Cantaloupe, Inc. Price & Performance (CTLP)

Thank you. Good afternoon, everyone. Welcome to the Cantaloupe second quarter earnings conference call. With me on the call today is Ravi Venkatesh, Chief Executive Officer and Scott Stewart, Chief Financial Officer. Before we begin today's call, we would like to remind you that 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 because of certain factors, including but not limited to business, financial markets and economic conditions. A detailed discussion of the risks and uncertainties that could cause the actual results to differ materially from such forward looking statements is included in our filings with the SEC and in the press release issued earlier today. Listeners are cautioned to not place undue reliance on any such forward looking statements, which reflect management's views only as of the date Cantaloup undertakes no obligation to update any forward looking statements whether because 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 Cantaloup's operating results.

These non GAAP financial measures are supplemental to and not 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 a reconciliation between those non GAAP financial measures as well as the most comparable GAAP financial measure can be found in our press release issued this afternoon which has been posted on the Investor Relations section of our website at www.campluk.com. And with that, I would like to turn the call over to Ravi.

Thank you, Magna. Good afternoon, everyone, and thank you for joining us today for our second quarter fiscal year twenty twenty five call. I'll first start with a high level view of our Q2 performance I'll then talk about our fiscal year twenty twenty five second half priorities To dive deeper into the numbers and our outlook. Q2 financial highlights. During the second quarter, our total revenue increased 13% year over year to $73,700,000 driven by 17% year over year transaction revenue growth and 14% year over year subscription revenue growth. Total adjusted gross margin for the quarter was 41.7% compared to 37.2% in the same quarter last year. Adjusted EBITDA for Q2 was $10,700,000 a 26% increase compared to prior year reflecting continued success with our strategy of expanding operating leverage. Now on to our Q2 operating highlights. We continue to see strong growth in micro markets and penetration of seed software with existing as well as new customers. We gained momentum with customers going all in with us An example is Premier Foodservice, who signed an agreement to replace all competitive micro markets with Cantaloupe solution and in parallel signed up to go all in with seed software.

New customer wins include EVS funding, who placed an order for several micro markets, including interestingly some kiosks replace a full service restaurant at a furniture store located in the Southwest Region. This supports our hypothesis that kiosk based markets our newest innovations like smart stores continue to provide more modern self-service solutions to an ever expanding set of location types. Our premier and self-service payment acceptance and telematics devices are continuing to lead the market in North America. For example, Berkshire Foods recently replaced many competitive devices with our engaged and engaged combo units. Berkshire Foods continues to grow with our solutions evidencing that one reliable trusted partner is key for a growing business to drive greater efficiencies. We're also seeing other verticals seek cashless payment solutions such as automated retail and amusement. Secured a large number of pulse devices for their amusement machines. Another example is outdoor vending solutions who acquired a significant number of our G11 serial devices be placed at Lowe's distribution centers on Vigorino propane self-service machines. On the indirect channel side, we worked with AVS to secure a large win in Q2 for our latest Engage Pulse units will be a game changer for the amusement sector allowing customers to purchase multiple play credits in a single transaction through an interactive app that runs on the Engage device.

To highlight some wins in sports and entertainment, in the enterprise space, we added the San Jose Earthquakes at PayPal Park, to be the point of sale provider for all games and events at the stadium. This implementation not only includes our point of sale solutions, but also our newest suite management platform for their guest experience across the entire stadium. The implementation is already in progress, we will launch in the upcoming 2025 season. Our integration of SP software and cross sell wins are performing in line with expectations. For example, we debited at the Vendex North event in November, our integrated solution for customers and showcase for the first time smart stores along with unveiling of the next generation of Venn Manager a premier enterprise software solution that serves The UK and Ireland markets. [indiscernible] We secured Refresh Collective as a new Vend Manager customer and successfully implemented them onto that platform. In addition, we secured multiple smart store and cashless devices at across a variety of UK customers. In Mexico, we secured a VIN with one of our large vending customers deploying micro markets for Barron. Our focus in Q2 was to deploy and maximize transactions from connections sold previously we've executed very well on this objective growing the transaction volumes across our cash listed Moving on to the product side, we launched and deployed new models [indiscernible] The Cantalob SmartStore 607.

