. Our gross profit margin stayed at 26%. While the equipment margin decreased by 1 percentage point to a negative 21%, our license and transaction margin remained at 36%. Revenue and gross profit year-over-year: Our total year-to-date revenue increased 23% to $130.5 million. In relative terms, the main growth driver again was equipment sales, which increased 67%. Our gross profit margin decreased by 2 percentage points to 27%. While the equipment margin decreased by 5 percentage points to minus 13%. Our license and transaction margin improved to 36%. Operating expenses quarter-over-quarter: Operating expenses increased by 55% or $7.5 million. As part of that, SG&A increased by $8.9 million because of professional services, which decreased by $4.5 million. For example, for additional monthly activities around control design and control testing, as well as legal fees and expenses related to the proxy. In addition, $2 million were spent on employment-related costs for severance and the conversion of contractors to employees. $2.6 million were accrued in our third quarter for legal expenses, which I will explain later. Operating expenses year-to-date were $64.4 million; that's an increase of 31% or $15.3 million over the comparable nine months in the prior year. SG&A increased by 80% or $25.3 million to $56.9 million, mostly for the same reasons mentioned before. This increase was partially offset by the elimination of integration and acquisition costs as well as by a 67% decrease in investigation and restatement expenses. Beginning in late April, the Board initiated a robust review of all third-party professional fee arrangements. A particular focus lies on the ordinary and routine monthly accounting and compliance activities, as well as our legal activities. We are in the process of replacing expensive third-party services with in-house staff. We expect material rationalization of these costs in fiscal year 2021, and we'll provide more color on this topic when we do fiscal year 2021 guidance next quarter. A few other financial highlights: Our operating loss for the quarter is $10.2 million, which compares to a loss of $3.7 million in the prior year period. For the 9-month period, operating loss increased 56% to $29.2 million. Net loss for the quarter is $9.6 million or a negative $0.15 for a basic share compared to a net loss of $4.6 million or a negative $0.08 per basic share in the prior year period. Year-to-date, net loss increased by 44% to $29.8 million. Non-GAAP net loss of $7 million or a negative $0.11 per share compared to non-GAAP net loss of $1.5 million on negative $0.02 per share in the prior year period. EBITDA of negative $7.4 million compared to negative $1.8 million in the prior year period. Adjusted EBITDA of negative $5.9 million compared to positive $2 million in the prior year period. We ended the quarter with $25.9 million in cash and cash equivalent. I'd like to speak about COVID-19 and how it has impacted our organization. We did not observe meaningful reductions in processing volume until mid-March. When the average daily processing volume decreased approximately 40%. By mid-April, processing volumes began to recover and have shown steady improvement by approximately 30% over the mid-March level; or in other words, we're back at 78% of where we used to be. In response, we introduced a customer relief program in April to aid operators first by remotely monitoring and identifying efforts that may have been rendered unreachable during state-mandated lockdowns, such as office buildings or schools; and second, by providing financial relief for many of our operators with effective devices. This program was received extremely positively by our customers, and we continue to be highly engaged in helping them navigate that. To offset some of these headwinds, we introduced the liquidity conservation and cost saving initiative. In addition to the ones already mentioned by Sean, we entered into negotiations with and have received concessions from vendors regarding cost reductions and/or payment deferrals. We also increased our collection efforts to reduce outstanding accounts receivable, and we have implemented various supply chain inventory improvements, which leads me to the next discussion points, liquidity. The initiatives that I've just mentioned have a direct and positive impact on our current and future cash flow. Furthermore, we improved our liquidity in May by receiving approximately $3 million in the Paycheck Protection Program loan funding. Let's discuss further, in our 10-Q, based on the current financial forecast for the fourth quarter of fiscal year 2020 without a refinancing or modification of the existing term facility with Antara, we anticipate that as of June 30, 2020, it is highly likely that the company will not be in compliance with certain covenants. We are currently evaluating a variety of financing alternatives including, but not limited to, negotiating qualifications to the distinct term facility of Antara. An investor has communicated to us that it is willing to provide sufficient financing if we cannot reach an agreement with Antara on modifications to the existing term facility. We believe that our current financial resources, together with cash generated by operations and the financing available from the investor if needed, will be sufficient to fund our current 12 months operating budget. I wanted to highlight two other legal matters that are disclosed in our 10-Q filing. As previously reported, various shareholder class action complaints have been filed against the company as well as its CEO, CFO and directors at the relevant time of the May 2018 equity offering. Early this month, the court granted preliminary approval of a settlement that the company reached whereby a payment of $15.3 million is to be paid to the plaintiff. We anticipate that the majority of that payment will be covered by the company's insurance carrier. However, we expect to pay $2.6 million to work the settlement and tell them yet 2020. And that liability is reflected in our quarterly financials. Lastly, during the three months ending March 31, the company responded to a subpoena issued by the US Department of Justice that sought records regarding company activities that occurred during prior financial reporting periods, including restatement. The company is cooperating fully with the agency's queries. With that, I'll hand it back over to Sean. Sean?

