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Usa Technologies Inc (NASDAQ:USAT)
Q2 2020 Earnings Call
Feb 19, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the USA Technologies Second Quarter Fiscal Year 2020 Earnings Conference Call. [Operator Instructions]

I would now like to hand your conference over to your speaker today, Monica Gould, Investor Relations for USA Technologies. Please go ahead.

Monica Gould -- Investor Relations

Thank you, and good morning, everyone. Welcome to the USA Technologies Second Quarter Fiscal 2020 Earnings Conference Call. With me on the call this morning are Don Layden, Chairman and Interim Chief Executive Officer; and Glen Goold, Interim Chief Financial Officer. 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 last night. 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 can be found in our press release issued last night, 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 Don Layden. Don?

Donald W. Layden, Jr. -- Executive Chairman and Interim Chief Executive Officer

Thank you, Monica. I'd like to begin with a review of our progress on the strategic objectives that I outlined on our fiscal Q1 call. I will then review our updated guidance for fiscal 2020, provide an overview of our growth strategy, and then discuss our progress in regaining our NASDAQ listing. I'll then turn the call over to Glen for a more detailed review of our financials before turning the call back to the operator for the question-and-answer session. We're making consistent and good progress against the strategic objectives we set out last quarter. On our fiscal Q1 earnings call, you may remember that I noted that we launched a series of initiatives to reduce our SG&A expense by an annualized $8 million. I'm pleased to report that we have achieved this goal through the following actions. First, we are in the final stages of negotiating a new transaction processing agreement, which will result in savings of approximately $3.5 million in the first year, and total cost savings of approximately $22 million projected over the next five years. This new agreement reduces our annualized transaction processing cost from $6.8 million to $3 million.

Second, we continue to reduce our dependence on one of our third-party distributors, rationalizing our distribution channels and eliminating a gateway solutions provider by rerouting transactions through our own gateway, resulting in annualized savings of $1.7 million. Third, our efforts to better manage our equipment supply chain are beginning to take hold, with our equipment margins showing early signs of improvement. Fourth, we have reduced our sales and use tax accrual by over $1 million during the second quarter of the current fiscal year, and expect that we will see a further significant reduction in the $18 million reserve we established in the fourth quarter of 2019. Most of this recovery comes from determining that our customers either self-report or they exempt from the sales and use tax obligation. Next, we have negotiated new agreements with professional service providers resulting in annualized savings in excess of $1.5 million. And finally, in addition to these larger scale efforts, we also continue to rationalize our operating cost in smaller ways by closing offices and eliminating consultants and other nonessential expenses.

To wrap that up, in combination, these initiatives are designed to allow us to achieve a 30% EBITDA margin on a net revenue basis and after excluding interchange costs. Our annualized interchange costs are about $80 million. Given our consistent progress, we believe that we are in a position to achieve that target in the next 18 months. Our continued strong performance gives us confidence to confirm our guidance on connections, and to increase our guidance on revenue from $165 million to $175 million, to $175 million to $185 million. As we noted in our earnings press release, which was issued yesterday, we do not believe that we will be able to meet our previous guidance of $10 million to $11 million in adjusted EBITDA. This guidance was set assuming we would take out all nonrecurring expenses as part of our adjusted EBITDA calculation. We have calculated what our normalized run rate would look like after eliminating all nonrecurring expenses from the company. Those adjustments resulted in an expense run rate of approximately $12.5 million per quarter.

Glen will provide more details regarding this run rate in his remarks. Glen will also walk you through the specific adjustments that impacted our prior period financials, resulting in favorable adjustments to revenue and expense for those periods. We discovered the errors in the ordinary course of closing the financial statements for this quarter, and the adjustments are really what relate to weaknesses in our processes that we have earlier identified. We were able to complete all of the revisions within the extension period prescribed by the SEC for filing our Form 10-Q. I'd now like to take this opportunity to provide you with a more comprehensive view of our growth strategy. As you know, our mission is to be the leading integrated software solutions and payment provider for unattended retail markets that had a distributed network of machines and require regular monitoring and servicing. Our go-to-market strategy is to advance our sales efforts as an integrated software and payment solution provider that monetizes software by enabling digital entire payments by consumers.