These advanced self-service retail solutions are designed to revolutionize the way food and beverage vendors as well as broader retailers address key challenges, including labor shortages, theft and shrinkage, while maintaining a seamless and inclusive consumer experience. This solution takes us into self-service commerce opportunities well beyond our traditional market niche. A perfect example of how we are leveraging this solution to extend into retailers is with our partners at GOLs. Which is a parent company of U. S. Patriot. Josh Sandoz Vice President of Military Operations at GAL stated, The SmartStore 700 Duo has been a game changer for us exceeding all expectations. We can stock a diverse range of retail products and reduce our labor costs While maintaining high standard of security, We're also able to create additional brand awareness with customized marketing wraps on each smart store We've seen an incredibly positive response from our customers who appreciate the on demand access to products like caps, tapes, headlamps, batteries, flashlights, notepad, socks and more. Because of its success, we plan to expand Smart Stores across all our U. S. Patriot locations. Within the first few months of launching this product, sold several hundred smart stores with additional expanded store configurations where clients placed our Trio or Quad solution in more public environments such as auto dealerships colleges and universities senior living facilities, residential complexes and more.

As part of our strategy to develop and launch more add on products, in particular, our SMB customers we launched our micro lending services under the brand of Kellogg Capital. In partnership with SunBox, We're enabling customers to go through a quick online approval process to get access to funds that help them more easily expand their business and secure the devices and micro markets they need to deploy their next location at all competitive rates. We launched our Cantaloupe Advantage program which allows brands to engage with consumers through digital advertising at our point of sale touchscreen devices. The program's first collaboration was in partnership with Mastercard aimed at supporting the Priceless Planet coalition and its objective to 100,000,000 trees around the world. The campaign ran across a variety of cantaloupe card readers and micro market kiosks delivering over 1,000,000 impressions within the first ten weeks. Our fiscal year twenty twenty five second half priorities will be to continue expanding operational support internationally specifically in Europe and Latin America to allow more rapid scaling. We will also continue to refine our go to market strategy across both direct and indirect channels to expand our customer base organically and through strategic acquisitions.

I'm pleased with our second quarter of fiscal year results and remain excited about the future of Cantaloupe as we execute on our vision to be the global technology leader that powers self-service commerce. I want to thank the entire Cantaloupe team for their continued focus on execution which led to a solid quarter. With that, Scott will now review our Q2 results in more detail. As well as our outlook for fiscal year twenty twenty five. Scott? Thanks, Robbie. As Robbie mentioned, we delivered another strong quarter. Our Q2 twenty twenty five revenue was $73,700,000 up 13% compared to Q2 'twenty four. Our combined transaction subscription revenue grew 16% to $65,400,000 during the quarter. This concludes $20,700,000 of subscription revenue, a year over year increase of 14%. And $44,400,000 of transaction revenue an increase of 17% compared to Q2 'twenty four. The overall increase in transaction revenue was driven by the continued move from cash to cashless payments and the trend of higher average ticket sizes due to product mix shift. Subscription revenue growth was largely driven by our strength in micro markets, which continues to be our fastest growing segment. As of 12/31/2024, we had over 32,000 active customers, and 1,300,000 active devices.

An increase of 104% respectively compared to the prior year. The average revenue per unit For ARPU, for Q2 twenty twenty five, was $2.00 $2 up 12% from the prior year period. As a reminder, is defined as our total subscription and transaction fees the trailing twelve months divided by the average total active devices for the same period. Our equipment revenue was 8,600,000.0 a decrease of 7% compared to Q2 FY 'twenty four. Total gross margin for the quarter was 41.7% compared to 37.2% in the same quarter last year. Driven by continued expansion of our transaction margin. Subscription adjusted gross margin was 89.7% versus 89% in the prior year. And transaction gross margin was 25.6% versus 21.1% in the prior year. This increase was driven by better cost management and improved transaction Gross margin on equipment revenue for Q2 FY 'twenty five increased to 9.1% from 1.8% in the prior year. Total operating expenses in Q2 FY 'twenty five increased to $24,500,000 compared to $20,700,000 in Q2 FY 'twenty four. This increase was largely due to expenses incurred by the companies we acquired in the past Chek and SBS soft. Net income applicable to common shares for the quarter was $5,000,000 or $0.07 diluted earnings per share compared to net income of $3,100,000 or $0.04 diluted earnings per share in the prior period.