Sean Feeney, CEO

Great. Thank you, Michael, for that review. As I mentioned previously, the new Board and management are actively engaged in developing our 2021 budget. We look forward to engaging with you on that topic on the next earnings call. I think we all know it's a little weird to be talking about the third quarter when the fourth quarter is just about to end, but concurrent with our budget review process, we are also reassessing the operating metrics and other KPI disclosures that the company has historically provided to the street. Given my software and platform background, I'm focused not just on increasing the number of connections in our base, but also on growing recurring software revenue and gross margins in order to drive profitable growth. We're to come on that topic on the Q4 call. With that, we will hand it back over to Alicia. Alicia?

Alicia V. Nieva-Woodgate, VP of Corporate Communications and Investor Relations

Sorry. Operator, you can take over.

Operator, Operator

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

George Sutton, Analyst

Thank you. Congrats to everybody on the call. This is obviously a long time coming, so I'm really glad to move forward. I have a thousand questions, but I will limit it to two. Number one, Sean, you mentioned that you felt the Cantaloupe acquisition was a game changer and just not really executed upon. I wondered if you could go into a little bit more detail on that. And secondly, could you give us a broad sense of market share and the competitive landscape as you see it? Obviously, there's been a lot of challenges over the last 18 months, and we'd love to get an updated thought on where we feel USA Technologies fits. Thank you.

Sean Feeney, CEO

Sure. Thanks for the question. And I'll ask Anant in a second to comment on the landscape and the market share. What I heard in talking to customers was that putting together Cantaloupe and USA Technologies brought together two leaders that really put us in an outstanding position to go and attack the market. When I talk about that, we haven't executed on that well, I see a few areas. One, in the integration of the internal systems of the two companies, which has an impact on costs from the point of view of we do a lot of manual tasks and we have a lot of outside consultants helping us. We will ultimately get that fixed and we're on the road to beginning to do that. So there's an internal component. Secondly, there are opportunities for automation and taking human hands out of our process, whether that's in taking orders, feeding those orders through, and ultimately being able to hold down costs on the customer service end and on the financial end. So when you think about it, the ability to enter a sales order, have it run all the way through into your financials and build from that system. That basic integration was not done in the bringing on of Cantaloupe. The third thing, in 30 years in the software business, I heard some of the best comments about the seed platform that I've ever heard in doing this. I heard things like this was the best decision we ever made as a company over the last 25 years, going back to when my dad owned the company. We could not have gotten through the COVID-19 crisis without the efficiency that was added in the way we were quickly able to respond in the market with the seed platform. Just great comments. There are also some negative comments. In that, the customer service and the customer outreach that we felt from USA Technologies, which was much better on the Cantaloupe side, has gone down over the last period of time. Anant and I are working to ultimately address that. So from a market point of view, I think we've got a great opportunity. We've got a lot of white space still in the USA Technologies side of the house to put the seed platform out there. And I think if I look out over the next 24 months, I believe we can execute on that very well. I can go much the way you've got a thousand questions, I've got a thousand kind of points that I have found in the little things that I think we can ultimately do better, but I'll ask Anant to comment on kind of market share and where we see ourselves in the opportunity in the market.

