Cantaloupe, Inc.

Hello and thank you for standing by. Welcome to the Cantaloupe First Quarter Fiscal Year 2025 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 this session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1, 1 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Meghna Mehra. You may begin.

Thank you. Good afternoon, everyone. Welcome to the Camp Loop First Quarter Earnings Conference Calls. 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 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 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 Cantaloupe's operating results. These non-GAAP financial measures are supplemental to and not 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 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. And with that, I would like to turn the call over to Ravi.

Thank you. Good afternoon, everyone, and thank you for joining us today for our FY25 Q1 call. I'll first start with a high level of our Q1 performance, and then I'll talk about our fiscal year 25 strategic priorities before turning it over to Scott to dive deeper into the numbers and our outlook. Q1 financial highlights. During the first quarter, our total revenue increased 13% year-over-year to $70.8 million, driven by 18% year-over-year transaction revenue growth and 12% year-over-year subscription revenue growth. Total adjusted gross margin for the quarter was 40.7% compared to 38.8% in the same quarter last year. Adjusted EBITDA for Q1 was $9 million, a 14% increase compared to prior year. Now onto our Q1 business highlights. Revenue growth was driven by a continued acceleration in growth in micro markets and more customers making the choice to go all in with cantaloupe. Pepe Foods expanded their footprint with us, replacing competitor kiosks with cantaloupe micro markets. We also won new customers who are going all in on seed services, including Unicorn Vending, part of our growing blind enterprise program operator community. In addition, attach rates for our analytics and remote price change add-ons are growing among customers that subscribe to the seed software platform. We successfully completed the integration of SP Software's Vend Manager with Cantaloupe's payment devices to realize our cross-sell strategy following the SP software acquisition. New SP software wins include JW Vending, a Cantaloupe micromarket customer, and now All In with our combined offerings, leveraging VendManager as their VMS solution. Other wins include VendingSense and JJ Fox Vending. We continue to grow in the UK EMEA region adding multiple new customers for cashless payment and micro market services. In addition, a notable win in Q1 was carbon neutral vending, replacing over 450 competitor devices with our cantaloupe card readers. In the LAC region, we are seeing continued momentum in both the enterprise and small business segments and are in the process of scaling our deployments across the region. Micromarkets and smart stores are becoming the go-to solution for residential complexes as they seek to bring convenience and differentiation to their resident offerings, including the Dorsey in Denver. Quote, adding a micromarket to our property allows us to offer an amenity on-site to our residents that bring convenience right at their doorstep. The nearest grocery store is an eight-minute walk from our property, so offering food and beverage as well as at-home products is essential for residents and has proven to be a great tool for us in our renewal strategy in retaining residents with this amazing perk, unquote, said Rafael Ramirez, Lifestyle Director of the Dorsey. Moving on to our sports and entertainment vertical with Cantaloupe's Check platform, Two recent notable wins include the La Crosse Center in Wisconsin, a premier entertainment, concert, and event destination, and the Detroit Opera House in Michigan. We continue to launch innovations across our product lines. In Q1, we launched Suites, a premium suite management system designed to streamline and enhance the hospitality suite experience at stadiums and venues. In September, we announced a significant update to our industry-leading seed vending management software platform. According to James Brown, Senior Director with Canteen Technology, this new look and feel of seed is fantastic. It is much easier to use on mobile devices, which translates to increased efficiency for our field teams. Kudos to Cantaloupe for this upgrade. Lastly, one of our latest innovations to come to market and prove to be an early disruptor is Cantaloupe's Smart Stores. Expanding self-service commerce to completely new locations, we've seen early success with customers like Yakima Healthy Vending, who serves breakout rooms, schools, hospitals, and gyms. With Smart Stores, theft is virtually non-existent. It's a game changer for the industry. The setup was incredibly straightforward, and we were up and running faster than anticipated. Younger customers are drawn to the tech-savvy nature of our smart stores. It's not just about snacks, it's about the experience, said co-founder Stacey Davick. They are expanding their footprint and have already ordered additional smart stores. Now turning to our fiscal year 25 strategic priorities. As covered in our last call, in FY25, We are focused on scaling our international footprint and continued improvement in operational efficiencies across the organization. I'm pleased to start the fiscal year strong with this quarter, and I'm excited for 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 Q1 results in more detail, as well as our outlook for FY25.