Adjusted EBITDA was $10,700,000 in the second quarter, compared to $8,500,000 in the prior year period. An increase of 26% We ended the second quarter with cash and cash equivalents of $27,700,000 As we mentioned in our previous call, the decrease in our cash balance compared to our year ending balance as of 06/30/2024, is due to the timing of payments made to our customers for transaction processing. This normalized in Q2 twenty twenty five, we had a slight growth in our operating cash balance for the quarter. We anticipate cash from operating activities should grow throughout the rest of the year in line with the guidance we provided. Continuing with the balance sheet, we have recently refinanced and upsized our credit facility. The new facility provides for $40,000,000 term loan a $30,000,000 revolving credit facility, and a $30,000,000 delayed draw term loan a total of $100,000,000 The growth in profitability we have experienced over the past several years has allowed us to secure this facility with very competitive rates. This strengthens our balance sheet and provides flexibility for future uses of The proceeds from the $40,000,000 term loan were used to repay borrowings under our previous term loan and revolving credit facility.

To date, the company has not borrowed against the new revolving credit facility or the delayed draw Now turning to our fiscal year twenty twenty five guidance. As we said on our last earnings call and based on what we see today, we are reaffirming the following. Total revenues to be between $3.00 $8,000,000 and $322,000,000 representing growth of 15% to 20%. We expect transaction subscription revenue to also be in the range of 15% to 20%. We expect total U. S. GAAP net income to be between $22,000,000 and $32,000,000 adjusted EBITDA to be between $44,000,000 and $52,000,000 and total operating cash flow is expected to be between $24,000,000 With that, we would now like to turn the call back over to the operator for the Q and A session. Operator?

Thank you.

The first question that we have today will be coming from the line of of William Blair.

Good afternoon. Thanks for taking the question and appreciate all the new detail and the Can you just talk about the average revenue per unit and how that's evolved and It's got to be driven kind of by your business mix. Going from traditional vending to micro markets smart stores, what have you and how your average ticket price has gone up? Can you just talk about the evolution of your business please?

Yes. Sorry, Chris. Happy to do so. And thanks for the question. So overall, we have seen a lot more growth related to the transaction process It is due to the fact that we are processing the average ticket size has gone up significantly over the past couple of years. When we laid out at Investor Day, back in December of twenty twenty two, we listed out if a customer was to buy every product that we offer at our list price, it would get up to $400 per unit. That still holds true. It's shifted a little bit more and probably could go up a little bit higher based off of the transaction processing. And then with some of the new software that we've released like our Pick Easy product and our seed analytics.

Because if you add to that, also had [indiscernible] Sales strategy is be very intentional about what are the look locations we are deploying our solutions into and are those locations where we can maximize revenue not just for our customers, but consequently for us? So So part of it has been to make sure we are not going after marginal customers and lower potential revenue locations.

Understood. Thank you. And then any update on your international strategy? And can you just remind us what your business mix is U. S. Versus international? Thanks for taking the questions.

Yes. We Cantaloupe to track well on the international But in the case of Latin America, in particular, we did a little bit of take a couple of steps back to be able to leap forward. We had sold some fairly nice deals and we wanted to make sure that those deployments were very robust and working as well as they possibly could and that we were maximizing the number of transactions that came through from all those locations. So that's been a tweak. Now we have kind of passed that stage. We are again in the mode of expanding the footprint.

And in both Latin America and EMEA, we've also had some nice wins in the last quarter in micro markets as well, which as you know has been kind of an appealing new segment of our business. Other than that, in terms of mix, it's really largely stayed the same. We think it will accelerate further at as we execute on our second half priorities. As of now, we are tracking to kind of the same mix, which is it's under 5%.

Got it.

Thank you. One moment for the next question. And our next question will be coming from the line of Gary Prestino of Barrington. Your line is open. [indiscernible] Hi, good afternoon, Robbie and Scott. Couple of questions here. First of all, on this new lending micro lending that you're doing through Cantaloupe Capital, Are you you're originating whatever loan you are? I would assume it's it's for equipment or whatever.

Are you holding that paper or do you sell that to your partner that I I couldn't write the name down there Could you explain how this works Yes.

We don't hold any of the paper and and we don't even underwrite the loans. The way this is done is through, as you rightly pointed out, through a partner. The nuance there is we are able to offer customers who are really used to coming to seed software in particular as kind of their ERP and their go to system. A very convenient way to go through a few questions, point and click and then get approved for a loan.

And from a partner that they trust, which is us. So it's sort of us being the gateway to this process adds a lot of comfort to our customers and also makes it easier because of our knowledge of their business and their knowledge of our brand and reputation.