Anant Agrawal, Chief Revenue Officer

Sure. Thanks, Sean. Yes, in terms of the competitive landscape, not much has changed over the last couple of years. One of the strongest indicators of our technology solution's effectiveness is that despite the company's challenges in the past two years, we've experienced little to no customer churn. We haven't lost many customers, the number of devices continues to grow, and deactivations remain low, indicating that customers are not switching to competitors. This is a significant positive aspect, but there are indeed challenges that Sean mentioned. We need to ensure we engage with our customers as we used to and offer a comprehensive platform solution instead of just focusing on cashless device sales, which is the primary focus of many of our competitors. We still lead in terms of solutions; we just need to deliver better, and we will get back to the growth rates we’re accustomed to.

George Sutton, Analyst

Great, guys. I appreciate it.

Operator, Operator

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

Gary Prestopino, Analyst

Hi. Good afternoon, everyone. Welcome, Sean. I have a million questions too, and I'll get in and out of the queue, but one of the things I didn't hear from you, Sean, on the Cantaloupe observations you had was how well you actually were addressing the market from a sales basis? How well the prior team had. So maybe you could elaborate on that. It was always our impression that it was under marketed and the prior team would not give us any metrics as to what the penetration was across the enterprise. So if you could help us out with that and maybe some of the things you're doing to change that, that would be helpful.

Sean Feeney, CEO

Yes, I probably won't get as specific as you would like me to get, Gary, today, having been here a short period of time, but those are the kinds of numbers that I want to provide you going forward, and it may not be the next call, but that's ultimately what we're working toward. Anant and I are reorganizing our team to attack specific tiers within the industry and being a bit more aggressive in the way that we go out into the market. That has basis in a number of different areas. We will look at the organization of who we have going after what. Secondly, sales incentive plans will be built to drive what we want. I think the company has had a focus on connections as the be-all and end-all. I look at this as much more as a platform software company that is payment-enabled, and that is a very strong combination. It's very powerful in the industry. So I think when you look at where we have white space, we can continue to move additional modules of the seed platform or even in the seed platform in general, that runs its gamut from the SMB up to the enterprise level of customers. We think there is significant opportunity there to grow over the next 12 months. We want to build on that platform. The third thing is, I think we've had a little bit of a focus on trying to do everything ourselves. And I think there are what we want to be, or what I want us to be is really the platform of record within this part of the industry and work a lot with partners in areas that we may not want to develop things or they've developed better products. We want that integration to be very simple so that people can pick the best of breed to work with our platform, which of course is the best of breed. So those are the opportunities we see. And then I think ultimately we've got to get our house in order a little bit, but we do think that there are international opportunities that we can take advantage of as well. So I'm excited about the opportunities. We will organize the team to go after the opportunities we see, we will incentivize them. We believe that we build incentive plans around what do we need them to do and what are the most important things. Those incentive plans will be built around building out the platform and filling in white space, not just connections. Connections are very important, but it's not the be-all and end-all. And that ultimately I think will have a benefit as we can be addressing the margins on the hardware side, which I think we can improve those as well. But I can't give you a tremendous amount of numbers in detail, which I know that you want, and we'll get there. But we've got a bit of work to do to get there. And I did notice that the first guy had a thousand questions and you jumped that up to a million.

Gary Prestopino, Analyst

Well, I still have one more question.

Sean Feeney, CEO

Okay.

Gary Prestopino, Analyst

A million one. The first question was one, but yes, I find it perplexing that the company would sell equipment at a loss. Is this a result of previous teams trying to build connections and offering significant discounts? I'm sure you'll address this as you mentioned you would.