We believe this strategy will allow us to continue to report year-over-year revenue growth in excess of 25%, with a target of becoming a $500 million revenue business in five years. The four building blocks of that strategy follow. First, continue to deploy the full suite of Seed services with our existing vending customers. We are currently about 50% deployed with one or more Seed services being utilized across our customer connections. About 1/2 of the customer base is currently addressable for the Seed solution, and we are working on expanding the applicability of the product for further penetration into the long tail of our customer base, such as through self-service onboarding. Second, we intend to expand the categories where our solution is relevant, especially in markets, where the average ticket size is higher, our existing customers have a business in these markets. And the underlying growth rate of those markets will be positively impacted by a cashless and software solution. Importantly, we are extending our focus on adjacent markets where the product development investment is small, relative to the market opportunity.

In other words, we are focused on selling the integrated software solution we have already built. These markets include laundry and amusement, where we now have salespeople and marketing support focused on those opportunities. Third, we want to expand our international efforts beyond our current business in Australia, Mexico and Canada to other markets where there is a significant deployment of vending machines that lack an integrated software solution with robust capabilities. Japan, a market with more than four million vending machines is high in our list for international expansion. And fourth, we continue to be focused on selling to our existing 19,000 customers as they deploy additional machines or to replace competitors and sell additional components of our solutions to those customers. We are confident in our ability to execute on this growth strategy, which, as I just mentioned, we believe, will allow us to continue 25% plus top line growth with a target of being a $500 million revenue business in five years.

Let me now turn to some other updates. We remain focused on regaining our NASDAQ listing. While many of you may have seen NASDAQ's recent announcement regarding our delisting, this announcement was, in fact, related to our earlier failure to timely file our SEC reports and was independent of our recent NASDAQ listing application. We filed a new application with NASDAQ on December 19, 2019, received comments on January 13, 2020, and responded to those comments on January 23. This dash the application is still pending, and the company continues to cooperate with the NASDAQ's dash review. While this is pending, we continue to review options with our advisors, including the potential for listing on an alternative exchange. Like many companies, we are monitoring the coronavirus and its potential impact on our growth targets. Specifically, our focus is on whether our third-party equipment manufacturer will be forced to delay shipments of some cashless readers.

In addition, several of us had previously planned to attend major Asian vending machine operators trade show scheduled for the first week of March in Guangzhou, China. The trade show was postponed due to the virus, and we are making alternative arrangements to meet with potential partners and distributors. As I said, we continue to monitor, but at this stage, we expect that the postponement of the trade show is likely to delay the international expansion efforts that I mentioned a few moments ago. During this quarter, we again maintained our enviable track record of zero customer losses. However, during the period when we were unable to deliver current financial statements to the market, we were placed on a procurement hold by several large customers. Those customers slowed or stopped new sales but did not replace existing products. I am pleased to report that the large regarded customers have returned to purchasing now that our financial performance and balance sheet warranted lifting this hold.

But the uncertainty caused by the proxy contest remains a challenge for some of our customers. Our ability to manage through these customer concerns reaffirms our Board's view that the Antara financing was a necessary step to enable the company to continue to grow. I think it's important to understand the event that led to the decision to execute the Antara financing. In late September and October 2019, as part of its review of our financial position and before the filing of our 10-K, our auditor BDO discussed with us the possibility of including a going concern qualification to their audit opinion. The prospect of this going concern qualification for BDO, which could have resulted, among other things, a significant sales of customer losses was weighed against the timeliness and cause for the financing, and the Board determined that the financing was the better alternative.

The financing improved our balance sheet, and we continue to look for ways to improve liquidity as we contemplate a sale of lease receivables in this quarter of approximately $12 million. When I took over as Interim CEO, I said I would push the company forward, set a clear strategic path for success and rationalize our cost structure to improve our operating results. We have made significant progress against those performance indicators over the past four months, and we plan to continue to execute against that plan. Our customers and our employees are responding favorably to the changes. Our shareholders told me very explicitly that they wanted to see improved results. We have delivered improved operating results, balancing growth and expense rationalization while maintaining strong customer retention. I believe that those improvements will continue. The Board and management team remains committed to continuing the fresh start we began after getting back on file in October. Progress is good, and the company is improving every day.