Scott? Thanks, Robbie. As Robbie mentioned, we had a strong start to the year. Q1 revenue is up 13% to $70.8 million, compared to Q1 24. Our combined transaction subscription revenue grew 15.7% to $63.8 million during the quarter. This includes $20.2 million of subscription revenue, a year-over-year increase of 12%, and $43.6 million of transaction revenue, an increase of 18% compared to Q124. The overall increase in transaction revenue was driven by growth in active devices and higher average ticket sizes. Subscription revenue growth was largely driven by the increase in active devices and strength in our micro-markets. As of September 30, 2024, we had over 32,000 active customers and 1.23 million active devices, an increase of 9% and 3.2% respectively compared to the prior year. The average revenue per unit, or ARPU, for Q125 was $198, up 11% from the prior year period. As a reminder, this is defined as our total subscription and transaction fees for the trailing 12 months divided by the average total active devices for the same period. Our equipment revenue was $7 million, a decrease of 6.7% compared to Q1 FY24. Total adjusted gross margin for the quarter was 40.7% compared to 38.8% in the same quarter last year. Subscription and transaction revenue adjusted gross margin was 44%, compared to 42.5% in the prior year. This increase was driven by continued growth in the gross take rate for transaction processing and an increase in our average ticket size. Adjusted gross margin on equipment revenue for Q1 FY25 declined slightly to 11.4% from 12.2% in the prior year. Total operating expenses in Q1 FY25 increased to $24.7 million compared to 21.6 million in Q1 FY24, driven by our continued expansion into international markets and non-recurring expenses related to our change in auditor and transaction costs for the SP software acquisition. Net income applicable to common shares for the first quarter was 3.3 million, or 4 cents diluted earnings per share, compared to net income of 1.7 million, or two sensitivity earnings per share in the prior year period. Adjusted EBITDA was $9 million for the first quarter, compared to $7.8 million in the prior year period, an increase of 14%. We ended the first quarter with cash-in-cash equivalents of $33 million, down from our ending FY24 balance of $59 million. The decrease in cash is largely due to the cash paid for the SPSOP acquisition and cash used in operating activities. The cash used in operating activities is largely driven by the timing of payments made to our customers for transaction processing. This will normalize next quarter and we anticipate cash from operating activities to grow throughout the rest of the year in line with the guidance we provided. Now turning to our fiscal year 25 guidance. Based on what we see today, we are reiterating our guidance for the fiscal year. Total revenue to be between $308 million and $322 million. representing growth of 15% to 20%. Transactions subscription revenue growth could also be in the range of 15% to 20%. We expect total US GAAP net income to be between $22 million and $32 million. Adjusted EBITDA to be between $44 million and $52 million. Total operating cash flow is expected to be between $24 million and $32 million. With that, we'd now like to turn the call back over to the operator for our Q&A session. Operator?

Thank you. As a reminder, to ask a question, you will need to press star one, one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. We will take our first question and the question comes from the line of Josh Nichols from B Riley. Please go ahead. Your line is open.

Yeah, thanks for taking my question and good to see the company off to a strong start for the first quarter. The gross margin profile for the subscription and transaction fee business came in better than what we had expected. Good to see the higher take rates and the average ticket size going up. I'm just curious, going forward, do you think that the level that you achieved in the first quarter is likely to sustain or increase a little bit or thinking about the profile for the next three quarters?

Hey, Josh. Sure, thanks for the question. Yes, we do anticipate that trend to continue. We did do a great job in increasing our overall take rate. We've seen that increase over the past four quarters. I do expect that to kind of tap out probably this quarter, maybe next quarter. But the overall margin on the transaction processing we feel will continue to improve throughout the year. largely due to the fact of our average ticket size, because a portion of the processing fees are fixed. As that ticket size gets bigger, it will help improve our margins. So we do see it increasing slightly as we go throughout the year.

I appreciate the context there. And looking at the international markets, I know you touched on that before in Latin America, you talked about how you had secured one key tier one customer. I'm just curious if there's any updates on how deployment in the early stages is going with that customer. And also, you kind of mentioned about potentially securing some other large awards there. Is that still the expectation overall?

Yeah, Josh, thanks for that question as well. No, we continue to be bullish about both the Europe and Latin America expansion initiatives and are continuing to work to scale those. Specifically in Latin America, you are correct. I've been deploying with a large customer and we actually have taken a very cautious and thoughtful approach to measure results and generate some metrics in terms of improved same store sales, operational efficiencies, et cetera, from those deployments, almost throttling it a little bit as we scale those deployments so that we are building on rock and not on sand in those new markets.

