Cantaloupe Inc (CTLP) 2025 Q2 法說會逐字稿

Hello, Thank you for standing by. Welcome to the Cantaloupe second quarter, fiscal year 2025 conference call.

(Operator Instructions)

I would now like to turn the conference over to your speaker for today, Magna Mera. You may now begin.

Thank you. Good afternoon, everyone. Welcome to the Cantaloupe second 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 market 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 please 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, Magna. Good afternoon, everyone and thank you for joining us today for our second quarter, fiscal year 2025 call. I'll first start with a high-level view of our Q2 performance. I'll then talk about our fiscal year '25 2nd half priorities before turning it over to Scott 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 $73.7 million. Driven by 17% year over year transaction revenue growth and 14% year over year subscription revenue growth.

Total adjusted growth margin for the quarter was 41.7% compared to 37.2% in the same quarter last year. adjusted EBITDA for Q2 was $10.7 million. 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 gain momentum with customers going all in with us.

An example is premier food service 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 vending who placed an order for several micro markets including interestingly, some kiosks to replace a full-service restaurant at a furniture store located in the Southwest region.

This supports our hypothesis that kiosk based markets and 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 see cashless payment solutions such as automated retail and amusement. For example, entertainment Solutions group 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 to be placed at Lowe's distribution centres on Blue Rhino propane self-service machines.

On the indirect channel side, we work with ABS to secure a large win Q2 for our latest engaged pulse units.

That 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 engaged 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, and 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 debuted 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 Ven manager, a premier enterprise software solution that serves the UK and Ireland market.

We secured refresh collective as a new and manager customer and successfully implemented them onto that platform. In addition, we secured multiple smart store and cashless devices across a variety of UK customers. In Mexico we secured a win with one of our large vending customers deploying micro markets for them.

Our focus in Q2 was to deploy and maximize transactions from connections sold previously. And we've executed very well on this objective growing the transaction volumes across our cashless deployments in that region.

Moving on to the product side, we launched and deployed new models for our innovative smart store series, the catalogue Smart Store 600 and 700.

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 labour shortages, theft and shrinkage while maintaining a seamless and inclusive consumer experience.

The solution takes us into self-service commerce opportunities well beyond our traditional market niche, a perfect example of how we are leveraging the solution to extend into retailers is with our partners at GALLS which is a parent company of US, Patriot, Josh Sandos, Vice President of military operations at GALLS stated the Smart Store 700 Duo has been a game changer for us exceeding all expectations.

We can stock a diverse range of retail products and reduce our labour costs while maintaining high standard of security. We're also able to create additional brand awareness with customized marketing raps 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, notepads, socks, and more. Because of its success we plan to expand smart stores across all our US patriot locations.

Within the first few months of launching this product, we sold several 100 smart stores, the additional expanded store configurations where clients placed a trial or quad solutions 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 that serve in particular our S&B customers. We launched our micro lending services under the brand of Camelo Capital in partnership with Fund box.

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 CatLog 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 plant $100 million trees around the world. The campaign ran across a variety of cantaloupe card readers and micro market kiosks delivering over a million impressions. Within the first 10 weeks.

Our fiscal year '25 2nd half priorities will be to continue expanding operation support internationally specifically in Europe and Latin America to allow more rapid scaling. We will also continue to refine our good 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 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 '25. Scott.

Thanks Ravi, as Ravi mentioned, we delivered another strong quarter. Our Q2 25 revenue was $73.7 million up 13% compared to Q2 24. Our combined transaction subscription revenue grew 16% to $65.4 million during the quarter.

This includes $20.7 million of subscription revenue a year-over-year increase of 14% and $44.4 million of transaction revenue. An increase of 17% compared to Q2 24. 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 December 31, 2024, we had over 32,000 active customers and $1.3 million active devices. An increase of 10% and 4% respectively compared to the prior year. The average revenue per unit for RPO for Q2 25 was $202 up 12% 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 $8.6 million. A decrease of 7% compared to Q2 FY 24. 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 routing.

Gross margin non-equipment revenue for Q2 FY 25 increased to 9.1% from 1.8% in the prior year. Total operating expenses in Q2 FY 25 increased to $24.5 million compared to $20.7 million in Q2 FY24.