Let me comment quickly on the ongoing proxy contest with Hudson Executive Capital. The Board has remained steadfast in their position, but if there's going to be a change in the majority of the Board, then USAT shareholders deserve a premium for their shares to allow for a change of control. Individual shareholders have their own motivation for the actions they take. And our Board has tried to factor these motivations as we make decisions that benefit all of our shareholders. For example, we have been advised by a legal counsel that Hudson Executive Capital has triggered our provision of Pennsylvania law in their decision to attempt to take control of the USAT Board. As a result, Hudson is required to disgorge or surrender to USAT any profits on the sale of their shares in the company for a period of 18 months after triggering the obligation under the statute, including as a result of an M&A transaction. We believe any of those profits belong to USAT and so advised Hudson last November.

Surprisingly, Hudson never addressed this matter in any of the multiple proxy materials they have been circulating for the past three months. Obviously, an assessment of the likelihood of recovering these profits is among many factors as our Board has used in assessing Hudson's position. Regardless of this ongoing issue and as demonstrated by today's results, we are focused on improving the performance of our business and capturing the significant opportunities in our space. To that end, and before I turn the call over to Glen, I want to commend the work of our USA Technologies employees, who remain, as always, focused and committed to our mission and to our customers. Today's strong performance is a testament to them. The Board and I are pleased with the overall progress we are making and are confident that we will continue to successfully execute on our initiatives and create long-term value for our shareholders.

And with that, I would now like to turn the call over to Glen to review our financials in more detail.

Glen Goold -- Interim Chief Financial Officer

Thank you, Don, and good morning, everyone. I'll review our financial and operating performance for the second quarter of our fiscal year, and then conclude with our update of our full year that Don has summarized. We're pleased to deliver another quarter of record revenue. As Don mentioned, total revenue grew 27.7% year-over-year and 1.6% sequentially to $44.1 million. License and transaction fee revenue increased 20.3% year-over-year to $35.8 million and accounted for 81.2% of our total revenue in the second fiscal quarter. Equipment revenue increased 74.6% year-over-year to $8.3 million. We continue to make strides in growing our connection base and customer count as well as sell a diversified suite of services to an expanding customer base. We added 40,000 net new connections in the second quarter, bringing our total to over 1.25 million connections, up 16% to the compared to the same quarter last year. We also added 900 new customers, ending the quarter with a total of 21,200 customers, an increase of 20% compared to 17,650 customers in the same quarter last year.

Our total gross margin increased to 29% from 27.4% in the second quarter of last fiscal year. The increase was driven by improvements in both our lease and transaction services margin as well as our equipment margin. Our license and transaction margin increased from to 36.8% from 34.5% in the same period last year driven primarily by product mix. Looking forward, we look to expect our L&T margins to remain in the same 35% to 38% range. Our equipment margin improved to a negative 5% from a negative 17.6% in the same period last year, reflecting our improvements in our supply chain. As we have mentioned, we expect our equipment margins to be in the breakeven to low negative single digits range going forward. Adjusted EBITDA declined to a negative $2.3 million mark from breakeven in the same period in the prior year due primarily to increased cost of our restatement and audit activity.

SG&A for the second quarter was 18.7% I'm sorry, $18.7 million or 42.5% of revenue compared to $10.9 million or 31.7% of revenue over the prior period. Our SG&A expenses increased year-over-year primarily due to the increase in professional services, service costs related to the company's restatements and audit activities and an increase in onetime employment-related costs. As Don mentioned, we have a number of initiatives in progress to reduce our operating expenses. As we come through our restatement and multiple-year audit, we expect our professional services cost to decline in the coming months. For reference, we incurred $4.7 million in these professional services costs in Q2. By the end of fiscal 2020, we expect these costs to decline to under $1 million per quarter. In Q2, we incurred $3.2 million in employment-related costs related to compensation and severance. We expect these costs to decline to under $1 million per quarter going forward.

Finally, we have other budgetary savings we anticipate through management of travel and other expenses that are not pertinent to the company's growth strategy. We expect an additional $700,000 in quarterly savings from those reductions. Still difficult to predict with certainty, we anticipate that we will reduce our SG&A expense to a run rate of approximately $12.5 million per quarter as Don has mentioned. If we're able to eliminate these nonrecurring expenses by our fourth quarter of fiscal year 2020, we expect our normalized adjusted EBITDA to be approximately $3.5 million. Non-GAAP net loss was $4 million or negative $0.06 per share compared to non-GAAP net loss of $1.6 million or negative $0.03 per share over the same period last year. Our cash balance at the end of the second quarter was $37.5 million compared to $25.5 million at the end of the prior quarter. The increase in cash was primarily driven by the proceeds from the Antara transactions that Don walked through.

