Cantaloupe, Inc.

Good day and thank you for standing by. Welcome to the Cantaloupe Third Quarter Fiscal Year 2024 Earnings Conference Call. At this time all participants are in a listen only mode. After the speaker's presentation there will be a question and answer session. To ask a question during the session you will need to press star 1 and 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 and 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Dara Dirks. Please go ahead.

Thank you, operator. Good afternoon, everyone. Welcome to the Cantaloupe Third Quarter Earnings Conference Call. With me on the call today is Ravi Venkatesan, Chief Executive Officer, and Scott Stewart, Chief Financial Officer. Before we begin today's call, we 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 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 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 they are made. Cantaloupe 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 cantaloupes 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 and the 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 measures can be found in our press release issued this afternoon which has been posted on the investor relations section of our website at www.cantaloupe.com. Excuse me. And with that, I would like to turn the call over to Ravi.

Thanks, Dara. Good afternoon, everyone. And thank you for joining us today for our third quarter fiscal year 2024 call. During this quarter, our total revenue increased 13% year over year to $67.9 million. driven by a 20% year-over-year transaction revenue growth and 7% year-over-year subscription revenue growth. More notably, subscription revenue grew 6% sequentially from Q2 to Q3, signaling the reacceleration of that revenue stream. Transaction growth remains strong, driven by improvements to our take rate, as well as continued growth in active devices and average transaction size. Our average revenue per unit increased from $167.52 in Q3 23 to $186 in Q3 24. We've been able to grow ARPU by providing solutions that increase our customers' ability to sell higher ticket items and increase transaction volumes per device and the progress we are making to improve attach rates for our software services. We expect to continue this momentum with new products that we recently launched, like Seed Pick Easy and Seed Analytics, many of which are independent of the sale of equipment. We continue to make progress on expanding our growth margins. Total growth margin for the quarter was 39.6% compared to 37.9% in the same quarter last year. The increase in gross margin was driven by higher margins for both subscription and transaction revenue. Adjusted EBITDA for Q3 was $10.2 million, reflecting continued success with our strategy of expanding operating leverage by driving recurring revenue growth while also optimizing cost of goods sold and controlling operational expenses. I wanted to comment on the trends we've seen in the last three quarters as it relates to the three levers we outlined to expand operating leverage. Number one, transaction revenue growth and margins have overperformed versus our expectations. Number two, subscription revenue growth has underperformed while margins have overperformed. And thirdly, operating expense control has been on target. We remain on track to deliver on the 70% TAGR target for adjusted EBITDA from fiscal year 23 through fiscal year 26, which we outlined at our investor day in December 2022. With activation timelines stabilizing and international pipeline conversion beginning to pick up in earnest, we see subscription revenue re-accelerating in the near term as evidenced by the sequential growth in this quarter. As we look to fiscal year 25, we now believe subscription revenue growth will be north of 15% versus the 20% we've discussed previously, and combined subscription and transaction revenue growth will be north of 18%. We'll share more specific guidance for fiscal year 25, on our Q4 call. While it's taken longer than anticipated, we are starting to see real traction in both EMEA and Latin American expansion. We recently signed a strategic partnership with one of the largest operators in Mexico. This collaboration is currently deploying close to 4,000 devices under our Canal of One program. This partnership marks a major milestone in our Latin America market expansion. In Europe, we have now sold over 1,500 devices across 30 plus customers, the devices being deployed in the UK, Ireland, and Portugal. We are entering Q4 with a robust pipeline in all these markets. Turning to the quarter, we had several exciting new wins, which will continue to drive subscription and transaction revenues. We are accelerating growth in micro-markets and the penetration of seed software with both existing and new customers. Notably, our micro-market business experienced strong year-over-year growth in Q3. Our customers continue to go all-in with Cantaloupe and take advantage of our state-of-the-art micro-market solutions. Dependable vending is an example of a customer who is in the process of converting competitor kiosks onto the Cantaloupe Go platform. This is an existing seed customer who saw the advantages to leveraging Cantaloupe as a single partner to support their growing micromarket business and drive increased savings to their bottom line. We're also seeing customers that leverage Cantaloupe today for seed or micromarkets, converting competitor card readers onto our platform and consolidating their needs with one reliable partner to service their entire business. To this end, Pepsi MidAmerica, an existing seed customer, secured a large number of engaged combo devices, replacing competitor devices. We also onboarded many new customers in the quarter, including AYSV, who went all in with Cantaloupe, signing up for SeedPro, Office, Markets, Delivery, and PickEasy. We also recently partnered with monumental markets and innovative operator in Washington, DC, Virginia, and Maryland to implement our seed markets platform across 500 plus micro market and pantry locations, streamlining operations and enhancing the guest experience for consumers. Craig Kushner, the president of monumental markets stated with seed markets, you literally hit a button and it's done. What once required days of manual work is now accomplished