This increase is largely due to expenses incurred by the companies we acquired in the past 12 months check and SB soft. Net income applicable to common shares for the quarter was $5 million for $0.07 to lose earnings per share compared to net income of $3.1 million or $0.04 to lose earnings per share in the prior period.

Adjusted EBITDA was $10.7 million in the second quarter compared to $8.5 million in the prior year period. An increase of 26%. We ended the second quarter with cash and cash equivalents of $27.7 million.

As we mentioned in our previous call, the decrease in our cash balance compared to our year ending balance as of June 30, 2024, is due to the timing of payments made to our customers for transaction processing.

It's normalized in Q2 25, and we had a slight growth in our operating cash balance for the quarter. We anticipate cash from operating activities to 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 a $40 million term loan, a $30 million revolving credit facility and a $30 million delayed draw term loan for a total of $100 million.

The growth and profitability we have experienced over the past several years has allowed us to secure the facility with very competitive rates. This strengthens our balance sheet and provides flexibility for future uses of capital.

The proceeds from the $40 million term loan were used to repay borrowings under our previous term loan and revolving credit facility to date. The company is not borrowed against the new revolving credit facility or the delayed draw term loan.

Now turning to our fiscal year 2025 guidance, as we said on our last earnings call and based on what we see today, we are reaffirming the following.

Total revenue to be between $308 and $322 million representing growth of 15% to 20%. We expect transaction subscription revenue to 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.

And total operating cash flow is expected to be between $24 million and $32 million. With that, we would now like to turn the call back over to the operator for the Q&A session. Operator.

Thank you.

(Operator Instructions)

The first question that we have today will be coming from the line of Chris Kennedy.

Will you play?

Good afternoon. Good afternoon. Thanks for taking the question and appreciate all the new detail in the supplement. Can you just talk about the average revenue per unit and how that's evolved? And I it's going 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 talk about the evolution of your business. Please?

Yes, sure. Chris, happy to do so. And thanks for the question. So overall, we have seen a lot more growth related to the transaction processing. It is due to the fact that we are processing that our average ticket size has gone up significantly over the past couple of years.

When we laid out at Investor Day back in December of 2022 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, 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 RC Analytics.

Because when you add to that, we've also had, a sales strategies be very intentional about what are the 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, part of it has been to make sure we're 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 of what your business mix is, US versus international? Thanks for taking the questions.

Yeah, we continue to track well on the on the international side, but in the case of Latin America, in particular, we did a little bit of you know, 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 where again the mode of expanding the footprint and in both Latin America and we've also had some nice wins in the last quarter in micro markets as well, which as you know, has been you know, 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'll accelerate further as we execute on our second half priorities. But as of now, we're tracking to kind of the same mix, which is, it's under 5%.

Got it. Thank you.

Thank you one moment for the next question.

And our next question will be coming from the line of Gary Cristino of Barrington. Your line is open.

Hi. Good afternoon, Ravi 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, it's for equipment or whatever. Are you holding that paper or do you sell that to your partner that I couldn't write the name down there? Could you explain how this works?

Yeah, we don't hold any of the paper and we don't even, you know, underwrite the loans, the way this is done is through, as you rightly pointed out through a partner. The nuance there is we're able to offer, in our customers who are really used to coming to see 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, and from a partner that they trust, which is us.

So it's, 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, you know, their knowledge of our brand and reputation.

Okay. We were you finding that times some of your smaller clients to maybe as you're going more upstream on the, on the equipment side, they were capital constrained and this would help them to grow their business.

You hit that, 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 road map 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 yeah, 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? You're not on the hook for anything. Then I just want to make sure I'm, I'm clear on that.

That, that is correct.

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

So, we've got a, as you've seen healthy growth in both components of our recurring revenue, the transaction payment processing as well as 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, as I mentioned earlier, when we go from potato chips to cobb salads, then the location becomes more valuable and what we earn from that location becomes more valuable. The similar factors apply to the transaction payment processing because again, as we deploy smart stores and more marketplaces, the revenue that's generated on transactions per location is significantly higher and that, that makes keeps improving.

The arpu keeps improving. So that's a, that's a growth driver in itself. We are also seeing now particularly with smart store that the location types that we addressed historically, which were corporate break rooms. You know, in some cases, certain other locations have drastically expanded.