Net working capital totaled $17.6 million at the end of the second quarter compared to $15.7 million at the end of the second quarter of last year. During our Q2 close, as Don mentioned, we identified a number of adjustments that impacted prior period financial statements. We have reported those adjustments to you in our filings posted yesterday. The adjustments made to both fiscal year 2019 and quarter one of fiscal year 2020 are favorable. In other words, they increased operating income. We don't believe that the adjustments are material to our fiscal year 2019 financial statements, but the adjustments were large enough that we did feel it was appropriate to restate our quarter one fiscal year 2020 filing, which has now been done. These adjustments primarily consist of the following: one, an incorrect allocation of transaction price between equipment revenues and license and transaction fees, in connection with the customer contract, which resulted in the inappropriate deferral of equipment revenues on hardware devices shipped during the three months ended June 30, 2019 and the three months ended September 30, 2019.

And secondly, inaccurate accounting treatment of a leasing rental contract for its wholly owned of our wholly owned subsidiary, Cantaloupe Systems, Inc., relating primarily to the fiscal year ended June 30, 2019 and the three months ended September 30, 2019. The cumulative impact of these adjustments resulted in a $2 million increase in operating income in fiscal year 2019 and a $1.6 million increase in operating income in Q1 of fiscal year 2020. We continue to enhance our control environment and work to remediate on material weakness as we reported to you in our latest Form 10-K filing. As Don mentioned, we are updating our guidance for fiscal year 2020. Based on our strong licensing transaction fee growth in our first half of fiscal year 2020, we now expect our fiscal year 2020 revenue to be in the range of $175 million to $185 million, and we continue to expect to add 190,000 net new connections to our service. Our reported Q2 adjusted EBITDA was negative $2.3 million and negative $8 million for the first half of fiscal 2020.

We will not be able to meet our previous guidance of $10 million of annualized adjusted EBITDA. However, as Don mentioned, if we were able to reduce our nonrecurring expenses as anticipated, we expect we would be at a normalized adjusted EBITDA of approximately $3.5 million by the fourth quarter of fiscal year 2020. If we were to take out all of the nonrecurring expenses I've described, our Q2 adjusted EBITDA would have been positive $1.2 million, and our first half of fiscal year 2020 adjusted EBITDA would have been positive $1.1 million. To wrap up, we believe that our scalable financial model driven by our recurring revenue stream, improved financial position and enhanced compliance controlled position, position us very to capitalize on the growth opportunities ahead of us as we execute on the strategic plan that Don discussed in his remarks. We are working very hard and focused on driving our business strategic initiatives, improving our control environment and driving top line and bottom line improvements in our business.

This concludes our financial update. We would now be happy to take your questions, and I'll turn it over to the operator. Please provide instructions for the Q&A session.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of Jaeson Schmidt from Lake Street. Your line is open.

Jaeson Schmidt -- Lake Street -- Analyst

Hey guys, thanks for taking my questions. Just want to follow-up on the commentary on operating expenses. What sort of time line do you expect to be able to achieve that $12.5 million in SG&A?

Glen Goold -- Interim Chief Financial Officer

So we will be tapering off over the next six months. Some of that will happen immediately through the third quarter. It will not all happen in the third quarter, but we hope that all of the improvements will be able to be implemented by the fourth quarter.

Jaeson Schmidt -- Lake Street -- Analyst

Okay. And then I know you outlined a number of cost savings initiatives. But do you anticipate needing to add to the sales team in order to address these new growth opportunities?

Donald W. Layden, Jr. -- Executive Chairman and Interim Chief Executive Officer

I would expect that we would continue to evaluate the size of the team based on the opportunities that we that are presented to us. Right now, we believe that the sales team is probably sufficient to address the market opportunities we have. But we're in the process, frankly, of making that determination right now as to whether we should add additional sales resources. And I suspect that during the course of the next 12 months, we probably will add additional sales resources to address the opportunities we see in the market.