Sean Feeney, CEO

Yes. Look, it's hard for me to comment on prior management and the motivation around that. There are situations with large customers where it does make sense to take a loss upfront to get long-term gain and get those in and ultimately drive those. So I do think that we will evaluate and look at that. We do think there are some things we do in the way that we manage inventory, the way that we manufacture hardware. I think the company did things a certain way for the last several years and maybe weren't as aggressive at looking at new ways to ultimately manage that. Jeff Vogt has been working on that for a period of time. I was impressed with what he has done so far. We have moved him into that area as well as tapping some of the expertise that the Board has in the hardware area for the best way to attack that. And should we be managing all of the inventory that we are? Should we be manufacturing and designing what we are? Should we be utilizing other things? Those are all things that we'll be looking at. But when you look at it, and Michael talked a little bit about it, when you look at the impact on transactions, it's been dramatic in COVID, but if you look at where our margin actually is, it's in the part of the business that has not had a lot of impact. I think you'll see that when we show you the Q4 results.

Gary Prestopino, Analyst

Okay, Thank you.

Sean Feeney, CEO

I probably didn't get to the level of detail you wanted, but that's about as far as I can go today.

Operator, Operator

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

Jaeson Schmidt, Analyst

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

Sean Feeney, CEO

I wouldn't say that there's anything we're doing today that I would say we should exit. I think we continue to think that areas like amusement and entertainment have adjacent markets that have opportunity for us, they've been hard hit by COVID and that's somewhat put those on hold. But probably the international with COVID, we'll probably have to sit on for a period of time unless we can drive to areas in North and South America to work on those. But you know, when you look at it, I know previous management talked about Japan and we just can't get there. While we continue to be excited about opportunities like that, I think we can stick to our knitting here in North America for the next six to 12 months and deliver on the results that we think we can do.

Jaeson Schmidt, Analyst

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

Sean Feeney, CEO

Yes. What we've seen is kind of started decline in the second week of March, really the midpoint in March, and we probably hit a bottom point about the middle of April, and we've seen it kick up a little bit each week. So as Michael said, we believe that we were down about 40% at the bottom and we've come back about 30% of that, somewhere in the mid-seventies, where we were at the same period last year. What lags behind is really the areas that are very hard hit like New York and other cities that are still totally shut down. Our customers who predominantly service offices and schools, coffee services, micro markets in those areas, those are still way down. The rest of the customer base, where they have a diversified presence or are in more of a manufacturing type of environment or hospitals, for example, have really begun to see a recovery that is similar and in some cases even ahead of ours. We remain confident if there's not another reoccurrence of COVID and people return to school and offices after Labor Day. We'll be back on the upward swing. I think it will take a number of months to get back to where we were in the January, February timeframe of this year, but we're confident that we'll get back there at some point in fiscal 2021. We've taken a pretty conservative approach in our initial cuts at the budget. We're continuing to work on that as we go forward. So we're encouraged that it seems to be going up week by week. As long as that continues, we'll get back on solid footing, and as Michael also said, we're addressing the cost side of that as we go along and watching that closely.

Jaeson Schmidt, Analyst

Okay. Thanks a lot, guys.

Operator, Operator

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

Bob Napoli, Analyst

Thank you and good afternoon. It's nice to meet you, Sean. Doug, to start with your background, I understand you haven’t worked with Hudson. However, given your prior experience, I assume you were already familiar with USAT. I would like to hear your overall perspective on what drew you to USAT over time and your thoughts on what this business might evolve into over the next three to seven years.