Now we are in universities, we're in hospitals, we're in car dealerships, we are in assisted living centres, we're in all kinds of new locations which is exciting to me and bodes really well for the future of Camelo.

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.

Alright, great. Yeah, thanks a lot, a 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, thanks for the question. So, we feel absolutely is a sustainable level. We continue to see increases especially as it releases to the transaction growth margin. When you look at what makes that up, we've seen over the past 18 months, an increase in our take rate. It's when you look at sequentially, it's pretty even with where it was last quarter.

I think we've kind of tapped out on increase in 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 bit higher because there is a fixed fee component to our pricing. That'll also help increase the margins.

Very good. Okay, excellent.

And then on the subscription growth, the subscription growth rate improved a little bit. This quarter sounds like micro markets is a good driver of that. You know, 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?

Yeah, so we did see good acceleration in it this quarter. Last quarter, we're at 11.5% 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 guy that we provided.

Right? So, we can throughout the year, and I guess just maybe similar but transaction dollar volume growth I think was 15.5% that also improved in the first quarter. Is that tied to micro markets as well?

Micro markets and smart stores. That's correct mostly. And we've got our operators are really pushing to sell more fresh food. 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 in 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 headphones and electronics and cosmetics and pharmaceuticals, et cetera out of smarter newer generation vending machines.

And that also contributes to higher ticket sizes and higher transaction values as well as volumes.

You go makes sense. Thank you.

Thank you.

(Operator Instructions)

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 the micro lending 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 one?

Thanks George. That's a really good question and clarification. These are aimed at very different use cases. So kind of one is primarily aimed at somebody using 100% of our solution and finding a way to scale that without, sort of 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 customers can use that to fund working capital, they can use that to fund new equipment purchases. And so, they can, they can use it for several things that go beyond just our cashless payment devices, our micro markets, et cetera. And so, in that sense, it's a, it's a

broader canvas if you will.

I understand. Okay, that's very helpful. And 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. You know, it's a, it's a, it's a rare scenario of a product where you know, the demand is far ahead of where we anticipated. And so, we're, 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 the real driver is it solves for sorry; the real driver is it solves for theft. You know, the challenge historically with vending machines has been that they've been perceived as old, especially the coil based vending machines. 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 break rooms. 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, what is the economic benefit to you from that? How, how do you charge for that?

Yeah, so we charge on a, the, there, there are two or three different models. So, there are marketplaces where we can list quote unquote our screens and there, it's, you know, the formulas are based on per impression, it's highly automated and, and a fairly standard business model and we share, you know, 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 their eye on it. And so, it's ultimately boils down to impressions.

But those are the broad, two models. There's a marketplace-based model and there's a custom, we go sell the publisher of the advertising on it model. In both cases, we use this as a way to increase the revenue our customers derive from their existing platform.

Got you. Perfect. Okay. Thanks guys.

Thank you.

Thank you one moment for the next question.

And our next question will be coming from the line of Josh Nichols of B, Riley. Your line is open.

Yeah, 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 colour. I know you reaffirmed the guidance, but 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? What's kind of the delta between those two if you could elaborate a little bit, please?

Yeah, 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. So, it's not a $250 point of sale device, it's a $12 to $15,000 smart store.

And as those ramp up, we're expecting the equipment revenue to ramp up in the back half of the year, especially as we get to the fourth quarter. But with that in mind, still keeping the transaction and subscription revenue growing somewhere between 15% to 20%.

I got it. That, that makes sense. And then you've continually come up above expectations in terms of the profitability. When you look at like the even the trend over the last few quarters, it's been up significantly. I know you reaffirmed 44 to 52.

But given the margin profile that you 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 even the guidance for the remainder of the year, given the profitability profile, which has improved pretty significantly over the last few quarters.

Yeah, and as we've gone through the year, we're, we're tracking right to the midpoint of our guidance and that's what we're expecting towards the end of the year as well. So, we have seen the increase in the margins that could be a benefit to us as we get to the end of the year. But everything that we see right now, we're, we're still going towards the midpoint of the guidance appreciate it. Thank you.

Thank you. This does conclude the Q&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 catalogue, 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 and Telematic Solutions. We appreciate the engagement and interest of our investors and with that, we conclude this call. Thank you.

Thank you so much for joining today's conference call. You may all disconnect.