Jaeson Schmidt -- Lake Street -- Analyst

Okay. And then just the last one for me, and I'll jump back in the queue. Wondering if you could comment if you think the Ingenico acquisition will have any impact on the business.

Donald W. Layden, Jr. -- Executive Chairman and Interim Chief Executive Officer

We don't in the short run, we don't believe that it will have any impact at all. Our relationship with Ingenico has been very modest to almost nonexistent over the course of the last year, 1.5 years. To the extent, the acquisition causes a change in their direction, there may be an opportunity for us to continue to do work with them. But at the moment, it really has almost no impact to us at all.

Jaeson Schmidt -- Lake Street -- Analyst

Okay, thanks a lot, guys.

Operator

Your next question comes from the line of Bob Napoli from William Blair. Your line is open.

Bob Napoli -- William Blair -- Analyst

Good morning. Thank you for the opportunity to ask a question. First question is just on I appreciate the guidance or the targets, the five-year revenue target and the EBITDA margin target. But just at a $500 million revenue run rate in five years, how much of that would be interchange because your target EBITDA target, that 30% is net of interchange and net revenue, correct? So would that be what would that revenue be approximately in your target, net of interchange?

Donald W. Layden, Jr. -- Executive Chairman and Interim Chief Executive Officer

Well, my Bob, my hope is that the networks would reduce their interchange burden and further reduce the interchange burden on the micro-cap space, but so far, that seems to not be happening. So it right now, it would really be a linear increase in the interchange costs, which would mean that if interchange today is about $80 million of our total, I would expect that it would be $220 million roughly at $500 million, maybe a little bit more than that.

Bob Napoli -- William Blair -- Analyst

Okay. And then is that 30% EBITDA margin target on that net number, what is the trajectory to get there? I mean, what would you hope to achieve in 2020 fiscal 2021? And what is the timing to get to that 30% number?

Donald W. Layden, Jr. -- Executive Chairman and Interim Chief Executive Officer

I believe that by the fourth quarter of the next fiscal year, our run rate will be at the $30 million EBITDA target.

Bob Napoli -- William Blair -- Analyst

I'm sorry, the fourth quarter of next year, you'll be at a run rate of $30 million of EBITDA or 30% margin?

Donald W. Layden, Jr. -- Executive Chairman and Interim Chief Executive Officer

Oh, I'm sorry. Yes. So in 18 months, in 18 months, I expect the margin to be 30%. So the margin in the fourth quarter of the of our next fiscal year should be at that number.

Bob Napoli -- William Blair -- Analyst

Okay. And. Okay, thank you. That's, that's very helpful. And then, I guess, just on the growth, the confidence in that 25% plus revenue growth. What kind of visibility do you have into that as we sit here today? And would that growth be the growth of with L&T still be around 80% of that revenue?

Donald W. Layden, Jr. -- Executive Chairman and Interim Chief Executive Officer

Yes, I think our visibility to that growth rate is probably in the 75% to 80% range. And I would expect that the mix to L&T would continue at about that 80% number.

Bob Napoli -- William Blair -- Analyst

Okay. And just last question. In that, as you're looking at the growth in 2021 and '22, how much of that is going to come from some of the initiatives that you laid out, the adjacent markets, laundry, amusement, international? And what is are you seeing contribution in the near-term from some of those initiatives?

Donald W. Layden, Jr. -- Executive Chairman and Interim Chief Executive Officer

Yes, the good news about our growth strategy is that, not all the things that I outlined have to happen in short order for us to be able to continue to hit that 25% number. And so I suspect to that international markets would be a very small contribution to that number. The adjacent markets, our hope is that, that continues to be a driver of growth. As you know, as we have previously reported, we had a good opportunity in the amusement space that we announced in the last quarter that we continue to deliver on. And but honestly, the underlying vending market, we believe will continue to grow strongly and will make up the vast majority of the growth that we're forecasting over the next year.

Bob Napoli -- William Blair -- Analyst

And last question for me is the great growth in volume and transactions, good revenue. Appreciate the increase in the revenue guide. The revenue per transaction or the revenue yield went down. Is that a mix? Did you have a very large customer? What drove the lower revenue per transaction or revenue yield?

