22NW Open Letter to USAT Concerning Proxy Battle
SEATTLE, Jan. 27, 2020 /PRNewswire/ --
Board of Directors, USA Technologies (“USAT”)
Donald W. Layden Jr, Executive Chairman and Interim CEO
William J. Schoch, Lead Independent Director
Robert L. Metzger, Independent Director
William J. Reilly, Independent Director
Steven D. Barnhart, Independent Director
Joel P. Brooks, Independent Director
Patricia A. Oelrich, Independent Director
Ingrid S. Stafford, Independent Director
22NW, LP (“22NW” or “we”), acting independently as the beneficial owner of 603,830 shares of USAT stock (the “Company”) (OTC: USAT), has been following the ongoing proxy battle between the company’s value destroying legacy board and Hudson Executive Capital with great interest. We now feel compelled to weigh in publicly after the board recently rejected Hudson’s proposed settlement despite overwhelmingly conclusive voting results in favor of Hudson’s slate of directors.
Specifically, on January 15, 2020, Hudson announced that shareholders representing 60.58% of the voting power of USA Technologies had voted in favor of the eight candidates it had nominated to the board of directors, a tally that included our shares. In a letter dated January 17, 2020, Hudson further disclosed that current directors received just 0.30% of the votes. At this point, it is crystal clear that shareholders prefer the highly qualified candidates nominated by Hudson. We are concerned that this reality appears lost on you.
Our investment in the company was predicated on Hudson winning since we considered the stock uninvestable under your leadership. The current board was responsible for governance during a period when USAT materially misstated its financials, was delisted by NASDAQ, and spent over $15 million on the investigation and restatement of its quarterly filings and financial statements. In 2018 and 2019, USAT reported GAAP net losses attributable to common shares of $11.9 million and $32.7 million, respectively, despite having a scalable business with high recurring revenues. Between September 10, 2018, the day before USAT first announced that it would not be able to file its 10-K in a timely manner, and October 14, 2019, when Hudson publicly announced that they were going to nominate candidates for the board of directors, USAT stock lost more than 50% of its value. Based on this track record alone, we believe you are unqualified for your current positions, and your shareholder base just expressed agreement with our views.
Any delay in tendering your resignation as members of the board will slow the process of hiring a new management team and getting USAT back on track. In addition, the board’s refusal to hold the annual shareholder meeting at an earlier date will unnecessarily delay the relisting of the stock on NASDAQ and put the company at significant risk of missing the deadline for inclusion in the Russell 2000 Index when the annual rebalance calculation occurs in May. If added, exchange traded funds with assets under management in excess of $50 billion would be required to purchase millions of shares of USAT, which would likely increase the share price and help to restore some of the shareholder value that has been destroyed under your tenure. It is of the utmost importance that the legacy board respect the wishes of the majority of USAT shareholders and move aside as quickly as possible to avoid wasting any more time or shareholder money.
Lastly, we were surprised and dismayed to learn from Hudson’s January 17th, 2020 public letter that you may be considering a sale of the company despite the currently depressed valuation of USAT stock. We estimate the fair value of USAT under the superior leadership team proposed by Hudson could be at least $20 a share, if not higher, over the next few years.
Founded in 2015, 22NW is a Seattle-based value fund with $150 million of assets under management. The firm specializes in small and microcap investments and has a multi-year investment horizon.