Douglas Bergeron, Chairman of the Board

Sure. Thank you for the opportunity. I began working on this investment before I became a full-time partner at Hudson over a year ago with my partner, Doug Braunstein. I was already familiar with the company, which I often highlight as one of the few growth areas in domestic U.S payments. Generally, domestic U.S payments experience mid to high single-digit growth, although there are some exceptions in certain niches. Even with previous management and during a proxy battle, this business was growing at 30%. We believe those long-term revenue growth goals are absolutely attainable once Sean makes the necessary changes to the company. He is currently using the COVID downturn as a chance to restructure the company for when the situation improves. This business could potentially sustain a long-term growth rate of 30% at the top line and achieve a strong operating margin at some point, although we are not providing specific guidance on timing. If this business can continue to grow at 30% to 35% over a few years, it could become three to four times its current size. There are significant growth opportunities available. When I took over VeriFone, we primarily operated within the U.S., but Sean has a similar opportunity here as this company is also mainly domestic. The trends in unattended payment and retail are becoming global phenomena, and there are unique opportunities to leverage relationships that I may introduce to Sean over time. For now, Sean is sorting through the various pieces of the business and is assembling them in a very impressive manner.

Bob Napoli, Analyst

Thank you. That's very helpful. I appreciate your perspective on the platform software company being payment enabled; I believe that's the right direction. Regarding capital and the balance sheet, COVID has certainly impacted your business significantly, but we believe the long-term outlook remains strong, and it may even be more promising. In the short term, a stronger balance sheet is desirable, and being reinstated on NASDAQ is important. Additionally, I would like to understand your vision for an ideal balance sheet. Can you generate enough cash flow to start supporting that balance sheet, or how much additional capital are you considering for the current balance sheet?

Sean Feeney, CEO

Sure. Look, that was a concern when I was interviewing for the position and working with Hudson on the company having the correct capital, because everything that we've got is fixable. Just take a little bit of time, a little bit of capital. We're working with our current lender, Antara, and talking with them. They're a significant shareholder in the company, but we are also working with other potential financing partners behind that, and we're confident that we will have the necessary capital to do what we want. Those discussions are pretty advanced, and we’re pretty confident that we'll have that in short order in a matter of ... I've got to remember I'm a public company CEO now, so I’ve got to be careful. But I'm confident that we'll have the capital necessary and in short order, and we'll look to have the capital to do what we want to do with the business by the end of the summer, I think.

Douglas Bergeron, Chairman of the Board

I'll just add, although the company's engaged in this process, Hudson is providing as much help and oversight as we can as their largest shareholder, and the Hudson partnership has enormous and extensive experience in raising capital as facilitators of these types of transactions. So there will be a good ending here.

Bob Napoli, Analyst

Thanks. And just one last thing, if I could.

Michael Wasserfuhr, CFO

Yes. I was going to mention NASDAQ. We are in discussions with NASDAQ, and there is no specific checklist to follow. However, we have significantly changed the entire Board and are in the process of modifying a large portion of the senior management team. We are collaborating with NASDAQ to eventually get relisted. We believe that people are crucial to this process, and there is a new leadership approach in place. We have addressed many of the concerns they had. The DOJ investigation pertains to past issues and restatements, and we are fully cooperating with it, but that’s all I can say about the investigation at this time. I do not believe that the two matters are necessarily connected. We believe we can demonstrate to NASDAQ that we are taking the necessary steps to hopefully achieve relisting, although the path is not straightforward. We are actively engaged in this process with them.

Bob Napoli, Analyst

Thank you. Appreciate it.

Operator, Operator

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

Mike Latimore, Analyst

Great. Yes, thanks very much. Nice meeting everybody here. Just, I guess, Sean, you called out Cantaloupe as maybe one of the bright spots of the company from a technology standpoint. I guess if you think about the opportunity for Cantaloupe, is it more greenfield? Is it replacing legacy systems, and how much of the opportunity there is sort of outside of vending, let's say?

Sean Feeney, CEO

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

Mike Latimore, Analyst

Got it, and it's clear that the challenges we face are related to COVID-19. Can you provide more details on what potential mid- to long-term benefits this situation might create for your company?