Glen Goold -- Interim Chief Financial Officer

We did deliver on a large customer transaction over both Q1 and Q2 that had a slight impact on revenue per transaction. But if you look over the last year, this was the first quarter where it dipped a little bit. We are showing larger ticket prices per transaction, so the trend over the last year has been slightly up. But you're right, it dipped very slightly this quarter compared to the same quarter of previous year. A large portion of that is our average ticket price that we look at. But over the last year, that number has been increasing. This one, I think, quarter was a little bit of an anomaly.

Bob Napoli -- William Blair -- Analyst

Thank you.

Operator

Your next question comes from the line of George Sutton from Craig-Hallum. Your line is open.

George Sutton -- Craig-Hallum -- Analyst

Thank you. I've always looked at the U.S. market as a fairly open-ended growth opportunity with an explosion of unattended use cases, and you're just you're going to your existing customers to penetrate them. Thus, I'm surprised to hear about Japan being a potential strategy. Actually having lived in Japan, it's a very developed, very competitive market. So I'm curious how you would be going after that market. What you would be giving up in the U.S. market to do so?

Donald W. Layden, Jr. -- Executive Chairman and Interim Chief Executive Officer

We don't think we have to give anything up in the U.S. market. We think that a focused effort on delivering our software solution and the Japanese market would be very attractive. You're right. Japan is a very well-developed vending market with a lot of vending machines. It has a very distributed group of payments providers. And so our strategy to go Japan is: a, to find the right partner to help us move into that market; and b, to deliver the software solution that we already have into the market because we believe that the Japanese operators would find the kind of benefits that the Seed software provides in the U.S. to be applicable to the Japanese market, and that's based on the work that we have done to date and based on the discussions that we've had with potential partners.

George Sutton -- Craig-Hallum -- Analyst

Got you. You mentioned in your prepared comments in a change of control that you felt shareholders deserved a premium for their shares, which I'm not sure I fully understand if it's simply a Board for Board changeover. When you say premium for their shares, there's been speculation of a potential sale of the business, which would not necessarily be good from these current levels. So just want to make sure I understood the thoughts behind the comment.

Donald W. Layden, Jr. -- Executive Chairman and Interim Chief Executive Officer

I'm not sure I understand the question. I think we've been pretty consistent in saying that if there is going to be a wholesale change in the composition of the Board, where a majority of the Board is replaced or removed that in a transaction like that, the normally, you would see a you would see a control premium paid, that there that, that would happen as a result of an acquisition. That's not what Hudson is proposing. Hudson is simply proposing of replacing the Board without paying to acquire the company.

Operator

Your next question comes from the line of Mike Latimore from Northland Capital. Your line is open.

Mike Latimore -- Northland Capital -- Analyst

All right, great, thanks. Just on the opex guidance. I guess, you had $18.7 million of SG&A in the quarter. Given your comments, it sounds like that $18.7 million should be $12.5 million in the first quarter of fiscal 2021. Is that the right way to think about it?

Glen Goold -- Interim Chief Financial Officer

That is correct.

Mike Latimore -- Northland Capital -- Analyst

Okay, got it. And then the $3.5 million of EBITDA comment, was that what it would be for the full year fiscal 2020, excluding the nonrecurring?

Glen Goold -- Interim Chief Financial Officer

No, that was for Q4 alone. So that...

Mike Latimore -- Northland Capital -- Analyst

4Q alone, OK. Got it. Okay.

Glen Goold -- Interim Chief Financial Officer

That was intended to reflect what we think could be kind of run rate EBITDA by quarter would be if we're able to achieve the $12.5 million opex mark.

Mike Latimore -- Northland Capital -- Analyst

Okay. So if opex was $12.5 million in the fourth quarter, EBITDA would be $3.5 million is the idea?

Glen Goold -- Interim Chief Financial Officer

That's correct.

Mike Latimore -- Northland Capital -- Analyst

Okay. And then it looks like your transaction volume growth really accelerated in the quarter, the mid-30% range from below 20% range last couple of quarters. What caused that volume growth?

Glen Goold -- Interim Chief Financial Officer

It's hard for me to speculate as what the what's causing the number of transactions to go up. It is part of the growth of the company. We continue to add connections, which certainly drive volume of transactions. That's certainly one component of it. Other than that, as the customer use of our platform as it's in place.

Mike Latimore -- Northland Capital -- Analyst

Okay. It's just it's a big acceleration. So I was just kind of curious. But that transaction volume, I mean, there's no reason why it would decline sequentially, right?