Thanks. And then last question for me. Looking at the guidance, a relatively wide range for EBITDA net income guidance, I would assume that kind of narrows a little bit as we move through the year. But if you could kind of just go over some of the puts and takes, how you're thinking about what would get you to the low end versus the high end of that range and how things are looking as we stand today.

Sure. So overall, revenue growth is a big driver of that, and the increased margins is also a driver of that as well. When you're speaking specifically to net income, tax expense is also going to be a portion of that as well. So as we've improved our profitability over the past year or two, now we have to start thinking about taxes and including that in with our forecast, which is a good problem to have. So tax will also be the other big component of it. And then when you look at OpEx, we'll be holding that fairly steady. But to see the first quarter, we expect that to slightly stay steady or even slightly decrease a little bit as we go through the next three quarters. So those will probably be the big drivers.

Appreciate it. Thanks, guys. Thank you.

Thank you. We will take our next question. Your next question comes from the line of Mark Feldman from William Bear. Please go ahead. Your line is open.

Hey, guys. Thanks for taking the question. And I appreciate the ARPU disclosure over the past few quarters, but wanted to see if you could provide any updated thoughts on where that could go. Back at your investor day in 22, you talked about a $337 opportunity with the ARPU, and that could go over to $400. But you've added a lot of products since then, so just updated thoughts around that.

Sure, Mark. What we provided during our investor day two years ago was if someone was to buy every service that we offered for one device, what would that ARPU look like? And that was at the $375. We've continued to add on new products. And so, you know, this quarter we've seen a 12% growth in the ARPU. We expect that to continue throughout that growth rate to continue throughout the rest of this year. Some of the drivers of that is the average ticket price getting higher. That's also pushing up the overall ARPU. And then as we start selling more of the seed analytics and as cantaloupe one becomes a larger portion of our revenue, that's also going to help drive that ARPU up.

Great. Now that's very helpful. And then if I could just ask on the international part of the business here. So about a year ago, the target was to exit fiscal 24 at a 5%, 5% of revenues coming from international. And obviously there's been some delays there. And I know Robbie just talked about a little bit of a throttling in the Latin America region, but is there any updated, you know, thoughts around where international revenues could get for the year?

Yeah, we're still tracking to the long-term trajectory that we outlined. While in the short, you know, the throttling that I mentioned is more a short-term kind of, you know, sort of the pace on the scaling. But in terms of long-term contribution to revenue, percentage of revenue, et cetera, you know, we are still on a fairly strong footing. In fact, the first quarter was, you know, exciting in terms of new customer ads and new connection ads, et cetera.

Great. Thanks for taking the questions.

Thank you. We will take our next question. Your next question comes from the line of Gary Prestopino from Barrington. Please go ahead. Your line is open.

Scott, Ravi, how are you?

Very good, Gary. How are you?

No, just fine. It's been a great earnings season. Just a couple of questions here. In the smart store space, what are the applications that you're winning in that space in terms of, I guess I'm just trying to have, how are these products, where would they be utilized? I guess I'm trying to get a handle on that.

Yes, I've got one word for you, shrink. You know, it's also known more in layman's terms as retail theft. So what's happened is because of retail theft going out of control, we've seen a tremendous demand for solutions that can prevent it, right? While simultaneously taking friction out of the buying experience. So we've seen these smart stores going to fitness centers, going to corporate break rooms, going to universities, going to hospitals, but in a variety of locations where because of the nature of how it's locked by default, there's no stealing possible. And it actually requires the tap of a credit card before it unlocks. And then there is AI and smart technology that detects exactly what products are taken by a consumer and they are charged for it. So we've deployed it in multiple locations where if they had a shrink rate or a theft rate of, gosh, sometimes even double digits, and it goes down to almost nothing after it's deployed. So that's the major use case right now.

And you are producing that equipment as well as doing the connectivity and processing the transactions?

Yeah, it's an end-to-end solution that we sell. Now, we obviously work with partners for different components and things like that, like we do for the rest of our solutions.