Okay.

Were you finding that at times some of your smaller clients particularly maybe as you're going more upstream on the equipment side, they were capital [indiscernible] to grow their business. You hit the nail on the head.

You hit the nail on the head. That is exactly why we did this. In fact, it was this initiative has been on our roadmap for almost a couple of years We've just been working really hard to find the right partner, the right solution, the right user experience, which matters a heck of a lot, especially when you get to that small and medium business segment. And And yes, the aim was to free up capital constraints so that our customers can buy more micro markets, more cashless payment devices and subscribe to more seat software. That's ultimately our goal.

Okay. And you're not on the hook for any that.

That is correct. Okay.

And then just from some of your narrative, Robbie, it strikes me as that really the growth here is being driven by micro markets in a big way. If you could just segment it out, is it micro markets, smart stores and then seed software? I mean, just could you maybe lay out what are some of the key growth drivers where you're having a lot of success with your product lines?

So we've got as you've seen healthy growth in both components of our recurring revenue, the transaction payment process the subscription revenue. On the subscription revenue, the growth is largely driven by an expanded footprint of micro markets, the new smart Store product, but also newer locations and and in what I would call a mix shift in the locations where our products are placed. So as I I mentioned earlier, when we go from potato chips to cob salad, then the location becomes more valuable and what we earn from that location becomes more valuable. [indiscernible] similar factors apply to the transaction payment process the the revenue that's generated on transactions per location is significantly higher. And that mix keeps improving, the ARPU keeps improving. So that's that's a growth driver in itself. We are also seeing now particularly with SmartStore, the location types that we addressed historically, which were corporate break rooms, In some cases, certain other locations have drastically expanded. Now we are in universities, we are in hospitals, we are in car dealerships, we are in assisted living centers. We are in all kinds of new locations, which is exciting to me. And boards really well for the future of Canelo.

Okay, great. Thank you so much for answering those questions.

Thank you. One moment for the next question. And the next question will be coming from the line of Mike Latimore. Of North Capital I'm sorry, Northland Capital. Please go ahead.

All right, great. Yes.

Thanks a lot.

Great job on the margins and EBITDA growth again here. On the subscription and transaction gross margin, continues to improve. Is this kind of a sustainable level?

Hey, Mike. Yes, thanks for the question. So we feel absolutely at the sustainable level We continue to see increases, especially as it relates to the transaction gross margin When you look at what makes that up, we've seen over the past eighteen months an increase in our take rate. It's When you look out sequentially, it's pretty even with where it was last quarter. I think we've tapped out on increasing the take rate, but we continue to get benefits from the cost reduction measures that we've taken and a lot of the Routing and cost savings that we've done there, we continue to benefit from. And then as the average ticket price is a little higher because there is a fixed fee component, to our pricing. That will also help increase the margins. Try again. Okay, excellent.

And then on subscription growth, the subscription growth rate improved a little bit this quarter. It sounds like [indiscernible] good driver of that. I would imagine micro markets and then further enhanced by smart stores will continue to benefit subscription. I mean, should we think about subscription growth rate kind of improving from here? Yes.

So we did see good acceleration in that this quarter. Last quarter we were at 11.5%, our year over year growth This quarter at 14.1%. The guide that we gave for this year was 15% plus and we're still in line with that guide that we provided. Great. And then And then throughout the year.

And then I guess just maybe similar, but transaction dollar volume growth, I think was 15.5% that also improved from the first quarter. Is that tied to micro markets as well?

Micro markets and smart stores, that's correct mostly. And we've got the our operators are really pushing to sell more fresh foods And with that, that has a higher ticket price. And I should Mike, just to make sure we don't over index on the micro markets and the smart stores, there is a new category which we call internally smart retail or smart vending, if you will, And there is a phenomenon of selling more heads phones and electronics and cosmetics and pharmaceuticals, etcetera, out of smarter newer generation vending machines and that also contributes to higher ticket sizes and higher transaction values as well as volumes.

Okay. Makes sense.

Thank you.

Thank you. And our next question will be coming from the line of George Sutton of Craig Hallum. Your line is open.

Thank you. Just a clarification on the microlending program Given that you have Cantaloupe one, I'm just curious, is there a certain customer scenario where you would look to do one versus the other? Does this suggest any changes in Cantaloupe?