Glen Goold -- Interim Chief Financial Officer

I wouldn't expect so, no.

Mike Latimore -- Northland Capital -- Analyst

Okay. And you talked about product mix so yes, sure.

Glen Goold -- Interim Chief Financial Officer

Similar to our revenue lines, as we add connections for revenue needs to go up, it's kind of linear that way. Yes.

Mike Latimore -- Northland Capital -- Analyst

And you talked about a product mix affecting gross margin. Can you just elaborate on that a little bit?

Glen Goold -- Interim Chief Financial Officer

Yes. As I look at it, it's just a comparison and it fluctuates as why it's a little bit of a moving target. And we give guidance to 45% to 40% of margin for transaction services. It's somewhat dependent on the combination of our service fees and the transaction processing fees driven by volume, and that product mix impacts the margin that we see. So that's the product that I'm referring to.

Mike Latimore -- Northland Capital -- Analyst

And just last on the vending management solution or Seed, how is that performing relative to cashless?

Glen Goold -- Interim Chief Financial Officer

We think it's performing very well. As we look at our strategy to integrate the Cantaloupe Seed software into our installed network, where I think we're about 50% there, we have work to do to address that additional white space. That's in process. But the integration is going very, very well, and they're very well received by our customers.

Mike Latimore -- Northland Capital -- Analyst

Is it growing at the same rate as license and transaction revenue or above or below that?

Glen Goold -- Interim Chief Financial Officer

I would say that it's probably not quite as quite the curve that the transaction revenue is growing, but it absolutely is growing into a significant part of our strategy to continue to add the software component to our network. So it absolutely is growing and a big part of our strategic growth that we envision for the future.

Mike Latimore -- Northland Capital -- Analyst

And just last, just kind of housekeeping. What should stock comp be on a quarterly basis going forward?

Glen Goold -- Interim Chief Financial Officer

We think on a quarterly basis, it should be in the $300,000 to $400,000 range.

Mike Latimore -- Northland Capital -- Analyst

Okay, great. Thank you.

Operator

[Operator Instructions] Your next question comes from the line of Bob Napoli from William Blair. Your line is open.

Bob Napoli -- William Blair -- Analyst

Now, thank you. A couple more, I guess. Don, the 30% margin target in 18 months, I appreciate that, but what should be I mean, I would think that you have some good operating leverage in this business. What are your thoughts on kind of the trajectory of margins once you get to that level over the next several years? Is this something where margin should improve 100 basis points a year, if you're growing at 20%? Or is that conservative? So just some thoughts on the operating margin leverage over the medium to long term.

Donald W. Layden, Jr. -- Executive Chairman and Interim Chief Executive Officer

Bob, thanks for the question. You know, for payments companies, what has happened historically, and I think as we try to benchmark ourselves against other payments companies and software companies that monetize their software through a payments network, there's been a range of EBITDA margin once you hit 30%, which I think is largely a target benchmark for most payment companies. You see the range move up to about 33%, 34%, 35%. It's a fairly narrow range. And at that level, you begin to see some market-based pressure to share some of the profitability through reduced pricing from customers. And so I think that there is a natural hedge against the growth of that margin based on the market the competitive market realities and the expectation that customers have that some of that will be shared with them.

Bob Napoli -- William Blair -- Analyst

Okay. Yes, we're still seeing margins go up at some of the big so there may be some sharing, but they're still getting you're still seeing operating leverage even at the very massive payments companies.

Donald W. Layden, Jr. -- Executive Chairman and Interim Chief Executive Officer

And the advantage they have there and one of the things that we're focused on in our growth strategy is that they have a higher ticket higher price per transaction. We're in the micropayment space. So it is harder to drive that operating leverage because of the small dollar value of the transactions. If we are successful, as we believe we will be over time, moving into markets with higher ticket prices and therefore, moving our average ticket up from $2 less than $2 per transaction that we currently where we currently sit, then you might see some of that improvement that you're talking about. In the micropayment space, it is much more challenging to do that.

Bob Napoli -- William Blair -- Analyst

Understood. And within what is your expectation for equipment margins and L&T margins? So gross margins over the next few years?