effortlessly, allowing us to reallocate resources towards growth and service excellence. Having everything on one system allows us to move away from static scheduling to dynamic scheduling, which significantly enhances our service levels and drives productivity. Another area of growth is through our channel diversification with both partners and resellers. We recently signed on a new reseller in Canada, AU Natural, who placed their first large order for engaged devices and will serve as a provider to the smaller and mid-sized operators in the Canada market, and be able to provide fast and cost-effective shipping directly within that country. We continue to see strong growth with our BEP, or Blind Enterprise Program partners, with significant micro-market sales in Q3 across multiple state BEP programs. We also recently announced a strategic partnership with Innovative Display Works, or IDW, to become a preferred OEM to manufacture our revolutionary cooler cafe for IDW's customers across the country. This collaboration not only expands the availability of the Cantaloupe Smart Lock Connect technology, but also leverages IDW as a strategic channel partner for our cooler cafe solution. Our next area for focus is innovation with new products and enhancements. I just returned from a week in Dallas where the NAMA show has been taking place. There has been a lot of buzz around our booth where we've been showcasing all our solutions, including the new check point of sale platform and our latest micro market innovations like the new modern kiosk designs and smart coolers leveraging both AI and age verification technology. Our PICeasy integration with Seed software is also now available and is capturing customer interest with signups underway to empower our operators to digitize their warehouse operations. Seed Intelligence is now commercially available as a new add-on facilitating cross systems reporting by integrating data from SEED Pro to derive actionable insights. The adoption of SEED Analytics is also ramping up as operators use this tool to leverage data to grow their business with improved decision making and enhanced productivity. Our acquisition of CHECK and the integration is also going very well. During the quarter, we signed few additional minor league baseball stadiums and are seeing a strong pipeline develop in this exciting sports and entertainment market. As we engage more with customers in these segments, we are receiving very positive feedback. Nick Desrosiers, managing partner at Liberty Sports Group and F&B operator at Mercy One Field said, We are constantly seeking out the best new technology for our venue partners. Our collaboration with Czech significantly upgrades our tech stack, and we are thrilled to work together in delivering amazing fan experiences for all to enjoy. Jason Wright, NFL's Washington Commander, team president, and an existing Czech customer said, we saw significant improvement in key food and beverage metrics, including a reduction in wait times, and an increase in average ticket size, the ordering process was seamless. Guests of all ages were able to order their favorite food with just a few taps. As I touched upon earlier, we are continuing to expand our footprint internationally with thousands of connections across Latin America and Europe now. In addition to the large partnership in Mexico that I mentioned earlier, we recently held our first Cantaloupe Innovation Day in Mexico, with AMS, our Mexican reseller partner, and Exene, a local distributor. We now have secured several agreements with vending operators such as ER Vending, Abril Vending, and Citybox Vending in that geography. In Europe, we continue to make progress in scaling from pilots to full implementation. Notable new customers include Venmar Key, Premier Vending, and Carbon Neutral Vendings. This momentum has continued into Q4. We also continue to see customers placing and purchasing and placing micro markets and smart fridges, including new wins with county local vending, the vending people, new vending, JW vending, and connect vending. We've previously discussed our efforts to expand into adjacent verticals and have recently accelerated our services and cashless acceptance for the amusement sector. We secured Mendota Valley Amusements as a premium reseller to their bar, restaurant, and family fund center partners across the United States. They came on board as a customer in Q3, securing devices for their own local Minneapolis-based regional location, and have now gone all in, buying a significant number of devices to take our solutions to all of their partners across the country. NEM, National Entertainment Network, also continues to expand their footprint with us, adding cashless payments to their fleet of amusement and gaming locations. Beyond all these growth initiatives, we also remain focused on continued optimization of cost of goods sold. As mentioned earlier, we've made significant progress in expanding growth margins through the optimization of COGS, especially in transaction processing and equipment. Equipment margin improved sequentially from 2% last quarter to 7% in Q3, and transaction margin also improved sequentially from 21% to 23%. Lastly, discipline in managing operational expenses remains a priority. In the third quarter, while OPEX was approximately 6 million higher year over year due to a number of one-time items that Scott will discuss, Without these items, OPEX as a percentage of revenue would have been flat to last year in spite of investments in our international expansion. To wrap up, I wanted to highlight our 2024 Micropayment Trends Report, which analyzes payment transaction data from a sample of more than 600,000 cantaloupe card readers on vending machines. Our findings show significant rise in cashless and touchless payments, along with the growth of micro markets in the convenience services industry, revealing a 36% increase in the number of installed micro market locations in 2023. These strong secular tailwinds validate the long-term opportunity of Cantaloupe and will continue to drive our business for years to come. As always, thanks to the entire Cantaloupe team for their hard work in Q3. And with that, Scott will now review our Q3 results in more detail, as well as our updated outlook for fiscal year 24. Scott?