Thanks, George. That's a really good question and clarification. These are aimed at very different use cases. So, Candelaria one is primarily aimed at somebody using 100% of our solution scale that without stretching their balance sheet is the best way I can put it. The micro lending product that we have launched goes well beyond that. So our our customers can use that to fund working capital. They can use that to fund new equipment purchases. And so they can use it for several things that go beyond just our cashless payment devices, our Micromark it's a broader canvas, if you will.

Understand. Okay. That's very helpful. You had mentioned Vendex, I believe Vendex North. So can you just give us a sense of the feedback you got from Both partners and customers with the new product that you showed them?

Well, exceedingly positive It's a rare scenario of a product where the demand is far ahead of where we anticipated. And so so we're almost working to ensure that the pace of scaling is the right pace of scaling. But the feedback in North America has been great. And now with Vendex, in Europe has been phenomenal as well. And then just another driver is it solves for sorry, the real driver is it solves for theft. The challenge historically with vending machines has been that they've been perceived as old, especially the coil based vending machine. And even though now the modern form factors are better received, The historical challenge with micro markets has been theft. So they do very well in high trust locations like corporate breakrooms. But they do poorly in low trust locations like a transit station, etcetera, where there's more tendency to have theft. And now with retail theft clicking up more and more, the smart store has been very well received as a kind of solution that's all for all these constraints.

Got you. Just one other thing relative to your cantaloupe advertising that you the program that you launched and you mentioned the million impressions. Can you give us a sense of what would the economic benefit to you from that? How do you charge for that?

Yes. So we charge on there are two or three different models. So there are marketplaces where we can list our Screens and there it's the formulas are based on per impression, it's highly automated and and fairly standard business model. And we share revenue streams with our customers as well, who operate those locations. There is another model where it's bespoke campaigns and bespoke Advertising that's either from an interested party who wants to reach those audiences or a manufacturer of products that are sold out of those locations of machines and there it's it's more custom pricing and more custom deals because the impressions are relatively more valuable to them. And it tends to be based on the number of people walking through a location that will actually cast the eyes on it and it ultimately boils down to impressions. But those are the broad two models. There is a marketplace based model and there is a custom Vivo sell the publisher of the advertising on it models. In both cases, we use this as a way to increase the revenue our customers derive from their existing platform.

Thank you.

Thank you. One moment for the next question. And our next question will be coming from the line of Josh of B. Riley Your line is open.

Yes. Thanks for taking my question and good to see the acceleration in subscription and transaction fee growth quarter over quarter. I'm just kind of curious if you could provide a little bit more color. I know you reaffirmed the guidance there's a relatively wide range, at least on the top line between like the low and the high end. Is that driven mostly by like what's going to happen in terms of equipment sales for the back half of the year and what's kind of the delta between those two, if you could elaborate a little bit, please? Yes, sure. So it that is right. It is mostly driven by the larger equipment sales in the back half of the year. With the smart stores that we launched, we're selling the entire store itself. It's not a $250 point of sale device. It's $12,000 to $15,000 smart store. And as those ramp up, we're in expecting the equipment revenue to ramp up in the back half of the year, especially as we get the fourth quarter. But with that in mind, still keeping the transaction and subscription revenue growing somewhere between 15% to 20%. Got it. That makes sense.

And then you've continually come up above expectations in terms of the profit [indiscernible] over the last few quarters, it's been up significantly. I know you reaffirmed 44% to 52%, but given the margin profile guys are seeing, it seems like it'd be hard pressed for those margins to come in like near the lower end of the range. I'm just trying to think about how to think about the EBITDA guidance for the remainder of the year given the profitability profile, which has improved significantly over the last few quarters? Yes. And as we've gone through the year, we're tracking right to the midpoint of our guidance and that's what we're expecting towards the end of the year [indiscernible] we have seen the increase in the margins that could be benefit for us as we get to the end of the year.

But everything that we see right now, we're still going towards the midpoint of the guidance. Appreciate it. Thank you.

Thank you. This does conclude the Q and A session. I would like to go ahead and turn the call over to Ravi for closing remarks. Please go ahead.

Thank you, operator. Again, I continue to be very excited about the future of Cantelo both in terms of new products that we've launched and the adoption rates that we are seeing as well as continuing to penetrate the market with our best in class seat software as well as cashless payment devices in telematics solutions. We appreciate the engagement and interest of our investors. And with that, we'll conclude this call.

Thank you. [indiscernible]