Donald W. Layden, Jr. -- Executive Chairman and Interim Chief Executive Officer

Yes, I think the delay that we're required to account for that, you're going to see the equipment margin come to a natural point of breakeven or a slight loss because the accounting rules require us to reallocate our transaction agreements so that our equipment is valued at fair market value. The so one way or another, I think you're going to see the equipment margins get back to some level of breakeven. I think that our supply chain initiatives will further drive some value into that and it should further improve that margin. But I think you're looking at marginal improvements in that margin. Our real focus is to drive recurring revenue through our software platform monetized by payments. And the equipment in its current pricing doesn't really drive, we think, the long-term value of the business and will but will but is an important enabler for us to drive connections and to drive that recurring revenue stream, which is what we intend to continue to focus on.

Bob Napoli -- William Blair -- Analyst

And the L&T margins?

Glen Goold -- Interim Chief Financial Officer

Bob, you might find this interesting. If you apply the $3.5 million a year of savings that we anticipate through our processing improvement that we are negotiating, the L&T margin for the first half of 2020, we reported at 36.5%. If you rolled out 3.5% savings into that, it becomes 38.6% $3.5 million. Yes, if you roll out those savings into the resolves, our margin would be at 38.6%. And I think approaching the 40% level as we have previously been discussing with our shareholder base is certainly a good mark to think about of where we're, I think, as we improve the costing of our structure and implement the processing change that we will be. I think that 40% market is a good way to think about it.

Bob Napoli -- William Blair -- Analyst

Okay. And just on Cantaloupe, the cross-sell of Cantaloupe was a big focus when that company was acquired a few years ago. How was the cross-sell progressing?

Glen Goold -- Interim Chief Financial Officer

As I mentioned, it's about 50%. We have strategic marks in place to look at the white space on that side of our business and attack it. It is a certainly a growth strategy that we look at a way to improve and increase our software deployment. So it is something that we're working on right now. It's about 50%, more to come.

Bob Napoli -- William Blair -- Analyst

Maybe just one last one, I guess. Just, Don, you've been there as CEO now a few months. What have you what are your thoughts? I mean, what has surprised you? Do you need to add to your team? You've been around the payments industry a long time. Are there senior executives that you want to add to the team to drive growth? And are there and I know it's you're going through a big process here, still driving good growth. But are there add-on M&A thoughts over the long the medium term? That's a number of questions.

Donald W. Layden, Jr. -- Executive Chairman and Interim Chief Executive Officer

Yes. No, I appreciate that. I have no plans to add anybody else to the management team. I think that we have a strong team. We've diversified the talent pool by adding some talent from Denver in addition to the strong talent we already have in Malvern and in New Orleans. That has improved, I think, the mix of talent that we have in an appropriate way. The we don't as you know, we don't have an M&A speculation, but this is a market that has a lot of competitors. And I think like any other payments market, there's going to probably be some consolidation in that market. And there's going to be, I think, a fair amount of coopetition in the market as well. We are really focused on our go-to-market strategy on delivering a software solution that's monetized through the payment network. There are other folks who have a very different go-to-market strategy.

And where our software solution embedded in there, in their hardware or in their payment capabilities could be very attractive. And from a commercial perspective, we are absolutely looking at every one of those potential transactions to build out our base of vending and other unattended retail outlets with our software solutions because we believe it's the strongest, most robust software solution that exists in the marketplace for unattended retail.

Bob Napoli -- William Blair -- Analyst

Thank you appreciate it.

Operator

There are no further questions at this time. I'll turn the call back over to Don Layden for closing remarks.

Donald W. Layden, Jr. -- Executive Chairman and Interim Chief Executive Officer

Yes. Thanks very much for participating today in our earnings call. Again, I want to really highlight the hard work and dedication of our employees. They really are the ones who delivered these results this quarter, and we'll continue to deliver the results as we go forward. Thanks very much.

Operator

[Operator Closing Remarks]

Duration: 52 minutes

Call participants:

Monica Gould -- Investor Relations

Donald W. Layden, Jr. -- Executive Chairman and Interim Chief Executive Officer

Glen Goold -- Interim Chief Financial Officer

Jaeson Schmidt -- Lake Street -- Analyst

Bob Napoli -- William Blair -- Analyst

George Sutton -- Craig-Hallum -- Analyst

Mike Latimore -- Northland Capital -- Analyst

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