Okay. And then just at this point, as you look across the company, I mean, you are trying to drive higher ticket prices and all that. If you take your number of transactions divided by your transaction volume, it looks like it's like about $2.80. But as we go forward, I guess the question I would get is right now the mix is still really skewed towards the lower dollar transactions. As you go forward, Where do you think that number goes as you start adding the micro markets and some of these smart applications?

Yeah, I think it's going to continue to grow up and go up and to the right. And there are a couple of reasons for it. One, if you take the food and beverage sector, which has been, I would say, a very large portion, disproportionately large portion of our business, we are going from potato chips to cop salads. That's That's how I chairman like to phrase it. And, you know, needless to say, Cobb salads are more expensive. And so whether it's micro markets or smart stores, you're seeing you're seeing a trend towards healthier food, and fresh food and more custom and more gourmet food that comes out of commissaries instead of, you know, regular kind of manufacturing, right. So that's one vector. The other vector is, we're selling a lot of non food and beverage items, whether it's gear like water bottles, cosmetics, pharmaceuticals, electronics. There are all kinds of things that are now being sold through our smart stores or even vending machines that are atypical from a historical perspective. And all of those are more expensive items and they are driving higher ticket prices. And then of course, just micro markets by nature of how they are deployed also drive higher ticket prices. Scott, anything I forgot there in terms of what's driving that?

No, Robbie, I think you covered it. Overall, Gary, when you look over the past year, you've seen that we've been growing that average ticket price at about 10% year over year, and we do expect that to continue for the rest of the year.

Can you maybe give us some idea of the total number of transactions just in this quarter? What percentage of them would be going to more of these higher ticket items, just so we can get an idea of where the company is and then maybe make some assumptions of where it can go?

That's not anything that's disclosed before. And... Yeah.

Yeah, I think we'd like to give some thought to how to draw that line because, you know, it's not just apples and oranges. It's apples, oranges, and bananas and things now. So we have to create a logical line between here is what used to be and here are all the new things because it's not as simple. There are more than two categories there. But I think it's good feedback. We'll do some thinking around it and come back with some data points to share.

Yeah, I appreciate it because that's really another key thing here with driving the transaction and revenue and the fees is getting a higher ticket price item being bought across the enterprise, right?

For sure. Thank you. Gary, I think that's something that's going to constantly change as we go over the next two, three, even four years. I think that product mix is going to continue shifting and hopefully continue with the higher priced items. Okay. Thanks, guys.

Thank you. Once again, if you wish to ask a question, please press star 1 1 on your telephone.

We will take our next question.

And the question comes from the line of Mike Latimer from Northland, Northland Capital. Please go ahead. Your line is open.

Hi, this is Aditya on behalf of Mike Latimore. Could you give some color on the new verticals such as the residential apartments and what kind of bookings, you know, the percentage of bookings can we expect from new verticals?

I'll take a pass at it and then Scott maybe can add some more color. It's very early to talk about percentages of revenue. What I can tell you is that the residential apartments segment which was non-existent a couple of years ago has really started to become relevant so we are seeing micro markets especially and now also smart stores get deployed in the lobby areas of high-end residential complexes and that's a that's a whole new vertical for us we're also seeing them get deployed in fitness centers and car dealerships which are again newer verticals for micro markets and smart stores. So I would say exciting green shoots, but not at a level where we can start talking about how much they're contributing to revenue as a percentage, etc. But Scott, go ahead and add any other color there.

No, Ravi, that's exactly right. I mean, the use case scenario for the smart stores, I think, is limitless. And it's still very early stages and very new for us as well. So I think it'll be a little while before we can provide any metrics around that.

Got it. And could you give some color on the growth that we can expect on the active devices? Should we continue to expect low to mid single digit growth?

Yes, that's right. Throughout the rest of this year, that's what we're anticipating in the low to mid range single digits.

Yeah, and honestly, you know, while while we've continued that metric, I think we have advised our investors to sort of not lay as much emphasis on that metric as a one dimensional predictor of the growth of this business. Because remember, you know, when it was just telemeters or card readers on vending machines, it was very easy to measure everything based on connections. Now, you know, the micro-market active device does 10 times the business of, let's say, a more legacy use case, and the smart stores are maybe even twice that. So they're all, again, it's not homogenous in terms of how our active devices are. So while we continue to report it so that we can provide continuity, we have been de-emphasizing it internally as well as with investors, and we'll continue to do so.

got it got it fine thank you thank you this concludes the question and answer session this concludes today's conference call thank you for participating you may now disconnect