Sean Feeney, CEO

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

Anant Agrawal, Chief Revenue Officer

Yes, sure. Thanks, Sean. One of the interesting things that's come out of this, Michael and Sean referred to doing some relief programs for our customers during COVID. But the number one thing that's actually come out from our customer base is how can they leverage our solutions to actually help navigate them through the pandemic? We've doubled down on things like webinars, case studies, we've profiled out customers and what they're doing with the solutions, and the key factors that have come out of it are pretty amazing. One which Sean just mentioned is that a lot of people view cash as a vehicle for spreading that virus. A lot of clients are actually asking our customers who operate those machines, can you take cash out, which long-term actually benefits us. Our operators and customers say that they can deliver cashless solutions shows that they're good civil servants to help battle the pandemic. The second is just managing the inventory and the stuff that's out there in the field. If you can't touch the machine, you can't service it. You can't take bad product out. It's only solutions like ours that help our customers reduce their inventory shrink and spoilage costs. They can manage the service as needed, not just wasting time sending their people here and there, finding out that the location was closed. We see that actually helping our business long-term. Even during this time, sales have slowed some, but a lot of our customers are actually taking the time as they are right now to reinvest, upgrade the equipment, migrate onto the seed platform and come out of this thing stronger.

Mike Latimore, Analyst

Yes, yes. Makes sense. Yes. Good luck this year.

Sean Feeney, CEO

Thanks.

Douglas Bergeron, Chairman of the Board

Thanks.

Operator, Operator

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

Gary Prestopino, Analyst

Yes, thank you. Just a couple of quick follow-ups. The SG&A expenses that were up like $8.9 million, I couldn't quite write or hear exactly what that encompassed. I mean, maybe if you could just tell me how that $8.9 million, how much of that was really non-recurring, non-operational. Michael, is that a question you'd like to take?

Michael Wasserfuhr, CFO

Of course. Hold on a second. So we experienced an increase in SG&A of $8.9 million, primarily due to professional services, with $4.5 million attributed to professional services related to the restatement projects. This amount does not necessarily reflect activities from prior periods, but rather stems from previous management's decision to engage numerous external resources who took over many routine monthly tasks in the accounting and compliance departments. We are currently in the process of transitioning these responsibilities in-house by hiring staff, designing internal processes, and automating some functions. Out of the total $8.9 million increase, $4.5 million is from professional services, which also includes legal fees. Looking ahead, as Sean mentioned, we are hiring a general counsel to manage all internal activities as well as oversee external service providers. Our goal is to internalize these activities and significantly reduce our expenses.

Gary Prestopino, Analyst

Okay, great. So let me just ask you a question. Let me just ask you again, so $4.5 million was professional services, and that includes legal fees.

Sean Feeney, CEO

Yes.

Gary Prestopino, Analyst

Okay. Thank you.

Sean Feeney, CEO

Thank you.

Operator, Operator

Thank you.

Sean Feeney, CEO

Yes, I think that one of the first things I noticed when I got here was that we've paid a lot of consulting firms and law firm partners over the last couple of years. I want to bring that to an end and get to where we have the proper numbers and staff. We ought to be doing a number of these things ourselves as a company of our size. As Michael said, I've hired a general counsel that will start in July. She will easily pay for herself by reducing those costs, and Michael and our finance team have the operation started to do these things ourselves. Some of that is driven by the restatements and the issues we’ve faced, but people are just a little bit scared so they ask consultants to make sure they’re doing things right. We’ll get that corrected and fixed going forward. As I said earlier, it’ll take a couple of quarters, but we’ll get these outside fees under control. Some of this is driven by some of the proxy fights, some driven by things we’ve been doing to get restated, but we're well down the path on a lot of our controls and the integration stuff we're doing, and we’ll drive this out of it. We need to go back over a little bit of the tough road to get to the good road, but we're on that path, and we're going to make it happen.

Douglas Bergeron, Chairman of the Board

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

Operator, Operator

Thank you. I would now like to turn the call back over to management for closing remarks.

Sean Feeney, CEO

Great. Thank you, operator, and thank you for your interest in the company. I look forward to, as I said up front, reporting on the results that myself and my team are here to drive and take forward. I look forward to you guys holding us accountable and driving things forward. With COVID, we ask that you all stay safe and wear a mask. This concludes the call. Thanks for your interest.

Operator, Operator

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